By Simon Johnson
STOCKHOLM (Reuters) -Sweden will borrow 300 billion crowns ($31 billion) under a plan agreed by the government and opposition on Thursday, securing funding for rearmament and ensuring NATO’s newest member will reach a spending target of 3.5% of GDP on the military by 2032.
Russia’s invasion of Ukraine has forced Sweden to rethink its security doctrine, joining NATO in 2024. Defence spending has already doubled since 2020 to around 2.4% of GDP, but NATO is likely to set a higher target at its Hague summit this month.
Priorities will be expanding the size and capabilities of the army, air defence and increasing stocks of ammunition.
The bulk of the money – 250 billion crowns – will go to the military with 50 billion to be spent on civil defence and infrastructure.
“We are doing this so our children and our grandchildren don’t need to learn Russian,” Finance Minister Elisabeth Svantesson said.
Unlike many European countries, Sweden has strong public finances with government debt of around 32% of GDP against an average of around 90% in the EU.
Funding the increase in defence will push that figure up by around 3 percentage points, Svantesson said.
Sweden will also temporarily suspend strict fiscal rules under the defence funding agreement, but public finances will need to be in balance again in 2035, meaning future governments will either have to raise taxes or find savings in other parts of the budget.
Svantesson ruled out raising taxes and said the money could come from the aid budget and reprioritising other spending.
The biggest opposition party, the Social Democrats have proposed a “preparedness fund”.
“Whatever we have it will need to increase revenues and reduce expenditure,” Mikael Damberg, economic spokesman for the Social Democrats said.
($1 = 9.6910 Swedish crowns)
(Reporting by Anna Ringstrom and Simon Johnson, editing by Terje Solsvik and Niklas Pollard)
