The climate-fiscal timebomb: Sweden

Fiscal outlook

Sweden recorded a 1.6% deficit and a debt-to-GDP ratio of 34% in 2024.

Deficit measures the level of borrowing in a given year. Debt-to-GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

Extreme weather events are becoming more frequent and are expected to intensify in the coming decades. Examples include the devastating Hurricane Gudrun in 2005, the unprecedented drought and wildfires in 2018, and the extreme precipitation near Gävle in 2021. Summers are becoming hotter, too. The 2025 heatwave, which lasted several weeks, contributed to a large number of forest fires, overheating and overcrowding in hospitals, and the spread of toxic algal blooms. The effects of the heatwave on reindeer also threaten the livelihoods of indigenous Sámi communities. The country is further put under strain by coastal erosion, increased flooding, and storm surges: 131 out of 290 municipalities are located in coastal and river areas and over 82% of the population is living in coastal regions. Yet, while coastal municipalities alone require SEK1.33bn (€124m) annually to adapt to climate change, the 2024 budget for climate adaptation was only around SEK200m (€18.7m).

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Sweden’s GDP declining by 9% by 2050 and 12% by 2070 under current policies. Our modelling shows the following:

• Under current policies (BAU – business as usual), Sweden’s debt is projected to be 31 pps higher than the climate-agnostic baseline in 2050 and 107 pps higher in 2070.

• With early EU mitigation and sufficient adaptation spending, debt is 12 pps higher in 2050 and 5 pps higher in 2070.

• Delayed EU investments and insufficient adaptation results in higher debt levels of 30 pps in 2050 and 42 pps in 2070.

• EU early action combined with global cooperation results in 5 pps lower debt levels than the climate-agnostic baseline in 2050 and 30 pps lower levels in 2070.

• Progressive taxation, such as a wealth tax, combined with EU early action would reduce debt by 15 pps in 2050 and by 52 pps in 2070 compared to the climate-agnostic baseline.

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