To the extent that it is generated by an expansion in the fiscal deficit, growth is potentially reversible as fiscal deficits and growing public debt cannot be sustained indefinitely. The deficit averaged 4.5% of GDP in the first half of the 1990s, but surged to 8.4% of GDP in the second. Substantial progress to consolidate public finances has recently been made and the deficit has dropped to around 6% from a peak of 11% in 1998. While this fiscal restraint may curb demand growth in the short run, it is restoring the long-run viability of the economy that would be threatened by a growing public debt. Suffice it to say that the cost of servicing this debt has reached levels comparable to expenditures on health and education. In this context the planned use of privatization proceeds to reduce the public debt is commendable. By stimulating aggregate demand, budget deficits also encourage consumption at the expense of saving, thereby leaving fewer resources to finance investment, the only lasting source of long-term growth. Expenditure on foreign goods and services would rise, leading to a deficit on the current account of the balance of payments. The current account deficit averaged 2% of GDP in the first half of the 1990s, worsening to 8% of GDP in the second. Protracted deficits on the external current account are clearly not sustainable in view of their impact on the external reserves and the extent of foreign borrowing. In the long run, this could necessitate drastic reductions in consumption levels or curtailed investment.
Gross fixed investment as a per cent of GDP 30  30  25  25  Gross fixed investment  20  20  15  15  Grossfixed investment, excl residential 10  10  5  5  Källa: SCB 0  0 1950  1955  1960  1965  1970  1975  1980  1985  1990  1995  Savings, Investments (net) and Current account as a per cent of National Disposable Income 1950-96 20  15  10  5  0  -5 1950 D :\ex\d-sv\data\datany  55  1960  65  Nettosparande  (Net savings)  1970  75  N ettoinvesteringar  (Net investment)  1980  BIS Review 20/2000  6  1990  (Current account)  Source: National accounts. Note: From 1986 reinvested capital gains is included. Source: Lennart Berg  85  Bytesbalans  95  Labour productivity growth 5 SWEDEN 4,5 4 3,5  USA USA  3 2,5 SWEDEN  2 USA  1,5  SWEDEN  1 0,5 0 60-74  75-94  7  95-99  BIS Review 20/2000