SWEDEN – Ratings agency Standard & Poor’s says “large and sustained” pension surpluses in the pension system will see the government becoming a net creditor.

“Thanks to large and sustained surpluses in the pension system, the general government will become a net creditor in 2005,” S&P said in a report.

“As in Denmark, the net debt position remains significantly negative, compensated by a creditor position in equity holdings, thanks to advanced pension systems in both countries.”

“Net government debt is near zero thanks to accumulated surpluses in the pensions sector,” it added.

General government debt, which consolidates pension fund holdings of Swedish government paper, is expected to decline to an estimated 52% of gross domestic product at the end of this year – falling to 48% by the end of 2006.

The pension reform that allowed pension funds to place a larger portion of their assets abroad had helped to lower foreign debt, S&P said.

And it said that Swedish pension funds have around 12% foreign currency exposure, “given expectations that the krona will continue to appreciate going forward”. They face a 25%-30% limit on such exposure, it added.

The agency raised Sweden’s long-term foreign-currency Ratings to 'AAA', with a stable outlook. It said the move was prompted by “prudent macroeconomic policies, continued improvement in external liquidity, and declining government debt levels”.

S&P said that sustained general government surpluses are forecast to lower the gross general government debt burden to 50% of gross domestic product by the end of 2005, from 54% at the end of 2002.