STOCKHOLM Sweden will make across-the-board spending cuts and raise borrowing to cope with as many as 190,000 refugees fleeing war in countries such as Syria and Iraq this year, the government said on Thursday.
The Migration Agency more than doubled its forecast for asylum seekers and said it needed an extra 70 billion Swedish crowns ($8.41 billion) over the coming two years.
Finance Minister Magdalena Andersson said asylum costs were unsustainable in the longer term and called on other European countries to do more to share the burden.
"Clearly, the budget shortfall is going to be bigger this year than in our most recent forecast," Andersson told reporters. "It is going to take longer for us to get back to balanced public finances. It is also going to mean that we are going to need to borrow money."
Swedish 10-year government bonds yields hit five-week highs SE10YT=TWEB.
The government had set aside around 40 billion crowns - or 4 percent of its overall budget - for asylum and integration in 2016, but its figures were based on the Migration Agency's previous forecast of 74,000 asylum seekers this year.
Andersson said planned savings would include reducing the cost of sick leave and making the asylum system more cost-effective as well as other measures.
Some money will also be redirected from Sweden's foreign aid budget. Spending on health, schools and jobs will be ring-fenced, Andersson said. Sweden will also speed up the expulsion of around 6,000 people whose asylum applications were rejected.
Sweden's AAA credit rating will be unaffected by the extra borrowing, said Jesper Hansson, chief economist at the National Institute for Economic Research.
The country's public finances are among the most solid in Europe and government debt, at around 36 percent of GDP, is among the lowest.
The fiscal stimulus could also help the Riksbank push up consumer prices, which have been flat or falling for much of the last three years.
"It will speed up recovery in the economy," Hansson said.
In the September budget, the government forecast it would run a deficit of 36 billion crowns this year with finances returning to balance in 2018.
Violence in Syria, Iraq, Afghanistan and parts of Africa has seen a wave of refugees seek shelter in Europe. Thousands have drowned trying to cross the Mediterranean in rickety boats. The burden to take them in has at the same time fallen heavily on just a few countries.
Germany reckons it could take in 800,000 to 1 million asylum seekers this year.
Sweden's generous asylum rules - Syrians, for example, are given automatic permanent residency - have led a record 100,000 to seek refuge in the Nordic country so far in 2015. Nearly 10,000 arrived in the past week, straining the country's ability to house the newcomers.
"We have seen pictures of people who are literally walking from Greece across the Balkans to Germany and on to Sweden," Anders Danielsson, head of the Migration Agency, told reporters. "Last night all the our places were full."
The Agency estimated that it would face a shortage of accommodation for 25,000 to 45,000 asylum seekers by the end of the year. Tens of thousands may spend the cold Swedish winter in heated tents.
The Migration Agency, which has often been forced to increase its estimates for refugee arrivals, gave a range of 140,000 to 190,000 asylum seekers for this year. Of those, 33,000 were expected to be unaccompanied children.
The previous record for a single year was during the war in the Balkans in the early 1990s, when Sweden took in around 84,000.
The Agency said it expected the flow to ease next year, but numbers could still reach as high as 170,000.
Polls show most Swedes still welcome refugees, but the influx has caused tensions.
A number of on asylum centers were attacked in the past week and the anti-immigrant Sweden Democrats party is set to begin an advertising campaign in foreign media aiming to warn off asylum seekers.
The Sweden Democrats, the country's third-largest party, called on Prime Minister Stefan Lofven to resign and for a referendum on immigration after the release of the Migration Agency figures.
"The Swedish people have to have their say on this issue," the party's parliamentary group leader, Mattias Karlsson, said at a news conference.
Polls give the party around 20 percent of the vote, up from 13 percent in the election in autumn 2014.
The government and the main center-right opposition parties are locked in negotiations on a broad agreement for dealing with the record numbers expected this year. The Sweden Democrats are not part of the discussions.
($1 = 8.3249 Swedish crowns)
(Additional reporting by Johan Sennero and Simon Johnson; Writing by Simon Johnson; Editing by Niklas Pollard and Alistair Scrutton, Larry King)