Swedbank is the Nordic region's most heavily exposed bank in the Baltics.

STOCKHOLM — Swedish Finance Minister Anders Borg said the billions of euros in bad debts accrued by Swedish banks in the Baltic region posed the biggest threat to the country’s economic stability.

His comments came as Sweden’s center-right government on Sunday unveiled a raft of new spending measures as part of its 2010 budget.

“The Baltics are the gravest risk [to the Swedish economic outlook],” Borg told media following the government’s autumn budget bill, which includes 31.85 billion kronor (€3.13 billion) in unfunded spending and some 46 billion kronor of spending in the following two years.

Swedish banks in the troubled Baltic region face massive loan defaults as a result of the worsening economic situation there.

Swedbank, the Nordic region’s most heavily exposed bank to the recession-hit economies of Latvia, Lithuania and Estonia,  recently moved to reassure investors and boost its capital position with a €1.47 billion rights issue and plans to buy back debt.

The bank, which recently reaffirmed its commitment in the region, maintains that while business is still on a downward trend, loan losses for the second half of the year should slow.

Despite heavy losses in the banking sector Borg also said there was a chance that economic recovery could be stronger than currently forecast.

“Recently there have been signs that the Swedish and the global recovery may be faster and stronger than what is assumed in the main scenario,” Borg said in a press release.

The Swedish government has forecast a 5.2 percent contraction in the country’s economy this year before modest growth next year and a more robust 3.1 percent expansion in 2011.