Country Reports
2024
June 27, 2024
Panama: Selected Issues
Description: This Selected Issues paper discusses unravelling Panama’s large unemployment fluctuations. Panama’s labor force and employment have increased remarkably over the last decades. The rapid labor force growth was driven by a combination of demographic and social transformations. The increase in the labor force participation rate was the result of rising female labor force participation. Panama’s income convergence in the 25 years preceding the Pandemic was in large part the result of an increase in the employment to population rate. Convergence can either result from an increase in the employment rate relative to that in the US, or from faster labor productivity growth. In the case of Panama, about three quarters of the reduction in the income differential with the US was driven by an increase in the employment to population rate, and only one quarter was the result of faster labor productivity growth. Going forward, the increase in the employment to population ratio is likely to be slower and, for income convergence to continue, productivity growth will need to accelerate. The demographic transition has largely run its course as population growth is projected to keep declining and the share of the working-age population is expected to decrease in the next decades.
June 26, 2024
Zambia: Third Review Under the Arrangement Under the Extended Credit Facility, Requests for Augmentation of Access, Modifications of the Monetary Policy Consultation Clause and of Quantitative Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Zambia
Description: This paper discusses Zambia’s Third Review under the Arrangement under the Extended Credit Facility, Requests for Augmentation of Access, Modifications of the Monetary Policy Consultation Clause and of Quantitative Performance Criteria, and Financing Assurances Review. A tight monetary stance until inflation declines toward the Bank of Zambia’s target range would help anchor inflation expectations. Reserve accumulation and sustained exchange rate flexibility remain critical to address external shocks. Financial sector reforms are important to foster financial stability and inclusion. The authorities remain committed to supporting macroeconomic stability, restoring fiscal and debt sustainability, clearing arrears, and addressing Zambia’s drought-related humanitarian needs. They are also focused on advancing structural and governance reforms to promote inclusive growth. Governance and structural reforms remain key to promoting private sector activity and economic diversification. Implementing the Access-to-Information Act, reviewing the Anti-Corruption Act in a timely manner, and enhancing transparency and governance in the energy and mining sectors will help reduce policy uncertainty, improve the business climate, and attract greater investments.
June 25, 2024
United Republic of Tanzania: Third Review Under the Extended Credit Facility Arrangement and Request for Extension of the Extended Credit Facility Arrangement and Rephasing of Access, and Request for an Arrangement Under the Resilience and Sustainability Facility-Press Release; Staff Report; and Statement by the Executive Director for the United Republic of Tanzania
Description: This paper presents United Republic of Tanzania’s Third Review under the Extended Credit Facility Arrangement, Request for Extension of the Extended Credit Facility (ECF) Arrangement and Rephasing of Access, and Request for an Arrangement under the Resilience and Sustainability Facility. The ongoing growth-friendly fiscal consolidation will help buttress fiscal and debt sustainability. Efforts should be geared toward enhancing domestic revenue mobilization and strengthening cash management and commitment controls. Strengthening public financial and investment management will help contain fiscal risks and improve the efficiency of public investment. Performance under Tanzania’s economic reform program supported by the ECF remained strong. The authorities are committed to continue implementing reforms to preserve macro-financial stability, strengthen the economic recovery, and promote sustainable and inclusive growth. Structural reforms are essential to promote inclusive, resilient, and sustainable growth. Business reforms should focus on streamlining bureaucratic procedures, simplifying the regulatory regime, and enhancing regulatory transparency. Implementation and enforcement of the authorities’ anti-corruption legislation and strategies is central to enhancing governance.
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Macroprudential Policy Framework, Tools, and Calibration
Description: This paper discusses a technical note on Macroprudential Policy Framework, Tools, and Calibration for the Luxembourg Financial Sector Assessment Program (FSAP). Strong policy support and high financial buffers are helping the financial sector weather the consecutive shocks, but pre-pandemic vulnerabilities have continued to rise. The authorities have made commendable progress in developing their operational framework in line with the 2017 FSAP recommendations. The 2024 FSAP suggests multiple avenues to reduce the risk of inaction bias and enhance the effectiveness of macroprudential policy. The macroprudential authorities should strengthen communication on macroprudential policy decisions, including in case of inaction, and enhance accessibility to the public. Communication by the systemic risk committee on macroprudential decisions and elements underpinning the decision should be systematic even if no action is taken, and accessibility to the public enhanced. In the short term, macroprudential policy should preserve resilience against real estate vulnerabilities through targeted capital-based measures, and then address structural indebtedness early in the recovery cycle through borrower-based measures.
June 24, 2024
Switzerland: Selected Issues
Description: This Selected Issue Paper studies the relationship between monetary policy, financial conditions, and real activity during the current monetary policy-tightening episode in Switzerland. After a review of various channels through which monetary policy changes affect financial conditions, the paper shows that the transmission of policy rates to market rates has been swift and that the exchange rate is an important channel. The response of real activity to tightening financial conditions has remained broadly in line with past tightening episodes. The interest rate increase has influenced cash flows for households due to higher mortgage interest expenses. Higher interest rates also lead to higher rental cost for non-homeowners. Policy rate adjustments affect the average interest rates of mortgages and thus the mortgage reference interest rate, which is a factor for rent adjustments by Swiss regulation. Monetary tightening has contributed to a slowdown of private credit and house-price growth. Growth of mortgage loans, which represent 85 percent of bank lending, moderated to 2.4 percent in 2023 from 3.5 percent in 2022.
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Stress Testing and Systemic Risk Analysis
Description: This paper focuses on a technical note on Stress Testing and Systemic Risk Analysis for the Luxembourg Financial Sector Assessment Program. The Luxembourg financial system is highly interconnected, diverse and complex. It has displayed a high level of resilience in the past but currently faces a backdrop of heightened economic, financial, and geopolitical uncertainty. The banking, insurance and investment fund sector stress tests were integrated in a number of ways, and included key external and domestic risks. Under the adverse scenario, the banking system would experience a significant decline in the system-wide capital ratio but would still be very well capitalized, thanks to healthy initial positions. The majority of banks would be able to sustain bank runs akin to those experienced in the US and Switzerland in March 2023, but some need attention. Despite resilience taken together, the assessment of banking sector vulnerabilities points to several areas where the authorities could prioritize supervisory attention. The increasing share of alternative investment funds and the higher interlinkages both within the investment fund sector and with the rest of the financial sector call for vigilance.
June 24, 2024
Bangladesh: Second Reviews Under the Extended Credit Facility Arrangement and the Arrangement Under the Extended Fund Facility, and Requests for Rephasing of Access, a Waiver of Nonobservance of a Performance Criterion, and Modifications of a Performance Criterion, and Second Review Under the Resilience and Sustainability Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh
Description: This paper presents Bangladesh’s Second Reviews under the Extended Credit Facility Arrangement and the Arrangement under the Extended Fund Facility, and Requests for Rephasing of Access, A Waiver of Nonobservance of a Performance Criterion, and Modifications of a Performance Criterion, and Second Review under the Resilience and Sustainability Facility Arrangement. Bangladesh’s economy continues to face multiple challenges. Stubbornly high international commodity prices and continued global financial tightening have amplified macroeconomic vulnerabilities. Near-term policies should focus on rebuilding external resilience and bringing down inflation. The authorities’ recent actions to realign the exchange rate and implement the new exchange rate arrangement are welcome. Ongoing reforms to modernize the monetary policy framework and improve policy transmission will foster macroeconomic stability. Building resilience to climate change and natural disasters is a priority for achieving high, inclusive, and green growth. Strengthening institutions and policy coordination, improving climate spending efficiency, and mobilizing climate financing remain crucial. The launch of the Bangladesh Climate and Development Platform in collaboration with development partners is a welcome development.
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Insurance Regulation and Supervision
Description: This technical note analyzes the key aspects of the regulatory and supervisory regime for insurance companies in Luxembourg. The analysis is part of the 2024 Financial Sector Assessment Program (FSAP) and based on the regulatory framework in place and the supervisory practices employed as of October 2023. The FSAP reviewed recent developments and the structure of the Luxembourgish insurance sector. The sector is large, well developed, and highly interconnected with other insurance markets through internationally active insurance groups and cross-border business. After having grown substantially in size, it is recommended to further strengthen the Commissariat aux Assurances’s (CAA) independence and its internal governance. The CAA’s staff has roughly doubled since the last FSAP but should be constantly reviewed with further expanding tasks. The authority’s independence could be further strengthened by safeguarding the independence of its Board members and narrowing down in the Insurance Act the reasons on which the CAA’s Directorate could be dismissed. The governance of the CAA would benefit from setting up an internal audit function, and strengthening IT governance as projects are currently conducted largely in-house.
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Selected Issues in Banking Supervision
Description: This paper presents a technical note on Selected Issues in Banking Supervision for the Luxembourg Financial Sector Assessment Program (FSAP). This review examines specific aspects of the banking supervision regime in Luxembourg focusing on the supervision by the Commission de Surveillance du Secteur Financier (CSSF) of Less Significant Institutions. No material weaknesses were identified in the CSSF’s supervisory processes in the areas of focus of the review—namely, LSI supervision of liquidity, interest rate risk in the banking book, operational risk, and related-party transactions. The financial sector in Luxembourg has continued to grow since the 2017 FSAP and plays key domestic and global roles. Luxembourg, as a founding Member State of the EU, the wider European Economic Area, and the Euro area, has incorporated European directives to regulate financial services. This includes the implementation of International Financial Reporting Standards for prudential reports in compliance with EU rules. Local Generally Accepted Accounting Principles are used for preparing annual statutory accounts, and the CSSF oversees the audit profession, approving statutory auditors and audit firms.
June 24, 2024
Luxembourg: Financial Sector Assessment Program—Technical Note on Investment Funds: Regulation and Supervision
Description: This paper highlights a technical note on Investment Funds: Regulation and Supervision for the Luxembourg Financial Sector Assessment Program (FSAP). Commission de Surveillance du Secteur Financier (CSSF) has a robust supervisory framework with substantive improvements since the last FSAP, but some areas could be further strengthened. Given the structural importance of delegation for Luxembourg domiciled funds, initiating an on-site inspection framework for delegates outside Luxembourg assumes importance. CSSF’s enforcement framework could be substantially improved through enhancements on four key fronts. CSSF could improve the domestic regulatory framework on areas such as winding up, valuation, and approach to indirectly regulated Alternative Investment Funds AIFs. Given Luxembourg’s position as the domicile of EU’s largest IF sector, CSSF should actively continue to promote and contribute to EU level reforms on various topics. With respect to liquidity risks, CSSF should continue to actively contribute to the European Securities and Markets Authority’s (ESMA) guidance on the use of Liquidity Management Tools and to engage closely with ESMA and the EU Commission on the proposed revision of the Eligible Assets Directive.