Country Reports
2024
June 24, 2024
Switzerland: 2024 Article IV Consultation-Press Release; Staff Report; Informational Annex; and Statement by the Executive Director for Switzerland
Description: The 2024 Article IV Consultation discusses that growth is recovering gradually after slowing in 2023 in Switzerland. In order to counter risks of inflation moving to and settling at very low rates, the rate cut ahead of other central banks was appropriate. Going forward, monetary policy should remain responsive to incoming data, while taking into account international monetary policy developments. Banks have strong buffers, but vulnerabilities related to real estate persist. Ample capital buffers should be maintained, the macroprudential toolkit expanded, supply-side actions to stem pressure on the residential housing market advanced and data gaps closed. The authorities should continue to promote labor market and pension reforms to incentivize labor force participation of women, older workers, and immigrants and address labor shortages, skills gaps, and potential fiscal imbalances. The revised CO2 Act clarifies the policy framework for 2025–2030 but is less ambitious than initially proposed and might require acquiring more emissions-reduction credits from internationally. Advancing negotiations with the EU and enhancing cooperation with other key partners would mitigate uncertainty and strengthen resilience against geo-economic fragmentation risks.
June 21, 2024
Republic of Estonia: Selected Issues
Description: This Selected Issues paper explains Estonia’s recent losses of export market shares. Estonia’s export market share has fallen sharply, signalling that exporters have difficulties to keep up with foreign competition. While the immediate cause of this decline can be traced back to an adverse combination of external shocks triggered by the war in Ukraine, signs of faltering export performance surfaced already in the aftermath of the global financial crisis, and thus predate recent shocks. Using a constant share decomposition, this paper shows that, unlike in Latvia and Lithuania, a significant portion of the decline in Estonia’s export share can be attributed to the ‘intensive margin’, i.e., a shrinking share of Estonia’s exports in the main destination markets—a sign of weakening external competitiveness and declining relative productivity. A few high-level policy implications can be drawn. Addressing the erosion of external competitiveness will require structural reforms aimed at enhancing productivity, removing impediment to a structural transformation of the economy toward more technologically intensive and higher value-added products and services, as well as efforts to ensure that real wage growth remains closely aligned with productivity growth. By addressing these underlying challenges, Estonia can restore external competitiveness and ensure continued convergence toward the income levels of EU most advanced economies and Nordic neighbors.
June 21, 2024
Republic of Estonia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Estonia
Description: The 2024 Article IV Consultation with the Republic of Estonia’s highlights that the economy is caught in a prolonged recession. Russia’s war on Ukraine triggered supply side disruptions, shifting up price and cost levels compared to the euro area average and hurting competitiveness. These developments added to longer-standing problems. Led by a rebound of demand in export markets and a broadly supportive policy mix, growth is projected to recover during 2024. Despite the cyclical upswing, however, permanently higher input costs combined with weak productivity growth are expected to leave a scar, weighing adversely on Estonia’s external performance and on potential output. This baseline is uncertain, with risks still skewed to the downside. Greater emphasis should be placed on increasing corporate investment, improving the allocation of labor and capital, enhancing R&D investment and adoption of digital technologies in traditional sectors, while ensuring that real wage growth remains closely aligned with productivity growth. A more ambitious green transition would improve energy security and thereby the long-term sustainability of growth.
June 20, 2024
Bosnia and Herzegovina: Selected Issues
Description: This Selected Issues paper provides an overview of interest rate dynamics in Bosnia and Herzegovina (BiH) in relation to global and euro area trends following the recent cycle of monetary tightening. It analyzes the impact of interest rate dynamics on capital allocation both domestically and externally, with a focus on capital outflows. It concludes that the wider spread between domestic interest rates and euro area short-term rates has been associated with capital outflows of around KM 1.7 billion since the European Central Bank started tightening monetary policy in July 2022, mostly in the form of money market placements in the euro area. It also shows that the compression of local interest rates and the few alternative investment opportunities in a limited market appear to have resulted in households and firms placing most of their funds in short-term deposits, making bank funding less stable than under a longer maturity structure. It notes that this lack of investment opportunities may lead to crowding into the real estate sector, with possible implications for financial stability in the long term.
June 20, 2024
Bosnia and Herzegovina: 2024 Article IV Consultation-Press Release; Staff Report
Description: The 2024 Article IV Consultation with Bosnia and Herzegovina discusses that growth has proven resilient despite the continued fallout from the war in Ukraine. Uncertainty around the outlook is high and downside risks outweigh, including an abrupt slowdown in Europe, increased commodity price volatility, and rising domestic political tensions. On the other hand, progress on the European Union accession path could provide a reform boost, with positive spillovers. Financial sector risks should continue to be closely monitored and crisis preparedness enhanced. Bank asset classifications and loan-loss provisions should accurately reflect credit risks and losses. Temporary measures that aim to contain increases in lending rates should be allowed to lapse this year as scheduled. Transitioning to green energy and preparing for the introduction of EU carbon pricing require immediate action. The authorities should introduce carbon pricing as soon as possible. Reforms to improve governance protect financial integrity, fight corruption, and step up digitalization should be accelerated to boost growth. The oversight, transparency, and operations of public enterprises should be improved, weaknesses in public procurement addressed, and public investment management strengthened.
June 18, 2024
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Securities Regulation and Supervision
Description: This paper describes a technical note on securities regulation and supervision in The Netherlands. Regulation of securities and derivatives markets in the European Union (EU) has changed materially since the last Netherlands Financial Sector Assessment Program (FSAP), with further reforms underway. The securities market landscape in the Netherlands has also changed markedly since the last FSAP, largely in response to Brexit. The Netherlands is now of EU-wide significance in relation to the trading of securities, particularly equities, which has brought challenges for the national authorities. Further enhancements of its approach and a continuing focus on trading system operational resilience are now needed. The established venues are growing and diversifying their offerings, and ‘fintech’ new entrants with business models combining trading and post-trading operations in new ways are on the horizon. Enhancements to the legislative framework are now needed to ensure that the Autoriteit Financiële Markten can continue to supervise efficiently and effectively an expanded and more diverse market, and to engage credibly with international counterparts.
June 18, 2024
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Insurance and Pension Fund Regulation and Supervision
Description: This paper highlights a technical note on insurance and pension fund regulation and supervision in The Netherlands. The Dutch insurance sector is undergoing further consolidation, the life sector has been steadily shrinking over the last two decades, and the non-life market is relatively saturated. Investment exposures to real estate are increasing, and Dutch insurers are large providers of mortgage loans. Solvency ratios of Dutch insurers are well above the regulatory threshold, but below the EU average and furthermore distorted by the mechanics of the ‘Long-Term Guarantee Measures’ in Solvency II. The Dutch pension system—considered to be among the best according to international comparisons—rests on three pillars. Most pension schemes are defined-benefit pensions, which have come under pressure since 2008, when low interest rates resulted in declining funding ratio and led to an overall loss in confidence in the system. The Dutch system for independent state agencies, including De Nederlandsche Bank and Autoriteit Financiële Markten, carefully balances powers and accountability. Supervision of insurers and pension funds is effective in the Netherlands.
June 18, 2024
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Systemic Risk Analysis
Description: This paper presents a technical note on systemic risk analysis in The Netherlands. The banking sector appears resilient to adverse macrofinancial shocks assuming no policy reactions, but some vulnerabilities exist. The insurance solvency stress test evidenced a broad resilience of the Dutch insurance sector, particularly for property & casualty and health insurers, while vulnerabilities exist for some life insurers. The Financial Sector Assessment Program (FSAP) team also carried out an analysis of household and corporate sector resilience, and of the commercial real estate market. Life insurers are broadly resilient to liquidity shocks despite large interest rate swap positions. Assuming a euro interest rate increase of 100 basis points, margin calls are sizable, but the sampled entities apply heterogenous strategies and draw on a variety of different sources for their liquidity, including cash and deposits, uncommitted repo facilities, and the sale of money-market funds. The FSAP recommendations aim to address observed gaps and further strengthen the Netherlands’ systemic risk analysis framework.
June 18, 2024
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Supervision and Disclosure of Climate-Related Risks
Description: This paper presents a technical note on supervision and disclosure of climate-related risks in The Netherlands. Similar to other jurisdictions, the integration of climate-related risks into supervisory processes in the Netherlands faces various challenges. Supervision has been proactive in researching exposures to climate-related risks as well as designing tools to assess how financial institutions identify, monitor and manage these risks. Supervisors have been gradually developing approaches and methodologies to support the supervisory process. Many of these initiatives and projects have been influential in the international debate on climate risk supervision. The authorities need to translate strategic measures into a concrete roadmap to ensure that the process of setting up climate risk supervision is systematic and continues at a sufficiently ambitious pace. Going forward, climate risk supervision must strengthen quantitative tools and data sets. The note provides the main recommendations to enhance the supervision of banking and insurance activities conducted in the Netherlands with a direct bearing on its financial stability.
June 18, 2024
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Macroprudential Policy Framework
Description: This paper presents a technical note on macroprudential policy framework in The Netherlands. The Financial Sector Assessment Program recommendations aim to address observed gaps and further strengthen the Netherlands’ macroprudential policy framework. Macroprudential policy in the Netherlands has centered on the residential real estate market given the importance of this market for households, banks, and insurers. The current institutional arrangement is broadly in line with IMF guidance for effective macroprudential policy. Surveillance and systemic risk assessment rely on comprehensive quantitative information and on various property market models and stress tests. The willingness to act and the ability to act over the calibration of the borrower-based tools are, however, considered weak. The authorities recently increased the differentiation of the transfer tax to improve the position of owner-occupiers relative to that of buy-to-let investors, but the measure should be calibrated cautiously. Supply-side measures remain critical to limit house price pressures and improve access to homeownership.