Country Reports
2024
June 18, 2024
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Banking Supervision
Description: This paper presents a technical note on banking supervision in The Netherlands. Supervision of less significant institutions is effective in the Netherlands. The Financial Sector Assessment Program encourages De Nederlandsche Bank (DNB) to maintain its proactive and creative approach, and proposes some extensions to solidify this practice. DNB and the Autoriteit Financiële Markten should also continue the rigorous practice in IO Mortgage supervision, while further emphasizing the quality of inputs for risk managements of banks, in particular, updated clients’ disposable incomes and collaterals’ values, and motivating banks to improve risk controls and the data aggregation process. Going forward, supervision must reflect a changing market landscape and rapid deployment of new technologies.
June 18, 2024
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Climate Risk Analysis
Description: This paper presents a technical note on climate risk analysis in The Netherlands. The Netherlands is exposed to both physical and transition risks from climate change. This Financial Sector Assessment Program FSAP analyzed potential risks to financial stability posed by physical risks from floods and transition risks from nitrogen. In order to assess physical climate risks, bank stress tests were conducted against flood events under a range of scenarios encompassing diverse regions, climate conditions, and flood protection reinforcement plans with different return periods. Despite the sizeable land area in the Netherlands susceptible to flooding, the physical climate stress test has demonstrated that the banking sector exhibits resilience to flood events. As the government’s efforts to reduce nitrogen depositions continue, the banking sector could face transition risks through the credit channel, particularly if loans are extended to financially vulnerable firms in high nitrogen-emitting sectors. The Dutch government should strengthen data sharing and collaboration with floods and climate experts. Flood scenarios designed with detailed flood maps under future climate conditions would provide a more accurate assessment of both climate change impact and adaptation measures.
June 17, 2024
Argentina: Eighth Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of Performance Criteria, Waivers of Nonobservance of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Argentina
Description: Decisive implementation of the stabilization plan—centered on a strong fiscal anchor with no new monetary financing, and relative price corrections—has led to twin fiscal and external surpluses, a marked turnaround in reserves, faster-than-expected disinflation, a bolstering of the BCRA’s balance sheet and a reduction in sovereign spreads to multi-year lows. Selected easing of FX restrictions and deregulatory efforts are improving resource allocation. Nevertheless, macroeconomic imbalances and growth bottlenecks remain sizable and a long and difficult adjustment process still lies ahead, where policies need to evolve to build on earlier gains and support a turnaround in activity. Efforts are also underway to build political and societal support for reforms, as well as to scale up social assistance to protect the most vulnerable and ensure the burden of the adjustment does not fall disproportionally on working families. That said, delays in securing key legislation in Congress have led to some market volatility.
June 17, 2024
Republic of Armenia: Third Review under the Stand-by Arrangement and Request for Modifications of Performance Criterion and Monetary Policy Consultation Clause-Press Release; Staff Report
Description: This paper discusses Republic of Armenia’s Third Review under the Stand-By Arrangement (SBA) and Request for Modifications of Performance Criterion and Monetary Policy Consultation Clause. On the back of high domestic and external demand, gross domestic product growth remained strong by historical standards at 8.7 percent in 2023 and is expected to moderate to a more sustainable level of around 6 percent in 2024. The SBA, which the Armenian authorities are treating as precautionary, aims to support the government’s policy and reform agenda to preserve economic and financial stability and support strong, inclusive, and sustainable growth. Fiscal policy should strike a balance between preserving macro-fiscal stability and accommodating rising spending pressures. Careful spending prioritization and decisive tax policy and revenue administration efforts will be needed to create fiscal space, including for social integration, security spending, further infrastructure development, and a healthcare overhaul. Structural reforms should focus on strengthening revenue mobilization, fiscal risk and public investment management, the Central Bank of Armenia’s supervisory framework, the employment and social assistance programs, export diversification, enhancing governance, and reducing corruption vulnerabilities.
June 14, 2024
Costa Rica: Sixth Review Under the Extended Arrangement Under the Extended Fund Facility, Third Review Under the Resilience and Sustainability Facility Arrangement, and Monetary Policy Consultation Clause
Description: This paper presents Costa Rica’s Sixth Review under the Extended Arrangement under the Extended Fund Facility, Third Review under the Resilience and Sustainability Facility Arrangement, and Monetary Policy Consultation Clause. The authorities continue to make important progress on Costa Rica’s economic reform agenda. Going forward, the authorities should focus on institutionalizing the impressive progress over the past three years and sustaining reform momentum. The supervisory authorities should continue to enhance their toolkits to strengthen financial sector resilience. A recently submitted bill to amend the bank resolution and deposit insurance law would help strengthen the crisis management framework and the financial safety net and should be approved quickly. Keeping the momentum of structural reforms is critical to achieving greener and more inclusive growth. The new social assistance single window is increasing the quality of social spending. It is critical for the public employment bill to be fully implemented by all affected institutions.
June 13, 2024
Bulgaria: Selected Issues
Description: This Selected Issues paper focuses on the Bulgarian pension system. The paper provides an overview of the pension system and describes measures taken in the last decade to increase its financial sustainability. It highlights how the measures taken during and after the Coronavirus disease 2019 (COVID-19) pandemic structurally affect the financial sustainability of the pension system. The paper also shows that the recent measures compound the long-term pressure related to an aging population. It also details policies that could contain the projected increase in pension spending. During the COVID-19 pandemic, the Bulgarian authorities increased pensions substantially to support pensioners’ living standards and aggregate demand. These increases have become permanent and improved the adequacy of pensions. However, not matched by revenue measures, they have widened the deficit of the pension system. Reforms that increase the incentives to contribute to the pension system and thus revenue would improve the financial sustainability of the pension system and reduce fiscal risks.
June 13, 2024
Bulgaria: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bulgaria
Description: The 2024 Article IV Consultation highlights that the Bulgarian economy has shown resilience through a succession of shocks and is achieving a soft landing. Growth slowed in 2023 to 1.8 percent driven by a decline in private investment due to uncertainty and by the unwinding of the inventory buildup of 2021–2022. Growth is expected to rebound this year thanks to the recovery in demand from key trading partners, which will spur exports and private investment, while public investment is to be supported by EU funds. Despite sustained wage and pension growth and inflationary pressures from an expansionary 2024 budget, inflation is projected to continue declining owing to the projected continued fall in global food and energy prices, but it has remained higher than in many European peers. Deep structural reforms are needed to foster higher and more inclusive growth. Addressing declining potential growth and slow income convergence requires containing the decline in the labor force, more investment, higher productivity, greater competitiveness, and further integration into global and regional value chains.
June 13, 2024
Sri Lanka: 2024 Article IV Consultation and Second Review Under the Extended Fund Facility, Request for Modification of Performance Criterion, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Sri Lanka
Description: This paper presents Sri Lanka’s 2024 Article IV Consultation and Second Review under the Extended Fund Facility, Request for Modification of Performance Criterion, and Financing Assurances Review. Performance under the program has been strong. All quantitative targets for end-December 2023 were met, except the indicative target on social spending. Most structural benchmarks due by end-April 2024 were either met or implemented with delay. Nevertheless, the economy is still vulnerable and the path to debt sustainability remains knife-edged. Sustaining the reform momentum and efforts to restructure debt are critical to put the economy on a path toward lasting recovery and debt sustainability. The Article IV Consultation focused on wide-ranging reforms to restore macroeconomic stability and debt sustainability, maintain price stability, safeguard financial stability, rebuild external buffers, and implement growth-oriented structural reforms, including by strengthening governance. The authorities need to press ahead with their efforts to address structural challenges to unlock long-term potential.
June 13, 2024
Sri Lanka: Selected Issues
Description: This Selected Issues paper aims at quantifying the economic benefits of comprehensive governance reforms through model simulations, supported by selected case studies in Sri Lanka. The paper provides an overview of the corruption vulnerabilities and governance weaknesses in Sri Lanka. Following the discussion of a theoretical framework that illustrates the channels through which governance reforms generate economic gains, the paper quantitatively simulates the macroeconomic impact of governance reforms using a dynamic general equilibrium model under alternative reform scenarios. A section in the paper complements the simulation with case studies. Support from the highest political level is crucial to ensure durable success of governance reforms. In countries with widespread corruption, many groups may feel that they are benefitting from it.
June 10, 2024
Somalia: Staff Report for the First Review Under the Extended Credit Facility Arrangement, and Requests for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Somalia
Description: This paper presents Somalia’s First Review under the Extended Credit Facility Arrangement, and Requests for Modification of Performance Criteria. Real GDP growth is expected to rise to 3.7 percent in 2024 compared to 2.8 percent in 2023, supported by continued recovery in agriculture, greater remittances, and higher investment. Somalia has continued to advance its reform agenda and program performance has been strong. Policy priorities are to maintain fiscal sustainability, strengthen revenues and public financial management, promote financial deepening, improve governance, and enhance statistics. Ongoing reforms to strengthen central bank institutional capacity are commendable. Careful formulation of the monetary and exchange rate policy frameworks is important in the context of the planned currency reform. Measures to bolster inclusive growth and strengthen resilience are important. The authorities are focused on building capacity in the petroleum sector and implementing its legal framework. Addressing food insecurity, building climate resilience, and enhancing trade integration are central to ensuring Somalia’s long-term development.