Country Reports
2020
March 5, 2020
Australia: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Australia
Description: This 2019 Article IV Consultation with Australia discusses that a continued gradual economic recovery is expected, subject to downside risks. Growth should continue to recover in 2020, but it will take time for the economy to return to potential and restore inflation to within the target range. Despite sound macroeconomic fundamentals and policy management, growth remains below potential and inflation is slightly below its target range. Growth is projected to recover gradually in the near term, supported by monetary policy easing, tax cuts, and the recovery of housing markets. Nonetheless, inflation is forecast to remain slightly below the target range until 2021 due to persistent economic slack. Downside risks, including a renewed escalation of the China–US tensions and weaker private consumption, remain elevated and have increased recently due to the widespread bushfires and the coronavirus outbreak. On the upside, looser financial conditions could re-accelerate asset-price inflation, boosting private consumption but also adding to medium-term vulnerabilities.
March 5, 2020
Eastern Caribbean Currency Union: 2019 Discussion on Common Policies of Member Countries-Press Release; Staff Report; and Statement by the Executive Director for the Eastern Caribbean Currency Union
Description: This paper presents IMF’s 2019 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union (ECCU). ECCU’s gross domestic product (GDP) growth accelerated from 3/4 percent in 2017 to 3 3/4 percent in 2018, reflecting buoyancy in the tourism sector, sizable Citizenship-by-Investment (CBI) inflows, and a recovery from the 2017 hurricanes in Anguilla and Dominica, which were supported by large public investments in reconstruction. Fiscal deficits increased in 2018–2019, but they have remained moderate. Efforts are needed to streamline, and re-balance tax incentives based on clear principles consistent with international best practices. External imbalances are sizable and significant financial sector vulnerabilities affect both banks and non-banks. Growth is projected to gradually moderate toward its long-term average of 2 1/4 percent as the cyclical momentum normalizes and CBI inflows ease. These trends would also contribute to wider fiscal deficits, ending the downward drift in public debt dynamics. The outlook is clouded by downside risks, including a possible intensification of natural disasters and financial sector weaknesses.
March 5, 2020
Eastern Caribbean Currency Union: Selected Issues
Description: This Selected Issues paper focuses on the need and importance of fiscal integration for the Eastern Caribbean Currency Union (ECCU). The continued success of the currency union can be solidified by greater fiscal policy integration. Against the growing intensity of external shocks, country-level fiscal policies remain as the most important policy lever. Regional fiscal policy coordination could usefully supplement national policies in dealing with adverse shocks. Such coordination can potentially create fiscal and policy space along several dimensions. Internationally, fiscal integration takes many forms, depending on the interconnectedness of member economies and their willingness to give up fiscal autonomy. The analysis shows there is scope for tangibly improving tax incentives and rebalancing them toward those that are more effective, while using higher revenues to attract investment also through better infrastructure. Regional coordination could significantly support and accelerate those processes.
March 2, 2020
Austria: Publication of Financial Sector Assessment Program Documentation-Technical Note on Insurance Sector—Regulation, Supervision, Recovery, and Resolution Regime Prospects
Description: This review provides an update on the Austrian insurance sector and an analysis of certain key aspects of the regulatory and supervisory regime. The note analyzes regulation and supervision in relation to key issues identified in previous Financial Sector Assessment Programs (FSAP), as well as material changes since the last FSAP. This note also covers the current situation and potential changes in the crisis management and early intervention framework of the insurance sector. It focuses on issues relevant to a long-standing policyholder protection mechanism, early intervention powers—existing and under discussion—and crisis management and resolution arrangements for insurance companies and groups. The analysis recommends that proper implementation of Solvency II needs ongoing validation and scrutiny by regulators, which could be at risk if supervisory resources with skills and expertise are not retained. Higher legal, reputational, and conduct risks are posing additional pressures to the life insurance sector. Market conduct supervision should be enhanced, with active use of enforcement powers in addition to the insights that studies launched by the government will provide.
March 2, 2020
Austria: Publication of Financial Sector Assessment Program Documentation-Technical Note on Macroprudential Policy Framework and Tools
Description: This technical note assesses strengths and weaknesses of the macroprudential policy framework in Austria and provides policy recommendations. Financial sector resilience in Austria has improved significantly since the global financial crisis, and the macroprudential policy framework has been formalized. The institutional framework is appropriate for conducting macroprudential policy effectively, but it could be strengthened in some areas. However, some structural vulnerabilities to financial stability remain and cyclical risks are on the rise. Banks’ low efficiency and the resulting low profitability of domestic operations continues to be a key concern, especially given the fact that the Central Europe and South Eastern Europe region accounts for over 40 percent of Austrian banks' consolidated profits. The framework contains a clear mandate, well-defined objectives, and provides enough powers to the Financial Market Stability Board. Broad-based vulnerabilities remain contained but build-up of risks in the real estate sector warrants further action. The framework for addressing structural vulnerabilities is sophisticated, however, further improvements could be considered.
March 2, 2020
Austria: Publication of Financial Sector Assessment Program Documentation-Technical Note on Financial Stability Analysis, Stress Testing, and Interconnectedness
Description: This technical note on Austria presents the Financial Stability analysis, stress testing, and interconnectedness. Austria’s banking sector presents unique structural vulnerabilities. Private credit growth has supported the cyclical boom without jeopardizing household and corporate indebtedness. Profits of Austrian subsidiaries in Central, Eastern, and South-eastern Europe have increased recently; however, the cycle is turning and the ability of the sector to maintain a solid net interest margin may be further challenged. The Austrian authorities have targeted vulnerabilities related to interconnectedness by imposing Other Systemically Important Institution buffers also at the unconsolidated level. Institutional cooperation arrangements are shown to act as a shock absorber for idiosyncratic shocks, but holdings among participating members of respective IPSs may lead to substantial inward stability risks in a systemic event. Under favorable economic conditions inverse ownership contributes strongly to their capital generation by allowing partial redistribution of profits higher tier banks in the Raiffeisen sector earn on their more profitable international business.
March 2, 2020
Austria: Publication of Financial Sector Assessment Program Documentation-Technical Note on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
Description: This Technical Note sets out the findings and recommendations made in the context of the 2019 Financial Sector Assessment Program for Austria in the areas of Anti-Money Laundering/Combating the Financing of Terrorism. It provides a targeted review of Austria’s progress in addressing the Money Laundering/Terrorism Financing vulnerabilities. Several initiatives, the amendments introduced to the Financial Markets Anti-Money Laundering Act, the Beneficial Owners Register Act, and other sectoral laws have led to significant enhancements of the legal and regulatory framework which resulted in a number of upgrades on technical compliance ratings by the Financial Action Task Force in the context of the two follow-up reports. The authorities took steps to transpose the Fourth and the Fifth Anti-Money Laundering Directives into national legislation. Steps have been taken to improve the legal and regulatory framework that applies to lawyers, notaries and tax advisors, and other Designated Non-Financial Business and Professions, but there is room for enhancing implementation. The authorities have recently adopted a comprehensive set of reforms to enhance entity transparency, including through the establishment of a Register of Beneficial Ownership.
March 2, 2020
Austria: Publication of Financial Sector Assessment Program Documentation-Technical Note on Bank Resolution and Crisis Management
Description: This technical note on Austria focuses on bank resolution and crisis management. This note assesses and makes recommendations regarding bank resolution and crisis management arrangements. The scope of the assessment includes the institutional arrangements for recovery, resolution, and crisis management; the supervision of banks’ recovery plans; the legal regime for bank bankruptcy and resolution; resolution planning by the authorities and addressing impediments to resolution; assuring funding to support resolution; the two deposit guarantee schemes; and the government authorities’ collective preparedness to deal with financial crisis. Recovery and resolution planning are well advanced. Key impediments to resolution have been identified and are being addressed, yet adequate means to ensure enough funding in resolution remains to be determined. The legal framework is sound, although additional flexibility could be provided in the bankruptcy regime. The authorities’ collective contingency planning for financial crisis and testing of plans should be intensified.
March 2, 2020
Austria: Publication of Financial Sector Assessment Program Documentation-Technical Note on Banking Oversight
Description: This paper on Austria includes a targeted review of banking regulation and supervision, with a focus on topics related to the supervision of less significant institutions. The national transposition and implementation of EU directives and regulations has significantly closed some of the gaps identified in 2013. Oversight of bank loan portfolios was strengthened by guidance from the European Central Bank and European Banking Authority (EBA) concerning nonperforming loans and forborne exposures, and by EU regulation. As noted in the previous Basel Core Principles assessment, the Austrian Banking Act (BWG) and regulations do not establish an adequate framework for monitoring and addressing transactions with related parties; and the BWG does not require ex-ante approval for acquiring qualifying holdings in undertakings outside the financial sector. Although the BWG amendments strengthened the duties and responsibilities of credit institutions’ supervisory boards, operationally the role may be made more robust by increasing interaction between the supervisory board and banking supervisors.
March 2, 2020
Republic of Madagascar: Selected Issues
Description: This Selected Issues paper analyses tax revenue mobilization potential in Madagascar and lessons learned from successful episodes in sub-Saharan African (SSA) countries. The analysis shows that there is a significant tax potential including through a possible broadening of the tax base, notably for consumption taxation; and underscores the importance of a comprehensive revenue strategy, including by combining reforms in tax policy and in tax and customs administrations. Significant progress has been made in terms of organization, simplification of procedures, management, and dialogue with the taxpayers. Communication between the two tax administrations could be improved. The tax administrations should notify each other if a case of fraud. Also, the domestic tax administration should have access to customs import/export data: many importers are active and make customs declarations without being identified by the domestic tax administration. Given the weaknesses in the provision of public services, social dialogue and consultation are important to explain the rationality of the tax system and the use of the tax revenue by the State.