Country Reports
2024
June 10, 2024
Republic of South Sudan: 2023 Article IV Consultation, and First and Second Reviews under the Staff-Monitored Program with Board Involvement-Press Release; Staff Report; and Statement by the Executive Director for Republic of South Sudan
Description: This paper presents Republic of South Sudan’s 2023 Article IV Consultation, and First and Second Reviews under the Staff-Monitored Program with Board Involvement (PMB). South Sudan is significantly impacted by the war in Sudan, especially from a very large and growing number of refugees, and by a sharp decline in oil production and exports since mid-February 2024 due to damages to the oil pipeline. Article IV discussions focused on putting economic reforms on a sustainable footing, boosting domestic revenue mobilization, enhancing social spending, and implementing governance and transparency reforms to reduce corruption. The extension of the PMB provides time to the authorities to implement corrective actions to bring macroeconomic policies back on track and implement governance reforms; building a strong track record is essential for any financial arrangement with the IMF. In order to help address these challenges, as well as the fallout from the damage to the oil pipeline, the authorities have requested a 3-year arrangement under the Extended Credit Facility (ECF). Successful completion of the current PMB would help establish track record toward a potential ECF arrangement in the future.
June 10, 2024
Republic of Fiji: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Fiji
Description: The 2024 Article IV Consultation highlights that Fiji’s economy has recovered strongly from the pandemic. The Fijian economy has recovered strongly from the pandemic. Real gross domestic product (GDP) rebounded by around 30 percent cumulatively in 2022–2023, surpassing pre-pandemic levels. Inflation has recently ticked up modestly largely due to a temporary effect of the hike in Value-Added Tax rates. Supported by the economic recovery, the fiscal deficit and debt-to-GDP ratios continued to decline but remain at elevated levels. The FY2024 (August–July) budget included significant revenue enhancing measures, partially offset by spending increases, which, on balance, are expected to reduce the fiscal deficit and debt ratios. The review recommends to continue rebuild fiscal buffers through a gradual consolidation, improves the targeting of social spending, and prioritize capital spending to support inclusive growth. Additionally, it is imperative to develop and operationalize an ambitious, comprehensive, and prioritized growth strategy to address key impediments to growth and enhance climate resilience.
June 7, 2024
Luxembourg: 2024 Article IV Consultation-Press Release; and Staff Report; and Statement by the Executive Director for Luxembourg
Description: The 2024 Article IV Consultation discusses that Luxembourg’ economy contracted in 2023 despite buoyant consumption, mainly due to weak external demand and residential investment. Inflation is subsiding but underlying measures remain high. Credit growth turned negative as demand dropped and real estate prices declined. The newly elected government has approved a mix of temporary and permanent measures to support purchasing power and housing demand. Gradually easing financial conditions, continuing disinflation and expansionary fiscal policy is expected to help the economy rebound and the financial cycle bottom out. Inflation should decline in 2024, before temporarily increasing in 2025 once administrative price measures expire. The recovery is fragile amid heightened geopolitical tensions. Risks are tilted to the downside, stemming mainly from external demand/supply shocks and a disorderly correction of asset prices, including domestic real estate valuations. Sustained economic growth hinges on raising productivity, which has been stagnant since the Global Financial Crisis. Increasing investment in intangible assets, aligning workers’ skills with the current demands of the economy, reducing administrative burden, and making the wage indexation system more flexible will be key to harnessing productivity gains and bolstering competitiveness.
June 7, 2024
Luxembourg: Selected Issues
Description: This Selected Issues paper explores implications for safeguarding fiscal space in Luxembourg. The analysis discusses the main drivers of revenues and expenditures in recent years. Against the background of rising ageing costs, the analysis discusses the fiscal outlook, accounting for the announced government plans, as well as fiscal risks. Additionally, it offers options for helping to safeguard ample fiscal space, in view of the spending pressures and risks. In order to preserve its ample fiscal buffers, which will support the government’s commitment of keeping Luxembourg’s AAA rating, a more prudent fiscal policy would be advisable. Recent revenue increases should not be taken as given, and additional tax reforms should be done in a budget-neutral manner. The growth of compensation of employees should be limited, social programs better targeted, and their efficiency increased. Early pension reform would also help limit spending pressures. Finally, a national framework could help anchor fiscal policy and maintain a credible commitment to prudent fiscal policies.
June 7, 2024
Luxembourg: Financial Sector Assessment Program-Financial System Stability Assessment
Description: This paper presents Luxembourg’s Financial System Stability Assessment report. The assessment of Luxembourg’s large, interconnected, and complex financial system took place against heightened economic, financial, and geopolitical uncertainty. The authorities have made commendable progress in following up on recommendations from the 2017 Financial Sector Assessment Program (FSAP). The stress tests found the financial system resilient to severe shocks, while identifying a few potentially weak entities. Higher interest rates have benefited banks, despite increasing loan losses among households and real estate companies. Under plausible adverse scenarios, the system can handle significant liquidity shocks, with minimal second-round price impacts. However, the growing connections of other financial intermediaries with investment funds and related data gaps call for greater monitoring. The FSAP recommends strengthening the macroprudential policy framework by reducing the risks of inaction bias and expanding the use of policy measures against rising real-estate vulnerabilities. Banks should use the capital headroom to implement a sectoral systemic risk buffer and prepare for tightened borrower-based measures when the financial cycle turns positive.
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June 6, 2024
Spain: 2024 Article IV Consultation-Press Release; and Staff Report
Description: The Article IV Consultation discusses that with a growth rate of 2.5 percent in 2023 and continued solid activity momentum, the Spanish economy has demonstrated remarkable resilience to elevated global uncertainty and tighter financial conditions. Robust services export performance and public consumption have been the main drivers of recent growth. Spain’s banking system has shown resilience. Strong economic and labor market performance and deleveraging have helped the private sector cushion the impact from rising interest rates, although pockets of vulnerability remain. Growth is projected to reach 2.4 percent in 2024 and 2.1 percent in 2025, driven primarily by stronger domestic demand growth. Private consumption is expected to strengthen as the household saving rate normalizes gradually and real wage income continues to increase steadily. Uncertainty surrounding the outlook has become more balanced, but risks remain tilted to the downside for growth and to the upside for inflation.
June 6, 2024
Spain: Financial System Stability Assessment
Description: This paper presents report on Financial Sector Assessment Program (FSAP) in Spain. The bank-dominated Spanish financial system has shown resilience against shocks and household and nonfinancial corporate sectors have continued to de-lever their balance sheets. Nonbank financial intermediation comprises a smaller share of the financial system. Systemic risk analyses cover the banking, household, nonfinancial corporates, and real-estate sectors. The main risks to financial stability are of an abrupt, significant slowdown in growth alongside a material, further tightening in financial conditions, including higher interest rates and risk premia and downward pressure on real estate valuations. Banks’ ability to cope with asset quality pressures without resorting to deleveraging is inhibited by incumbent solvency buffers that are lower than European peers on a risk-weighted basis. In the near term, deploying policies that ensure that significant banks retain a greater share of profits to further raise capital buffers and be better positioned against downside risks is desirable. Macroprudential and supervisory authorities need to be well resourced to address emerging risks and challenges and close previously identified gaps in the policy framework.
June 6, 2024
Spain: Selected Issues
Description: This Selected Issues paper focuses on dissecting Spain’s soaring tax revenues and their implications for projections. This paper combines an econometric approach based on historical time series with a more detailed analysis of relevant developments for each tax over the post-Coronavirus disease period. The analysis finds that several factors contributed to the 2020–2023 revenue boom, including large employment gains and the so-called fiscal drag, among others. The revenue boom closed almost half of Spain’s revenues-to-gross domestic product gap relative to peer countries—from 7.1 percentage points in 2019 to 4 in 2023. Given the need for sizeable and sustained fiscal consolidation to rebuild fiscal buffers and set debt on a downward trajectory, continued efforts to boost revenues will be needed. In particular, reforms of the tax system in areas not considered in this paper, such as environmental taxation, could raise additional resources while addressing externalities and supporting the green transition.
June 5, 2024
Trinidad and Tobago: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Trinidad and Tobago
Description: The 2024 Article IV Consultation highlights that Trinidad and Tobago is undergoing a gradual and sustained economic recovery. Real Gross Domestic Product (GDP) is estimated to have further expanded by 2.1 percent in 2023, reflecting a strong performance of the nonenergy sector. Economic growth is projected to gain momentum in 2024, supported by the nonenergy and energy sectors, and inflation is projected to remain low. The current account surplus will narrow mainly due to a decline in energy prices and energy exports and is estimated at 5.7 percent of GDP in 2024. International reserve coverage is expected to remain adequate at 7.5 months of prospective total imports. The report recommends sustaining structural reform momentum to secure a more diversified, green, resilient, and inclusive economy. It is important to foster private sector participation and promote economic diversification. Accelerating the country’s low-carbon transition agenda could help address issues raised by border carbon adjustments. Enhancing institutional capacity will improve the quality and timeliness of macroeconomic statistics.
June 5, 2024
Trinidad and Tobago: Selected Issues
Description: This Selected Issues paper aims to provide an overview of potential benefits of adopting a formal fiscal rule for Trinidad and Tobago, along with an overview of the international experience with anchoring fiscal policy in natural resource-rich countries. The authorities have also aimed to manage the swings in energy prices with its Sovereign Wealth Fund. A rules-based fiscal framework consists of several main elements that guide the management of a country's fiscal policy. A strong institutional framework for fiscal policy is key to successfully implement a rule-based fiscal framework. Trinidad and Tobago could gain from further deepening reforms underway to strengthen its fiscal framework before considering the adoption of a fiscal rule. The eventual depletion of oil and gas reserves and lower global demand for fossil fuel due to the transition to a low-carbon environment require accumulating adequate savings for future generations. A well-designed fiscal rule can help address these challenges. Moreover, the effectiveness of fiscal rules would hinge on several factors, including strong fiscal institutions, active and sound macroeconomic forecasting, and analysis, and strong and sustained political commitment to a medium-term fiscal goal.