Country Reports
2019
May 15, 2019
Republic of Armenia: Fiscal Transparency Evaluation
Description: This paper presents Fiscal Transparency Evaluation (FTE) for Armenia. This report provides 10 recommendations aimed at further enhancing fiscal transparency in the areas prioritized. Fiscal forecasts and budgets have become more forward looking and policy oriented, with the introduction of a medium-term expenditure framework (MTEF), improved fiscal objectives, and a performance budgeting system. The report presents the assessment of fiscal transparency practices against the IMF’s Fiscal Transparency Code (FTC). Armenia’s fiscal transparency practices have strengths and weaknesses in all areas of FTC: fiscal reporting, fiscal forecasting and budgeting, and fiscal risk disclosure and management. The fiscal transparency evaluation also estimates Armenia’s public sector financial position, in order to provide a more comprehensive view of public finances. Expanding the institutional coverage of Armenia’s fiscal reports to the entire public sector would increase the deficit by 1.3 percent of gross domestic product and would have a material impact on revenue and expenditure.
May 13, 2019
Republic of Korea: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Korea
Description: This 2019 Article IV Consultation discusses Korea’s economy that has strong fundamentals; however, it is facing cyclical and structural headwinds. Potential growth will continue its decline, and polarization and inequality are concerns. Labor and product market duality persist. The government is focusing on supporting income, creating jobs, and promoting innovation. The government has focused on supporting income, creating jobs, and promoting innovation. It has strengthened social safety nets, substantially raised the minimum wage, supported small-and-medium enterprises to boost employment, and expanded public sector jobs. Fiscal policy should remain expansionary in the medium term, focusing on increasing social protection, boosting female labor force participation, and supporting growth enhancing structural reforms. Public sector job creation should be linked to developing services that cannot be provided by the private sector. The minimum wage increase for next year should be set below labor productivity growth. The IMF staff recommend an integrated package of macroeconomic, financial and structural policies to support growth, raise potential output, and reduce excess internal and external imbalances, while preserving financial stability.
May 13, 2019
Republic of Korea: Selected Issues
Description: This Selected Issues paper analyzes monetary policy and financial cycles; the evolution of macroprudential policies in Korea; the efficacy in prudential policies in taming financial excess and building financial resilience and; the interaction between monetary policy and macroprudential policies. Evidence for Korea suggests that financial stability will not necessarily materialize as a natural by-product of a so-called appropriate monetary policy stance. Although the effects of monetary and macroprudential instruments may overlap, they are not perfect substitutes. Macroprudential policies can also impact the banking system by affecting bank funding costs through the net interest margin. In certain circumstances borrower-based prudential measures and monetary policy can complement one another. Macroprudential policies can impact banks profitability. Policymakers should be mindful that macroprudential policy is not free of costs and that there may be trade-offs between the stability and the efficiency of financial systems.
May 10, 2019
Luxembourg: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Luxembourg
Description: This 2019 Article IV Consultation discusses that Luxembourg’s growth prospects remain favorable, but downside risks arise from a weaker-than-expected global growth, a disorderly Brexit, changes in international tax rules, and a sharp tightening of global financial conditions. Domestically, rising real estate prices could exacerbate already elevated household indebtedness and increase affordability challenges. Fiscal policy should aim to maintain a strong fiscal position and preserve buffers. The government’s plans, while appropriate, will result in a slightly expansionary budget in 2019. The cost and timeline of the planned measures over the medium term remain to be determined. Given risks ahead, including from potential changes in international taxation, Luxembourg should build on its strong fiscal record and preserve sizeable buffers. Structural policies should focus on addressing key gaps in the economy. Further reforms of the pension system are needed to ensure its sustainability, while considering intergenerational equity and trade-offs of various reform options.
May 10, 2019
Luxembourg: Selected Issues
Description: This Selected Issues paper studies the fiscal and macroeconomic impact of different reform options. It analyzes the impact of an increase in the contribution rate, a reduction of benefits, and an increase in the retirement age. Although all reform options can lead to the fiscal sustainability of the system, there are important macroeconomic trade-offs among them. Although the Luxembourg’s pension system is sound over the near term, further reforms are needed to ensure its long-term sustainability. This paper explored the fiscal and macroeconomic impact of several reform options: an increase in the contribution rate, a reduction of benefits, and an increase in the retirement age. Although all these reforms would help ensuring fiscal long-term sustainability, there are important macroeconomic trade-offs. Even though an increase in contribution rates can be implemented immediately, it introduces distortions in the labor market which lead to a decline in GDP in addition to a decline in consumption.
May 9, 2019
Republic of Poland: Financial Sector Assessment Program-Technical Note-Macroprudential Policy Framework
Description: This Technical Note on Macroprudential Policy Framework for the Republic of Poland highlights that the present macroprudential policy framework provides a sound basis for macroprudential oversight of the financial system and was established by law in November 2015. Its relatively recent establishment implies that practical experience with the conduct of macroprudential policy under the framework is still limited. Initial experience is favorable, however, it remains to be seen how the framework will function under more challenging circumstances. The Financial Stability Committee—Macroprudential (FSC-M) has recommended a variety of measures to provide incentives for voluntary restructuring of foreign exchange housing loans extended by Polish banks. It is recommended that the FSC-M further strengthens its communication in order to increase transparency and accountability, considers a more active use of targeted statements as a policy instrument, and increases the involvement of external experts in the preparation of its meetings.
May 9, 2019
Republic of Uzbekistan: 2019 Article IV Consultation-Press Release and Staff Report
Description: This 2019 Article IV Consultation highlights that given its bulging working-age population, creating more and better jobs is the country’s overarching priority. Uzbekistan has already implemented a first wave of important economic reforms, including foreign exchange liberalization, tax reform, and a major upgrade in statistics. Faced with a vast structural reform agenda, the authorities want to prioritize reforms that address the economy’s most damaging distortions first. The main short-term macroeconomic stability challenge is to prevent a credit boom that could generate excessive external deficits and aggravate inflation pressures. A tight monetary stance and moderate fiscal deficits need to be maintained to support macroeconomic stability. Credit growth will need to slow significantly to assure the economy’s external and internal balance. The sustainable development goals are anchoring the country’s inclusive growth agenda, especially on education, health, public infrastructure, and financial inclusion. Moreover, the authorities are redesigning labor policies from scratch to help unskilled and other disadvantaged workers find more and better jobs.
May 9, 2019
Republic of Poland: Financial Sector Assessment Program-Technical Note-Insurance Sector Regulation and Supervision
Description: This Technical Note on Insurance Sector Regulation and Supervision provides an update and an assessment of the development of regulation and supervision of the Polish insurance sector since an assessment concluded in 2012. The note focuses on key issues, with reference to international standards but without presenting a detailed assessment of Poland’s observance. The supervision of intermediaries has also been strengthened in line with a 2012 Financial Sector Assessment Program recommendation. The Solvency II changes appear well-embedded, without significant exemptions or transitional arrangements. With limited long-term guarantee business, life insurers have currently no need for the special measures adopted for such business in many EU countries. However, the recent emergence of the first Polish financial conglomerate, which is headed by an insurer, poses supervisory challenges. In respect to the selected other areas of the insurance framework that were reviewed, the findings highlighted strengths in the approach, with some scope for further development.
May 9, 2019
Republic of Poland: Financial Sector Assessment Program-Technical Note-Stress Testing and Systemic Risk Analysis
Description: This Technical Note on Stress Testing and Systemic Risk Analysis for the Republic of Poland discusses that Poland’s financial system is dominated by the banking sector, with significant state participation and foreign ownership. The banking system shows resiliency to adverse shocks in the aggregate, however, some other systemically important institutions (OSIIs) show weakness. While the adverse retail event had a limited impact, the wholesale event affected some large banks in the system. Interbank analyses showed that any destabilization to affiliating banks could cause severe distress to the affiliated cooperative banks. This finding strengthens the reasons for the authorities to address identified weaknesses in the affiliating banks. Moreover, banks large holdings of sovereign bonds and the substantial presence of state-controlled banks cause a significant sovereign-bank nexus in Poland. In order to avoid incentives for banks to hold sovereign debt, the Financial Sector Assessment Program team recommends that the Financial Institution Asset Tax is redesigned on grounds of both financial stability and efficiency.
May 8, 2019
The Gambia: Request for a Staff-Monitored Program; Press Release and Staff Report
Description: This paper discusses The Gambia’s request for a Staff-Monitored Program (SMP). The Gambia is enjoying a strong economic recovery, with good prospects of sustained growth over the medium term. In order to consolidate gains and establish a track record for a possible arrangement under the Extended Credit Facility, the authorities are requesting a new SMP covering 2019. The SMP will help build an adequate track record of performance for a potential Fund-supported program. Enhanced domestic revenue mobilization and expenditure control will help create room for much needed public investment and poverty-reducing social spending. The program’s strategy includes fiscal policy to focus on domestic revenue mobilization, improved treasury management and spending prioritization. A prudent borrowing strategy and strengthened oversight of state-owned enterprises, with the focus on containing contingent liabilities, is expected to contribute to anchoring debt sustainability. Monetary policy will remain active to curb inflation pressures and banking supervision vigilant to foster financial stability.