Country Reports
2018
December 3, 2018
Montenegro: Technical Assistance Report-Report on External Sector Statistics Mission
Description: To support the compilation of external sector statistics (ESS) in Montenegro, the International Monetary Fund (IMF)’s Statistics Department (STA) conducted a technical assistance (TA) mission during December 4–15, 2017. The mission was requested by the Central Bank of Montenegro (CBM), the main ESS compiling agency, and supported by the IMF’s European Department. STA’s mission for the Enhanced General Data Dissemination System (e-GDDS) during June 28-July 4, 2017 also suggested TA for Montenegro to start compiling international investment position (IIP) and external debt statistics (EDS). The mission focused on assisting the CBM in preparing IIP, EDS, Reserves Data Template (RDT), and addressing persistent net errors and omissions. Compilation of IIP and EDS is required to be qualified for Threshold 2 of the e-GDDS. Montenegro does not participate in the Eurosystem, but it is fully eurorized. Euro circulating in Montenegro should be included in the assets of the IIP for Montenegro, but difficulty in estimating the amount had been preventing the CBM from compiling IIP for several years.
December 3, 2018
Thailand: Technical Assistance Report-Government Finance Statistics
Description: The main purpose of this mission—undertaken with the support of the Government of Japan’s government finance statistics (GFS) project for selected Asian countries—was to improve the quality of the GFS for nonfinancial public corporations (NFPCs) in Thailand by designing a simpler, but more complete, compilation system for the GFS compilers in the Fiscal Policy Office (FPO) of the Ministry of Finance. The mission also discussed some specific general government GFS data compilation issues with the compilers and recommended some actions that would lead to further improvements in data quality as well as consistency with other macroeconomic statistics. In addition, the mission commended the recent momentum gained by the Public Debt Management Office (PDMO) on the reporting of timely, quarterly public sector debt statistics and encouraged them to continue with the regular, quarterly reporting.
November 30, 2018
Malawi: First Review Under the Three-Year Extended Credit Facility Arrangement and Requests for Modification and Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Malawi
Description: Malawi’s economic growth remains moderate, reflecting a weak agricultural harvest and continued electricity shortages. Fiscal deficits continue to be financed domestically, as donor funding remains constrained by governance concerns since the 2013 cashgate scandal, resulting in an increasing public debt burden. Presidential elections are scheduled for mid-2019. Program performance. Most quantitative performance criteria (QPC) were met at end-June 2018, with significant overperformance on international reserves and the reduction in Reserve Bank of Malawi (RBM) holdings of government securities. The QPC on the primary fiscal balance was missed by 0.9 percent of GDP due to expenditure overruns. The continuous QPC on new non-concessional external debt was missed due to a technical oversight in the Technical Memorandum of Understanding. Based on corrective measures, the authorities request waivers of non-observance. Two structural benchmarks were observed and most of the rest have been completed with delay.
November 30, 2018
Rwanda: Tenth Review Under the Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director for Rwanda
Description: This is the tenth and final review of Rwanda’s PSI-program, approved by the Executive Board on December 2, 2013. A concurrent 18-month SCF arrangement was approved on June 8, 2016 to support adjustment policies to eliminate external imbalances. The PSI-supported program was extended three times, on: June 8, 2016; November 19, 2017; and January 12, 2018. When it expires on December 1, 2018, the program will have reached its maximum 5-year limit. Recent Developments. After a dip in 2016–17, real GDP growth has been recovering over the past four quarters. Growth averaged 8.6 percent in the first half of 2018 and, despite a temporary deceleration in Q2, remains in line with projections for 7.2 percent for the year. Growth in the medium term should remain at or higher than historical averages, based on a strong pipeline of tourism and business tourism, new mining operations, more resilient agriculture, new and more diversified exports, and construction of a new airport. Inflation remains low, and expectations within targeted ranges. External balances and reserve buffers continued to improve, while the financial sector remains healthy.
November 30, 2018
Brazil: Financial System Stability Assessment
Description: Since the Brazil 2012 FSAP, the financial system has been stable despite the deep recession. The resiliency of the banking system was supported by high profitability, buoyed by large interest margins. While the financial system has grown since the 2012 FSAP, its structure remains largely unchanged. The system is dominated by large, vertically-integrated financial conglomerates and concentrated in liquid short-term instruments. The public sector continues to play a dominant role in the financial sector, and its interconnectedness. Banks are broadly resilient to severe macrofinancial shocks. Current high profits and capital ratios support the resiliency of banks under a severe stress test scenario. Under the stress scenario, small capital shortfalls result; banks would nevertheless experience reduced income, including from market loss on government bonds, and high credit losses on exposures to the corporate sector which, despite recent improvement, is still vulnerable to shocks. This benign outcome deteriorates if their capital is adjusted for deferred tax assets. Moreover, some banks are exposed to concentration risk. Some actions are still needed to address bank-specific risk profiles to boost their resilience. Banks are generally well-positioned to manage short-term and medium-term liquidity pressures and interbank contagion seems limited.
November 30, 2018
Brazil: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management
Description: Brazil’s financial markets are generally liquid and sophisticated. Brazil is blessed with a wide array of instruments which investors can use to manage and hedge interest rate and FX risks. The infrastructure supporting markets appears sound and is widely attributed by market participants to ensuring the resiliency of Brazil’s markets despite a multitude of significant shocks. A key foundation of the resiliency of Brazil’s markets is the large structural liquidity surplus (around 20 percent of GDP) and Brazil’s substantial FX reserves. Market participants generally have ample cash reserves that provide a key buffer against liquidity shocks. Brazilian investors have a strong preference for high quality short term liquid investments. Brazil’s history of economic instability drives investors towards short term liquid investments of the highest credit quality such as overnight repos and short-term government bonds. Dollarization is low reflecting restrictions on FX investments available within Brazil but hedges against FX risk are widely available and give investors’ confidence to hold Real. Government bonds are the centerpiece of the securities markets.
November 30, 2018
Brazil: Financial Sector Assessment Program-Detailed Assessment of Observance – Basel Core Principles for Effective Banking Supervision
Description: The Central Bank of Brazil (BCB) has shown a determined commitment to enhancing its standards and practices of banking supervision. Changes in the thinking and practices of the BCB’s supervision are not limited to responses to the demands of the international regulatory reform agenda. Overall, the BCB has been guided by the principle of integration, both in terms of the expectations that it places on its own internal operations but on the standards it expects the financial institutions to meet in governing their own risks and activities. One example is the BCB’s innovative and challenging work in the field of contagion analysis at the systemic level which is a perspective it also seeks to embed in its analysis of contagion risk in its prudential work at firm level. Boosting staff levels in conduct supervision, introducing a form of twin peaks, contagion risk analysis, and the prudential conglomerate approach also exemplify welcome developments.
November 30, 2018
Brazil: Financial Sector Assessment Program-Technical Note on Supervision and Oversight of Financial Market Infrastructures
Description: Brazilian FMIs are among the top twenty worldwide. All together there are sixteen financial market infrastructures2 (FMIs) operating in the Brazilian payment system (SPB), out of which nine3 are systemically important and four belong to the top twenty FMIs in the world4. FMIs play an essential role in the Brazilian financial system and are highly relevant in terms of domestic financial stability. In terms of value of transactions, STR (Reserves Transfer System - Sistema de Transferência de Reservas), the Brazilian Real Time Gross Settlement system (RTGS) is the backbone of the SPB, and belongs to the top ten large value payment systems worldwide. SELIC is among the top ten central securities depository/securities settlement systems (CSD/SSSs), CETIP among the top twenty SSSs, and BM&FBOVESPA Clearinghouse, the largest central counterparty (CCP) in Latin America, belongs to the top ten. These infrastructures facilitate the clearing, settlement, and recording of monetary and other financial transactions, such as payments, securities, and derivatives contracts (including derivatives contracts for commodities). Brazilian post-trading services are integrated. The entities providing securities settlement services also provide other post-trade processing, acting both as a clearing house, and a CSD or as a trade repository (TR).
November 30, 2018
Brazil: Financial Sector Assessment Program-Technical Note on Bank Resolution, Financial Sector Safety Nets, Crisis Prevention and Management
Description: Important improvements have been made to the bank resolution, safety net and crisis management framework since the last FSAP. The resolution framework has been strengthened with the creation, within the Banco Central do Brasil (BCB), of a new Resolution Department, and requirements for recovery and resolution planning have been established. The early intervention powers of the BCB are robust and flexible. Notwithstanding this progress, the current framework has limitations that are broadly acknowledged by the authorities. Resolution powers are incomplete and no formal inter-agency arrangements for crisis management are in place. The BCB has taken the lead in preparing a comprehensive draft law (the “Draft Law”) that seeks to introduce a new resolution regime in line with international best practices. This FSAP takes place therefore at a critical juncture. It provides recommendations on the design features of the new resolution regime, examining the existing framework as well as the areas not addressed in the Draft Law.
November 30, 2018
Brazil: Financial Sector Assessment Program-Technical Note on Insurance Sector Regulation and Supervision
Description: The insurance sector has significant potential for expansion and to contribute to economic growth as an important part of the financial sector. While the insurance sector has grown at 10 percent annually over the last 5 years, on average, and remains profitable with high solvency ratios, the insurance penetration and density are lower than other emerging markets. Nevertheless, the insurance industry has the potential to reach to much higher levels of insurance penetration. A few large conglomerate groups—composed of banks, insurers and investments funds—dominate the insurance sector. Conglomerate groups account for more than 75 percent of the market share. Reflecting very conservative regulations imposed by the Banco Central do Brasil (BCB) and the Superintendency of Private Insurance (SUSEP), the interlinkages between banks and insurers are limited. Nevertheless, material contagion may occur through a reputational channel, adversely impacting the profitability of the linked business.