Country Reports

March 12, 2018

Morocco: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Morocco

Description: This 2017 Article IV Consultation highlights that economic growth in Morocco has picked up in 2017 and is expected to reach 4.4 percent, mostly driven by a significant rebound in agricultural activity while nonagricultural activity remains subdued. The unemployment rate increased to 10.6 percent in Q3:2017 (year-over-year) while youth unemployment remains high at 29.3 percent. Headline inflation (year-over-year) is expected to decline to 0.6 percent in 2017, reflecting lower food prices. Following a marked deterioration in 2016, the current account deficit is projected to improve in 2017 to 3.9 percent of GDP. This primarily reflects Morocco’s global environment, particularly the stronger recovery in Europe, and strong export growth, mostly owing to the good performance of food product and phosphate and derivatives exports.

March 12, 2018

Morocco: Selected Issues

Description: This Selected Issues paper examines the distributional effects of tax reforms in Morocco. Overall, the performance of Morocco’s tax system is satisfactory, but there is scope to strengthen it and make it more equitable and less distortive. Morocco would benefit from a comprehensive and well explained tax reform strategy aiming to reduce inequality and boost growth. For this, a recommended tax reform package should combine several key components, for example, reducing tax exemptions, raising property tax, and lowering corporate tax rates. At the same time, the targeting of social programs should be strengthened. Such a reform approach would protect the most vulnerable and help broaden the tax base, remove tax distortions, and better share the tax burden.

March 12, 2018

Morocco: Third Review Under the Arrangement Under the Precautionary and Liquidity Line (PLL)-Press Release; Staff Report; and Statement by the Executive Director for Morocco

Description: This paper discusses Morocco’s Third Review Under the Arrangement Under the Precautionary and Liquidity Line (PLL). Morocco’s economic fundamentals and policy frameworks are sound, the country is implementing generally sound policies, and remains committed to maintaining such policies in the future. End-September 2017 quantitative indicative targets on the fiscal deficit and international reserves were met. The authorities have not drawn on the arrangement and continue to treat it as precautionary. Morocco also meets the PLL qualification criteria, performs strongly in three out of the five PLL qualification areas (monetary, financial, and data), and does not substantially underperform in the fiscal policy, and external position and market access areas.

March 12, 2018

Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance—Insurance Core Principles

Description: This paper reviews observance of Insurance Core Principles in Indonesia. Insurance regulation and supervision have been remarkably improved since the establishment of the Financial Services Authority (OJK) and the enactment of the new Insurance Law. However, the assessment has identified a significant number of shortfalls in observance with the Insurance Core Principles. Some deficiencies are owing to the lack of effective group regulation and supervision of insurance groups. Although OJK has implemented regulations related with risk management and group capital, intragroup transactions are not well taken into account. It is recommended that OJK should improve the effectiveness of supervision. Thematic reviews of reserving practices will encourage more conservative reserving.

March 9, 2018

West Bank and Gaza Report to the Ad Hoc Liaison Committee

Description:

Geopolitical turbulence and concerns for the peace process are more elevated than in recent memory. Views of the international community have diverged following the United States’ recognition of Jerusalem as Israel’s capital. Despite renewed calls to revive the peace process, so far there is no agreed path forward. In the meantime, rigid border constraints, spending cuts, and threats of further donor funding declines have compounded the already perilous humanitarian conditions in Gaza, severely impacted the local economy, and increased the potential for unrest. Although progressing slowly, moves toward reunification offer a potential bright spot.

Reunification offers genuine, albeit limited, prospects for economic betterment, provided the associated challenges are handled well. In Gaza, growth could rebound in the near term to the high single digits and stabilize over the medium term at more than 5 percent per annum. These improvements could gradually reduce poverty and unemployment. However, without progress toward reunification, the Palestinian economy would stagnate at around 2⅓ percent growth, too little to generate enough jobs or meaningfully improve living standards.  

These circumstances require a transformational, rather than transactional, approach to reforms and engagement. This means comprehensive reforms by the PA tailored to the circumstances of Gaza, and focused on enabling private sector-led growth and jobs more broadly. While reunification can provide impetus for reform, policies to contain fiscal imbalances, rebuild critical infrastructure, improve public service delivery, and ensure a financial stability remain equally important if reunification is slow or shallow. Given the substantial and heavily front-loaded costs of reunification, success also rests on securing additional donor financing, making tangible progress toward reducing fiscal leakages, and ensuring easier cross-border transactions. While economic prospects improve under reunification, there are also elevated risks if reunification fails to launch or proceeds without sufficient preparation.

March 8, 2018

Belgium: Financial System Stability Assessment

Description: This paper assesses the stability of Belgium’s financial system. The financial sector remains resilient in the face of the rising cyclical vulnerabilities, but there is a need for closely monitoring risks. Stress tests on banks and insurance companies confirm that they can absorb credit, sovereign, and market losses in the event of a severe deterioration in macro-financial conditions. The risk of interbank contagion through direct exposures is low. Insurance companies are also generally resilient and the losses incurred by those that belong to banking groups do not threaten the soundness of those groups. Bank resilience reflects relatively healthy loan portfolios and limited exposure to market and liquidity risks, while insurance companies have sound solvency levels and reduced exposures to guaranteed rates.

March 8, 2018

Belgium: Financial System Stability Assessment-Technical Note- Financial Safety Net and Crisis Management

Description: This Technical Note reviews the state of financial safety net and crisis management arrangements in Belgium. Although actions in Belgium and at the European Union (EU) level have improved the Belgian financial safety net and crisis management arrangements, Belgium still faces challenges, and further actions are needed to improve its operational capacity. At the EU level, the establishment of the single supervisory mechanism and the single resolution mechanism (SRM) are important improvements. The Belgian authorities, particularly the National Bank of Belgium, continue to play a critical role in maintaining financial stability in Belgium. It is recommended that the SRM should ensure the feasibility of resolution strategies for groups with domestic systemically important banks that execute national critical functions.

March 8, 2018

Belgium: Financial System Stability Assessment-Technical Note-Banking, Insurance, and Financial Conglomerate Supervision

Description: This Technical Note analyzes the key aspects of the regulatory and supervisory regime of banks, insurance companies and financial conglomerates (FCs) in Belgium. The regulatory framework for Belgian financial institutions has been strengthened substantially since the 2013 Financial Sector Assessment Program. Notably, new national banking and insurance laws have been issued, the Bank Recovery and Resolution Directive and amendments to Financial Conglomerate Directive have been transposed, Solvency II has been implemented, and the National Bank of Belgium has been designated as the macroprudential authority. This has improved significantly the regulatory framework and broadened its scope to better address the challenges posed by FCs. Financial sector supervision has also been upgraded markedly.

March 8, 2018

Belgium: Financial System Stability Assessment-Technical Note- Stress Testing the Banking and Insurance Sectors and Systemic Risk Analysis

Description: This Technical Note discusses the results of the stress testing of Belgium’s banking and insurance sectors. Belgium’s financial sector remains resilient in the face of the rising cyclical vulnerabilities, but there is a need for closely monitoring risks. Stress tests on banks and insurance companies confirm that they can absorb credit, sovereign, and market losses in the event of a severe deterioration in macro-financial conditions. All banks meet minimum capital requirements and none needs to draw down its capital conservation buffer over the stress horizon. The risk of interbank contagion through direct exposures is low. Insurance companies are also generally resilient and losses incurred in the stress scenarios by those that belong to banking groups do not threaten the soundness of those groups.

March 8, 2018

Belgium: 2018 Article IV Consultation - Press Release; Staff Report

Description: This 2018 Article IV Consultation highlights that the economic recovery in Belgium is gaining momentum, with real GDP growth expected to approach 2 percent in 2018 after an estimated 1.7 percent in 2017. It is driven by strong investment and solid consumption growth, and supported by favorable financial conditions as well as a strengthening recovery throughout Europe. Employment growth has picked up, thanks in part to past reform efforts. The fiscal position has improved, reflecting a mix of cyclical, structural, and one-off factors. The medium-term outlook, however, remains subdued in the absence of further structural reforms to raise potential growth, and subject to both external and domestic risks.