Country Reports
2024
August 5, 2024
Guatemala: Selected Issues
Description: This Selected Issues paper explores effects of social unrest in Guatemala. The paper estimates the effects of social unrest on Guatemala’s economy from 2001 to 2023, using the monthly Reported Social Unrest Index as a measure of social unrest. The estimations of the empirical model suggest no effects of social unrest episodes on the main external sector variables. The empirical evidence suggests little to no impact of social unrest in Guatemala. Contrary to Hadzi-Vaskov et al. (2023), the analysis of the effects of social unrest in Guatemala suggests that the effects on the real, monetary, financial, and external sectors are mild, limited, and temporary if not negligible. On the one hand, the lack of cross-country dimensionality is a limitation of our analysis, but on the other hand, exploiting monthly data allows us to disentangle unrest episode effects at higher frequencies than other papers in the literature. Overall, the results are robust to different specifications; the set of controls is extensive and includes controls for future social unrest shocks autocorrelations. The results suggest that Guatemala is resilient to unrest shocks at business-cycle frequencies, even of considerable magnitude.
August 5, 2024
Guatemala: 2024 Article IV Consultation-Press Release; and Staff Report
Description: The 2024 Article IV Consultation discusses that Guatemala has continued to maintain its solid track record of macroeconomic policies, with economic growth moderating to an estimated 3.5 percent in 2023 and consumer price index inflation and inflationary pressures decelerating from a 9.9 percent peak year-on-year in February 2023 to 3.6 percent in June 2024, within the monetary policy target. The Guatemalan economy continues to show stability and soundness thanks to a legacy of prudent monetary and fiscal policies. The country's outlook remains favorable, with risks skewed to the downside. With hefty investment needs, Guatemala will need to boost revenue while bolstering the quantity and quality of spending. Higher growth and absorption of capital flows into the country requires gradual strengthening of the monetary and exchange rate policy frameworks. An inclusive and sound financial sector guided by prudential principles should further support Guatemala’s economic development efforts.
August 2, 2024
People’s Republic of China: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the People’s Republic of China
Description: The 2024 Article IV Consultation explains that China’s economy has remained resilient despite the continued weakness in the property sector, with gross domestic product (GDP) growing by 5.2 percent in 2023, and 5 percent y/y in the first half of 2024. The authorities have taken incremental policy steps to achieve these objectives, but a comprehensive and balanced policy approach is needed to manage the challenges facing the economy. GDP growth is expected to remain resilient at 5 percent in 2024 despite the continued property sector adjustment, supported by strong public investment and the ongoing recovery in private consumption. Inflation has been low in recent quarters amid considerable economic slack and is expected to pick up gradually as the output gap closes and the impact of lower commodity prices wanes. Growth is expected to slow in the medium term amid declining productivity growth and aging. The immediate priorities are to facilitate a more efficient and less costly property sector adjustment and to provide adequate macroeconomic policy support amid continued slack and elevated downside risks. Tackling the debt overhang, preventing the build-up of new risks, and fostering high-quality and sustainable growth requires comprehensive structural reforms.
August 2, 2024
Hungary: 2024 Article IV Consultation-Press Release; and Staff Report
Description: The 2024 Article IV Consultation discusses that Hungary is emerging from a period of shocks. The pandemic, Russia’s war in Ukraine, and crisis-related stimulus widened fiscal and external imbalances and triggered double-digit inflation in 2022. Thanks to an effective monetary policy response aided by falling commodity prices and a tighter fiscal stance in 2023, inflation came down significantly, while the labor market and financial sector remained resilient. Despite some progress, the ongoing negotiations on the super milestones, including the Commission’s assessment of governance conditions, are delaying the disbursement of EU funds, which are vital for digitalization, regional integration, and the green transition. A credible and growth-friendly fiscal adjustment plan is needed to safeguard macroeconomic stability. Monetary policy should remain in restrictive territory to deliver a sustainable return of inflation to target. Coordinated policy approach is needed to improve Hungary’s productivity, reduce regional inequality, strengthen governance, and advance the green transition.
August 2, 2024
Hungary: Selected Issues
Description: This Selected Issues paper presents monetary policy analysis with a quarterly projection model (QPM) in Hungary. The standard QPM is adapted to reflect some specific features of the Hungarian economy and post-Covid set of shocks. Inflation is modelled in greater sectoral detail, including the separation of core goods and services, to capture differences in their drivers and dynamics and to model spillovers of shocks from one sector to another. Following a period of large interest rate reductions, the projections from the QPM suggest that the next phase of monetary policy normalization should proceed cautiously and more gradually. Results from the model should be used alongside other forms of analysis and expert judgement in determining the optimal path of monetary policy. Data should be watched keenly to assess the realism of the model’s projections.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Cyber Risk and Financial Stability
Description: This paper explores a technical note on cyber risk and financial stability as part of Financial Sector Assessment Program (FSAP) in Spain. Technology risk and cyber resilience of the financial sector has become a focus area of the authorities, within the broader context of operational risk and resilience. This intensified focus by authorities is timely and important from the perspective of the continuity of financial service provision and the stability of the Spanish financial system. The FSAP found cyber risk supervisory practices of the authorities with regard to less significant institutions and financial market infrastructures in scope to be materially in line with applicable regulations and guidance and prevailing international good practice. Resource constraints are the most prominent challenge that the authorities are confronted with. A number of further weaknesses have a negative impact notwithstanding the overall strength of cyber risk supervision.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Financial Safety Net and Crisis Management
Description: This paper examines a technical note on financial safety net and crisis management as part of Financial Sector Assessment Program in Spain. Spanish authorities have made good progress in establishing an effective crisis management and resolution regime. The Spanish authorities should integrate bank resolution authority for planning and execution in one institution. Integration would ensure that the national resolution authority responsible for implementing orderly resolution actions has control over the primary levers necessary to achieve its objectives. The Spanish authorities need to establish a framework for addressing liquidity needs in resolution. Spanish authorities should continue to enhance cross-authority crisis coordination arrangements. This should include formalizing its existing crisis management practices and prioritizing by agreeing a cross-authority crisis simulation exercise strategy. Spain’s Executive Resolution Authority should also have the flexibility, where possible, under national procurement legislation to depart from procurement rules in a crisis scenario to appoint external advisory support including independent valuers at short notice.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis
Description: This paper focuses on a technical note on systemic risk analysis as part of Financial Sector Assessment Program (FSAP) in Spain. Spain’s economy and its well-developed, bank-dominated financial system have shown resilience through the pandemic, rising global geo-political tensions and tighter financial conditions. The Spanish banking sector has a global imprint, operates a traditional business model, and is strongly profitable. Downside risks are prominent and existing vulnerabilities could amplify the impact of exogenous shocks on financial stability. The Spanish banking and real sectors’ resilience was assessed against a severe but plausible adverse scenario that reflects these risks. The FSAP analysis suggests a moderate rise in the debt-at-risk of the nonfinancial corporates sector in the adverse scenario. Liquidity stress tests show that Significant banking institutions can cope comfortably with market valuation shocks and would face cash flow challenges under large withdrawals of retail deposits. Interconnectedness analysis does not reveal significant vulnerabilities of Spanish banks to of cross-border contagion of foreign banking distress.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Macroprudential Policy Framework and Tools
Description: This paper discusses a technical note on macroprudential policy framework and tools as part of Financial Sector Assessment Program in Spain. The macroprudential policy framework in Spain has been significantly reinforced in recent years. While Macroprudential Authority Financial Stability Council (AMCESFI) has successfully strengthened high-level coordination, and bolstered the institutional framework supporting financial stability, there is scope to reinforce the framework further. The role, credibility, transparency, and accountability of the new authority would be strengthened by more frequent meetings and enhanced communication. Active consideration of the case for adding external expert members to the AMCESFI Council is recommended. Systemic risk identification in Spain uses advanced methods and approaches. The policy toolkit available to the Spanish authorities is broad by international standards. The introduction of a positive neutral countercyclical capital buffer for credit institutions in Spain is recommended. The current neutral macroprudential policy stance is appropriate.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Regulation and Supervision of Less Significant Institutions
Description: This paper presents a technical note on regulation and supervision of less significant institutions (LSI) as part of Financial Sector Assessment Program in Spain. The Banco de España’s (BdE) extensive efforts to improve corporate governance of cooperative LSIs are commendable, and in this context, it is recommended that work continue with additional focus on onsite activities. The BdE should further increase its supervisory scrutiny of LSIs’ management of liquidity risk and interest rate risk in the banking book (IRRBB), building on its existing monitoring of LSIs’ capital and liquidity levels and exposures to IRRBB. The extensive regulatory requirements and supervisory activities of LSIs’ credit risk have been instrumental to cover this key priority, but reform is needed to enhance the related-parties framework and address gaps relative to international standards. The BdE’s joint work with Sepblac should be an opportunity to enhance the risk-based aspects of oversight of anti-money laundering and countering the financing of terrorism (AML/CFT).