Country Reports
2020
January 30, 2020
South Africa: Selected Issues
Description: This Selected Issues paper studies the growth-inflation trade-off of monetary policy in South Africa. The combination of low growth and stubbornly high inflation expectations for a protracted period has complicated monetary policy decisions. The IMF staff analysis contributes to the ongoing growth-inflation trade-off discussion in South Africa, concluding that there is limited growth trade-off of monetary policy efforts to anchor inflation expectations at a lower level at present. The findings in this note suggest that the South African Reserve Bank should continue its efforts of anchoring inflation and inflation expectations at a lower level because monetary policy lends limited support to growth dampened by structural issues. During the 2010s, domestic demand growth responded little to monetary policy action. The environment of weak growth, low interest rates, and relatively moderate inflation (expectations) could have muted monetary policy transmission. Ultimately, the constraints to economic growth need to be removed. Meanwhile, inflation expectations continue to respond to monetary policy action albeit to a lesser extent. Monetary policy transmission through demand has weakened––demand growth does not systematically respond to monetary policy action nor does core inflation––but the exchange rate and credibility channels appear to remain operational.
January 29, 2020
Republic of Nauru: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Nauru
Description: This 2019 Article IV Consultation with Republic of Nauru highlights that it remains vulnerable to climate change and has a narrow economic base and limited capacity. Development challenges are increased by unavailability of land and high incidence of noncommunicable diseases. Growth was stronger than expected in FY2018 but slowed in FY2019. The outlook is subdued, with growth expected to reach 2 percent in the medium term. Revenues are projected to decline, necessitating a fiscal adjustment. Risks are skewed to the downside and include the scaling down of Regional Processing Centre activity and revenues, volatile fishing revenues, climate change, and delays in fiscal and structural reforms. Fiscal adjustment is required to avoid a breach of the fiscal anchor, contain debt, and maintain the Trust Fund contributions. New sources of economic growth and income are needed to support Nauru’s development agenda. Policies should be implemented in the near term to support private sector activity, including through financial sector development, state-owned enterprises reform, and land rehabilitation. The effectiveness of education and health spending needs to be improved to meet development goals.
January 29, 2020
Kenya: Technical Assistance Report-Monetary and Financial Statistics Mission (December 3-14, 2018)
Description: This technical assistance report on Kenya reviews the implementation of the recommendations made by the monetary and financial statistics (MFS) mission in January 2017 and the expanded coverage of the standardized report form for other depository corporations (SRF 2SR) including savings and credit cooperatives (SACCOs), microfinance banks (MFBs), and money market funds. The mission found that the Central Bank of Kenya (CBK) had made significant progress in collaborating with other financial sector regulatory authorities by forming the Technical Working Group and holding regular meetings. The previous missions recommended that the CBK improve coordination with other regulatory authorities to cooperate and collaborate on the compilation of MFS. With source data available for deposit taking SACCOs and MFBs, the CBK made significant progress in producing initial provisional data for 2SR with the coverage expanded to include those data which were reported to IMF’s Statistics Department for review in August of 2017. In order to support progress in the various work areas, the mission recommended a detailed action plan with the different priority recommendations.
January 29, 2020
Republic of Kazakhstan: 2019 Article IV Consultation-Press Release; and Staff Report
Description: This 2019 Article IV Consultation with Republic of Kazakhstan discusses that the political transition has increased the focus on social conditions and regional and rural development. Discussions focused on enhancing the inflation-targeting framework, bank soundness, the fiscal framework, structural reforms, and governance. Growth has been buoyed by new spending, retail credit, and oil and gas investments. Inflation has picked up, and the current account has deteriorated. High domestic demand driven by major oil and gas investments and government and household consumption supported by wage increases and consumer lending has underpinned the economy’s strong performance. The state continues to play a strong role in the economy, and the authorities face challenges ensuring that measures are well targeted and effective in promoting private sector growth. The challenges include oil volatility and dependency, reliance on subsidies and other state support, still-impaired banks, and governance vulnerabilities. Progress is being made with structural reform implementation, with many of the flagships “100 Concrete Steps” completed and the remaining ones broadly on track. Efforts to promote a smaller state footprint should continue, with actions to improve governance and mitigate corruption vulnerabilities.
January 28, 2020
Morocco: Second Review Under the Arrangement Under the Precautionary and Liquidity Line-Press Release; Staff Report; and Statement by the Executive Director for Morocco
Description: This paper discusses Morocco’s Second Review Under the Arrangement Under the Precautionary and Liquidity Line. The authorities are committed to further reduce fiscal and external vulnerabilities, while strengthening the foundations for higher and more inclusive growth. Building on recent progress in improving the business environment, sustained reforms are needed to raise potential growth and reduce high unemployment, especially among the youth, increase female labor participation, and reduce regional disparities. Reforms of education, governance, and the labor market should contribute to more private sector-led growth and job creation. Considering the slowdown in fiscal consolidation, stepped up tax reforms and contained wage bill are needed to lower the public debt-to-gross domestic product ratio while securing priority investment and social spending in the medium term. A decisive and comprehensive tax reform should aim to secure adequate revenues while bringing about greater equity and simplicity of the tax system. The transition to greater exchange rate flexibility initiated in 2018 would enhance the economy’s capacity to absorb shocks and preserve its external competitiveness.
January 28, 2020
The Federal Democratic Republic of Ethiopia: 2019 Article IV Consultation and Requests for Three-Year Arrangement under the Extended Credit Facility and an Arrangement under the Extended Fund Facility-Press Release and Staff Report
Description: This paper presents 2019 Article IV Consultation with the Republic of Ethiopia and its Requests for Three-Year Arrangement Under the Extended Credit Facility and an Arrangement Under the Extended Fund Facility. Ethiopia has enjoyed strong growth for over a decade, which has reduced poverty and raised living standards. However, the public investment-driven growth model has reached its limits. The authorities have announced a Homegrown Economic Reform Plan, consisting of a mix of macroeconomic, structural and sectoral policies, to address vulnerabilities and tackle structural bottlenecks inhibiting private sector activity. Over the medium term, macroeconomic and structural reforms announced by the authorities are expected to lead to a reduction in public debt, lower external vulnerabilities, and stronger growth, investment and exports. The risks to the outlook are tilted to the downside. Domestic opposition to reforms ahead of the upcoming elections could increase investor uncertainty and weigh on investment and growth. External risks stem from rising protectionism and weaker than expected global growth as well as climate-related shocks.
January 27, 2020
Republic of North Macedonia: Selected Issues
Description: This Selected Issues paper on the Republic of North Macedonia focuses on income convergence and integration of North Macedonia with the European Union (EU). Based on the experience of other countries, joining the EU, which North Macedonia is aspiring to, has the potential to strengthen growth prospects. The macroeconomic indicators appear aligned with other countries at the time they started EU accession negotiations. The EU accession process constitutes a fundamental anchor for institutional reform momentum. Significant efforts to improve institutional quality in new member states took place in the years prior to EU accession to comply with Copenhagen criteria on stability of institutions, guaranteeing democracy and the rule of law, the existence of a functioning market economy, and the capacity to cope with competitive pressure and market forces within the EU. The analysis presented in this paper shows further evidence of how opening of EU accession negotiations and of better quality of institutions, rule of law, and control of corruption can improve growth prospects.
January 27, 2020
Republic of North Macedonia: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of North Macedonia
Description: This 2019 Article IV Consultation with Republic of Macedonia discusses that after a protracted political crisis, the economy has entered a period of solid growth and stability. Over the recent years, the authorities have reviewed the reform momentum, with crucial institutional and governance reforms and efforts to make public finances more sustainable and equitable. Growth is expected to accelerate in 2020. Lower taxes and higher pensions and wages?including public sector and minimum wages?are expected to provide a further, albeit one-off, stimulus to consumption. Export and investment growth would remain robust but slow somewhat, reflecting weak growth in trading partners. An ambitious consolidation is needed to rebuild fiscal policy space and re-orient public spending toward investment. Reforms to address key labor market and institutional weaknesses will help lift medium-term growth and speed up income convergence. Although growth has been solid in the past two decades, it has not been enough to substantially narrow North Macedonia’s large income gap with the European Union. In order to accelerate convergence, it is essential to continue reforms to improve the public administration, rule of law, and control of corruption.
January 27, 2020
Republic of Congo: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Congo
Description: This 2019 Article IV Consultation with Congo discusses that the economic situation remains difficult, however, there are some initial signs of stability, and non-oil growth could turn positive for the first time since 2015. The political environment is stable, though there is discontent with government policies due in part to the authorities’ limited engagement with the private sector and civil society. In the near term, the expansion of oil production explains most of the projected recovery in growth. However, peak oil production will be reached in 2020 rather than 2019 as initially expected. Non-oil growth is expected to pick up gradually as the government starts implementing its arrears clearance strategy, which could have a positive impact on business confidence and credit growth. The report recommends pursuing fiscal consolidation efforts and concludes the debt restructuring process for external commercial debt to restore fiscal sustainability. It is imperative to continue to implement measures to improve governance and tackle corruption, including through the adoption of operational decrees for the High Authority on Corruption and the Commission on Transparency.
January 27, 2020
Republic of Congo: Selected Issues
Description: This Selected Issues paper discusses reforms that could generate higher revenues from the non-oil sector through measures to rationalize the tax code, broaden the tax base, and increase administrative efficiency. These efforts should be complemented by economic diversification policies that support non-oil growth and thereby expand the potential tax base. The paper also reflects on lessons learned from other country experiences that could be relevant for the Republic of Congo. The authorities should step up revenue mobilization as a key component of their medium-term fiscal strategy. This will require a well-sequenced structure of reforms that includes three key elements. First, the newly created Tax Policy Unit in the Ministry of Finance should reduce institutional fragmentation and facilitate the design, coordination and implementation of a medium-term revenue strategy. Second, the government should urgently address the erosion of the tax base generated by an excessive and discretionary use of tax exemptions that do not comply with existing laws and regulations. Finally, the government should continue to focus on rationalizing the tax code, and increasing administrative efficiency to recover tax arrears, including through the modernization of existing income tax systems.