Country Reports
2024
June 13, 2024
Bulgaria: Selected Issues
Description: This Selected Issues paper focuses on the Bulgarian pension system. The paper provides an overview of the pension system and describes measures taken in the last decade to increase its financial sustainability. It highlights how the measures taken during and after the Coronavirus disease 2019 (COVID-19) pandemic structurally affect the financial sustainability of the pension system. The paper also shows that the recent measures compound the long-term pressure related to an aging population. It also details policies that could contain the projected increase in pension spending. During the COVID-19 pandemic, the Bulgarian authorities increased pensions substantially to support pensioners’ living standards and aggregate demand. These increases have become permanent and improved the adequacy of pensions. However, not matched by revenue measures, they have widened the deficit of the pension system. Reforms that increase the incentives to contribute to the pension system and thus revenue would improve the financial sustainability of the pension system and reduce fiscal risks.
June 13, 2024
Bulgaria: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bulgaria
Description: The 2024 Article IV Consultation highlights that the Bulgarian economy has shown resilience through a succession of shocks and is achieving a soft landing. Growth slowed in 2023 to 1.8 percent driven by a decline in private investment due to uncertainty and by the unwinding of the inventory buildup of 2021–2022. Growth is expected to rebound this year thanks to the recovery in demand from key trading partners, which will spur exports and private investment, while public investment is to be supported by EU funds. Despite sustained wage and pension growth and inflationary pressures from an expansionary 2024 budget, inflation is projected to continue declining owing to the projected continued fall in global food and energy prices, but it has remained higher than in many European peers. Deep structural reforms are needed to foster higher and more inclusive growth. Addressing declining potential growth and slow income convergence requires containing the decline in the labor force, more investment, higher productivity, greater competitiveness, and further integration into global and regional value chains.
June 13, 2024
Sri Lanka: 2024 Article IV Consultation and Second Review Under the Extended Fund Facility, Request for Modification of Performance Criterion, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Sri Lanka
Description: This paper presents Sri Lanka’s 2024 Article IV Consultation and Second Review under the Extended Fund Facility, Request for Modification of Performance Criterion, and Financing Assurances Review. Performance under the program has been strong. All quantitative targets for end-December 2023 were met, except the indicative target on social spending. Most structural benchmarks due by end-April 2024 were either met or implemented with delay. Nevertheless, the economy is still vulnerable and the path to debt sustainability remains knife-edged. Sustaining the reform momentum and efforts to restructure debt are critical to put the economy on a path toward lasting recovery and debt sustainability. The Article IV Consultation focused on wide-ranging reforms to restore macroeconomic stability and debt sustainability, maintain price stability, safeguard financial stability, rebuild external buffers, and implement growth-oriented structural reforms, including by strengthening governance. The authorities need to press ahead with their efforts to address structural challenges to unlock long-term potential.
June 13, 2024
Sri Lanka: Selected Issues
Description: This Selected Issues paper aims at quantifying the economic benefits of comprehensive governance reforms through model simulations, supported by selected case studies in Sri Lanka. The paper provides an overview of the corruption vulnerabilities and governance weaknesses in Sri Lanka. Following the discussion of a theoretical framework that illustrates the channels through which governance reforms generate economic gains, the paper quantitatively simulates the macroeconomic impact of governance reforms using a dynamic general equilibrium model under alternative reform scenarios. A section in the paper complements the simulation with case studies. Support from the highest political level is crucial to ensure durable success of governance reforms. In countries with widespread corruption, many groups may feel that they are benefitting from it.
June 10, 2024
Somalia: Staff Report for the First Review Under the Extended Credit Facility Arrangement, and Requests for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Somalia
Description: This paper presents Somalia’s First Review under the Extended Credit Facility Arrangement, and Requests for Modification of Performance Criteria. Real GDP growth is expected to rise to 3.7 percent in 2024 compared to 2.8 percent in 2023, supported by continued recovery in agriculture, greater remittances, and higher investment. Somalia has continued to advance its reform agenda and program performance has been strong. Policy priorities are to maintain fiscal sustainability, strengthen revenues and public financial management, promote financial deepening, improve governance, and enhance statistics. Ongoing reforms to strengthen central bank institutional capacity are commendable. Careful formulation of the monetary and exchange rate policy frameworks is important in the context of the planned currency reform. Measures to bolster inclusive growth and strengthen resilience are important. The authorities are focused on building capacity in the petroleum sector and implementing its legal framework. Addressing food insecurity, building climate resilience, and enhancing trade integration are central to ensuring Somalia’s long-term development.
June 10, 2024
Republic of South Sudan: 2023 Article IV Consultation, and First and Second Reviews under the Staff-Monitored Program with Board Involvement-Press Release; Staff Report; and Statement by the Executive Director for Republic of South Sudan
Description: This paper presents Republic of South Sudan’s 2023 Article IV Consultation, and First and Second Reviews under the Staff-Monitored Program with Board Involvement (PMB). South Sudan is significantly impacted by the war in Sudan, especially from a very large and growing number of refugees, and by a sharp decline in oil production and exports since mid-February 2024 due to damages to the oil pipeline. Article IV discussions focused on putting economic reforms on a sustainable footing, boosting domestic revenue mobilization, enhancing social spending, and implementing governance and transparency reforms to reduce corruption. The extension of the PMB provides time to the authorities to implement corrective actions to bring macroeconomic policies back on track and implement governance reforms; building a strong track record is essential for any financial arrangement with the IMF. In order to help address these challenges, as well as the fallout from the damage to the oil pipeline, the authorities have requested a 3-year arrangement under the Extended Credit Facility (ECF). Successful completion of the current PMB would help establish track record toward a potential ECF arrangement in the future.
June 10, 2024
Republic of Fiji: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Fiji
Description: The 2024 Article IV Consultation highlights that Fiji’s economy has recovered strongly from the pandemic. The Fijian economy has recovered strongly from the pandemic. Real gross domestic product (GDP) rebounded by around 30 percent cumulatively in 2022–2023, surpassing pre-pandemic levels. Inflation has recently ticked up modestly largely due to a temporary effect of the hike in Value-Added Tax rates. Supported by the economic recovery, the fiscal deficit and debt-to-GDP ratios continued to decline but remain at elevated levels. The FY2024 (August–July) budget included significant revenue enhancing measures, partially offset by spending increases, which, on balance, are expected to reduce the fiscal deficit and debt ratios. The review recommends to continue rebuild fiscal buffers through a gradual consolidation, improves the targeting of social spending, and prioritize capital spending to support inclusive growth. Additionally, it is imperative to develop and operationalize an ambitious, comprehensive, and prioritized growth strategy to address key impediments to growth and enhance climate resilience.
June 7, 2024
Luxembourg: 2024 Article IV Consultation-Press Release; and Staff Report; and Statement by the Executive Director for Luxembourg
Description: The 2024 Article IV Consultation discusses that Luxembourg’ economy contracted in 2023 despite buoyant consumption, mainly due to weak external demand and residential investment. Inflation is subsiding but underlying measures remain high. Credit growth turned negative as demand dropped and real estate prices declined. The newly elected government has approved a mix of temporary and permanent measures to support purchasing power and housing demand. Gradually easing financial conditions, continuing disinflation and expansionary fiscal policy is expected to help the economy rebound and the financial cycle bottom out. Inflation should decline in 2024, before temporarily increasing in 2025 once administrative price measures expire. The recovery is fragile amid heightened geopolitical tensions. Risks are tilted to the downside, stemming mainly from external demand/supply shocks and a disorderly correction of asset prices, including domestic real estate valuations. Sustained economic growth hinges on raising productivity, which has been stagnant since the Global Financial Crisis. Increasing investment in intangible assets, aligning workers’ skills with the current demands of the economy, reducing administrative burden, and making the wage indexation system more flexible will be key to harnessing productivity gains and bolstering competitiveness.
June 7, 2024
Luxembourg: Selected Issues
Description: This Selected Issues paper explores implications for safeguarding fiscal space in Luxembourg. The analysis discusses the main drivers of revenues and expenditures in recent years. Against the background of rising ageing costs, the analysis discusses the fiscal outlook, accounting for the announced government plans, as well as fiscal risks. Additionally, it offers options for helping to safeguard ample fiscal space, in view of the spending pressures and risks. In order to preserve its ample fiscal buffers, which will support the government’s commitment of keeping Luxembourg’s AAA rating, a more prudent fiscal policy would be advisable. Recent revenue increases should not be taken as given, and additional tax reforms should be done in a budget-neutral manner. The growth of compensation of employees should be limited, social programs better targeted, and their efficiency increased. Early pension reform would also help limit spending pressures. Finally, a national framework could help anchor fiscal policy and maintain a credible commitment to prudent fiscal policies.
June 7, 2024
Luxembourg: Financial Sector Assessment Program-Financial System Stability Assessment
Description: This paper presents Luxembourg’s Financial System Stability Assessment report. The assessment of Luxembourg’s large, interconnected, and complex financial system took place against heightened economic, financial, and geopolitical uncertainty. The authorities have made commendable progress in following up on recommendations from the 2017 Financial Sector Assessment Program (FSAP). The stress tests found the financial system resilient to severe shocks, while identifying a few potentially weak entities. Higher interest rates have benefited banks, despite increasing loan losses among households and real estate companies. Under plausible adverse scenarios, the system can handle significant liquidity shocks, with minimal second-round price impacts. However, the growing connections of other financial intermediaries with investment funds and related data gaps call for greater monitoring. The FSAP recommends strengthening the macroprudential policy framework by reducing the risks of inaction bias and expanding the use of policy measures against rising real-estate vulnerabilities. Banks should use the capital headroom to implement a sectoral systemic risk buffer and prepare for tightened borrower-based measures when the financial cycle turns positive.
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