Country Reports
2019
November 25, 2019
Ukraine: Technical Assistance Report-Distributed Profit Tax; Voluntary Disclosure of Assets; and BEPs Implementation
Description: This Technical Assistance report focuses on Ukraine’s distributed profit tax, voluntary disclosure of assets, and Base Erosion and Profit Shifting Work Program implementation. The recommendations largely favor simplifying rules, improving the definition of basic concepts, eliminating potential loopholes, and adhering more closely to international standards in some cases. Thus, for the sake of simplification, the report recommends that Controlled Foreign Corporation rules should apply to the ‘first onshore’ person rather than having to trace them back to the ultimate beneficial owner in Ukraine. Also, it recommends that the proposed interest deduction limitation should eliminate the carry-forward currently permitted, limit deductions to net interest expense and exempt the financial sector from this limitation. Some key definitions can be improved too. The report suggests that if there is an urgent need to promote private investments, the accelerated depreciation tool should be applied for plant and machinery and structures housing them for say another five years.
November 25, 2019
Ukraine: Technical Assistance Report-Enhancing the Medium-Term Budget Framework and Preparing Expenditure Baseline
Description: This Technical Assistance paper on Ukraine focuses on enhancing the medium-term budget framework and preparing expenditure baselines. While the inclusion of a contingency provision in the budget is prudent, it will be important that it is well communicated and strongly defended. There is a risk that the provision will be a general policy reserve, which can undermine budget discipline and disincentivize medium-term planning. The Budget Declaration submitted to the Cabinet is a significant step forward and contains many sound elements of a medium-term budget document. The Ministry of Finance should continue to expand its content in future years to better explain the basis of fiscal plans and improve transparency. Key enhancements include providing greater explanation on the main drivers of the medium-term macroeconomic and fiscal projections, reporting on compliance with fiscal rules, and further expanding the fiscal risk statement. Credible and robust expenditure baselines will take time to develop and the Ministry of Finance will need to play a central role.
November 25, 2019
Ukraine: Technical Assistance Report-Fiscal Decentralization and Legal Framework for Fiscal Risk Management and Medium-term Budgeting
Description: This Technical Assistance paper on Ukraine reviews the results of the 2015 fiscal decentralization reform and the amendments to the Budget Code for implementation of certain Public Financial Management reforms. Several design issues are slowing the process of voluntary amalgamation of territorial communities and will lead to a proliferation of small units, with low potential for financial self-sufficiency. Achieving both an overall balance and a vertical fiscal balance, whereby own revenues cover basic expenditure responsibilities and dependence on State grants and subventions is minimized, would require a combination of changes to the revenue-sharing arrangements and expenditure assignments. There is no structured arrangement for ensuring a collaborative and coordinated approach in pursuing broad fiscal objectives and ensuring fiscal sustainability at all levels of government. The authorities should take steps to ensure an active and open dialogue between the different levels on the conduct of fiscal policy.
November 21, 2019
Malta: Financial Sector Assessment Program-Technical Note-Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
Description: This technical note on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) for the Malta summarizes the findings of a targeted review of several aspects of Malta’s progress in addressing AML/CFT vulnerabilities in the financial sector, specifically the banking sector. The report recommends that while Malta has strengthened AML/CFT requirements for banks in recent years, the implementation of AML/CFT preventive measures should be improved further. Although important milestones have been implemented by the Financial Intelligence Analysis Unit and Malta Financial Services Authority to enhance AML/CFT supervision since mid-2017, recent AML/CFT violations raise doubts as to their capacity to effectively identify and address AML/CFT compliance breaches. A multiprong strategy is needed to address these deficiencies. The focus needs to be on developing more effective AML/CFT enforcement and ensuring that banks apply appropriate preventive measures in relation to their high-risk activities and clients. AML/CFT supervision needs to more stringently evaluate banks’ risk mitigation models, ensure that customer due diligence requirements are properly followed, and apply corrective actions and sanctions when deficiencies are identified.
November 21, 2019
Malta: Financial Sector Assessment Program-Technical Note-Banking Supervision
Description: This technical note on banking supervision for Malta focusses on selected topics in relation to the supervision of less significant institutions, which are not directly supervised by the European Central Bank, and on non-European Union branches. The Malta Financial Services Authority’s (MFSA) internal organization reflects its role of an integrated supervisor, and several units are involved in supervision and/or enforcement. Review of supervisory measures reveals that the MFSA has taken decisive action in several instances, but such actions have not been timely. A new organizational structure of the MFSA has been proposed recently. Developing resources devoted to enforcement will enable the unit to spend less time on the preparation of the sanctions and more time on ongoing supervisory monitoring. Involving the head of enforcement and the General Counsel in the decision-making process is positive. The report recommends developing a five-year plan to increase the MFSA’s budgetary resources and capacity to reflect the size and importance of the financial sector in Malta.
November 21, 2019
Malta: Financial Sector Assessment Program-Technical Note-Bank Resolution and Crisis Management
Description: This technical note analyzes laws, policies, and procedures for bank failure mitigation and resolution, and for preparation and management of a financial crisis in Malta. It addresses the supervision of bank recovery plans, early intervention when problems are identified, resolution planning, resolution funding, and deposit insurance. Implementation of recovery planning requirements for banks remains a work in progress. Written policies and procedures should be adopted on the application of early intervention powers. While legal triggers and power for early intervention in problem banks are adequate, the powers in relevant legislation overlap substantially. Actions are needed to support the use of bank resolution powers, and to address weaknesses in the bank liquidation and insolvency framework. There is lack of clarity regarding the legal regime applicable to bank winding-up and insolvency, including as to the creditor hierarchy in liquidation. Impediments to implementation of the resolution tools are being identified and need to be addressed. Preparations need to be made for using the bridge institution resolution tool.
November 21, 2019
Malta: Financial Sector Assessment Program-Technical Note-Insurance and Securities Sector Supervision
Description: This technical note reviews the institutional arrangement and supervisory practices for the insurance and securities sectors in Malta, focusing on supervisory effectiveness. The legal powers and supervisory objectives of the Malta Financial Services Authority (MFSA) are clear and in line with international standards. The MFSA has adequate legal authority to discharge its supervisory responsibilities and to take the necessary preventive and corrective measures to protect the public interest. Clearly established legal gateways for information sharing facilitate supervisory coordination and cooperation between the MFSA and relevant supervisors/authorities, domestically and internationally. For the avoidance of doubt, the MFSA has proposed amending the MFSA Act to explicitly include the promotion of financial stability and financial market integrity as one of its key functions. Stable funding and full autonomy over the recruitment process are needed to support the MFSA’s operational and financial independence. Recognizing the scope for harmonizing and enhancing the current sectoral risk-based supervision frameworks (RBSF), the MFSA is developing an integrated RBSF.
November 21, 2019
Malta: Financial Sector Assessment Program-Technical Note-Macroprudential Policy Framework and Tools
Description: This technical note evaluates the domestic macroprudential policy framework in Malta and provides recommendations to strengthen it. It assesses: the domestic institutional arrangements; the systemic risk monitoring framework; and the macroprudential policy toolkit. It also assesses current financial vulnerabilities in Malta to develop specific policy recommendations. The paper also reviews the current domestic institutional arrangements and provides recommendations and discusses the existing systemic risk monitoring framework and provides options to enhance it further. The legal backing of inter-agency coordination could be further strengthened. The report highlights that the planned introduction of borrower-based measures is a welcome step to proactively address a build-up of vulnerabilities in the housing and household sectors. There is scope to refine the design of the planned borrower-based measures to reduce uncertainty over policy effects. The Central Bank of Malta plans to introduce borrower-based measures to proactively address the potential build-up of vulnerabilities in the housing and household sectors.
November 21, 2019
Malta: Financial Sector Assessment Program-Technical Note-Risk Analysis
Description: This technical note presents Malta’s risk analysis related aspects of financial system. A comprehensive set of stress tests and interconnectedness analyses were conducted to assess the resilience of Malta’s financial system and shed light on potential vulnerabilities, complementing the euro area Financial Sector Assessment Program. Key metrics suggest that the banking sector is in good health, but challenges exist. Banks are well-capitalized, liquidity is ample, and profitability has been healthy. The solvency stress tests indicate that the banking sector remains resilient, with vulnerabilities limited to a few small banks. The banking sector appears resilient to liquidity pressures, but some small banks are vulnerable to more severe events. The interconnectedness analysis suggests that contagion risk through interlinkages from within the Maltese financial sector is currently higher and more wide-spread than contagion risk through cross-border interbank exposures. Monitoring and conducting periodic analysis of cross-border linkages, and further enhancing the existing inter-sectoral linkages analysis, is expected to provide an early warning before contagion risks accumulate.
November 18, 2019
Somalia: First Review Under the Staff-Monitored Program-Press Release; and Staff Report; IMF Country Report No. 19/343; October 1, 2019
Description: This paper discusses Somalia’s First Review Under the Staff-Monitored Program (SMP). The report focuses on further efforts to mobilize revenues, including across the Federal Member States, strengthen public financial management, enhance financial sector stability, and strengthen compliance with the framework for anti-money laundering/ combatting the financing of terrorism. The authorities’ strong commitment and program implementation has strengthened capacity despite a challenging environment. Underlying economic growth remains stable, supported by donor support and the ambitious and broad reform agenda. However, insecurity and recurring drought represent key risks to the outlook, and, despite progress, growth is insufficient to substantially reduce poverty. Financial stability reforms are deepening. New mobile money regulations are welcome, and implementation will be key for supporting financial stability. Continued efforts to expand the operational and organizational capacity of the Central Bank of Somalia will underpin further development of the financial sector more broadly. Reducing Somalia’s debt to sustainable levels under the Heavily Indebted Poor Countries Initiative and normalizing relations with international financial institutions will unlock access to additional financial resources to address Somalia’s development needs.