Country Reports
2019
July 24, 2019
France: Financial System Stability Assessment
Description: This Financial System Stability Assessment paper on France provides summary of an assessment of the financial system. Dominated by internationally active financial conglomerates, the French financial system has made important progress since the last financial stability assessment program (FSAP). In order to address a build-up of systemic risks, the authorities have proactively used macroprudential measures and public communication. The government is pursuing a strategy to prepare Paris as a key financial hub, including by promoting crypto-assets, fintech, green finance, and market entry. Banking and insurance business lines, and the corporate sector, carry important financial vulnerabilities that need close attention. The FSAP thus has recommended augmenting policy tools to contain vulnerabilities and continue to act pre-emptively if systemic risks intensify. In order to mitigate intensification of corporate—and potentially household—vulnerabilities, the FSAP proposed: active engagement with the European Central Bank on the possible use of bank-specific measures; considering fiscal measures to incentivize corporates to finance through equity rather than debt; and a sectoral systemic risk buffer.
July 23, 2019
Brazil: Selected Issues
Description: This Selected Issues paper examines the profitability of the foreign exchange (FX) swaps issued the Central Bank of Brazil (BCB) between May 2013 and February 2019 to shed light on the rationale for FX intervention. Using interest rate and exchange rate forecasts, the paper shows that that FX swaps have been profitable in expectation, even though actual returns were negative due to unexpected exchange rate depreciations. Moreover, the scale of FX intervention is correlated with the expected profitability of the swaps, further suggesting that the BCB used FX intervention to stem abnormal movements of the exchange rate. Despite being profitable in expectation, swaps incurred realized losses due to unexpected exchange rate depreciations. The analysis suggests that the BCB used FX intervention to lean against temporary excessive movements of the exchange rate. The expected profitability of FX swaps can be monitored in real time and may thus provide guidance on the appropriate level of intervention.
July 23, 2019
Brazil: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Brazil
Description: This 2019 Article IV Consultation with Brazil discusses that growth is projected at 0.8 percent in 2019 and to accelerate in 2020 conditional on the approval of a robust pension reform and favorable financial conditions. The current budget is guided by the federal expenditure ceiling, entailing a minor reduction of the structural primary balance in 2019. The review encouraged the authorities to step up implementation of structural reforms essential to raise potential growth, including improving the business environment, lowering trade barriers, and boosting productivity. Fiscal policy is expected to be mildly supportive in 2019 and subsequently turn moderately contractionary to respect the constitutional ceiling. Gross public debt is projected to peak in 2024 at 96 percent of gross domestic product. Brazil needs decisive structural reforms to raise potential growth, including tax reforms, privatization, trade liberalization, and measures to enhance the efficiency of financial intermediation. Given the high and increasing level of public debt, fiscal consolidation is essential. The government should preserve a broadly neutral fiscal stance in 2019.
July 22, 2019
Republic of Serbia: Staff Report for the 2019 Article IV Consultation and Second Review under the Policy Coordination Instrument-Press Release; Staff Report; Information Annex; Staff Statement; and Statement by the Executive Director for Republic of Serbia
Description: This paper discusses Republic of Serbia’s 2019 Article IV Consultation and Second Review Under the Policy Coordination Instrument. Serbia’s macroeconomic performance, supported by the Policy Coordination Instrument, has been strong. Growth has been robust, public debt is declining, employment is rising, the financial sector is sound, and inflation is low. Strong fiscal performance continues, facilitating higher capital spending and a reduction of the tax burden on labor as well as faster debt reduction. Continued strong program implementation and determined structural reforms are important to address the challenges and accelerate income convergence with the EU. Fiscal performance has been strong, while important reforms took place toward modernization of the tax administration and privatization of the largest state-owned bank. Stronger commitment to the implementation of planned structural reforms is needed to boost potential growth and improve the private investment climate. However, Serbia remains vulnerable to spillovers from external developments, including weaker-than-expected growth in key trading partners.
July 22, 2019
Niger: 2019 Article IV Consultation, Fourth Review Under the Extended Credit Facility, and Requests for Waiver of Nonobservance of a Performance Criterion, Modification of Performance Criteria, and Extension and Rephasing of the Extended Credit Facility Arrangement-Press Release; Staff Report and Statement by the Executive Director for Niger
Description: This paper discusses Niger’s 2019 Article IV Consultation, Fourth Review Under the Extended Credit Facility (ECF), and Requests for Waiver of Nonobservance of a Performance Criterion, Modification of Performance Criteria, and Extension and Rephasing of the ECF Arrangement. Program implementation has been broadly satisfactory with public finances strengthening as planned, progress with the implementation of the structural reform agenda, and some slippages in the clearance in domestic payment arrears. Improving public finances, mobilizing revenues, and improving spending quality remain high on the agenda. The Article IV consultation focused on ways to jump-start Niger’s still embryonic local formal private sector and how to best foster good governance. Economic growth strengthened in 2018 and the outlook is promising thanks to the start of several large-scale projects by private investors and development partners. The review highlights that the formal local private sector needs strengthening to ensure sustainably higher living standards and provide jobs for Niger’s rapidly growing labor force.
July 22, 2019
Niger: Selected Issues
Description: This Selected Issues paper takes stock of Niger’s tools to directly and indirectly combat corruption and shows that shortcomings in public-sector governance take a toll on private-sector development, especially young firms and exporters. Measures to advance Niger’s anticorruption agenda are laid out. This paper describes Niger’s anti-corruption framework, discusses how broader public-sector governance reforms can contribute to curbing corruption, assesses the impact on the private sector, and suggests measures to advance anticorruption reforms. The authorities profess commitment to fight corruption and have taken steps to revamp the anti-corruption framework. Niger is also equipped with legal and regulatory audit bodies that contribute to combatting corruption and promoting good governance. Although the legal and regulatory framework for public procurement is sound, its effective implementation remains elusive. Recent progress in simplifying administrative procedures should discourage public officials from exploiting complex bureaucracy to extract bribes. Formal regression analysis confirms that firms subject to corruption record lower sales and productivity growth relative to those that do not pay bribe.
July 19, 2019
Honduras: Selected Issues
Description: This Selected Issues paper looks at revenue mobilization efforts in Honduras. The country has made considerable progress over the last years, helping to stabilize its fiscal position. Although tax revenue collection ratios in Honduras are high, the statutory rates are aligned with regional peers. A formal benchmarking exercise supports the evidence pointing to Honduras’s relatively good collection performance. The authorities’ future revenue mobilization strategy should prioritize reforms aiming at increasing efficiency and compliance. The cost-benefit assessment of existing tax exemptions in terms of their policy objectives may offer guiding principles to prioritize reforms going forward. Compared to peers, statutory tax rates are similar and tax collection ratios are generally higher—a benchmarking exercise suggests that the current revenue envelope is close to its frontier. Going forward, there is a need to sustain revenue mobilization efforts, which will be instrumental to maintaining a sound fiscal position, reducing the infrastructure gap, and increasing social spending. Rationalizing large tax expenditures could contribute to these efforts.
July 19, 2019
Honduras: Staff Report for the 2019 Article IV Consultation and Request for a Stand-By Arrangement and an Arrangement Under the Standby Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Honduras
Description: This paper discusses Honduras’s 2019 Article IV Consultation and Request for a Stand-By Arrangement and an Arrangement Under the Standby Credit Facility. Supported by a Fund program that expired in December 2017, Honduras has reduced macroeconomic imbalances, institutionalized fiscal prudence, and laid the groundwork for a modern monetary policy framework. The authorities are committed to maintain prudent policies and to build on previous achievements to make progress in solving long-standing issues. The authorities’ economic program aims at maintaining macroeconomic stability, while enacting economic and institutional reforms to foster inclusive growth. Honduras needs to foster inclusive growth through reforms and better governance. Policy priorities include: reforms to increase the quality of fiscal policy, sustaining revenue mobilization efforts, protecting investment and social spending, and securing financial sustainability of the public electricity company; and reforms to enhance transparency and governance in the budget.
July 18, 2019
Tunisia: Fifth Review Under the Extended Fund Facility, and Requests for Waivers of Nonobservance and Modification of Performance Criteria and for Rephasing of Access
Description: This paper discusses Tunisia’s Fifth Review Under the Extended Fund Facility, and Requests for Waivers of Nonobservance and Modification of Performance Criteria, and for Rephasing of Access. This review focuses on stabilizing the economy ahead of the Fall 2019 elections. Civil service wage hikes and a pause in energy price hikes constitute departures from the policies agreed at the Fourth Review. The authorities will adjust their policy mix to correct for these slippages and keep the economy on a stabilization path, while maintaining social cohesion. Structural reforms should focus on enhancing the business climate and improving access to finance to boost private-sector led growth. The appointment of the members of the High Anti-Corruption Authority would help address corruption concerns. Socio-political tensions and deterioration in security are the main risks to the adjustment strategy. Higher oil prices, spillovers from conflicts in the region, a further slowing of EU growth, rising trade tensions, and shifts in investor sentiment could also jeopardize economic stability.
July 17, 2019
Djibouti: Technical Assistance Report-Financial Soundness Indicators Mission
Description: This Technical Assistance Report on Djibouti provides details of IMF mission to aid on the financial soundness indicators (FSI). The mission achieved the said objectives and assisted the Banking Supervision Unit (BSU) officials in the preparation of the FSI production files and the development of the metadata files. The mission held constructive discussions with the Central Bank of Djibouti staff on various other aspects of the production of statistics aimed at improving the quality of the data produced. These discussions led to the preparation of an action plan identifying the main improvements to be pursued or undertaken, with the following priority recommendations. The report also highlights that the microfinance sector is growing in Djibouti; however, access to financing remains very limited. A review of the Call Report forms revealed a number of inconsistencies. The report recommends that the BSU staff participate regularly in the FSI courses organized by the IMF.