Country Reports
2019
July 15, 2019
Singapore: Financial Sector Assessment Program; Technical Note-Financial Stability Analysis and Stress Testing
Description: This technical note Financial Stability Analysis and Stress Testing on Singapore contributes to the assessment of the stability and soundness of the financial sector with a comprehensive set of risk analyses. The work combines an examination of key risk indicators with detailed stress tests, which simulate the health of banks, insurers, nonfinancial corporates and households under severe yet plausible (counterfactual) adverse scenarios. Scenarios include global financial market turmoil, a major slowdown of economic activity in China, cyber-attacks and extreme flooding. The analyses include simulations of contagion within the international banking network, within the domestic banking system and between different types of financial institutions in the financial system. The stress tests reveal that the financial system is broadly resilient to severe adverse shocks; however, foreign exchange liquidity is a key vulnerability. The analyses suggest that Monetary Authority of Singapore should continue strengthening its surveillance by closing data gaps and developing its analytical tools. Further data collection on domestic interlinkages, household mortgage debt at the borrower level, insurers’ balance sheets would enhance surveillance.
July 12, 2019
Slovak Republic: 2019 Article IV Consultation-Press Release; Staff Report
Description: Leveraging its location and low-cost skilled labor, Slovakia has attained a very high level of integration with the global value chains, which has proved pivotal to exports growth and income convergence with the European Union. After half a decade of robust growth, the Slovak economy is decelerating. With rising trade tensions and a turning economic cycle, several vulnerabilities are coming to the fore. High dependence on exports combined with a concentrated export structure makes Slovakia particularly vulnerable to external developments. On the domestic front, a prolonged period of double-digit mortgage credit growth and declining bank profit margins have made households and the financial sector susceptible to labor and property market downturns.
July 12, 2019
Portugal: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Portugal
Description: After a strong performance in 2017, economic activity has moderated. The second half of 2018 was marked by a deceleration, coinciding with weaker economic activity in Europe. The headline fiscal balance improved, with a small increase in the structural primary balance reflecting a strict budget execution. The current account turned negative in 2018 in conjunction with a deterioration of the balance of trade in goods and services. Total credit to the nonfinancial private sector continued to decline in 2018. Nevertheless, over the last 4 years the Portuguese banking system has been strengthening its balance sheet and its performance.
July 12, 2019
Portugal: Selected Issues
Description: This Selected Issues paper focuses on cross-country differences in savings rates in advanced European countries. It explores a range of demographic, fiscal and financial factors that could explain why household savings are low in Portugal compared to its peers. Portugal’s household saving rate is lower than those of the average European country. This difference can be explained by Portugal’s lower disposable income, lower financial net wealth, higher old-age dependency ratio, higher government spending on pensions and on social protection benefits, and higher homeownership ratio, as suggested by a comparison against another 14 European countries conducted with the aid of panel regressions. Other factors that could underlie Portugal’s low household saving are the country’s lower education levels, fertility rate, and private pension coverage. Many of these factors are not amenable to simple or direct policy interventions, although some policy initiatives aimed at higher level objectives, such as promoting economic growth, could have positive side effects on household saving. More specific policy options to boost household saving include measures to promote private occupational and personal plans, including some changes in taxation, and developing incentives to work past age 65.
July 11, 2019
Euro Area Policies: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Member Countries
Description: After a sharp slowdown starting in 2018, euro area growth is expected to recover over the course of 2019. However, mounting downside risks from global trade tensions, a no-deal Brexit, and market concerns about countries with high public debt emphasize the precarious nature of the forecast. Even in the absence of a major shock, there is a danger that the area could enter a prolonged period of anemic growth and inflation. Policies should focus on supporting growth while also reducing vulnerabilities.
July 10, 2019
Germany: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany
Description: Germany’s economic performance has been strong for the past decade, but external factors and structural challenges are now weighing on growth. The export-dependent economy has been hit by the recent slowdown in global demand, while medium-term growth is expected to fall due to low productivity growth and adverse demographics. External imbalances remain large, partly reflecting rising top income inequality, macro-financial vulnerabilities are rising, and the financial sector continues to suffer from weak profitability. Still, fundamentals are sound, with public and private balance sheets remaining healthy, and the unemployment rate at record lows. Inflation is subdued, but wage growth is continuing to pick up, reflecting the strength of the labor market and increasingly binding capacity constraints.
July 10, 2019
Germany: Selected Issues
Description: This Selected Issues paper explores wealth inequality and private savings in Germany. Trends in increasing corporate profits and gross savings have widened top income inequality, as corporations are typically owned by households in the top of the wealth distribution. The impact on income inequality is more pronounced in countries where the rise in profitability was a result of lower wage growth and labor income shares to start with, as was the case in Germany. The evidence strongly suggests this is not the case and underscores the important role of German business wealth concentration in this context. As high corporate savings and underlying profits largely reflect capital income accruing to wealthy households and increasingly retained in closely-held firms, the build-up of external imbalance has been accompanied by widening top income inequality, rising private savings and compressed consumption rates. The concentration of privately held and publicly listed firm ownership in the hands of industrial dynasties and institutional investors is especially prevalent in Germany, possibly reflecting distortions in firm entry, financing conditions and tax incentives.
July 9, 2019
Sierra Leone: First Review Under the Extended Credit Facility Arrangement, Request for Waiver for Nonobservance of Performance Criterion, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Sierra Leone
Description: Actions by the new government since taking office in April 2018 helped to stabilize macroeconomic conditions, but the situation remains challenging. Overall growth remained subdued. While elevated, inflation is tracking down. Program performance is broadly on track, though progress on structural measures has been slower than anticipated. Healthy revenues and significant underspending resulted in a lower-than-programed fiscal deficit. All quantitative targets were met, except the end-December performance criterion on net domestic assets (NDA) of the central bank and the end-March indicative target on poverty-related spending.
July 9, 2019
Central African Republic: Sixth Review Under the Extended Credit Facility Arrangement, Requests for Waivers of Nonobservance of Performance Criteria and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic
Description: President Touadéra signed a new peace agreement on February 6, 2019 with 14 armed groups. This agreement calls for the establishment of an inclusive government, the deployment of joint brigades, an acceleration of decentralization efforts, and the co-management of natural resources. While its implementation has started, including with the appointment of more inclusive government, the security situation remains volatile. The World Bank (WB) and the European Union (EU) have substantially increased their budgetary support (grants) for 2019–20. The authorities have expressed a strong interest in a successor arrangement.
July 9, 2019
Central African Economic and Monetary Community (CEMAC): Common Policies in Support of Member Countries Reform Programs
Description: The regional strategy has helped stabilize the regional economic position thanks to large fiscal consolidation efforts, a tighter monetary policy, and external financial assistance. The external position improved, and external reserves picked up. However, the region remains dependent on oil revenues, with little progress in economic diversification, under-performing budget non-oil revenues and weaknesses in the financial sector. The policy assurances included in BEAC’s letter of December 2018 were implemented as planned and the CEMAC authorities reiterated their full commitment to the strategy and their readiness to implement additional corrective measures if needed. Progress was made towards new IMF-supported program in Congo and Equatorial Guinea.