Country Reports
2024
May 31, 2024
Gabon: Selected Issues
Description: This Selected Issues paper investigates the determinants of sovereign spreads in 50 Emerging Market and Developing Economies, using a fixed effects panel model and leverages the results to draw lessons for improving funding costs in Gabon. The analysis finds that weak governance, high public debt, weak economic performance, a poor government payment record of accomplishment, and social vulnerabilities are the main factors that increase Gabon’s spreads. Strengthening policies in these areas—by bringing indicators for government effectiveness, regulatory quality, and the fiscal position to the median for sovereigns rated Banks Board Bureau by Fitch, as well as clearing external government arrears—could help reduce spreads by at least 500 bp and save at least 0.4 percent of gross domestic product in annual interest costs. The results also give insights into what it might take Gabon to reach investment grade. Investment grade bond spreads are approximately 200 basis points, around 400 basis points below Gabon’s February 2024 level. Strengthening growth drivers and economic diversification is imperative to improve the long-term performance of the economy.
May 30, 2024
People’s Republic of China—Macao Special Administrative Region: 2024 Article IV Consultation Discussions-Press Release; and Staff Report
Description: The 2024 Article IV Consultation discusses that Macao Special Administrative Region (SAR)’s economy rebounded strongly after the relaxation of coronavirus disease 2019 containment measures in Mainland China. Real gross domestic product increased by 80.5 percent in 2023, recovering much of the decline during the pandemic. A stronger slump in the Mainland’s property sector and higher for longer interest rates in the major economies are the main short-term risks to the outlook. The secular growth slowdown in Mainland China could weigh on Macao SAR’s medium-term growth. Moreover, medium-term growth could be adversely affected by extreme climate events. The authorities should encourage banks to hold higher provisioning to bolster their shock absorbing capacity, enhance the insolvency and debt resolution and restructuring frameworks, and strengthen systemic risk assessment and monitoring. Economy-wide structural reforms focused on incentivizing R&D and innovation, upskilling and reskilling the labor force, and streamlining labor and business regulations would be key for achieving the government’s economic diversification objectives. A comprehensive assessment of investment needs for climate adaptation and its integration in the medium-term fiscal plan would buttress the authorities’ efforts to enhance the economy’s resilience against climate-related disasters.
May 30, 2024
People’s Republic of China—Macao Special Administrative Region: Selected Issues
Description: This Selected Issues paper focuses on economic diversification in Macao Special Administration Region (SAR). The plan envisions the development of four nascent industries. This Selected Issues paper explores product level counterpart data on the exports of goods to identify the availability of knowledge that Macao SAR can leverage to enhance its diversification gains. The analysis first attempts to identify distinctive characteristics of Macao SAR’s export basket. Second, it unravels the availability of Macao SAR’s productive knowledge and assesses how different it is from the productive knowledge needed for the government’s targeted industries. Additionally, it explores Guangdong region’s productive knowledge and identifies synergies between Macao SAR’s targeted industries through the economic diversification plan. It also draws policy implications for Macao SAR to enhance the effectiveness of its diversification policies, including in the Guangdong-Macao In-Depth Cooperation Zone. The authorities should implement economy-wide reforms that improve efficiency and resource allocation to capitalize on the knowledge base available in the Greater Bay Area.
May 28, 2024
Rwanda: Third Reviews under the Policy Coordination Instrument and the Arrangement under the Resilience and Sustainability Facility, and the First Review under the Standby Credit Facility Arrangement-Press Release; and Staff Report
Description: This paper presents Rwanda’s Third Reviews under the Policy Coordination Instrument (PCI) and the Arrangement under the Resilience and Sustainability Facility (RSF), and the First Review under the Standby Credit Facility (SCF). Program performance under the PCI/SCF has been strong, with successful implementation of reforms on social safety nets and spending rationalization. Progress on the climate agenda under the RSF also remains strong, bolstering Rwanda's resilience to climate shocks. Despite challenging external conditions and ongoing fiscal consolidation, Rwanda's economy maintains robust growth. Going forward, the policy mix should prioritize macroeconomic and financial stability, fiscal sustainability, and the restoration of buffers. Monetary policy should anchor inflation around the center of the target band, while continued exchange rate flexibility will help absorb external shocks and support current account adjustment. Sustained reform momentum under the RSF will enhance the economy's resilience to climate shocks, position Rwanda as a regional leader in climate initiatives, and help catalyze climate financing from development partners and the private sector.
May 28, 2024
Mauritius: Selected Issues
Description: This Selected Issues paper focuses on improving revenue mobilization in Mauritius and assessing the potential and reform options. The tax gap in Mauritius is estimated at 5.6 percent of gross domestic product (GDP), at the top end of tax gaps of its peers. Both domestic and international taxation reforms could help narrow the gap. Reforming the personal income tax (PIT) and the value added tax (VAT) could altogether yield 3 percent of GDP in additional tax revenue. This could be achieved by lowering PIT thresholds, while increasing the top rates, and streamlining VAT exemptions. The expected implementation of the global minimum tax on corporations internationally provides an opportunity to reconsider the tax policy approach to investment promotion in Mauritius. A desirable strategy for Mauritius would be to move away from the generous benefits offered, including tax holidays, toward a more neutral taxation of investments. While there is potential to mobilize additional revenue through tax reforms, care should be taken that vulnerable households are protected, including through compensatory social spending.
May 28, 2024
Cyprus: Selected Issues
Description: This Selected Issues paper highlights disinflation and monetary transmission in Cyprus. Inflation in Cyprus dropped in 2023 due to the diminishing impact of supply-side shocks and moderating demand. However, some domestic price pressures persist, mostly from nonfiscal aggregate demand. The analysis suggests that high core inflation in 2023 was driven both by demand and supply factors. The post-pandemic inflation surge is attributed to both supply and demand factors, with the latter dominating most of the time. Wage dynamics will influence the inflation outlook. While risks of a wage-price spiral have declined substantially, the extent to which remaining demand pressures will affect future inflation will partly depend on wage dynamics. Deposit rates saw delayed and smaller increases, likely driven by high banking sector liquidity and low competition. Continued commitment to containing aggregate demand is supporting the final stage of disinflation. The last mile of disinflation would benefit from containing aggregate demand. While supply disruptions are no longer materially impacting inflation, domestic demand continues to put pressure on prices.
May 28, 2024
Mauritius: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Mauritius
Description: The 2024 Article IV Consultation discusses that Mauritius has rebounded strongly from the pandemic on the back of buoyant tourism, social housing construction, and financial services. The outlook for growth remains favorable, headline inflation is projected to ease further, and public debt is projected to continue moderating over the medium term. Risks to the outlook are on the downside, including from deterioration in global growth, higher-than-anticipated fuel and food prices, and extreme climate events. The macroeconomic policy mix should be recalibrated to rebuild fiscal and external buffers and maintain financial stability. Achieving high-income status will require continued structural reforms to promote competitiveness and economic diversification. Advance structural reforms, including those that bolster skills in the domestic labor market and support female labor force participation, foster digitalization, and enhance climate-resilient infrastructure investment. It is imperative to strengthen the effectiveness of the new monetary policy framework and stand ready to tighten the monetary policy stance should inflationary pressures re-emerge.
May 28, 2024
Cyprus: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Cyprus
Description: The 2024 Article IV Consultation discusses that Cyprus recovered swiftly from the pandemic and has proven resilient to multiple adverse shocks. Growth moderated in 2023 with slowing consumption growth, lower services exports to Russia, and fading post-pandemic base effects. However, growth has remained above the euro area average, supported by a continued recovery in tourism, expanding financial services and information and communication technology activity, and strong investments. The labor markets are tight, with unemployment at a near two-decade low. Headline inflation dipped below 2 percent, but core inflation has been more persistent. Growth is expected to stabilize in 2024 and rise to 3 percent in the medium term. Driven by robust revenue growth, the primary surplus increased further in 2023, contributing to a large decline in public debt. The authorities’ planned neutral fiscal stance in 2024 is appropriate. Further, primary surpluses should be maintained until debt falls comfortably below 60 percent of gross domestic product. Further judicial and labor market reforms are necessary to streamline the business environment and reduce skill mismatches, both of which will support the ongoing diversification of Cyprus’ growth model.
May 24, 2024
Georgia: Selected Issues
Description: This Selected Issues paper explores drivers of inflation and monetary policy in Georgia. Inflation spiked in Georgia following the pandemic and Russia’s war in Ukraine. A positive output gap indicates that high demand is generating inflationary pressure in the economy. Estimates suggest tighter monetary policy in 2021 helped significantly lower peak inflation in 2022. One response to uncertainty is for monetary policy makers to act more cautiously – responding less vigorously with monetary policy to shocks. Given the challenges in managing inflation in a highly dollarized, small open-economy prone to large external shocks, it is important to look at the drivers of inflation in Georgia, the monetary policy stance including the natural rate, the transmission mechanism including the impact of dollarization, and the appropriate monetary policy path going forward. Using a range of approaches, IMF establish that monetary policy in Georgia is effective, that it is close to neutral, and that heightened uncertainty supports a gradual policy normalization.
May 24, 2024
Georgia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Georgia
Description: The 2024 Article IV Consultation highlights that Georgia’s economic performance remains robust. Growth has moderated from double digits but remains high, inflation is low, and fiscal and financial buffers are healthy. EU candidate status has boosted sentiment, but the global environment remains highly uncertain due to ongoing conflicts and shifting geo-economic patterns. Georgia should continue to strengthen its resilience to adverse shocks by maintaining prudent macroeconomic policies and boost its growth potential by addressing long-standing structural challenges, capitalizing on new economic opportunities, and making decisive progress toward EU accession. Modest further fiscal adjustment is appropriate in the medium term, to build sufficient buffers under the fiscal rule and create room for productive spending. Monetary policy normalization should proceed gradually and cautiously, to ensure core inflation remains close to target. Continued exchange rate flexibility, reserve build-up, and financial sector vigilance are essential to guard against risks, including from capital inflows, virtual assets, and sanctions. Structural reforms are needed to achieve stronger, more inclusive, and job-rich growth.