Country Reports
2018
November 30, 2018
Brazil: Financial Sector Assessment Program-Technical Note on Supervision and Oversight of Financial Market Infrastructures
Description: Brazilian FMIs are among the top twenty worldwide. All together there are sixteen financial market infrastructures2 (FMIs) operating in the Brazilian payment system (SPB), out of which nine3 are systemically important and four belong to the top twenty FMIs in the world4. FMIs play an essential role in the Brazilian financial system and are highly relevant in terms of domestic financial stability. In terms of value of transactions, STR (Reserves Transfer System - Sistema de Transferência de Reservas), the Brazilian Real Time Gross Settlement system (RTGS) is the backbone of the SPB, and belongs to the top ten large value payment systems worldwide. SELIC is among the top ten central securities depository/securities settlement systems (CSD/SSSs), CETIP among the top twenty SSSs, and BM&FBOVESPA Clearinghouse, the largest central counterparty (CCP) in Latin America, belongs to the top ten. These infrastructures facilitate the clearing, settlement, and recording of monetary and other financial transactions, such as payments, securities, and derivatives contracts (including derivatives contracts for commodities). Brazilian post-trading services are integrated. The entities providing securities settlement services also provide other post-trade processing, acting both as a clearing house, and a CSD or as a trade repository (TR).
November 30, 2018
Brazil: Financial Sector Assessment Program-Technical Note on Insurance Sector Regulation and Supervision
Description: The insurance sector has significant potential for expansion and to contribute to economic growth as an important part of the financial sector. While the insurance sector has grown at 10 percent annually over the last 5 years, on average, and remains profitable with high solvency ratios, the insurance penetration and density are lower than other emerging markets. Nevertheless, the insurance industry has the potential to reach to much higher levels of insurance penetration. A few large conglomerate groups—composed of banks, insurers and investments funds—dominate the insurance sector. Conglomerate groups account for more than 75 percent of the market share. Reflecting very conservative regulations imposed by the Banco Central do Brasil (BCB) and the Superintendency of Private Insurance (SUSEP), the interlinkages between banks and insurers are limited. Nevertheless, material contagion may occur through a reputational channel, adversely impacting the profitability of the linked business.
November 30, 2018
Brazil: Financial Sector Assessment Program-Technical Note on Stress Testing and Systemic Risk Analysis
Description: The financial system has been resilient through the severe recession. Banks and investment funds dominate Brazil’s financial system landscape. The banking sector has continued to be well-capitalized, profitable, and liquid. Profitability has been supported by prudent lending standards, high interest margins and robust fee income, despite record loan losses. Outstanding nonperforming loans have increased marginally during the recession largely because banks have actively written off bad loans. The investment fund industry has also been solid, enjoying a steady growth of assets under management without experiencing net outflows, in aggregate, during the recession. Market-based indicators point to relatively low levels of systemic risk in 2017. However, the outlook for the nonbank sector will become more challenging in the environment of lower interest rates, as lower returns will affect investment income and a search for yield may increase risk-taking.
November 29, 2018
Brazil: Technical Assistance Report-Public Investment Management Assessment
Description: Brazil is the largest country in Latin America with a varied geography and a population of over 200 million spread across 26 diverse states, generating wide-ranging infrastructure needs. Over the decades, many government investment initiatives have been launched to address these needs, however there remains a significant infrastructure gap in Brazil which continues to hamper growth potential. Over the past two decades, public investment has been considerably below the regional and income group averages and this has translated into much lower capital stock. Public investment averaged around 2 percent of GDP during the period 1995 to 2015, compared with 6.4 percent for Emerging Market Economies (EME) and 5.5 percent for Latin American Countries (LAC). As a result, public capital stock in 2015 was only 35 percent of GDP compared with an average of 92 for EME and 87 for LAC.
November 27, 2018
Mexico: Review Under the Flexible Credit Line Arrangement-Press Release; and Staff Report
Description: Mexico’s economy has exhibited resilience in the face of a complex external environment. The current administration has responded appropriately to the recent external shocks and demonstrated its commitment to macroeconomic stability. The incoming administration is committed to maintaining very strong policies and policy frameworks going forward. Nevertheless, Mexico’s strong trade and financial links to the global economy, and in particular the United States, make it susceptible to changes in investor sentiment.
November 27, 2018
Japan 2018 Staff Report
Description: The rapid aging and shrinking of Japan’s population will dominate economic policy making in coming decades—impelling a fresh look at the objectives and tools of Abenomics. Six years of Abenomics have yielded some important results, but achieving sustained high growth and durable reflation, while also tackling debt sustainability and a shifting global economic landscape, will require strengthened policies.
November 27, 2018
Japan: Selected Issues
Description: This Selected Issues explores Japan’s experiences with past valued added tax (VAT) rate increases and discusses potential policy options to mitigate the economic impact of a third-rate increase. It assesses the impact on the Japanese economy and, where possible, provides some international context. Alongside possible mitigating policies, it also discusses the importance of policy commitment and credibility, and how they can influence the macroeconomic impact of tax rate changes. Carefully designing policy measures and communicating them clearly to the public are paramount to attenuate any negative outcomes in the short term. A simple, single-rate VAT would efficiently raise tax revenues and support the government’s objective of achieving fiscal consolidation in the medium term. Assuming underlying macroeconomic conditions are favorable, the October 2019 VAT rate increase could potentially have a smaller impact on the economy relative to that of 2014 for several reasons. In order to reduce policy uncertainty and alleviate any adverse impacts from the 2019 VAT rate increase, the authorities should clearly communicate the timing and content of associated mitigating measures.
November 21, 2018
Spain: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Spain
Description: Spain’s economy has continued to grow strongly, reflecting its improved fundamentals. However, especially the young generation still faces daunting economic challenges. In the meantime, several downside risks are clouding the medium-term outlook. Externally, they comprise sudden changes in investors’ global risk appetite, escalating global protectionism, and weakening conditions in emerging economies. Domestically, they include pressure to reverse reforms, continued procyclical fiscal policy, and prolonged uncertainty related to Catalonia. These could hurt the economy particularly in an environment of high public debt and structural unemployment as well as sluggish productivity growth, which is set to slow Spain’s income convergence.
November 21, 2018
Spain: Selected Issues
Description: This Selected Issues paper on Spain focuses on differences in regional productivity. Recent studies of income convergence among Spanish regions suggest that the convergence has been slow since 1980 reflecting persistent regional disparities in total factor productivity. The empirical analysis—employing stochastic frontier models—finds that, among other factors, differences in regions’ skills mismatch and technology absorption capacity could be behind the disparities. A benchmarking exercise demonstrates significant potential growth benefits from policy measures that would bring regions closer to the frontier. Regional income disparities—driven by differences in total factor productivity (TFP) and unemployment—while not large compared with European peers, have been persistent in recent years. The economy’s overall productivity frontier moved inward overtime, but this trend has slowed down after the crisis. The inward shift of the production frontier could be one of the explanations for the negative TFP growth observed before the crisis. Active labor market policies at the regional level could also work toward addressing skills mismatch and education outcomes.
November 20, 2018
Dominican Republic: Technical Assistance Report-Report of the Technical Assistance Mission on Financial Accounts Topics (March 16-26, 2015)
Description: As part of the Regional Harmonization Project on External Sector Statistics (RHPESS) of the Central America, Panama, Dominican Republic Regional Technical Assistance Center (CAPTAC-DR) member countries, a technical assistance (TA) mission on Financial Account Topics visited the Central Bank of the Dominican Republic (BCRD) on March 16–26, 2015. The objective of the TA mission was to assist the BCRD in further improving the external sector statistics (ESS). The BCRD is responsible for compiling the balance of payments (BP), international investment position (IIP), and external debt statistics (EDS). The mission focused on following up on the recommendations provided to the BCRD on the Coordinated Direct Investment Survey (CDIS) and the Coordinated Portfolio Investment Survey (CPIS) during previous a TAmission. The mission work included review/revision of (i) direct investment questionnaires; (ii) memorandum data received from the Banking Superintendence on banking portfolio assets; and (iii) debt information from business surveys.