Country Reports
2018
July 26, 2018
People’s Republic of China: 2018 Article IV Consultation-Press Release; Staff Report; Staff Statement and Statement by the Executive Director for the People's Republic of China
Description: China is at an historic juncture. After decades of high-speed growth, the authorities are now focusing on high-quality growth. Whether and how this shift is carried through will determine China’s development path for decades to come. Recent strong growth momentum and significant financial de-risking progress reduce the probability of a near-term abrupt adjustment. Rebalancing accelerated in some dimensions, especially as the current account surplus continued to fall and growth became less dependent on credit, but progress slowed in many other dimensions as exports drove the growth pick up, rather than consumption. And while credit growth has slowed, it remains excessive.
July 25, 2018
Peru: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Peru
Description: Peru has been one of the top performers in Latin America since the turn of the century: robust growth has helped close the income gap with the largest regional economies and reduce poverty significantly. Last year, however, growth was subpar and the poverty ratio increased. While high commodity prices are an important tailwind, the economy is facing domestic headwinds. The Odebrecht case led to the resignation of President Kuczynski, and the new cabinet has moved quickly to implement various measures and request special legislative powers from Congress. The authorities have also been facing the challenge of rebuilding infrastructure following the extreme weather caused by El Niño in 2017.
July 25, 2018
Grenada: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Grenada
Description: Grenada made important strides under the 2014-17 ECF-supported program, achieving an impressive debt reduction by 37 percent of GDP since 2013, upgrading the framework for fiscal policy, strengthening the financial system, improving governance, and creating a better business environment. Nonetheless, public debt is still relatively high, job creation has been insufficient, and the institutional capacity for policy implementation needs strengthening.
July 25, 2018
Peru: Financial System Stability Assessment
Description: Peru’s financial system has developed and become more resilient since the previous FSAP in 2011, but some challenges remain. Peru’s main vulnerabilities are external, especially related to growth in trading partners (due to reliance on commodity exports), and exchange rate depreciation (due to significant dollarization), which were confirmed by the Growth-at-Risk (GaR) analysis. Peru is also vulnerable to domestic headwinds, related to uncertainty and spillovers from the ongoing Lava Jato investigation. The banking sector remains highly concentrated, with the four largest banks accounting for 83 percent of total private banking sector assets. These top four banks are all classified as domestic-systemically important banks (D-SIBs) and hence are subject to elevated supervision. The mission’s stress-test analysis showed that the banking system is largely resilient to adverse shocks, largely because of banks’ initial strong capital buffers and profitability. In the adverse scenario, all large banks experience credit losses, but initial high capital and profitability help them remain above the minimum regulatory capital adequacy ratio (CAR) threshold of 10 percent, while, for a few small banks, the CARs fall below the regulatory threshold. The overall banking system’s profits decline substantially in the adverse scenario, with some banks facing losses, but the aggregate capital shortfall for these banks is modest. The interconnectedness/contagion analysis showed that the joint probability of distress across all banks has fallen since the post-global financial crisis peak level it reached in 2010. However, shocks that affect credit exposures, which are strongly correlated among large banks, have the potential to become systemic events, since the banking system is concentrated.
July 25, 2018
Republic of Madagascar: Third Review Under the Extended Credit Facility and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Republic of Madagascar
Description: The gradual economic recovery in this fragile state has persisted, with solid growth for the second consecutive year. Fiscal performance has been strong, inflation contained, and the external position robust. Implementation of the authorities’ economic program, supported by an Extended Credit Facility (ECF) arrangement approved in July 2016, has been generally strong, buttressing the recovery.
July 24, 2018
Republic of Serbia: Request for a 30-Month Policy Coordination Instrument-Press Release; Staff Report; and Statement by the Executive Director for Serbia
Description: Serbia succeeded in addressing macroeconomic imbalances and restoring confidence and growth under the precautionary SBA which expired in February 2018. Fiscal sustainability has been restored by placing public debt on a firm downward path and the external position has been realigned with fundamentals. Monetary policy has kept inflation under firm control, while supporting economic recovery. The resilience of the financial sector has improved. Progress has also been made on structural and institutional reforms, including in rationalizing the size of public sector employment, addressing fiscal risks from SOEs, and improving the business environment. However, challenges remain for achieving robust, inclusive, and sustainable growth, which Serbia needs for faster income convergence with its EU peers. The authorities requested a 30-month Policy Coordination Instrument (PCI) to provide a framework for continued macroeconomic stability and reforms, and maintain close policy dialogue with staff.
July 23, 2018
Cameroon: 2018 Article IV Consultation, Second Review Under the Extended Credit Facility Arrangement Requests for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon
Description: Cameroon’s macroeconomic performance has been mixed against the backdrop of slower economic activity and rising security concerns, with a weaker-than-envisaged fiscal consolidation in 2017. While external buffers are being rebuilt, the CEMAC’s recovery remains fragile. Renewed efforts to implement the fiscal consolidation and reform program will be essential to buttress external and fiscal sustainability and reinvigorate growth.
July 20, 2018
Guinea: First Review of the Arrangement Under the Three-Year Extended Credit Facility, Financing Assurances Review, and Request for Modification and for Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Guinea
Description: The Guinean economy is growing at a faster than anticipated pace on the back of buoyant mining activity. The growth momentum is expected to continue, with real growth at about 6 percent in 2018 and over the medium term. However, risks of instability are heightened by the current electoral cycle.
July 19, 2018
Euro Area Policies: Selected Issues
Description: This Selected Issues paper focuses on long-term impact of Brexit on the European Union (EU). This paper examines consequences of Brexit on the EU27 under various post-Brexit scenarios by using two different complementary approaches. Our results, which are broadly in line with recent findings in the literature, are twofold. First, Brexit would have negative effects on the EU27 as well, given the depth and the complexity of the EU-U.K. integration. Similar to various empirical studies, it has been observed that the estimated long-term output and employment losses (in percent) for the EU27 in the study are on average lower than the corresponding losses for the UK estimated in the literature. The level of output and employment are estimated to fall at most by up to 1.5 percent and 0.7 percent in the long run in the event of a ‘hard’ Brexit scenario, respectively. A “soft” Brexit outcome would lead to much lower losses.
July 19, 2018
Euro Area Policies: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Member Countries
Description: This is a time to strengthen the resilience of the euro area and raise its long-term growth potential. Despite the recent slowdown and coming end of quantitative easing, growth remains strong and monetary conditions accommodative. Member countries should grasp the opportunity to address deep structural challenges, rebuild thin policy buffers, and rebalance externally. Mounting downside risks add urgency. The supportive monetary stance should be maintained until inflation is convincingly converging to objective. As net asset purchases draw to a close, clear forward guidance will become even more important.