Country Reports

March 15, 2018

Namibia: Financial System Stability Assessment

Description: The paper assesses the stability of Namibia’s financial system. Macrofinancial vulnerabilities have built up over a period of rapid economic growth in Namibia, and the financial cycle has now turned down. The sovereign debt/GDP ratio has nearly doubled since 2014 which has reinforced the already strong bank-sovereign link. The rapid rise in housing prices and household debt, banks’ large exposure to mortgages, and banks reliance on wholesale funding are sources of concern. A major decline in real estate prices would adversely affect bank capital and profitability. Financial sector oversight has been strengthened significantly since the 2006 Financial System Assessment Program, but further upgrades are needed.

March 15, 2018

Burkina Faso: Request for a Three-Year Arrangement Under the Extended Credit Facility - Press Release; Staff Report; and Statement by the Executive Director for Burkina Faso

Description: This paper discusses Burkina Faso’s Request for a Three-Year Arrangement Under the Extended Credit Facility (ECF). The program aims to maintain macroeconomic stability while promoting sustainable and inclusive growth. Under the program, fiscal space for priority security, social, and investment spending would be supported by strengthening revenue mobilization and containing current spending, especially on wages. Efforts to improve investment selection and execution would achieve more with the resources available. Prudent public financial and debt management along with energy sector reforms would ensure fiscal sustainability and mitigate fiscal risks. Structural reforms would improve the business environment and promote diversification. The IMF staff supports the authorities’ request for an ECF arrangement.

March 14, 2018

Pakistan: First Post-Program Monitoring Discussions-Press Release; Staff Report; and Statement by the Executive Director for Pakistan

Description: This paper discusses First Post-Program Monitoring Discussions with Pakistan. Pakistan’s near-term outlook for economic growth is broadly favorable. Real GDP is expected to grow by 5.6 percent in FY2017/18, supported by improved power supply, investment related to the China–Pakistan Economic Corridor, strong consumption growth, and ongoing recovery in agriculture. Inflation has remained contained. However, continued erosion of macroeconomic resilience could put this outlook at risk. The FY2017/18 current account deficit could reach 4.8 percent of GDP, with gross international reserves further declining in a context of limited exchange rate flexibility.

March 12, 2018

Morocco: Selected Issues

Description: This Selected Issues paper examines the distributional effects of tax reforms in Morocco. Overall, the performance of Morocco’s tax system is satisfactory, but there is scope to strengthen it and make it more equitable and less distortive. Morocco would benefit from a comprehensive and well explained tax reform strategy aiming to reduce inequality and boost growth. For this, a recommended tax reform package should combine several key components, for example, reducing tax exemptions, raising property tax, and lowering corporate tax rates. At the same time, the targeting of social programs should be strengthened. Such a reform approach would protect the most vulnerable and help broaden the tax base, remove tax distortions, and better share the tax burden.

March 12, 2018

Morocco: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Morocco

Description: This 2017 Article IV Consultation highlights that economic growth in Morocco has picked up in 2017 and is expected to reach 4.4 percent, mostly driven by a significant rebound in agricultural activity while nonagricultural activity remains subdued. The unemployment rate increased to 10.6 percent in Q3:2017 (year-over-year) while youth unemployment remains high at 29.3 percent. Headline inflation (year-over-year) is expected to decline to 0.6 percent in 2017, reflecting lower food prices. Following a marked deterioration in 2016, the current account deficit is projected to improve in 2017 to 3.9 percent of GDP. This primarily reflects Morocco’s global environment, particularly the stronger recovery in Europe, and strong export growth, mostly owing to the good performance of food product and phosphate and derivatives exports.

March 12, 2018

Morocco: Third Review Under the Arrangement Under the Precautionary and Liquidity Line (PLL)-Press Release; Staff Report; and Statement by the Executive Director for Morocco

Description: This paper discusses Morocco’s Third Review Under the Arrangement Under the Precautionary and Liquidity Line (PLL). Morocco’s economic fundamentals and policy frameworks are sound, the country is implementing generally sound policies, and remains committed to maintaining such policies in the future. End-September 2017 quantitative indicative targets on the fiscal deficit and international reserves were met. The authorities have not drawn on the arrangement and continue to treat it as precautionary. Morocco also meets the PLL qualification criteria, performs strongly in three out of the five PLL qualification areas (monetary, financial, and data), and does not substantially underperform in the fiscal policy, and external position and market access areas.

March 12, 2018

Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance—Insurance Core Principles

Description: This paper reviews observance of Insurance Core Principles in Indonesia. Insurance regulation and supervision have been remarkably improved since the establishment of the Financial Services Authority (OJK) and the enactment of the new Insurance Law. However, the assessment has identified a significant number of shortfalls in observance with the Insurance Core Principles. Some deficiencies are owing to the lack of effective group regulation and supervision of insurance groups. Although OJK has implemented regulations related with risk management and group capital, intragroup transactions are not well taken into account. It is recommended that OJK should improve the effectiveness of supervision. Thematic reviews of reserving practices will encourage more conservative reserving.

March 9, 2018

West Bank and Gaza Report to the Ad Hoc Liaison Committee

Description:

Geopolitical turbulence and concerns for the peace process are more elevated than in recent memory. Views of the international community have diverged following the United States’ recognition of Jerusalem as Israel’s capital. Despite renewed calls to revive the peace process, so far there is no agreed path forward. In the meantime, rigid border constraints, spending cuts, and threats of further donor funding declines have compounded the already perilous humanitarian conditions in Gaza, severely impacted the local economy, and increased the potential for unrest. Although progressing slowly, moves toward reunification offer a potential bright spot.

Reunification offers genuine, albeit limited, prospects for economic betterment, provided the associated challenges are handled well. In Gaza, growth could rebound in the near term to the high single digits and stabilize over the medium term at more than 5 percent per annum. These improvements could gradually reduce poverty and unemployment. However, without progress toward reunification, the Palestinian economy would stagnate at around 2⅓ percent growth, too little to generate enough jobs or meaningfully improve living standards.  

These circumstances require a transformational, rather than transactional, approach to reforms and engagement. This means comprehensive reforms by the PA tailored to the circumstances of Gaza, and focused on enabling private sector-led growth and jobs more broadly. While reunification can provide impetus for reform, policies to contain fiscal imbalances, rebuild critical infrastructure, improve public service delivery, and ensure a financial stability remain equally important if reunification is slow or shallow. Given the substantial and heavily front-loaded costs of reunification, success also rests on securing additional donor financing, making tangible progress toward reducing fiscal leakages, and ensuring easier cross-border transactions. While economic prospects improve under reunification, there are also elevated risks if reunification fails to launch or proceeds without sufficient preparation.

March 8, 2018

Belgium: Financial System Stability Assessment-Technical Note- Financial Safety Net and Crisis Management

Description: This Technical Note reviews the state of financial safety net and crisis management arrangements in Belgium. Although actions in Belgium and at the European Union (EU) level have improved the Belgian financial safety net and crisis management arrangements, Belgium still faces challenges, and further actions are needed to improve its operational capacity. At the EU level, the establishment of the single supervisory mechanism and the single resolution mechanism (SRM) are important improvements. The Belgian authorities, particularly the National Bank of Belgium, continue to play a critical role in maintaining financial stability in Belgium. It is recommended that the SRM should ensure the feasibility of resolution strategies for groups with domestic systemically important banks that execute national critical functions.

March 8, 2018

Belgium: Financial System Stability Assessment-Technical Note- Stress Testing the Banking and Insurance Sectors and Systemic Risk Analysis

Description: This Technical Note discusses the results of the stress testing of Belgium’s banking and insurance sectors. Belgium’s financial sector remains resilient in the face of the rising cyclical vulnerabilities, but there is a need for closely monitoring risks. Stress tests on banks and insurance companies confirm that they can absorb credit, sovereign, and market losses in the event of a severe deterioration in macro-financial conditions. All banks meet minimum capital requirements and none needs to draw down its capital conservation buffer over the stress horizon. The risk of interbank contagion through direct exposures is low. Insurance companies are also generally resilient and losses incurred in the stress scenarios by those that belong to banking groups do not threaten the soundness of those groups.