Country Reports
2016
June 21, 2016
Tonga: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Tonga
Description: This paper discusses recent economic developments, economic outlook, risks, and challenges in Tonga. The Tongan economy has been rebounding since a contraction in FY2013. Growth accelerated from 2.1 percent in FY2014 to 3.7 percent in FY2015, supported by construction, tourism, strong remittances, and strong private credit, notwithstanding weather-related disruptions to agricultural production. The FY2016 real GDP growth is projected to remain relatively strong at 3.1 percent, driven by a recovery in agriculture and an increase in construction activity in preparation for the South Pacific Games. However, a protracted period of slower growth in advanced and emerging market economies, particularly in Australia and New Zealand, could weigh on Tonga via aid, remittances, and tourism channels.
June 21, 2016
Jamaica: 2016 Article IV Consultation, Eleventh and Twelfth Reviews Under the Extended Fund Facility and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Jamaica
Description: This paper aims to discuss the economic reform program in Jamaica that focuses on reducing macroeconomic vulnerabilities, fostering growth, creating conditions for financial deepening and inclusion, reallocating public resources to maximize economic returns, and improving competitiveness. After three years of difficult economic reforms, inflation is at historical lows, current account deficit has more than halved, net international reserves have doubled, and access to domestic and international financial markets has been restored, supported by upgrades in credit ratings and historically high business confidence indicators. Comprehensive reforms in tax policy and administration have been and continue to be undertaken, while strict adherence to fiscal discipline have helped place debt on a downward trajectory.
June 17, 2016
United Kingdom: Financial Sector Assessment Program-Systemic Risk and Interconnectedness Analysis-Technical Note
Description: This paper summarizes the assessment of interconnectedness and systemic risk undertaken for the U.K. financial system as part of the Financial Sector Assessment Program. It consists of three parts, focusing on the following: (1) motivation for monitoring cross-sector interconnectedness as part of the financial system’s resilience assessment, (2) description of selected empirical methods that may be employed to analyze interconnectedness, and (3) an illustrative analysis conducted, based on a definition of the financial system that incorporates U.K. banking and life insurance sectors. The assessment of financial system resilience should account for the evolution of interconnectedness between firms and sectors.
June 17, 2016
United Kingdom: Financial Sector Assessment Program-The Bank of England’s Stress Testing Framework-Technical Note
Description: This paper discusses the Bank of England’s (BoE’s) stress testing program, including both the concurrent stress test and the stress testing done by the banks through the Internal Capital Adequacy Assessment Process, though with a clear focus on the former. The stress test is meant to generate information on potential vulnerabilities of the system to emerging and growing risks, both financial and in the real economy. The main purpose of the stress testing framework is to provide a forward-looking, quantitative assessment of capital adequacy of the U.K. banking system as a whole, and individual institutions within it. The stress-testing program is evaluated along five dimensions: scope of coverage, scenario design, analytical infrastructure, disclosure, and governance.
June 17, 2016
United Kingdom: Financial Sector Assessment Program-Fund Management and Equity Trading Platforms: Regulation, Supervision, and Systemic Risk Monitoring-Technical Note
Description: This paper reviews the effectiveness of the regulation, supervision, and systemic risk monitoring of investment funds and their managers. The United Kingdom has the largest fund management market in Europe and a key role as the host for some of the most important European equity trading platforms. A significant proportion of the regulatory framework in this area, in particular that related to conduct of business and disclosure requirements, has been harmonized at the EU level and is largely in line with the relevant international standards. The Financial Conduct Authority has the primary responsibility for the regulation and supervision of fund management and equity trading platforms.
June 17, 2016
United Kingdom: Financial Sector Assessment Program-Insurance Sector-Technical Note
Description: This paper provides an assessment of the insurance sector in the United Kingdom. The United Kingdom has one of the deepest, most developed insurance markets in the world. Insurance penetration is 50 percent higher than in the European Union or other advanced economies, and the expenditure per capita in insurance amounts to US$5,429 as compared with US$3,815 in the advanced economies. The supervisory approach of both the Prudential Regulation Authority and the Financial Conduct Authority (FCA) are forward-looking and risk-based. However, improved data availability and an enhanced risk appetite statement are required. Notwithstanding stronger enforcement on supervisory and enforcement actions, important challenges still need to be addressed by the FCA.
June 17, 2016
United Kingdom: Financial Sector Assessment Program-Basel Core Principles for Effective Banking Supervision-Detailed Assessment Report
Description: This paper provides detailed assessment of observance on the Basel Core Principles for Effective Banking Supervision. The current assessment took place during a period of continuing development and transition. It is based on the assessors’ understanding of the current state of the supervisory approach, but also incorporates, where relevant, the available information about changes expected in the near future. Stress testing has become a critical supervisory tool that encourages firms and supervisors to adopt a more forward-looking view on the strength of their balance sheets and resilience to shocks. The emphasis on stress testing has encouraged firms to strengthen their internal analytical and risk-management capabilities.
June 17, 2016
United Kingdom: Financial Sector Assessment Program-Financial System Stability Assessment
Description: This paper assesses the stability of the financial system of the United Kingdom as a whole, not that of individual institutions. Since the last Financial Sector Assessment Program (FSAP), the U.K. financial system has put the legacy of the crisis behind it and has become stronger and more resilient. This FSAP found the system to be much stronger and thus better able to serve the real economy. Like all systems, the U.K. financial system is exposed to risks. Its position as a global hub exposes the U.K. financial system to global risks. In addition, the uncertainties associated with the possibility of British exit from the EU weigh heavily on the outlook.
June 17, 2016
United Kingdom: Financial Sector Assessment Program-Macroprudential Institutional Framework-Technical Note
Description: This paper reviews the institutional framework for the conduct of macroprudential policy in the United Kingdom and the steps taken by the authorities to make the macroprudential framework operational. An effective macroprudential framework is crucial for the U.K. financial system to remain a global public good, given its size and systemic nature. The paper reviews how the institutional setup promotes the willingness to act, ability to act, effective cooperation, and accountability. A strong institutional framework is essential to ensure that macroprudential policy can work effectively. This review is also focused on the authorities’ processes for monitoring systemic risk (including beyond the core financial system), data gaps, and the U.K. macroprudential toolkit.
June 17, 2016
United Kingdom: Financial Sector Assessment Program-Stress Testing the Banking Sector-Technical Note
Description: This paper discusses how Financial Sector Assessment Program (FSAP) stress test assesses the resilience of the banking sector as a whole rather than the capital adequacy of individual institutions. The FSAP approach to stress testing is essentially macroprudential: it focuses on resilience of the broader financial system to adverse macro-financial conditions rather than on resilience of individual banks to specific shocks. This test ensures consistency in macroeconomic scenarios and metrics across firms to facilitate the assessment of the banking system as a whole. The stress test analysis is intended to help country authorities to identify key sources of systemic risk in the banking sector and inform macroprudential policies to enhance its resilience to absorb shocks.