Country Reports
2023
September 29, 2023
Vietnam: Technical Assistance Report-Macroeconomic Framework Technical Assistance–Ministry of Planning and Investment: Scoping Mission
Description: This paper presents the findings, summary and recommendations of macroeconomic framework technical assistance (TA) mission in Vietnam. The purpose of this technical assistance (TA) project initiated by this scoping mission is building capacity in macroeconomic analysis and forecasting in the Ministry of Planning and Investment (MPI). The MPI is establishing a Core Working Group (CWG) under MPI’s coordination that will carry out macroeconomic analysis and asked the IMF assistance in building the capacity of the CWG. The mission found that there is no fully-fledged multi-sector macroeconomic framework used by departments across different ministries in charge of macroeconomic analysis and forecasting. The CWG will take the lead in implementing the activities and identify targets in the TA action plan and will be supported by the IMF TA team. The CWG will develop and customize the macroeconomic projection tool (MPT) for Vietnam, operate the MPT to produce macroeconomic analysis and forecasting, develop user guides and manuals for staff, and present the output to policy makers as part of the policy making process.
September 27, 2023
Vietnam: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Vietnam
Description: The 2023 Article IV Consultation discusses that Vietnam experienced a robust post-pandemic economic recovery in 2022 thanks to strong economic fundamentals and prudent public health management during the pandemic. In addition, amidst high private debt and rising global interest rates, a liquidity crunch distressed highly leveraged sectors (in particular, real estate), the corporate bond came to a halt, and nonperforming loans rose. As a result, economic activity decelerated sharply in the first half of 2023. While the government managed to stabilize the markets, risks remain elevated. The report recommends addressing the multiple headwinds affecting the economy calls for a comprehensive, multi-pronged response by the government. In addition, Vietnam should implement far-reaching reforms to meet its ambitious medium- and long-term objectives of sustained high and green economic growth. In addition, achieving the ambitious medium-term growth and climate goals will require accelerating reforms to improve the business environment, critical infrastructure, and human capital.
September 22, 2023
Honduras: 2023 Article IV Consultation and Requests for an Arrangement Under the Extended Fund Facility and an Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Honduras
Description: This paper presents Honduras’ 2023 Article IV Consultation and Requests for an Arrangement under the Extended Fund Facility and an Arrangement under the Extended Credit Facility. These arrangements provide support for the Honduran government’s economic and institutional reform agenda over the next three years. The program also aims to support the authorities’ efforts to improve governance and transparency and fight corruption. The program will advance policies needed to strengthen economic resilience and address structural bottlenecks to boost inclusive growth, including by increasing public investment while safeguarding macroeconomic stability. Reforms in the energy sector will be essential to limit fiscal risks and improve the business environment. The authorities are implementing a comprehensive loss reduction plan to strengthen the financial position of the public electricity company and enhance the provision of electricity. In this context, the program also aims to support the authorities’ efforts to build resilience to climate change.
September 21, 2023
Ecuador: Financial System Stability Assessment
Description: This paper discusses financial system stability assessment (FSSA) in Ecuador. Banks and credit cooperatives dominate Ecuador’s financial system. While dollarization provides an important anchor for the Ecuadorean economy, systemic liquidity risks are high due to the limited capacity of the central bank to provide liquidity. The financial sector is overall resilient to adverse macrofinancial shocks but some institutions have meaningful solvency and liquidity vulnerabilities. To preserve confidence it is key to enhance capitalization, promptly recognize loan losses, and address unviable institutions. The FSSA concluded that institutional framework for financial sector oversight is complex, uncoordinated, and prone to political intervention. Reforms are needed to enhance supervisory independence, prioritize safety and soundness; separate prudential supervision from other functions, and substantially strengthen the supervisory approach. The macroprudential framework needs further progress by developing stronger financial sector-wide analytical capacity, improving information sharing and coordination, and clarifying the roles between multiple agencies.
September 21, 2023
Botswana: Financial System Stability Assessment
Description: This paper discusses financial system stability assessment in Botswana. Botswana’s financial sector, which exhibits high integration between banks and non-bank financial institutions, withstood the pandemic well. The economic recovery continues to be strong, but inflation remains high with risks tilted to the upside. The financial sector appears broadly stable, sound, and resilient. Main risks relate to banks’ high concentration of lumpy short-term deposits from retirement funds and insurance companies, volatility in diamond prices, geo-political developments, and the tightening of global financial conditions. The challenging risk environment underscores the need to address the existing gaps in the financial stability framework and the supervisory regime that could impede Bank of Botswana’s operational independence in supervisory matters. The banking supervision approach should be more risk-based and forward-looking, with more skilled staff who can identify emerging risks in the more complex banking sector. Specific regulations for material risks should be issued and Pillar 2 supervisory assessments developed for more risk-sensitive capital requirements. Data gaps should be addressed to enable the implementation of stress tests on a globally consolidated basis, perform more granular analyses of household and corporate sector vulnerabilities, and activate macroprudential tools.
September 21, 2023
Angola: First Post-Financing Assessment Discussions-Press Release
Description: This paper highlights first post financing assessment discussions in Angola. Successful reforms coupled by firmed oil prices supported the Angola’s economic recovery in 2021–22; however, declined oil production has led to significant challenges to the economy. Towards the end of 2022 and the first half of 2023, the oil sector weakened due to the extension of temporary maintenance operations. With declines of both oil prices and production in the first half of 2023, exports and oil revenues declined, resulting in a weakness in the fiscal and external sectors, and a significant depreciation in the nominal exchange rate in June 2023. Continued efforts are needed to bolster financial stability. Ongoing prudential reforms should continue to improve banking sector oversight and health. Maintaining focus on medium-term structural reforms is critical to maintaining growth in the context of a declining oil production. Lessening the dependence on the oil sector is critical and should remain the authorities’ medium-term focus, to reduce vulnerabilities arising from the increased volatility of this sector.
September 18, 2023
Kingdom of Bahrain: Selected Issues
Description: This Selected Issues paper on the Kingdom of Bahrain presents a counterfactual analysis on financial system effects of introducing a Central Bank Digital Currency (CBDC) in Bahrain. Bahrain has made significant strides in the areas of fintech and the adoption of digital payments. The analysis presented in this paper aims to assess some of these benefits and risks for Bahrain. It will quantify the potential impact of introducing a CBDC on the financial system and monetary policy transmission using a model specifically calibrated and estimated for Bahrain. It finds that a CBDC's perceived utility by the population is key for wide adoption. While high adoption and remuneration can help enhance monetary policy transmission, they may imply a drag on banking system profitability. A careful and analytically informed design could enhance adoption while limiting risks to financial stability. CBDC introduction strengthens monetary policy pass-through and more so if it were remunerated.
September 18, 2023
Kuwait: 2023 Article IV Consultation-Press Release; and Staff Report
Description: The 2023 Article IV Consultation discusses that benefiting from high oil prices, Kuwait’s economic recovery continues, and inflation is contained. Non-oil gross domestic product (GDP) growth rose to an estimated 3.4 percent in 2021, benefiting from a recovery in domestic and external demand, and strengthened further to 4.0 percent in 2022. This, together with a pickup in oil production, resulted in a rebound in overall real GDP growth to 8.2 percent in 2022. While oil GDP growth is expected to decline in 2023 due to oil production cuts, non-oil GDP growth would stay robust, driven by domestic demand, and is foreseen to remain steady over the medium term. A structural reform package is needed to boost labor productivity and non-oil private sector-led growth. Strong non-oil private sector-led growth is needed to absorb new labor market entrants. This requires a comprehensive set of reforms that tackle deep-rooted structural challenges. In order to incentivize Kuwaitis to seek careers in the private sector, labor market reforms to promote a market aligned wage structure are needed.
September 18, 2023
Kuwait: Selected Issues
Description: This Selected Issues paper empirically investigates the banking sector and macroeconomic spillovers to Kuwait from US monetary policy tightening. It finds that pass-through from the US policy rate to lending and deposit rates in Kuwait is high in the short run, and complete in the long run. It also finds that the impact of US monetary policy tightening on the Kuwaiti economy depends on the level of oil prices relative to their fiscal breakeven. The estimation results suggest that the negative impact of US monetary policy tightening on non-oil gross domestic product growth depends on the level of oil prices. The overall growth impact of US monetary policy tightening is found to be larger and more persistent when oil prices are below their fiscal breakeven level. This paper finds that spillovers from US monetary policy tightening to the Kuwaiti economy depend on oil prices. It shows that market interest rates in Kuwait comove strongly with the US policy rate.
September 15, 2023
Republic of Latvia: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Latvia
Description: The 2023 Article IV Consultation highlights that Latvia is facing an inflation shock, slow growth, and geopolitical challenges. The government will have to continue to deal with the spillovers in the Baltic region from the Russian invasion of Ukraine and the impact of sanctions imposed on Russia and Belarus, the cost-of-living crisis, and energy security. These short-term concerns are adding to the long-term policy challenge of sustaining the income convergence process. Latvia’s income convergence has already been lagging the other Baltic countries. Amid high uncertainty, the balance of risks is tilted to the downside. The main risks stem from an escalation of the war and associated sanctions, which could result in renewed increases in energy prices, energy supply disruptions in Europe, and weaker external demand. Global financial conditions could further tighten, with spillovers to Latvian banks and domestic credit growth. The paper recommends that structural policies should facilitate the green transition, reduce skill shortages, and boost productivity.