Country Reports
2023
July 31, 2023
Malawi: First Review Under the Staff-Monitored Program with Executive Board Involvement-Press Release; Staff Report; and Statement by the Executive Director for Malawi
Description: Malawi has been affected by a series of shocks— including an outbreak of cholera and Cyclone Freddy, which caused significant loss of life and damage to infrastructure—since the approval of the Staff-Monitored Program with Executive Board Involvement (PMB) on November 11, 2022, and the disbursement of $88.3 million in emergency financing under the Food Shock Window of the Rapid Credit Facility on November 21, 2022. In this context, growth has been weaker and inflation higher than expected. The fiscal deficit in FY2022/23 (April/March) was larger than expected at the time of the PMB. Meanwhile, external strains—including shortage of foreign exchange, difficulties securing trade credit, and a widening spread between official and bureau exchange rates—have heightened. Despite a sharp reduction in the current account deficit, accumulation of foreign exchange reserves has been slower than expected, implying an increase in informal trade.
July 31, 2023
Somalia: Poverty Reduction Strategy Paper-Joint Staff Advisory Note
Description: This Joint Staff Advisory Note (JSAN) reviews the first Annual Progress Report (APR) on Somalia’s Ninth National Development Plan (NDP9).1 NDP9 is a nationally owned and comprehensive strategy for poverty reduction and inclusive growth. It covers 2020–2024 and is organized around the four pillars: Inclusive Politics, Security and the Rule of Law, Economic Development and Social Development . NDP9 was submitted to the IMF and World Bank on October 15, 2019, to fulfill the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative’s poverty reduction strategy requirement. The first Annual Progress Report (APR) was received by the World Bank and the IMF in June 2022. It describes the progress of the Federal Government of Somali (FGS) in implementing the first year of the NDP9, i.e., in 2020. The government is in the process of preparing the midterm review of NDP9, which will serve as APR for 2021 and 2022.
July 28, 2023
Kingdom of the Netherlands-Curaçao and Sint Maarten: 2023 Article IV Consultation Discussions-Press Release; and Staff Report
Description: Curaçao and Sint Maarten, which form a monetary union (Union), are recovering from the pandemic and earlier shocks. Substantial tourism recoveries in both economies supported robust growth and strong fiscal adjustments. Curaçao’s GDP is still below its pre-pandemic level while Sint Maarten is expected to exceed it this year. Both countries are working on structural reform packages, although the focus is still mainly on studies and preparation.
July 28, 2023
Republic of Estonia: 2023 Article IV Consultation-Press Release; and Staff Report
Description: Estonia has made remarkable progress over the past two decades, achieving steady convergence towards more advanced EU economies. However, signs of erosion in external performance have emerged in recent years, reflecting rapid growth in unit labor cost and real exchange rate appreciation. Russia’s invasion of Ukraine triggered a large rise in inflation, supply chain disruptions and slower growth in key trading partners in the Baltic region. In Estonia, these developments, combined with fiscal tightening in 2022, have led to a sharp economic downturn, while deceleration in productivity has exacerbated competitiveness erosion.
July 28, 2023
Iceland: Financial Sector Assessment Program-Technical Note on Anti-Money Laundering/Combating the Financing of Terrorism
Description: Iceland’s banking sector is comparatively small, and the geographical reach of cross-border payments activity is limited. This limited payments’ activity is also well explained by the economic fundamentals (e.g., foreign trade, direct investments) which reduces the overall inherent money laundering (ML) risk exposure.1 In addition, Iceland has minimal flows with countries at high ML risks (as identified by authorities), low levels of outlier cross-border payments, and low levels of financial flows insufficiently explained by the economic fundamentals.
July 28, 2023
Iceland: Financial Sector Assessment Program-Technical Note on Cyber and Operational Resilience, Supervision and Oversight
Description: The Icelandic financial system is large, concentrated and interconnected - banks and Non-Bank Financial Institutions (NBFIs) - domestically and internationally. There are 10 banks: 4 commercial banks and 6 savings banks, but the system is dominated by just three of the commercial banks (Arion banki, Íslandsbanki and Landsbankinn) that together account for 95 percent of banking assets. Cash use is declining as a percentage of point of sale (POS) transactions, leading to an increasing dependence on electronic payment means. The debit and credit cards used for most retail transactions rely on international communications with Visa and Mastercard.
July 28, 2023
Iceland: Financial Sector Assessment Program-Technical Note on Pension Fund Regulation and Supervision
Description: Iceland’s mandatory occupational pension fund sector is large, and risks are mostly borne by pension fund members and beneficiaries. The mandatory part of the second pillar is provided by 21 autonomous pension funds, and the large majority of schemes can be categorized as defined ambition, a regime aimed at fully-funded liabilities where risks are borne collectively by the members. Defined-benefit schemes which cover the public sector were closed for new members already in the late 1990s. While defined-ambition schemes do not guarantee any pre-determined pension payment, the system has a targeted minimum replacement rate of 72 percent—the effective replacement rate, however, is determined by the performance of pension funds. Total assets of the pension fund sector1 amount to almost twice the GDP (176 percent at end-2022), making it one of the worldwide largest.
July 28, 2023
Iceland: Financial Sector Assessment Program-Technical Note on Detailed Assessment on Basel Core Principles for Effective Banking Supervision
Description: Much progress has been achieved in strengthening Iceland’s banking regulatory and supervisory framework since the IMF’s prior BCP assessment was undertaken in 2014. The Ministry of Finance and Economic Affairs (Iceland) (MoFEA) together with the Central Bank of Iceland (CBI) undertook a thorough legislative reform agenda which included the transposition of the EU legislative framework and EBA guidelines into Icelandic banking law, enacted a new law for banking resolution as well as established the Resolution Authority within CBI, and adopted new liquidity requirements (Basel III). Further, CBI fully implemented its risk based supervisory framework, adopting supervisory methodology that focuses on high-impact financial institutions, ensuring deep analysis by off-site supervisors on capital, liquidity, business model analysis, as well as governance and internal controls. CBI, together with other relevant agencies, also developed and implemented a new AML/CFT legislative and supervisory framework for banks (applicable to all regulatory institutions that CBI now regulates since the merger with the FSA).
July 28, 2023
Iceland: Financial Sector Assessment Program-Technical Note on Stress Testing and Systemic Risk Analysis
Description: The FSAP took place against the background of a strengthened financial sector in Iceland amid heightened uncertainty in the global economy. The Icelandic financial landscape has undergone significant structural transformation since the global financial crisis with a contracted banking sector. The banking sector has deleveraged swiftly and curtailed cross-border exposure since the GFC with asset reduced from ten times of GDP to 410 percent of GDP from 2007 to 2022Q3, while pension funds have gained systemic importance with assets at 176 percent of GDP2 as of end-2022 with large holdings of public debt and close ties with the banking system. The financial system has also weathered the global pandemic on the back of strong fundamentals, while leaving uneven sectoral impact across the economy. Nonetheless, the intensified fragmentation of the global economy coupled with continued tightening of financial condition and volatile market sentiment has amplified the downside risks which may prompt knock-on effects on the Icelandic economy and financial sector going forward.
July 28, 2023
Iceland: Financial Sector Assessment Program-Technical Note on Management and Supervision of Climate-Related Financial Risks in the Banking Sector
Description: The Icelandic authorities are committed to addressing climate change issues and reaching ambitious objectives to reduce GHG emissions. Iceland is naturally exposed to significant natural hazards, such as volcanic eruptions and extreme weather conditions. The country is also exposed to physical risks resulting from climate change, such as sea acidification and melting glaciers (a long-term risk), as well as climate change transition risks, for instance, concerning the fisheries and transportation sectors. Still, Iceland can leverage its unique assets to overcome challenges of adapting to climate change. One asset is Iceland’s abundant domestically produced renewable energies that cover nearly all the country’s heat and electricity production needs. The 2020 Climate Action Plan and the 2021 Iceland’s Strategy on Adaptation to Climate Change include ambitious objectives toward GHG emissions’ neutrality.