Country Reports
2024
September 5, 2024
Republic of Latvia: Selected Issues
Description: This paper assesses recent developments in Latvia’s competitiveness and productivity in the context of Baltic economies. Latvia’s export market share has declined in recent years reflecting weakening external demand and the effects of EU trade sanctions, but only limited loss of competitiveness. Latvia faces weakening competitiveness. Latvia’s real effective exchange rate appreciation in recent years has been greater than that implied by its productivity trend, so the economy faces a narrowing competitiveness buffer. Latvia’s total factor productivity growth boost post-global financial crisis is unlikely to be sustained without structural reforms and efforts to increase capital investment. A decade-long weak investment, large infrastructure gaps, aging and emigration, and insufficient accumulation in skills weigh on Latvia’s productivity growth and competitiveness. These also pose risks that Lavia could be caught in a middle-income trap with low growth and slow convergence to euro area income level. Therefore, Latvia requires significantly higher investment for sustained convergence. In order to preserve Latvia’s competitiveness and build more resilience against future shocks, it is key to promote productivity growth via structural reforms and capital investment. Boosting productivity is also needed to meet challenges presented from Russia’s war in Ukraine and the ongoing transitions to sustain income convergence.
September 4, 2024
Saudi Arabia: Financial Sector Assessment Program-Financial System Stability Assessment
Description: This paper highlights Saudi Arabia’s Financial System Stability Assessment as part of Financial Sector Assessment Program (FSAP). The FSAP took place against the backdrop of a robust economy driven by an ambitious state-led transformation agenda to accelerate Saudi Arabia’s economic diversification (Vision 2030). The Kingdom’s sovereign wealth fund plays a key role in implementing and funding the economic transformation. At present, financial sector risks from the rapid economic transformation appear contained. Banks are well-capitalized, profitable and appear resilient to severe macroeconomic shocks. Banks’ capacity to manage liquidity stress scenarios is generally good, although funding concentration is sizable. The authorities have made commendable efforts to mitigate risks from the rapidly growing credit and real estate market, but significant data gaps create challenges for systemic risk monitoring. The time is right to strengthen systemic risk monitoring and the legal, institutional, and operational frameworks in support of financial stability going forward.
September 4, 2024
South Africa: Post-Financing Assessment-Press Release; and Staff Report
Description: This paper presents South Africa’s Post-Financing Assessment report. The new government of national unity that took office in June faces significant challenges, including declining real per capita growth, high unemployment, poverty, and inequality, and a rising level of public debt. The new administration has committed to address these challenges by continuing ongoing structural reforms aimed at addressing supply constraints and bolstering inclusive growth, while maintaining fiscal discipline. Monetary policy should carefully manage the descent of inflation to the mid-point of the target range and stay data dependent. The report recommends that policies should focus on bolstering inclusive growth and restoring fiscal sustainability, while managing the descent of inflation to target and safeguarding financial stability. Monetary policy should stay data dependent and rate cuts be considered only after inflation declines sustainably toward the midpoint of the target range. The authorities should continue to monitor financial sector risks, including those related to the bank-sovereign nexus, and enhance supervision and prudential regulations.
September 4, 2024
Saudi Arabia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for Effective Banking Supervision
Description: This paper discusses Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision for the Saudi Arabia Financial Sector Assessment Program. Saudi Central Bank (SAMA) has progressively updated its regulations and continued focus on this process will be important. SAMA’s responsibility for banking supervision is clearly set out in the law, although without clearly establishing the promotion of safety and soundness of banks and the banking system as an explicit or primary mandate. There is room to strengthen SAMA’s operational independence, accountability framework, transparency, and legal protection. Strengthening powers and updating regulations, along with developing internal guidelines, will help strengthen processes for licensing, transfer of significant ownership and controlling interest, and major acquisitions by banks. SAMA’s well-established risk-based approach would benefit from a review of the scope of application of supervisory oversight, tools, and reporting. Prudential requirements mostly apply (appropriately) at both a solo and consolidated level, but monitoring is in practice only at the domestic level.
September 4, 2024
Saudi Arabia: 2024 Article IV Consultation-Press Release; and Staff Report
Description: Saudi Arabia’s unprecedented economic transformation is progressing well. Strong domestic demand is keeping non-oil growth robust while unemployment is at record lows. Inflation is contained and the current account surplus is rapidly narrowing. The recalibration of the authorities’ investment plans would help reduce overheating risks and pressures on fiscal and external accounts.
September 3, 2024
Vanuatu: Selected Issues
Description: This Selected Issues paper discusses sea-level rise impacts and adaptation in Vanuatu. Sea-level will continue to increase during this century directly caused by global warming and melting of terrestrial ice. While Vanuatu cannot control global sea-level, it can manage how it affects the country by adapting. Staff analysis estimates the cost of sea-level rise under alternative adaptation strategies: (1) no-adaptation; (2) protection; and (3) planned retreat. Such analysis can help the government to identify trade-offs between efficiency and equity, and choose according to the preferences of the population, consistent with public finance objectives. Preliminary results show that complete protection of coastal areas in Vanuatu is costly while planned retreat from the coastline is the least-cost adaptation response. However, given the mountainous nature of the islands, only small areas of the main population centers of Port Vila and Luganville are at risk of being permanently inundated even with very high sea level rise.
September 3, 2024
Vanuatu: 2024 Article IV Consultation-Press Release and Staff Report
Description: The 2024 Article IV Consultation highlights that as Vanuatu was recovering from the multiple natural disasters of 2023, the voluntary liquidation of Air Vanuatu in May 2024 created a major shock with significant effects on growth and business confidence. There is a strong need to address immediate risks to growth and stability, and then redouble efforts to rebuild buffers and tackle structural issues with policy reforms. Fiscal challenges abound and call for urgent and comprehensive action. In the near term, targeted and strategic support is needed to help stabilize the economy, while ensuring fiscal accounts remain under control. Monetary policy is appropriately accommodative but monetary financing needs to be reduced and eventually stopped. The currency basket needs close monitoring. Structural issues remain ever important, and action is needed such as reprioritization of investment needs and integration to the medium-term fiscal strategy, and an increase in efforts to address labor shortages and skills drain.
August 30, 2024
Jamaica: Third Reviews Under the Arrangement Under the Precautionary and Liquidity Line and the Arrangement Under the Resilience and Sustainability Facility-Press Release and Staff Report
Description: This paper focuses on Jamaica’s Third Reviews Under the Arrangement Under the Precautionary and Liquidity Line (PLL) and the Arrangement Under the Resilience and Sustainability Facility (RSF). Jamaica’s response to recent shocks has strengthened the credibility of policy frameworks, supporting an economic environment characterized by sustained growth, declining debt, low inflation, and a strengthened external position. Jamaica has continued to implement an ambitious reform agenda that strengthened the fiscal and financial policy frameworks and the climate policy agenda to make the economy more resilient to climate change. Going forward, gross domestic product growth is expected to converge to potential and inflation to return to the mid-point of the target band. The PLL has supported efforts to strengthen the institutional framework for consolidated supervision of financial conglomerates, enhance the framework for the resolution of financial institutions, bring the anti-money laundering and countering the financing of terrorism framework to international best practice, and improve data adequacy. The RSF has supported Jamaica’s ambitious agenda to accelerate the transition to renewables, increase resilience to climate change, enhance the climate focus in fiscal policy frameworks, strengthen the management of climate risks by financial institutions, and catalyze climate financing.
August 30, 2024
People’s Republic of China: Selected Issues
Description: This Selected Issues paper assesses the downside risks to inflation around the baseline in China. Recent economic shocks in China, including the ongoing property sector adjustment, have resulted in disinflationary pressures and low inflation. A deflation vulnerability index (DVI) has been developed, which combines data from many factors that may contribute to deflationary pressures. This paper refines the list of deflation risk indicators to better reflect China’ deflation pressures. Based on the DVI, China is currently experiencing its longest recorded period of downward pressure on inflation. The inflation-at-risk analysis suggests that output gaps and inflation expectations are the key components of DVI affecting the tail risk of core deflation in China. The probability of deflation in China is currently estimated to be around 7 percent in the baseline but could be as large as 27 (54) percent 9 months after a one (two) standard deviation shock to DVI.
August 28, 2024
Chile: Request for an Arrangement under the Flexible Credit Line and Cancellation of the Current Arrangement-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for Chile
Description: This paper highlights Chile’s Request for an Arrangement under the Flexible Credit Line (FCL) and Cancellation of the Current Arrangement. The imbalances built during the pandemic have been largely resolved shifting priorities to supporting stronger, more inclusive and greener medium-term growth. The near-term outlook has improved, primarily due to higher copper prices and prospects for increased lithium production. Chile qualifies for the FCL by virtue of its very strong economic fundamentals and institutional policy frameworks, and sustained track record of very strong macroeconomic policies. In the context of the still elevated external risks and a stronger near-term baseline outlook, the authorities have requested a reduction in access. They are committed to gradually lowering access depending on external risk developments and intend to continue treating the arrangement as precautionary. The proposed new commitment and cancellation of the current arrangement would have a net positive impact on the IMF’s liquidity position.