Country Reports
2024
August 26, 2024
Arab Republic of Egypt: Third Review Under the Extended Arrangement Under the Extended Fund Facility, Monetary Policy Consultation Clause, Requests for Waivers of Nonobservance of a Performance Criterion and Applicability of Performance Criteria, and Request for Modification of Performance Criteria-Press Release; and Staff Report
Description: This paper presents Arab Republic of Egypt’s Third Review under the Extended Arrangement under the Extended Fund Facility (EFF), Monetary Policy Consultation Clause, Requests for Waivers of Nonobservance of a Performance Criterion and Applicability of Performance Criteria, and Request for Modification of Performance Criteria. The Egyptian authorities’ recent efforts to restore macroeconomic stability have started to yield positive results. Inflation remains elevated but is coming down. A flexible exchange rate regime remains a cornerstone of the authorities’ program. However, the regional environment remains difficult, and complex domestic policy challenges require decisive implementation of the authorities’ reform program. Continued fiscal consolidation, with strengthened revenue mobilization, to create the space needed to expand social programs. Meaningfully advancing with the structural reform program would significantly improve growth prospects. Managing the resumption of capital inflows prudently will also be important to contain potential inflationary pressures and limit the risk of future external pressures.
August 13, 2024
Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for Effective Banking Supervision
Description: This paper presents a Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision for the Indonesia Financial Sector Assessment Program. The Financial Services Authority (OJK) achieves good baseline supervision; building supervisory capacity and enhancing the supervisory framework will contribute to achieving higher supervision standards. It is crucial for legislation to recognize the safety and soundness of banks and the banking sector as the OJK’s primary responsibility, given its broader mandates. The OJK is encouraged to continue to examine banks’ evolving business models to identify changing risk profiles early. There is further scope for the OJK to dedicate more attention to assessing a bank’s risk culture, model governance and stress testing. There is scope for more analysis of models, model governance, model validation, and the role of the independent risk management unit to verify and validate the results. Material enhancements are needed to effectively mitigate the risks associated with related party transactions and potential sources of concentration risk. While the OJK has broad powers for corrective measures, a portfolio view of noncompliance with regulations will help address early unsafe and unsound practices.
August 8, 2024
Indonesia: Financial Sector Assessment Program-Financial System Stability Assessment
Description: This paper presents financial sector stability assessment as part of Financial Sector Assessment Program in Indonesia. The financial system appears to be broadly resilient, has strong capital and liquidity buffers but remains relatively small and dominated by banks, especially few state-owned banks. Household and corporate indebtedness and public debt are low. The increase in banks’ holdings of government bonds and loans to state-owned enterprises has tightened the sovereign-bank nexus, but banks appear to be resilient. Credit risk tends to be higher in pandemic-hit industries and highly leveraged corporations. The mission recommends strengthening loan quality recognition by banks and risk assessment of small banks. Corporate and banks foreign exchange (FX) liquidity analysis could be integrated to identify systemic FX risks which can inform the setting of micro- and macroprudential policy instruments. Strengthening independence of the supervisor and providing clarity on primary supervisory objectives is important. Indonesia’s resolution framework should be more closely aligned to the FSB Key Attributes, including regarding the bail-in tool, and should cover financial conglomerates in the framework. Authorities should not delay resolution of weak banks by providing liquidity assistance from the deposit insurance fund.
August 7, 2024
Indonesia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Indonesia
Description: The 2024 Article IV Consultation highlights that Indonesia’s growth remains strong despite external headwinds. Inflation is firmly in the target range and the financial sector is resilient. The authorities have been pursuing an ambitious growth agenda to reach high-income status by 2045. This comprises public spending, institutional reforms, and Industrial Policy. Risks are broadly balanced. Key downside risks include persistent commodity price volatility from geopolitical shocks), an abrupt slowdown in Indonesia’s key trading partners, or adverse spillovers from tighter-for-longer global financial conditions. A slightly narrower deficit would support both growth and a more balanced policy mix. The policy rate is above neutral; with financial risks contained, accommodative macroprudential policy has supported credit growth while liquidity remains comfortable. Monetary policy should remain data-driven, based on the evolution of domestic conditions, and the exchange rate serving as a shock absorber. Bridging structural gaps will be needed to achieve higher and inclusive potential growth and reach high income status, as envisaged in the country’s national development strategy—the Golden Vision 2045.
August 7, 2024
Indonesia: Selected Issues
Description: This Selected Issues paper explores structural reforms to achieve high-income status in Indonesia. Indonesia aims to achieve high-income status by 2045. Efforts are needed to strengthen the quality of Indonesia's infrastructure and logistics, its business environment and lay the ground for an infrastructure base capable of supporting stronger economic activity. Achieving inclusive growth will require to minimizing human development gaps. This includes efforts to enhance heath, reduce labor vulnerability and informality, and gender gaps, so as to level up living conditions broadly, without dividing the population between those gaining from stronger growth and those left behind. The results indicate that external sector regulation and economic openness, governance, business regulation and human development areas should be implemented in priority, as they would enhance inclusiveness and support a leveling up of living standards for the country as a whole. Moreover, these reforms have been shown to be complementary and likely to deliver stronger output effects when bundled together.
August 5, 2024
Guatemala: Selected Issues
Description: This Selected Issues paper explores effects of social unrest in Guatemala. The paper estimates the effects of social unrest on Guatemala’s economy from 2001 to 2023, using the monthly Reported Social Unrest Index as a measure of social unrest. The estimations of the empirical model suggest no effects of social unrest episodes on the main external sector variables. The empirical evidence suggests little to no impact of social unrest in Guatemala. Contrary to Hadzi-Vaskov et al. (2023), the analysis of the effects of social unrest in Guatemala suggests that the effects on the real, monetary, financial, and external sectors are mild, limited, and temporary if not negligible. On the one hand, the lack of cross-country dimensionality is a limitation of our analysis, but on the other hand, exploiting monthly data allows us to disentangle unrest episode effects at higher frequencies than other papers in the literature. Overall, the results are robust to different specifications; the set of controls is extensive and includes controls for future social unrest shocks autocorrelations. The results suggest that Guatemala is resilient to unrest shocks at business-cycle frequencies, even of considerable magnitude.
August 5, 2024
Guatemala: 2024 Article IV Consultation-Press Release; and Staff Report
Description: The 2024 Article IV Consultation discusses that Guatemala has continued to maintain its solid track record of macroeconomic policies, with economic growth moderating to an estimated 3.5 percent in 2023 and consumer price index inflation and inflationary pressures decelerating from a 9.9 percent peak year-on-year in February 2023 to 3.6 percent in June 2024, within the monetary policy target. The Guatemalan economy continues to show stability and soundness thanks to a legacy of prudent monetary and fiscal policies. The country's outlook remains favorable, with risks skewed to the downside. With hefty investment needs, Guatemala will need to boost revenue while bolstering the quantity and quality of spending. Higher growth and absorption of capital flows into the country requires gradual strengthening of the monetary and exchange rate policy frameworks. An inclusive and sound financial sector guided by prudential principles should further support Guatemala’s economic development efforts.
August 2, 2024
People’s Republic of China: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the People’s Republic of China
Description: The 2024 Article IV Consultation explains that China’s economy has remained resilient despite the continued weakness in the property sector, with gross domestic product (GDP) growing by 5.2 percent in 2023, and 5 percent y/y in the first half of 2024. The authorities have taken incremental policy steps to achieve these objectives, but a comprehensive and balanced policy approach is needed to manage the challenges facing the economy. GDP growth is expected to remain resilient at 5 percent in 2024 despite the continued property sector adjustment, supported by strong public investment and the ongoing recovery in private consumption. Inflation has been low in recent quarters amid considerable economic slack and is expected to pick up gradually as the output gap closes and the impact of lower commodity prices wanes. Growth is expected to slow in the medium term amid declining productivity growth and aging. The immediate priorities are to facilitate a more efficient and less costly property sector adjustment and to provide adequate macroeconomic policy support amid continued slack and elevated downside risks. Tackling the debt overhang, preventing the build-up of new risks, and fostering high-quality and sustainable growth requires comprehensive structural reforms.
August 2, 2024
Hungary: 2024 Article IV Consultation-Press Release; and Staff Report
Description: The 2024 Article IV Consultation discusses that Hungary is emerging from a period of shocks. The pandemic, Russia’s war in Ukraine, and crisis-related stimulus widened fiscal and external imbalances and triggered double-digit inflation in 2022. Thanks to an effective monetary policy response aided by falling commodity prices and a tighter fiscal stance in 2023, inflation came down significantly, while the labor market and financial sector remained resilient. Despite some progress, the ongoing negotiations on the super milestones, including the Commission’s assessment of governance conditions, are delaying the disbursement of EU funds, which are vital for digitalization, regional integration, and the green transition. A credible and growth-friendly fiscal adjustment plan is needed to safeguard macroeconomic stability. Monetary policy should remain in restrictive territory to deliver a sustainable return of inflation to target. Coordinated policy approach is needed to improve Hungary’s productivity, reduce regional inequality, strengthen governance, and advance the green transition.
August 2, 2024
Hungary: Selected Issues
Description: This Selected Issues paper presents monetary policy analysis with a quarterly projection model (QPM) in Hungary. The standard QPM is adapted to reflect some specific features of the Hungarian economy and post-Covid set of shocks. Inflation is modelled in greater sectoral detail, including the separation of core goods and services, to capture differences in their drivers and dynamics and to model spillovers of shocks from one sector to another. Following a period of large interest rate reductions, the projections from the QPM suggest that the next phase of monetary policy normalization should proceed cautiously and more gradually. Results from the model should be used alongside other forms of analysis and expert judgement in determining the optimal path of monetary policy. Data should be watched keenly to assess the realism of the model’s projections.