Country Reports
2022
July 29, 2022
Sierra Leone: 2022 Article IV Consultation and Fifth Review under the Extended Credit Facility Arrangement, Requests for Waivers of Nonobservance of Performance Criteria, Modifications of Performance Criteria, and Financing Assurance Review-Press Release; Staff Report; and Statement by the Executive Director for Sierra Leone
Description: This paper presents Sierra Leone’s 2022 Article IV Consultation and Fifth Review under the Extended Credit Facility (ECF) Arrangement, Requests for Waivers, of Nonobservance of Performance Criteria, Modifications of Performance Criteria, and Financing Assurance Review. The economic recovery from the pandemic has been set back by the impact of the war in Ukraine and the medium-term outlook remains challenging. Successive external shocks have contributed toward mixed performance under the ECF arrangement. The authorities have committed to strong corrective actions to bring the fiscal situation under control. Sierra Leone continues to pursue its development path amidst continued vulnerability to shocks and capacity needs. Sustained efforts to strengthen governance will be essential, to reduce vulnerabilities to corruption, foster private sector development and growth, and ensure more effective delivery of public services. Ensuring the financial and operational independence of the supreme audit institution is a priority. Continued progress on human capital development, climate adaptation, and expansion of social-safety nets would be welcome.
July 29, 2022
Eastern Caribbean Currency Union: Selected Issues
Description: This Selected Issues paper focuses on scarring effects of the pandemic on the Eastern Caribbean Currency Union’s (ECCU). Assessing the extent of the scarring effects is essential for the conduct of future economic policy in the ECCU. A better understanding of the factors affecting the scarring effects and their fiscal implications could help inform the discussions on policies needed to overcome them, especially for economies with limited economic diversification and high vulnerability to frequent shocks and natural disasters such as the ECCU countries. The significant output contraction would generate scarring effects in the ECCU countries. The degree of scarring could vary with countries’ economic structure and policy responses to the pandemic. ECCU countries need to balance difficult tradeoffs to mitigate scaring effects of the pandemic, other recent shocks, and limited fiscal policy space. In the short term, the priorities are to continue health spending to cope with the pandemic and use effective social transfers to cope with rising living costs. In the medium term, moving from income support and job retention measures to adopting active labor market policies would facilitate the reallocation of workers and resources to their most productive uses and help foster productivity growth.
July 29, 2022
Eastern Caribbean Currency Union: 2022 Article IV Consultation with Member Countries on Common Policies of the Eastern Caribbean Currency Union-Press Release; Staff Report; and Statement by the Executive Director for the Eastern Caribbean Currency Union
Description: This 2022 Article IV Consultation highlights that with Eastern Caribbean Currency Union economies slowly emerging from the pandemic with scars, the impact of the war in Ukraine is a setback to the nascent recovery. Higher food and energy prices, amid ongoing supply disruptions and intra-regional transportation bottlenecks, are raising inflation, eroding income, lowering output growth, worsening fiscal and external positions, and threatening food and energy security. The financial system has remained broadly stable so far, with adequate capital and liquidity buffers, but nonperforming loans remain high and could rise further following the expiration of the Eastern Caribbean Central Bank’s loan moratoria program. The outlook is subject to large downside risks, primarily from further increases in commodity prices and new coronavirus disease variants amid vaccine hesitancy, in addition to the ever-present threat of natural disasters. The report recommends that maintaining fiscal prudence while protecting the vulnerable through health spending and temporary targeted transfers and enhanced social safety nets to cope with rising living costs. Adopting well-designed rule-based fiscal frameworks would help achieve fiscal consolidation, enhance resilience to shocks such as natural disasters, and preserve the credibility of the regional debt target.
July 28, 2022
Republic of Lithuania: Selected Issues
Description: This Selected Issues paper on the Republic of Lithuania takes stock of policies and reforms countries are implementing to mitigate and adapt to climate change. Within Europe, the Baltic Sea basin is particularly vulnerable to global warming caused by climate change. Fiscal policy measures, including a carbon tax on fossil fuels, are the most efficient tool for climate change mitigation. Well-designed policies and structural reforms would help reduce CO2 emissions and strengthen energy security. Baltic countries must also mainstream adaptation into development plans to strengthen resilience against climate change. Long-term climate risks demand decisive action to strengthen physical, financial, institutional, and social resilience. While a variety of adaptation measures have been introduced to enhance resilience to climate change throughout Europe, there are still significant gaps that keep some countries, such as the Baltics, more vulnerable to threats associated with climate change. Furthermore, strengthening physical and financial resilience would reduce damages from climate change and increase expected returns to private investment and output.
July 28, 2022
Republic of Lithuania: 2022 Article IV Consultation-Press Release; and Staff Report
Description: This 2022 Article IV Consultation with the Republic of Lithuania highlights the recent spike in global energy and food prices and persistent supply bottlenecks have compounded inflationary pressures, disproportionately hurting the poor. The authorities’ response to the energy crisis aims to limit economic disruptions, provide targeted support to the vulnerable, and allow for market price signals. Higher revenues from inflation allow the budget to accommodate pressures for higher social and defense spending in the short-term, but difficult tradeoffs await down the road. The banking system has ample capital and liquidity buffers to withstand a weakening economic environment or even greater shocks. Further efforts are needed to mitigate money laundering risks in the financial sector, particularly from the dynamic and growing fintech sector. A comprehensive carbon tax will be necessary to achieve the authorities’ emission reduction objectives for 2030. Structural reforms are necessary to ensure continued income convergence. The authorities need to address structural impediments by accelerating reforms in education and healthcare, and by closing gaps in the transportation infrastructure, and reducing information asymmetries that limit access to financing for small and medium enterprises.
July 27, 2022
Ireland: Financial Sector Assessment Program-Technical Note on Insolvency and Creditor Rights
Description: This note analyzes select aspects of the system for insolvency and creditors’ rights in the context of an overall assessment of the Irish financial sector. It focuses on two areas: (1) the use and effectiveness of the corporate restructuring regime and (2) the resolution of mortgage related nonperforming loan NPLs. Ireland’s corporate insolvency regime is largely in line with international best practice, although the regime is little used, and a review is in order. The issue of long-term mortgage arrears is complex and will require further development of an overall strategy, with multiple government bodies playing a role. While mortgage arrears are largely a legacy issue from the 2008 crisis, the failure to fully resolve these arrears has the potential to undermine credit growth and affordability, given the impact on credit risk of higher uncertainty of realizing collateral. The Government should adopt a coordinated, multi-agency strategy for resolving mortgage arrears, informed by the granular data available on the financial situation and debt servicing capacity of borrowers. Published guidance on expected solutions based on financial indicators, and broader social support would be critical to this approach and possible strategy.
July 27, 2022
Ireland: Financial Sector Assessment Program-Technical Note on Financial Interconnectedness of the Market-Based Finance Sector
Description: This technical note investigates the interconnectedness between the market-based finance (MBF) sector in Ireland and the rest of the financial system, with a view to assessing potential financial stability risks. Ireland has made good progress in implementing the recommendations from the 2016 Financial Sector Assessment Program, but some important data gaps remain to be closed. While many linkages between the domestic economy and the MBF sector have been analyzed, challenging data gaps and opaque linkages relating to the other financial institutions (OFI) residual should continue to be explored through ongoing cooperation at a domestic and international level. The Central Bank of Ireland’s fund stress-testing model remains under development and there remain some gaps in terms of granular data collection and analysis of the interconnectedness and composition of the significant activity of the remaining OFI residual. The analysis suggests that, notwithstanding progress, work remains to be done to elucidate fully the linkages between parts of the MBF sector and the rest of the financial system, and to the domestic economy, to explore further areas of potential systemic risk.
July 27, 2022
Ireland: Financial Sector Assessment Program-Technical Note on Financial Safety Nets and Crisis Management
Description: This paper discusses Ireland’s technical note on financial safety nets and crisis management. This note assesses the bank recovery, resolution, and crisis preparedness regime in Ireland. It analyzes laws, policies, procedures, institutional capacity and coordination arrangements for bank failure resolution and for managing financial distress and crises. The assessment is focused on banks under the direct remit of the Central Bank of Ireland and does not evaluate the role played by the European Central Bank and the Single Resolution Board for Ireland’s largest banks. The note also assesses steps toward adopting a recovery and resolution regime for insurers. Substantive efforts have been made to propose a resolution regime for insurers and to identify scope for improving the existing insolvency framework as it applies to insurers. This note recommends that the Department of Finance should explore providing statutory protections to persons selected by the Central Bank albeit appointed by the Court for resolution purposes. It also recommends that the Central Bank and Department of Finance should seek the views of the competition authority on the extent to which resolution regime legislation overrides national competition rules.
July 27, 2022
Ireland: Financial Sector Assessment Program-Technical Note on Banking Supervision
Description: This Technical Note discusses Ireland’s report on Banking Supervision. Supervision of less significant institutions is largely effective in Ireland. The Central Bank’s supervisory approach to LSIs is intrusive and well-developed supervisory tools are appropriately applied. The prudential regulation of banks has improved greatly since the 2016 Financial System Assessment Program. The EU framework has largely managed to embrace international regulatory reforms, following up on the causes of the Global Financial Crisis. The banking supervision has been tested by severe headwinds, with the final outcomes still in play. Supervision went through a period of major challenges for the economy and the financial system, namely from Brexit and the pandemic. The continued effectiveness of banking supervision in Ireland will depend on its success in solving several complicated problems. This note provides the main recommendations to enhance the supervision of the banking activities conducted in Ireland with a direct bearing on its financial stability.
July 27, 2022
Botswana: 2022 Article IV Consultation -Press Release; Staff Report; and Statement by the Executive Director for Botswana
Description: This 2022 Article IV Consultation discusses that a successful vaccination campaign, prudent macroeconomic management, and strong demand for diamonds have allowed Botswana to recover to its pre-pandemic output level. Implementing the planned medium-term fiscal consolidation will rebuild buffers and financial assets for future generations. The consolidation plan will achieve fiscal surplus over the medium term and rebuild the Government Investment Account to shield the economy against shocks and build an asset base. Bringing inflation back within the Bank of Botswana’s objective range will require additional monetary tightening. In the absence of further tightening, the broad-based rise in inflation risks de-anchoring inflation expectations and requiring even sharper tightening later with negative effects on growth. A successful implementation of the Reset Agenda will enhance Botswana’s resilience and ensure sustained high-job rich growth. Implementation of the plan will diversify the economy toward financial services (facilitated by fintech), manufacturing, and tourism, and transform Botswana into a high-income status as per Vision 2036. Reforms should include enhancing accountability, competition, and governance, deepening trade integration, and a faster energy transition.