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International Monetary Fund. European Dept.
This 2015 Article IV Consultation highlights that Slovakia remains among Europe’s stronger economies, with growth continuing to pick up in 2015, driven by strong domestic demand. A push to spend expiring European Union funds has underpinned rising investment while job creation and real wage growth have supported private consumption. Unemployment has fallen significantly since 2013, but is still about 11 percent overall, and is much higher for the long-term unemployed, youth, and women. The outlook is favorable with growth of 3–3.5 percent expected through the medium-term, reflecting sustained domestic demand as well as further contributions from the important export sector as substantial additional foreign auto sector investment is planned.
Mr. Giovanni Dell'Ariccia and Mr. Lev Ratnovski
We revisit the link between bailouts and bank risk taking. The expectation of government support to failing banks creates moral hazard—increases bank risk taking. However, when a bank’s success depends on both its effort and the overall stability of the banking system, a government’s commitment to shield banks from contagion may increase their incentives to invest prudently and so reduce bank risk taking. This systemic insurance effect will be relatively more important when bailout rents are low and the risk of contagion (upon a bank failure) is high. The optimal policy may then be not to try to avoid bailouts, but to make them “effective”: associated with lower rents.
International Monetary Fund
With much healthcare publicly funded, Hong Kong's rapidly aging population will significant raise fiscal pressure over coming decades. We ask what the implications are of meeting these costs by public funding, or private funding voluntarily or through mandates. Our simulations suggest that without early reform, these costs quickly become unsustainable. Prefunding is key. Whether this is done through the public system or through mandatory private provision is less important. Voluntary schemes are likely to result in insufficient savings without tax incentives. Even then, voluntary accounts are unlikely to yield better macroeconomic outcomes, while mandates tend to produce more equitable consumption.
International Monetary Fund
Hong Kong SAR's government faces the dual challenges of volatile revenue and medium term spending pressures arising from a rapidly aging population. Age-related spending pressures raise long-run sustainability concerns, while revenue volatility creates risks to service provision, possibly entailing sudden tax changes, or even requiring new borrowing. After describing the risks associated with aging, the paper uses value at risk techniques to measure the value of the unanticipated risks posed by volatile revenue. The paper also describes the self-insurance value of Hong Kong SAR's traditionally high fiscal savings (reserves), and the impact alternate policy choices could have on revenue volatility.
International Monetary Fund
This Selected Issues paper reviews medium-term fiscal challenges for Hong Kong Special Administrative Region (Hong Kong SAR). It focuses on key considerations that need to be evaluated when formulating a medium-term reserves policy in the face of fiscal challenges, such as accommodating future spending pressures and revenue fluctuations. The broad conclusion of the paper is that fiscal reserves will likely remain an important feature of future fiscal policy. The paper also discusses more general aspects of Hong Kong SAR’s economy’s competitiveness, and the outlook for Hong Kong SAR’s financial center.
Miguel Messmacher
The design of the optimal sovereign insurance contract is analyzed when: the sovereign chooses the contract; effort is not contractible; shocks are of uncertain magnitude; the sovereign can save; and the sovereign can default. Under these conditions: i) an ex ante premium leads to higher coverage; ii) the premium increases with the sovereign's incentive to take risks; iii) a deductible is chosen to limit moral hazard; iv) the deductible-to-support ratio is decreasing with the size of the realized shock; and v) the change in the choice of savings when insurance is available is ambiguous, as there is a trade-off between inducing higher effort and increasing the likelihood of default.
Mr. Eduardo Levy Yeyati and Mr. Tito Cordella
In this paper, we examine how the presence of country insurance schemes affects policymakers' incentives to undertake reforms. Such schemes (especially when made contingent on negative external shocks) are more likely to foster than to delay reform in crisis-prone volatile economies. The consequences of country insurance, however, hinge on the nature of the reforms being considered: "buffering" reforms, aimed at mitigating the cost of crises, could be partially substituted for, and ultimately discouraged by, insurance. By contrast, "enhancing" reforms that pay off more generously in the absence of a crisis are likely to be promoted.
Mr. S. Nuri Erbas
Institutional transparency makes future contingencies more easily predictable for investors. Greater transparency can be achieved through vertical and horizontal integration of policy rules, which may result in lower Knightian uncertainty (ambiguity). In a model based on cumulative prospect theory, for a given probability and payoff structure, expected return on investment is higher in more transparent countries; therefore, those countries attract more investment and grow faster than less transparent countries. Lower transparency may result in inherently higher volatility.
Mr. Howell H Zee


One of the most complex issues in tax policy today is the treatment of the institutions, products, and services that make up the financial sector. It can be harder to ascertain income, expenses, and profits for financial firms than for firms selling goods and services, and it is easier for individuals and firms to manipulate financial transactions so as to exploit tax loopholes. This volume explores the challenges faced by tax policymakers and identifies modern best practices in several areas: banks, insurance companies, securities companies, investment funds, pension funds, and derivatives.

International Monetary Fund


The Manual sets out an internationally agreed framework for the compilation and reporting of statistics on international trade in services in the broad sense. It addresses the growing need, including in international trade negotiations and agreements, for more detailed, comparable, and comprehensive statistics on this type of trade in its various forms. The recommendations will enable countries to progressively expand and structure the information they compile in an internationally comparable way. The Manual conforms with and explicitly relates to the System of National Accounts 1993 and the fifth edition of the IMF’s Balance of Payments Manual. It is published jointly by the United Nations, European Union, IMF, OECD, UNCTAD, and World Trade Organization.