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International Monetary Fund. European Dept.
This Selected Issues paper on Switzerland focuses on assessing Swiss National Bank (SNB) balance sheet changes in 2022. This paper clarifies the main underlying drivers, discusses potential implications, or lack thereof, on monetary and fiscal policies, and assesses the SNB’s financial performance. Central banks’ financial results are not directly comparable with each other, given their non-profit nature, the differences in their mandates and, importantly, their different accounting policies. In particular, many other central banks would have recorded much larger financial losses in 2022 if mark-to-market accounting were applied. The SNB’s financial loss in 2022 is not expected to have an impact on monetary policy operations. The SNB has appropriately warned about risks to its balance sheet, including during periods of high profitability. In addition, the SNB put in place sound safeguards against such risks, and provided transparent communications on its investment strategy. Nevertheless, large balance sheets are subject to risks, highlighting communication challenges during periods of both large profits and losses. In this context, the SNB should continue to regularly review its investment strategy and maintain adequate safeguards.
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses the technical note on Supervision and Disclosure of Climate-Related Risks for the Sweden Financial Sector Assessment Program. Swedish banks are in general mainly exposed to the effects of climate change through loans that are collateralized by real estate properties and lending to high-emission industries. Despite the challenges, Finansinspektionen (FI) has undertaken a number of positive initiatives aimed at integrating climate-related risks and the wider sustainability issues into its supervisory processes. There are however, still some gaps that need to be gradually addressed by FI to ensure full integration of climate-related risks into supervisory processes. The specific action to further integrate climate into the supervisory process should be prioritized based on the vulnerability of the Swedish banks and progress at international level in addressing the challenges that are not unique to Sweden. FI should also in a proportional manner formalize and expand its collaboration and information sharing arrangements with other Swedish Agencies involved in climate-related work.
International Monetary Fund. African Dept.
This Selected Issues paper on the Democratic Republic of the Congo (DRC) focuses on building resilience and exploring opportunities from climate change. Addressing the challenges associated with climate change in the DRC requires a good understanding of its exposure to climate vulnerabilities as well as the bottlenecks in scaling up climate policies to achieve its nationally determined contribution. At the same time, the global efforts to develop low-carbon technology and conserve carbon sinks put the DRC in a good position with substantial long-term benefit for the country. Hence, the country would benefit from focused efforts in strengthening forest and mining managements, while building resilience to climate change. Current logging policies have failed to prevent deforestation in the DRC. The DRC presents itself as a solution country for the diffusion of carbon-reduction technology. The advent of metals critical for the energy transition could strengthen the impact of global commodity cycles on external sector.
Gail Cohen, João Tovar Jalles, Mr. Prakash Loungani, and Ricardo Marto
For the world's 20 largest emitters, we use a simple trend/cycle decomposition to provide evidence of decoupling between greenhouse gas emissions and output in richer nations, particularly in European countries, but not yet in emerging markets. If consumption-based emissions—measures that account for countries' net emissions embodied in cross-border trade—are used, the evidence for decoupling in the richer economies gets weaker. Countries with underlying policy frameworks more supportive of renewable energy and climate change mitigation efforts tend to show greater decoupling between trend emissions and trend GDP, and for both production- and consumption-based emissions. The relationship between trend emissions and trend GDP has also become much weaker in the last two decades than in preceding decades.