International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper looks at revenue mobilization efforts in Honduras. The country has made considerable progress over the last years, helping to stabilize its fiscal position. Although tax revenue collection ratios in Honduras are high, the statutory rates are aligned with regional peers. A formal benchmarking exercise supports the evidence pointing to Honduras’s relatively good collection performance. The authorities’ future revenue mobilization strategy should prioritize reforms aiming at increasing efficiency and compliance. The cost-benefit assessment of existing tax exemptions in terms of their policy objectives may offer guiding principles to prioritize reforms going forward. Compared to peers, statutory tax rates are similar and tax collection ratios are generally higher—a benchmarking exercise suggests that the current revenue envelope is close to its frontier. Going forward, there is a need to sustain revenue mobilization efforts, which will be instrumental to maintaining a sound fiscal position, reducing the infrastructure gap, and increasing social spending. Rationalizing large tax expenditures could contribute to these efforts.
Guido della Valle, Vasilika Kota, Mr. Romain M Veyrune, Ezequiel Cabezon, and Shaoyu Guo
This paper proposes a methodology to develop empirically based and theoretically
consistent deeuroization policies. It is derived from the experience of Albania. The paper
is the first attempt to provide an empirical measure of the optimal level of euroization.
The results indicate that euroization is trending above the estimated measure in Albania,
calling for deeuroization policies. In the long term, deeuroization requires maintaining the
commitment to low and stable inflation in a context of greater exchange rate flexibility to
encourage saving in local currency. In the short term, policies that mitigate the financial
stability risk due to euroization contribute to deeuroization inasmuch as they make
banking intermediation in euro less financially attractive to the public.
Nazim Belhocine, Ernesto Crivelli, Ms. Nan Geng, Tiberiu Scutaru, Mr. Johannes Wiegand, and Zaijin Zhan
The demands on monetary and exchange rate regimes in CESEE have evolved, in line with the region’s development. In the 1990s, the immediate challenge was to rein in excessive inflation following transition, and to establish basic monetary order. These objectives have been achieved, owing largely to successful exchange rate–based stabilization. With this accomplished, the focus has shifted to cyclical monetary management, and to appropriately managing monetary conditions during CESEE’s growth and income convergence to the euro area.
Flexible exchange rates—and the ensuing capacity of monetary conditions to adapt to the economies’ needs—are likely to remain advantages, especially to extent that CESEE’s GDP and income levels will resume convergence to the euro area. Once this process restarts, tighter monetary conditions will again be needed to limit goods and asset price inflation, and to contain growth imbalances.
Over the past few years, Albania has successfully maintained macroeconomic stability amidst a turbulent external environment. However, growth remains sluggish due to a weak Euro Area recovery and risk-averse banks. The current account deficit is expected to remain elevated as import-intensive FDI picks up. Headline inflation will likely remain subdued, due to imported disinflation and domestic slack. The medium-term outlook remains favorable, provided the reform momentum is maintained.