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International Monetary Fund. Asia and Pacific Dept
This Article IV Consultation highlights that Australia experienced only a minor downturn after the end of the mining investment and commodity price boom but, as elsewhere, the adjustment and rebalancing has been slow, with below-target inflation and low wage growth amid economic slack. Macro-financial vulnerabilities relating to high household debt and low housing affordability have become major concerns after a recent housing boom. The baseline forecasts entail a soft landing in the housing market, but a stronger market correction remains a risk. Overall, near-term risks to growth are to the downside, mirroring the global risk picture, with the impact of shocks potentially being amplified by high household debt. The IMF staff welcomes the authorities’ continued commitment to working actively with international partners to promote the global multilateral trading system. Macroeconomic policy support should remain in place until full employment and inflation in the target range are firmly within reach. The structural policy agenda appropriately targets innovation, infrastructure gaps, tax reform, and energy policy, although progress has been limited in some areas.
Thorvardur Tjoervi Olafsson
This paper develops a small open economy model where global and domestic liquidity is intermediated to the corporate sector through two financial processes. Investment banks intermediate cross-border credit through interlinked debt contracts to entrepreneurs and commercial banks intermediate domestic savings to liquidity constrained final good producers. Both processes are needed to facilitate development of key production inputs. The model captures procyclical investment bank leverage dynamics, global liquidity spillovers, domestic money market pressures, and macrofinancial linkages through which shocks propagate across the two processes, affecting spreads and balance sheets, as well as the real economy through investment and working capital channels.
International Monetary Fund. European Dept.
Israel’s economy is growing well with inflation remaining low and the housing market cooling. Growth of about 3½ percent in 2017 helped bring unemployment below four percent in early 2018, supporting robust wage rises averaging 3¼ percent. Yet, partly owing to the appreciation of the shekel, inflation remained below the 1–3 percent target range. House price increases slowed to below two percent as proposed tax measures deterred investor interest. Prospects for the next few years are for growth to remain around 3½ percent with inflation rising gradually.
International Monetary Fund. African Dept.
This paper highlights that banks and nonbank financial institutions, businesses and households have large exposures to the government and, in some cases, their own vulnerabilities. In this context, a fiscal shock can rapidly propagate into the economy through the financial sector. The financial sector is also likely to amplify the impact of shocks on the economy, possibly opening the way to deep recession. In the case of an extreme shock with difficulties in servicing debt, the banking system capitalization would be significantly hit. Staff analysis highlights the need for fiscal consolidation and for strengthening the CBS’s role in monitoring and managing macrofinancial risks. Since 2015, the government’s balance sheet, liquidity, and risk exposures have been rapidly deteriorating, raising concerns about the impact on other sectors of the economy. As in many countries, the government in Swaziland is a major economic player with strong linkages with both the financial and nonfinancial sectors.
International Monetary Fund. Asia and Pacific Dept
This 2016 Article IV Consultation highlights that Australia has enjoyed robust growth despite the commodity price and mining investment bust. The moderate impact of the large shocks since 2011 highlights the resilience of the economy and strong policy frameworks. Recent structural reforms have focused on fostering innovation. The National Innovation and Science Agenda includes measures to boost innovation and entrepreneurship in the high-tech sector, including through tax breaks. Legislation is being prepared for key components of the Harper Review, which has identified a number of reforms to boost competition and productivity in the services sectors, and to strengthen competition policy broadly.
Mr. Bjoern Rother, Ms. Gaelle Pierre, Davide Lombardo, Risto Herrala, Ms. Priscilla Toffano, Mr. Erik Roos, Mr. Allan G Auclair, and Ms. Karina Manasseh
In recent decades, the Middle East and North Africa region (MENA) has experienced more frequent and severe conflicts than in any other region of the world, exacting a devastating human toll. The region now faces unprecedented challenges, including the emergence of violent non-state actors, significant destruction, and a refugee crisis bigger than any since World War II. This paper raises awareness of the economic costs of conflicts on the countries directly involved and on their neighbors. It argues that appropriate macroeconomic policies can help mitigate the impact of conflicts in the short term, and that fostering higher and more inclusive growth can help address some of the root causes of conflicts over the long term. The paper also highlights the crucial role of external partners, including the IMF, in helping MENA countries tackle these challenges.
International Monetary Fund. Middle East and Central Asia Dept.
KEY ISSUES Context: Somalia is a fragile state emerging from a protracted civil war. In 1991, the government was toppled by armed opposition groups, leading to implosion of the central government and devolution of power to administrative regions. The Fund recognized the Federal Government of Somalia on April 12, 2013, paving the way for staff to provide policy advice and technical assistance. While Somalia has been welcomed back as an active member of the Fund, it remains ineligible for financial assistance pending the clearance of its longstanding arrears. The political and security situation remains challenging. Complex clan politics and high turnover in the members of the economic team have undermined policymaking. A new government took office on February 18, 2015, and presidential elections are planned for September 2016. Key policy issues: The Article IV discussions focused on immediate and medium-term actions for building institutions and policy frameworks for fiscal and financial management. Specifically, • Capacity building and governance. Concerted action is needed to build institutions and improve governance in order to support sustainable, inclusive growth, and poverty reduction. In particular, urgent efforts are required to set in place sound mechanisms and institutions to ensure that prospective natural resource wealth, notably hydrocarbons, is well managed. Considerable donor assistance is required for helping Somalia to meet these daunting challenges. • Fiscal. Decisive steps are necessary to build fiscal discipline, underpinned by realistic budgeting and effective implementation systems, including commitment controls. The 2015 budget needs to be revised in light of revenue shortfalls. An emergency revenue mobilization plan and an expenditure review are warranted. • Financial sector. Efforts are needed to develop the currently rudimentary financial system. Swift action is required so that remittances can be channeled through the international banking system. Currency reform should not be implemented until prerequisites are in place. Given the extent of dollarization and the absence of monetary policy instruments, the central bank is unable to conduct monetary policy. Past IMF advice: The latest Article IV consultation was on November 13, 1989, and focused on the low priority attached by the government in place then on the need for better controlling unproductive spending, and on the need for better economic and social services.
Burcu Aydin and Ms. Engin Volkan
The global financial crisis has exposed the limitations of a conventional inflation targeting (IT) framework in insulating an economy from shocks, and demonstrated that its rigid application may aggravate the effect of shocks on output and inflation. Accordingly, we investigate possible refinements to the IT framework by incorporating financial stability considerations. We propose a small open economy DSGE model, calibrated for Korea during the period of 2003 - 07, with real and financial frictions. The findings indicate that incorporating financial stability considerations can help smooth business cycle fluctuations more effectively than a conventional IT framework.
International Monetary Fund

Abstract

The speeches made by officials attending the IMF–World Bank Annual Meetings are published in this volume, along with the press communiqués issued by the International Monetary and Financial Committee and the Development Committee at the conclusion of the meetings.