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Jiri Podpiera, Ms. Faezeh Raei, and Ara Stepanyan
Was the postcrisis growth slowdown in Central, Eastern and Southeastern Europe (CESEE) structural or cyclical? We use three different methods—production function approach, basic multivariate filter, and multivariate filter with financial frictions—to evaluate potential growth and output gaps for 18 CESEE countries during 2000-15. Our findings suggest that potential growth weakened significantly after the crisis across most countries in the region. This decline appears to be largely due to stagnant productivity and weaker capital accumulation, which were associated with common external factors, including trading partners’ slow potential growth, but also decline in global trade and stalled expansion of global value chains. Our estimates suggest that output gaps in 2015 were largely closed in many countries in the region.
Ms. Katerina Smídková, Jan Babecky, and Mr. Ales Bulir
The Great Recession affected export and import patterns in our sample countries, and these changes, coupled with a more volatile external environment, have profound impact on our estimates of real exchange rate misalignments and projections of sustainable real exchange rates. We find that real misalignments in several countries with pegged exchange rates and excessive external liabilities widened relative to earlier estimates. While countries with balanced net trade positions are expected to continue to experience appreciation during 2010-2014, several currencies are likely to require real depreciation to maintain sustainable net external debt. Our estimates point to somewhat larger disequilibria than those of IMF country teams, however, any estimates of equilibrium exchange rates are subject to sizable uncertainty.
Adam Leive
This paper exploits the staggered adoption of major concurrent health reforms in countries in Europe and Central Asia after 1990 to estimate their impact on public health expenditure, utilization, and avoidable deaths. While the health systems all derived from the same paradigm under central planning, they have since introduced changes to policies regarding cost-sharing, provider payment, financing, and the rationalization of hospital infrastructure. Social health insurance is predicted to increase this share, although the leads of both social health insurance and primary care fee-for-service suggest endogeneity may be an issue with the outpatient share regressions. Provider payment reforms produce the largest impact on spending, with fee-for-service increasing spending and patient-based payment reducing it. The impact on avoidable deaths is generally negligible, but there is some evidence of improvements due to fee-for-service. Considering the corresponding relative reduction in inpatient admissions and the incentives fee-for-service provides to deliver additional services, perhaps there is an overprovision of services in the primary care setting and an underutilization of more specialized hospital services.
International Monetary Fund
The staff report for the 2008 Article IV Consultation of Romania reviews the issues to tighten fiscal policy, putting less of the stabilization burden on the fledgling inflation-targeting framework. GDP growth has remained strong, underpinned by massive capital inflows. Executive Directors observed that large capital inflows related to Romania’s accession to the European Union, compounded by procyclical fiscal policies, have contributed to booms in domestic demand and credit and emerging capacity constraints. They recommended that structural reform efforts be relaunched to support per capita income convergence to EU levels.
International Monetary Fund
The first analysis focuses on external stability, an important issue in view of Croatia’s external imbalances and the requirements of the IMF’s 2007 Decision on Bilateral Surveillance. The paper shows that the real exchange rate is broadly in line with economic fundamentals and that external debt dynamics are sustainable as long as macroeconomic policies remain strong. The second analysis finds significant inefficiencies in Croatia’s social spending. It also discusses several reform measures to reduce inefficiencies in public spending and generate budgetary savings to reduce the general government deficit.
Ms. Victoria Gunnarsson and Mr. Etibar Jafarov
This paper assesses the relative efficiency of government spending on health care and education in Croatia by using the so-called Data Envelopment Analysis. The analysis finds evidence of significant inefficiencies in Croatia's spending on health care and education, related to inadequate cost recovery, weaknesses in the financing mechanisms and institutional arrangements, weak competition in the provision of these services, and weaknesses in targeting public subsidies on health care and education. These inefficiencies suggest that government spending on health and education could be reduced without undue sacrifices in the quality of these services. The paper identifies ways to do that.
Ms. Victoria Gunnarsson, Sergio Lugaresi, and Marijn Verhoeven
The paper assesses the financial situation of the health sector in the Slovak Republic. It also evaluates the efficiency of health expenditures and service delivery in comparison to the OECD and other new EU member states and suggests avenues for cost recovery and reform. The health sector of the Slovak Republic is plagued by financial problems. To turn around health system finances and achieve larger gains in health outcomes, the efficiency of health spending needs to increase and the mix and quality of real health resources need to be improved. Although Slovak's overall health spending efficiency is on par with that of the OECD, substantial inefficiencies occur in the process of transforming intermediate health inputs into health outcomes. Efficiency may be enhanced by containing the cost of drugs and reducing reliance on hospital care. Also, although cost-effectiveness may be relatively high at present, its sustainability in the future is an issue.
International Monetary Fund
This Selected Issues paper for Romania reports that the practice of nonpayment and arrears accumulation has been widespread in Romania. Managers of enterprises that remain in the pipeline for privatization for long periods of time have little incentive to reduce arrears. The state contributed to growth of arrears by accepting nonmonetary tax and utility payments, using tax offsets in procurement, and tolerating payment arrears. These practices have been prevalent at all levels of state and local government, as well as state utility companies.
International Monetary Fund
This Selected Issues paper and Statistical Appendix analyzes developments in Croatia’s banking sector since independence in 1991, focusing on the effects of independence, war, transition, and the bank rehabilitation process. Changes in market structure, concentration, and ownership, as well as financial performance are highlighted. The paper reviews the current legal environment governing banking operations and improvements needed to strengthen the legislative framework. Some forward-looking conclusions are presented. The paper also examines selected aspects of Croatia’s export performance.