This 2012 Article IV Consultation highlights that economic growth in Luxembourg slowed in 2011 amid the euro area sovereign debt crisis. Reflecting sluggish external demand, economic activity is expected to further weaken, with growth projected to decline to ½ percent in 2012. Executive Directors have welcomed the continued stability of Luxembourg’s economy despite the turbulence in the euro area. They have commended the authorities on measures taken to strengthen the financial sector and to implement recommendations from the Financial Stability Assessment Program update.
In March 2009, the Fund established a new Framework Administered Account to administer external financial resources for selected Fund activities (the “SFA Instrument”). The financing of activities under the terms of the SFA Instrument is implemented through the establishment and operation of a subaccount within the SFA. This paper requests Executive Board approval to establish the Caribbean Regional Technical Assistance Center (CARTAC) subaccount (the “Subaccount”) under the terms of the SFA Instrument.
The 2006 Article IV Consultation found that the financial system in Ireland continues to perform well but rapid credit growth is a vulnerability. Central Bank officials noted that recent stress tests indicate that the major lenders have adequate buffers to cover a range of shocks. The Financial Regulator observed that the risk weighting on high loan-to-value mortgages was increased, consistent with the advice of the Financial Sector Assessment Program (FSAP) Update mission. The general government fiscal position has been either close to balance or in surplus for the past decade.
This 2005 Article IV Consultation for the Netherlands Antilles’ reports that economic growth has been feeble so far in this decade, in the midst of economic policy drift. Growth has been constrained by still inflexible labor markets, widespread state ownership and interference in commercial activities, and insufficient investment in infrastructure and human capital. At the same time, free migration to the Netherlands has kept wages high. Persistent budget deficits and a large and growing public debt have also remained unaddressed.
Luxembourg's economic and fiscal performance has remained impressive. A proactive policy approach focused on institutional reforms will bolster the economy and public finances to growth reversals. A shift to a more diversified pension system should be a policy priority. Further income tax reforms are desirable. The management of the public sector's holdings of financial assets should be improved. An exceptionally favorable economic environment has blunted Luxembourg's labor market rigidities but reforms are needed. Maintaining effective banking supervision and governance should remain a priority of public policy.