This Selected Issues paper for Botswana highlights the macroeconomic impact of an effectively implemented National Strategic Framework (NSF) program. The NSF is anchored on the goals of prevention, care, and support; management of the national response; economic impact mitigation; and provision of a strengthened legal and ethical environment. The treatment of the pandemic focuses on the administration of antiretroviral drugs to the infected, the effect of which would be to prolong their lifespan, as well as increase the average level of productivity.
International Monetary Fund. External Relations Dept.
Estonia, Latvia, and Lithuania have experienced strong economic growth since gaining their independence following the breakup of the Soviet Union in 1999. Economic growth has gone hand in hand with the rapid expansion of the financial sector. But now that the transition to a market economy is largely complete, the financial sector is faced with new challenges as the three countries prepare to join the European Union (EU) on May 1. Will the Baltics be able to sustain their impressive economic performance? Their financial sectors appear, for the most part, to be well placed to take on a more important role in financial intermediation. But can governments do more to help banks and capital markets prepare for the future? These issues are addressed in a new IMF Occasional Paper, Capital Markets and Financial Intermediation in the Baltics, by Alfred Schipke, Christian H. Beddies, Susan M. George, and Niamh Sheridan.
International Monetary Fund. External Relations Dept.
The IMF is probably best known for its advice and loans to member countries. But IMF economists are also studying a wide array of other topics. Much of this research is published in the IMF’s Working Paper series. The views expressed in these papers do not represent official IMF policy. They describe research in progress and are published to solicit comments and spark debate. Six recent IMF Working Papers are highlighted below.
With the recovery from the 2002 crisis well advanced, discussions focused on policies to reduce remaining vulnerabilities and sustain growth. Sensitivity analysis suggests that the economy, while having become more resilient in recent years, is still vulnerable. The authorities agreed to continue increasing buffers and strengthening Uruguay’s underlying performance, noting that under current strong policies and expected continued favorable external conditions, vulnerabilities should decline considerably with time. The estimates of sustainable expenditure paths for Russia are assessed. This study concludes by summarizing the policy implications of the analysis.
EXECUTIVE SUMMARY Luxembourg’s main challenge is to strengthen an economic model that has served it well. Growth was close to 3 percent in 2014, and is projected at 2½ percent in 2015, with continued strong job creation. The model emphasizes maintaining fiscal stability and openness, practicing conservative prudential oversight, and responding to investor needs. This combination has been a magnet for international financial business, nowhere more so than in the investment fund industry, where assets under management have more than doubled since 2008, to €3½ trillion. Recent challenges to this model necessitate a proactive approach to adjust to a changing landscape. The authorities’ commitment to positive engagement in the international tax transparency agenda supports a proactive approach. Having adjusted fiscal policy for lower revenues from electronic commerce, they should also address the additional base erosion that could now arise, exploring options to make the tax system more robust. At the same time, they should pursue further reforms to make the pension system more resilient to population aging. These policy initiatives, along with the authorities’ commitment to a modest budget surplus over the medium term, should fortify Luxembourg’s ‘AAA’ sovereign credit standing. Equally, Luxembourg also plans a series of actions to uphold its reputation as a firm and sophisticated financial regulator. These include faster passage of EU banking laws, where the banking union promises to be especially beneficial for Luxembourg, operationalizing a purposeful systemic risk committee, and being a voice for strong cross border oversight. On the latter, effective EU regulatory arrangements for nonbank companies that control banks should form a particular focus, given the large volume of intragroup activity transiting through Luxembourg. Provided the challenges ahead are well managed, growth in the near term could beat staff’s baseline, helped by a firmer euro area recovery. In the medium term, however, the success of the authorities’ initiatives to diversify the economy will play out against a backdrop of lower potential growth. It is doubly important, therefore, that efforts are also underway to better equip workers with relevant skills and to lift youth and women’s participation in the labor force.
International Monetary Fund. Monetary and Capital Markets Department
Since the Brazil 2012 FSAP, the financial system has been stable despite the deep recession. The resiliency of the banking system was supported by high profitability, buoyed by large interest margins. While the financial system has grown since the 2012 FSAP, its structure remains largely unchanged. The system is dominated by large, vertically-integrated financial conglomerates and concentrated in liquid short-term instruments. The public sector continues to play a dominant role in the financial sector, and its interconnectedness. Banks are broadly resilient to severe macrofinancial shocks. Current high profits and capital ratios support the resiliency of banks under a severe stress test scenario. Under the stress scenario, small capital shortfalls result; banks would nevertheless experience reduced income, including from market loss on government bonds, and high credit losses on exposures to the corporate sector which, despite recent improvement, is still vulnerable to shocks. This benign outcome deteriorates if their capital is adjusted for deferred tax assets. Moreover, some banks are exposed to concentration risk. Some actions are still needed to address bank-specific risk profiles to boost their resilience. Banks are generally well-positioned to manage short-term and medium-term liquidity pressures and interbank contagion seems limited.
On January 8, 2014, the Executive Board of the IMF completed its review of Poland’s qualification for the arrangement under the Flexible Credit Line (FCL) and reaffirmed Poland’s continued qualification to access FCL resources. The Polish authorities have indicated that they intend to continue treating the arrangement as precautionary. The IMF has supported the authorities’ policies with four successive FCL arrangements. The current two-year FCL arrangement for Poland was approved by the IMF’s Executive Board on January 18, 2013, in an amount of SDR 22 billion (about US$33.7 billion). Poland’s first FCL arrangement was approved May 6, 2009, for SDR 13.69 billion (about US$21 billion). Successor arrangements were approved in July 2010 and in January 2011.
Luxembourg’s 2006 Article IV Consultation reports that the dominant financial sector has supported a steady rebound in economic activity. Growth is projected to remain healthy in the near term, but trend growth may decline as the rapid financial sector expansion may decelerate. The financial sector’s successful shift from traditional banking services to the investment fund industry (IFI) is well advanced. The close integration of Luxembourg’s mostly foreign-owned financial institutions with their parent companies tends to enhance soundness, including asset quality and capital adequacy.