France: 2019 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for France

2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for France

Abstract

2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for France

Context: Lower Growth Amid Rising Risks

A. Recent Developments

1. Growth declined in 2018 but remained relatively resilient (Figure 1). After the economy expanded by 2.3 percent in 2017, closing the output gap, real growth declined to 1.7 percent in 2018.1 Export growth slowed in line with regional trends, while investment and private consumption moderated, including due to one-off domestic factors (railroad-transport strikes in the first half of the year and “yellow-vest” protests toward end-year). In the first quarter of 2019, growth declined slightly to 0.3 percent (q-o-q), from 0.4 in Q4:2018, as decelerating net exports offset a recovery in private consumption and restocking.

Figure 1.
Figure 1.

Real Sector Developments

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

uA01fig01

Contribution to Real GDP Quarterly Growth, Annualized

(Percent; Q/Q growth, annualized)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: INSEE (Haver Analytics) and IMF staff calculations.

2. Unemployment declined further (Figure 2). Continued employment creation led to a decline in the unemployment rate to 8.7 percent at end-April 2019. Permanent contracts accounted for the lion’s share of job creation, which, together with a decline in long-term unemployment and the underemployment rate, point to improved conditions in the labor market. This could reflect, in part, the effect of labor-market and tax reforms implemented in recent years.

Figure 2.
Figure 2.

Labor Market Developments

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

uA01fig02

Unemployment and Employment Rate

(Percent of active population; percent of working age population)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: Eurostat (Haver Analytics) and IMF staff calculations.

3. Inflation spiked in 2018 but has since moderated. Headline inflation peaked in October 2018, due to rising oil prices and an increase in energy and tobacco taxes. Although nominal wage growth picked up during 2017–18, averaging around 2 percent in 2018, core inflation remained contained, averaging about 0.9 percent last year. Inflation and core inflation moderated this year, reaching 1.4 and 0.5 percent, respectively, on average, between January and May.

uA01fig03

HICP Inflation, YoY

(Percent)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: Eurostat.

4. Financial conditions remained supportive. Supported by an accommodative monetary policy, low borrowing costs in the last few years created an environment conducive to a rise in asset prices and encouraged non-financial companies to increase both bank debt and bond issuance. Bank credit growth was around 5½ percent in 2018 and has continued at a similar pace this year.

uA01fig04

French Banks: Credit to the Private Sector

(Y/Y, percent contribution)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: Haver Analytics.

5. The current account deficit reached 0.6 percent of GDP in 2018 (Figure 3). This represents a slight narrowing (of 0.1 pecent of GDP) relative to the revised 2017 level, reflecting a better performance of the service and non-oil goods trade balances, which offset the higher oil bill, as well as a continuation of the improving trend in the income balance. Still, France has not been able to recover the loss of about one third of its export market share since the early 2000s, in part due to the economy’s specialization in medium to low-tech sectors that are relatively more exposed to price competition.2

Figure 3.
Figure 3.

External Sector

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

uA01fig05

Current Account

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: Banque de France and INSEE (Haver Analytics).

6. The 2018 fiscal deficit declined to 2.5 percent of GDP, but debt remained high. Over the last two years, the deficit fell by a cumulative 1 percent of GDP, on account of exceptionally high cyclical tax revenues in 2017, a reduction in cyclical unemployment-benefit spending in 2017–18, and some spending restraint in 2018. Several tax relief measures became effective last year (e.g. lower social contributions, corporate income and accommodation taxes), largely compensated by an increase in other taxes (income, fuel, and tobacco). Public debt stayed around 98 percent of GDP in 2017–18.

uA01fig06

General Government Deficit and Debt

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: World Economic Outlook.

7. Support for the government’s agenda among the general public has declined compared to the start of the mandate. In its first 18 months in office, the government legislated important labor-market and tax reforms supporting investment, jobs, and growth. But the “yellow-vest” protests last November revealed popular discontent with the government’s policies, especially with respect to planned fuel tax increases, higher pension taxation, and the 2017 reform of capital taxation, among others. In response to the protests, the authorities initiated a grand national debate on reforms and took measures to lower the tax burden and boost household disposable income, including by reversing some previously planned measures (Box 1). They have recently reaffirmed their intention to continue with planned structural reforms, including of unemployment benefits, civil service, and pensions (Box 2).

B. Outlook and Risks

8. Growth is expected to reach 1.3 and 1.4 percent this year and next, respectively. Projections are predicated on a gradual resumption of quarterly growth through 2019–20, as the effect of temporary factors fades, and regional and global growth recovers. Private consumption is expected to increase, supported by recent fiscal measures to boost household disposable income, lower oil prices, and improving labor market conditions. Investment and export growth are expected to remain subdued in the near term—as external demand in the Euro Area remains moderate and macroprudential policies dampen credit growth—and pick up gradually over the medium run. Given the level of the cyclically-adjusted current account (CA) relative to the revised model norm, the external position is now assessed to be broadly consistent with medium-term fundamentals and desirable policy settings, even as France’s estimated CA gap of -1 percent of GDP is in the upper range for this category, with a real effective exchange rate (REER) gap of 2 to 5 percent (Annex II). Inflation is projected to remain subdued at 1.2 and 1.4 percent this year and next, returning to the ECB’s target only toward the end of the projection horizon.

France: Selected Economic Indicators, 2017–24

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Sources: Haver Analytics, INSEE, Banque de France, and IMF staff calculations.

9. Long-term growth prospects remain subdued. Output growth is expected to converge to its long-run potential level of around 1½ percent on the back of recovering domestic demand. Labor productivity growth has declined during the past two decades, largely reflecting falling multi-factor productivity growth and is expected to recover only somewhat over the medium term, as recent and ongoing structural reforms (including product market reforms legislated in 2015, the 2018 liberalization of rail transport, and the more recent Loi PACTE) start to bear fruit.

uA01fig07

Trend Productivity Growth

(Y/Y percent change)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: OECD Productivity Statistics.

10. Uncertainty around the outlook is large, and downside risks have risen (Annex III):

  • Weaker-than-expected growth in Europe and deteriorating market sentiment could weigh on export growth and confidence in France.

  • Rising protectionism and retreat from multilateralism, in particular a further escalation of trade tensions between the United States and the European Union (including a possible response to EU subsidies to Airbus and potential car tariffs) could induce firms to postpone investment, weighing on employment and activity.

  • Sharp tightening of global financial conditions, related to a disorderly Brexit or concerns about debt levels in some euro-area countries could also affect France’s growth outlook. A disorderly Brexit could lower France’s growth by some 0.2–0.3 percentage points by 2021, largely through real sector channels.3 If border disruptions in key ports are high, the short-term impact could be larger. Financial volatility linked to Brexit or concerns about high-debt countries could weigh on public and private balance sheets through higher financing costs.

  • Domestic risks have also risen, related to potential resistance to reforms, which could compromise fiscal objectives, dampen confidence, and, through higher financing costs, have second-round effects on growth. Given the observed steady decline in inflationary pressures, there are also downside risks that inflation does not converge to target in the medium run, which could further weigh on private and public debt burdens.

Authorities’ Views

11. There was broad agreement on the economic outlook and risks. The authorities expect growth at 1.4 percent this year and next, driven by a strong effect on private consumption of fiscal measures supporting purchasing power in the near term. They broadly shared staff’s view that external risks have risen—including trade tensions and Brexit—but considered that France is relatively more insulated than some other European neighbors due to a less open economy. At the domestic level, they did not share staff’s views on reform risks, as they remained committed to pursue their reform agenda and understood the conclusions of the grand national debate as supportive of a strong reform process

Policies: Safeguarding Sustain Ability, Inclusive Growth, and Resilience

12. Policies need to continue to address France’s long-standing challenges while ensuring resilience and inclusive growth. The key structural challenges are high public debt and spending, rising private sector indebtedness, low labor force participation, high unemployment, inequality of opportunity, and sluggish productivity growth. The authorities have put in place an ambitious structural agenda to tackle some of these challenges and are working on further fiscal structural reforms of the civil service, pensions, and unemployment benefits (Box 2). The challenge will be to modulate, enhance, and prioritize the agenda to attain economic objectives while also addressing social concerns and lingering pockets of inequality (Annex V). In this regard, policies should prioritize safeguarding fiscal sustainability in a growth-friendly manner, while protecting vulnerable groups, and supporting employment and productivity.

A. Fiscal Policy: Safeguarding Sustainability

13. France’s public debt has reached historical highs, raising vulnerability to adverse shocks. Public debt increased by about 80 percent of GDP between 1980 and 2018, reflecting sizeable deficits, as successive governments did not take full advantage of good times to reverse the spending increases undertaken during downturns. Even in recent years, with interest rates at record lows and well below the growth rate of the economy, debt has continued to rise as a share of GDP, and adverse shocks could set in motion a worrisome medium-term trajectory (Annex IV). For instance, a shock to growth, the primary balance and real interest rates could bring debt well above 100 percent of GDP in the medium run.

uA01fig08

Public Debt and Fiscal Balance

(percent of GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: INSEE and IMF staff calculations.
uA01fig09

Spending and Revenue

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: INSEE and IMF staff calculations.

14. The deficit and debt are expected to remain elevated over the medium run, given substantial ongoing tax relief. Staff’s baseline projections are based on legislated and announced policies (including recent measures to boost purchasing power in response to the “yellow-vest” movement, amounting to close to 1 percent of GDP in the medium run; text table and Box 1). The key revenue measures include legislated and planned reductions of corporate income taxes, social contributions, accommodation taxes, and more recently personal income taxes, costing around 1.3 percent of GDP this year, and a cumulative 2.1 percent during 2018–24. Legislated spending-containment measures—estimated at 2.2 percent of GDP, including the elimination of the CICE tax credit in 2020 and a rule limiting spending growth of local governments until 2022—largely offset the ongoing tax relief in the medium run, lead to a deficit of 3.2 percent of GDP this year, and 2.7 percent by 2024.4 Thus, the primary structural deficit is projected to deteriorate by about 0.3 percent of GDP over the medium term, compared to a recommended improvement of 0.5 percent per year over 2019–22 in the 2018 Article IV Consultation. Public debt is projected to stay elevated, at 97 percent of GDP by 2024. These projections are subject to downside risks, should the yield of the above-mentioned spending-containment measures turn out lower than expected.

uA01fig10

Change in Structural Primary Balance

(Percent of potential GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: IMF staff calculations.

Baseline Expenditure and Tax Measures

(Cumulative, in percent of GDP)

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Sources: IMF staff estimates.

The measures in response to the “yellow vest” movement imply a deterioration in the fiscal balance of about 0.4 percent of GDP in 2019 and 0.9 percent of GDP in the medium run (Box 1).

15. The authorities are projecting somewhat lower deficits but are no longer planning to reach their MTO by 2022. In their latest Stability Program (submitted before the April 2019 fiscal relaxation announcements), the authorities project the deficit to reach 1.2 percent of GDP by 2022, 1½ percent of GDP higher than the level targeted in the 2018 Stability Program, and close to 1 percent larger than the MTO, postponing reaching their fiscal objective to beyond the end of the government’s mandate. They expect revenues to decline broadly in line with planned measures, while yet-to-be-identified spending cuts of some 1.2 percent of GDP are expected to contribute to the projected reduction in the fiscal deficit. In terms of fiscal effort, the authorities expect the structural primary balance to stay broadly constant in 2019–20 and improve by 0.4 percent annually in 2021–22.

uA01fig11

Government Balance Projections in Stability Programs

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: French authorities; and IMF staff calculations.

16. France requires an ambitious structural consolidation effort of around 2 percent of GDP during 2020–23 to place debt on a firm downward path and achieve the MTO. Achieving this sizeable structural adjustment needed to reduce the structural deficit to 0.4 percent of GDP (MTO) and debt to around 90 percent will be challenging, given France’s mixed experience with sustaining consolidations, as reflected in the difficulty in bringing its public finances to balance and reversing the rising trend in public debt over the last several decades.5 Doing so will require a steady improvement in the structural primary balance of around 0.5 percent of GDP per year during 2020–23. Staff’s recommended adjustment takes into account the cyclical stance of the economy (a small but still positive output gap) and the need to safeguard the credibility of fiscal policy (given frontloaded tax relief) and debt sustainability.6 Achieving a lower level of debt will be key to build buffers, improve intergenerational equity and help avoid procyclical tightening—which could affect vulnerable groups disproportionately—should a softening in activity bring the deficit above the 3 percent of GDP Maastricht limit.

Projected Fiscal Outturns (in percent of GDP, unless otherwise noted)

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Sources: IMF staff estimates and 2019 France Stability Programme.

17. Cyclical and sustainability concerns need to be carefully balanced if downside risks materialize. France is deemed to have some fiscal space to absorb potential shocks (though less than before the global financial crisis, when its debt was around 70 percent of GDP), but the space would be at risk when EU fiscal rules are taken into account. Thus, in a downside scenario, policymakers would face difficult tradeoffs between supporting growth on one hand, and preserving market confidence and debt sustainability on the other hand. Thus, the policy response will need to be carefully calibrated to the severity of the specific shock. For example, in a mild downside scenario generating a small output gap, automatic stabilizers should be allowed to operate fully around the recommended structural adjustment path. In a sharp downturn, where all risks materialize simultaneously, and France and the euro area fall into recession, in addition to automatic stabilizers, a moderate and temporary structural relaxation could be appropriate, financing conditions allowing. In this case, it will be critical to preserve policy credibility and sustainability, including by clearly pre-specifying future reforms to bring down the debt and deficit in the medium run, while protecting vulnerable groups.

18. The fiscal strategy should focus on specifying credible reforms to reduce public spending over the medium term. While various governments have resorted to tax increases to rein in deficits, followed by periods of tax relief, they have been unable to curb public spending, which has increased by about 10 percent of GDP since the 1980s (largely reflecting higher spending on social benefits) to the highest level relative to GDP among OECD countries. Even during periods of spending-based consolidation (1985–89 and 1996–2000), spending restraint was modest, often targeted at the wage bill, and to a lesser extent social benefits and other spending. Looking forward, a credible and sustained effort to reduce spending in a growth-friendly manner, while increasing its efficiency, will thus be essential to safeguard fiscal sustainability and policy credibility. This is especially important given current plans to frontload substantial tax relief (costing 2 percent of GDP, as noted above), as well as boost medium-term investment in key areas, including skill-upgrading for the long-term unemployed and the youth, environmental protection and digitalization of public services, and scaling up high-speed broadband internet (Box 2).

uA01fig12

Real General Government Spending

(index 1999= 100)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Note: Deflated by GDP deflator.Sources: IMF World Economic Outlook and IMF staff calculations.
uA01fig13

General Government Spending, 2017 or Latest Available

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: OECD National Accounts Statistics.

19. Planned fiscal structural reforms could help support consolidation efforts while improving spending efficiency and equity and boosting long-term growth (Box 2):

  • The planned civil service reform can help provide the tools to streamline and make the public sector more flexible and efficient. To help generate medium-term savings and improve equity, the authorities should target an ambitious decline in the workforce through attrition, especially at the local government level.7

  • The upcoming pension reform unifying the multiple existing pension systems under one umbrella with common rules can help improve transparency, efficiency, and equity of the system. The authorities have not indicated the duration of the transition or a savings objective for this reform but noted their intention to incentivize longer work. To generate savings, improve intergenerational equity, and boost labor-force participation, the reform should be implemented resolutely, ensuring that the transition period balances social concerns, while accelerating the planned increase in the effective retirement age—one of the lowest in Europe—and linking it to life expectancy, as has been done in other countries in Europe (e.g. Denmark, the Netherlands, Portugal, etc.).8

  • Finally, the unemployment benefit reform now underway could also help generate some (albeit limited) fiscal savings by tightening eligibility requirements, revising the rules to calculate and cumulate benefits, and introducing degressivity in benefits for high-salary workers, while supporting employment and growth.9 The planned reorganization of the health system could also bring long-run benefits, but should be carefully implemented to minimize medium-run costs.

uA01fig14

Evolution of Employment by Government Level

(Index, 1996=100)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: DGAFP, Insee, and IMF Staff calculations.
uA01fig15

Public Pension Spending and Retirement Age

(Percent of GDP; years)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: OECD.

20. Ongoing efforts should be complemented with additional spending reforms, several of which are being considered by the authorities. Staff analysis indicates that there are several areas where France’s level of spending is high relative to peers and where efficiency savings could be achieved (Annex VI):

  • The spending gap vis-à-vis peer countries is large in social protection, (especially pensions, where France spends almost 20 percent more than peers, but also housing and family benefits), economic affairs (including tax expenditures and subsidies, where France spends about 30 percent more than peers), health (including 40 percent more spending on medical products and equipment, and almost 20 percent more on outpatient services), and education (including 26 percent more on secondary education). Together, these four spending areas represent three-fourths of France’s total government expenditure, and account for around 85 percent of the spending gap between France and peers.

  • A credible plan to reduce spending will require a careful identification of potential efficiency gains in the above-mentioned areas (saving some 1–1.5 percent of GDP in total in the medium term), which could be obtained by: (i) streamlining corporate tax expenditures and subsidies; (ii) rationalizing spending on medical products and hospital services, while protecting the quality of public health and R&D spending; (iii) improving the allocation of resources in education (tackling high teacher-student ratios and low teaching hours in secondary and upper education, while improving teacher-student ratios in primary education where needed); (iv) better targeting social benefits (e.g. family, housing) to those most in need and streamlining administrative costs;10 and (iv) merging small municipalities and eliminating overlaps between the local and central government.

  • Indeed, the authorities have indicated an intention to address many of these areas through upcoming reforms (e.g. tax expenditures, increased focus on preventive healthcare and primary education, further reforms of social benefits, as well as a better allocation of public resources at various levels of government). Such reforms can be compatible with preserving the important redistributive characteristics of fiscal policy, while improving equity (e.g. by limiting costly subsidies to selected groups of the population, reducing duplication of public functions, and better targeting benefits and education resources to where they are needed most).

uA01fig16

France Major Spending Categories: Comparison with Peers, 2017

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Note: The width (total area) of each bar is proportional to average spending in peers (in France); the striped area above the dashed line is the gap between France and peers. The numbers below (above) the bars show spending in France (the gap vis-à-vis peers). Sources: Eurostat and IMF Staff calculations

21. A successful consolidation plan will need to involve a credible commitment across government levels. Staff’s cross-country empirical analysis finds that successful fiscal adjustments require strong coordination across all government levels.11 This is particularly relevant for France, where 20 percent of total spending is undertaken by local governments. Greater revenue decentralization at the subnational level and credible fiscal rules have also been found to be supportive of fiscal adjustments. In France, the experience so far with the recent local government spending rule is promising: current real spending of local administrations increased by 0.7 percent last year (against the objective of 1.2 percent). Sustaining these gains will be essential, while ensuring that the provision of key public services and support for vulnerable groups is not compromised.

uA01fig17

Impact of Subnational Government Finance on Fiscal Consolidation Depending on the Existence of a Fiscal Rule

(Percent)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Note: Red (blue) bars denote the (marginal) effects of subnational fiscal policy stance on the probability of a successful fiscal consolidation for countries with (without) a fiscal rule at the subnational level. The Wald test coefficients are reported on the x-axis. ***/**/* indicates significance at 1, 5, and 10 percent, respectively.

Authorities’ Views

22. The authorities concurred with the need to reduce the deficit and debt through durable spending reforms but favored a more gradual pace of consolidation than that recommended by staff. In view of difficult tradeoffs between ambitious structural reforms and fiscal consolidation, their strategy prioritizes addressing structural challenges upfront, while pursuing consolidation in a more gradual manner. In this regard, they reiterated their commitment to undertake fiscal structural reforms that not only support growth but can also achieve fiscal savings in the medium run, such as the unemployment and pension reforms. They agreed with the need to continue to reduce public spending and increase its efficiency over the medium term, including to make space for priority investment (e.g. environment, innovation), noting recent progress including through the local government contractual approach and a better and more transparent budgeting process. As to the policy response in a downside scenario where external risks materialized simultaneously, they saw a need not only for domestic fiscal policy to support growth while ensuring sustainability, but also for a more coordinated policy response at the European level.

B. Structural Reforms: Supporting Inclusive Growth

23. Living standards have been sluggish, and pockets of inequality persist. Increases in real GDP per capita have been modest over the last two decades, reflecting France’s long-standing challenges related to sluggish productivity growth and low labor force participation rates. The global crisis has magnified these challenges, with France’s living standards falling further behind peers and the euro-area average. While France scores well on aggregate inequality metrics based on disposable income, market income inequality is high, reflecting unequal educational and training opportunities and weak intergenerational mobility (France lags peers on the number of generations it takes to move from the bottom 10 percent to mean income: 6 versus the 4.5 OECD average, Annex V).12

uA01fig18

Real GDP per Capita

(Index 1999=100)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: IMF World Economic Outlook and IMF staff calculations.
uA01fig19

Income Mobility

(Number of generations needed for those born in low income families to reach mean Income)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: OECD (2018), A Broken Social Elevator? How to Promote Social Mobility.

24. The government frontloaded labor-market reforms fostering labor market participation, flexibility, and inclusiveness:

  • Key labor-tax-wedge and labor-code reforms were enacted in 2017, reducing labor tax rates, simplifying social dialogue, facilitating bargaining at the firm level, and reducing judicial uncertainty around dismissals.13

  • Additional reforms of apprenticeship and professional-training were enacted in the fall of 2018, aimed at improving opportunities and skill acquisition particularly for vulnerable groups (such as the young, low skilled, and non-EU born immigrants), whose unemployment rates have been consistently higher. While there has been some progress on the ground (the regulating agency France Competence has been set up, the cost of some 800 apprenticeship programs has been identified, some firms have created their own centers, and the number of high-school applicants for apprenticeship programs increased by 40 percent), reforms are expected to take time to be fully implemented (regulation of new training centers is still being developed, the training app is yet to be fully rolled out, etc.). In the meantime, the government is setting aside €15 billion for the training of 1 million unemployed and 1 million low-skilled youth until 2022.

  • The authorities have also introduced measures to further reduce gender gaps, such as a novel index measuring gender pay inequality, with attendant penalties for companies that fall behind standards (Annex V).

  • Finally, as noted earlier, a reform of the unemployment benefit system is underway, aiming at reducing structural unemployment, which is high relative to peers, by tightening eligibility requirements and improving work incentives (Box 2). The reform constitutes an important step in bringing minimum contribution requirements and maximum benefit levels after some period closer to those of peers, though the new system will continue to remain relatively more generous in international comparison.

uA01fig20

Unemployment Rate

(Percent of group population)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Note: Peak unemployment rate since GFC and European crisis in 2015Q2. Source: Eurostat.
uA01fig21

Structural Unemployment, 2018

(NAIRU, percent)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: OECD.
uA01fig22

Features of Unemployment Benefits

(Months; percent of average wage of a full-time private sector employee)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: OECD.Note: The shaded area represents the effect of the reform underway.

25. These reforms should be implemented ambitiously, their effects should be closely monitored, and they should be reinforced if needed. The apprenticeship and professional training reforms aimed at providing opportunities especially for vulnerable groups will require sustained efforts to implement the new systems enacted in late 2018, by finalizing the electronic training app and regulating training centers, among others. Expediting decision-making regarding the possibility of non-extension of branch agreements to those not represented in the negotiation will also be key for effectively facilitating bargaining at the firm level. The authorities should monitor the effects of these reforms carefully, including of the recent unemployment benefit reform, and stand ready to adjust them if outcomes fall short of desired objectives.

Early Effects of the 2017 Labor Code Reform

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26. The authorities have also initiated key product market reforms, but restrictive regulations in some areas continue to hamper productivity growth. The 2018 railway reform introduced measures to increase competition in passenger transport. The recent Loi PACTE aims to facilitate firm creation and growth, promote entrepreneurship and innovation, support the reallocation of savings toward longer term investment, and improve the insolvency regime. But firms are still burdened by restrictive regulations in product and service markets, where France lags peers on several dimensions, such as professional services (especially entry restrictions), retail services (registration and licensing requirements, opening-hour restrictions, retail-price regulations, and online-sales limitations), and network sectors. These obstacles have likely contributed to the rising productivity gap between French firms and the best performing global firms, particularly in the service sector.14

uA01fig23

Product Market Regulation

(Distance to top-performing countries; index)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: OECD and IMF staff calculations.Note: The chart shows the distance between France’s product market regulation index and the average of the three best-performing countries.

27. A sharper focus on product and service market reforms can bring synergies, support productivity growth, and further improve resilience. Bringing France on par with best performers by easing the administrative burden on start-ups and fostering competition in regulated professions (e.g. accountants, lawyers, architects), retail trade (authorization and registration requirements), and sales (medicines) would curb profit margins and prices, with positive spillovers in downstream industries and for consumers. The government’s planned measures to liberalize personal transport (driving schools and auto parts) and online sales of medicines can also help in this regard. Staff model analysis suggests that aligning regulations wit OECD best practices in all these areas could boost the level of potential output per capita by up to 1.6 percentage points over 10 years (equivalent to up to 0.16 percent additional growth per year), which could also help to lower the public debt ratio modestly.15 Staff's empirical analysis also suggests that continued implementation of both labor and product market reforms can not only create synergies, but also reduces real and nominal rigidities and facilitates the reallocation of labor and capital, leading to milder downturns.16

uA01fig24

Impact of Aligning Regulation with Best Performers

(Induced changes in percent of initial output, or in percent for real wages)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: IMF Staff calculation.
uA01fig25

Structural Policies and Severity of Recessions

(Effect on the amplitude of recessions, percentage points)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Note: The chart shows the average change in the amplitude of recessions from reducing the regulatory stringency from the top to the bottom of the interquartile range (or by moving to a flexible regime in the case of a fixed exchange rate). Source: Strengthening the Euro Area: The Role of National Structural Reforms in Enhancing Resilience (Aiyar et al., 2018).

28. Addressing corruption at home and abroad is also important to support an equitable and level playing field. Corruption can distort competition, damage the business climate, and lead to a suboptimal allocation of resources.17 In recent years, France has taken important steps to address corruption, including that of French firms on a global level. In 2016, France passed the Law on Transparency, the Fight Against Corruption, and the Modernization of the Economy (Loi Sapin 2) aimed at strengthening anti-corruption framework and enforcement efforts. This law introduced several new measures (Box 3), including a deferred prosecution resolution mechanism (Convention Judiciaire d’lntérêt Public CJIP), and created the French Anti-Corruption Agency to support the prevention, detection, investigation and prosecution of corruption. Enforcement capacity has also been bolstered, including with the creation of a National Financial Prosecutor. Looking forward, France should continue to enhance its enforcement capabilities, including by being proactive in instances where French companies have already been sanctioned by foreign authorities, and ensuring that sanctions imposed are effective, dissuasive, and proportionate.

Authorities’ Views

29. The authorities agreed with the need to lower structural unemployment, address inequality of opportunity, and boost long-run growth. Their policy agenda has been centered around growth-enhancing structural reforms and reforms providing everyone with equal opportunities through employment, which they see as the main policy priorities. In this regard, they noted the progress made with recent reforms of the labor market, capital taxation, education and training, liberalization of rail transport, and the Loi Pacte. Looking forward, they saw merit in implementing announced measures to liberalize product markets, building on earlier reforms of transport and regulated professions, among others. Finally, they welcomed the focus on supply-side corruption, noting that the establishment of the new Convention Judiciaire d’Intérêt Public and the increase in the number of sanctions through trials constitute some illustrations of their efforts to respond to the recommendations of the OECD’s Phase 3 report.

C. Financial Sector: Strengthening Resilience

30. France’s financial system is complex and global (Figure 4). France is home to four global systemic banks (G-SIBs), and one global insurer. Banks, insurance companies, and investment funds are interlinked in the context of complex financial conglomerate structures. Total financial system assets are about 600 percent of GDP, and French financial conglomerates operate in more than 80 countries. The banking sector’s asset structure is highly diversified, including not only reliance on domestic credit, but also a sizeable share of traded assets, of which a significant exposure to sovereign debt—pointing to the importance of safeguarding fiscal sustainability. On the liability side, banks are relatively more reliant than peers on wholesale funding, which has declined but remains high (including in USD).

Figure 4.
Figure 4.

Financial Sector

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

uA01fig26

Bank Assets

(Percent of Euro Area GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: SNL, World Economic Outlook and IMF staff calculations.

31. Banks have improved capital positions and asset quality, but profitability is being challenged.18 The large banks’ CT1 ratio has increased in recent years, averaging 14.7 percent at end-2018, the leverage ratio is in line with peers, and NPLs fell below 3 percent. The liquidity-coverage ratio is well above 100 percent and has been rising recently, although the net-stable-funding ratio (NSFR) hovers around 100 percent, having increased in 2018. Successive increases in fees and commission income and earnings from bancassurance products have supported overall profitability, which is in line with global peers, but net-interest margins have been compressed and are below peers, given low interest rates, regulated savings, and competition among banks and from fintech. Insurers’ solvency ratios have been stable, and implementation of Solvency II is ongoing.

uA01fig27

Leverage and Tier 1 Capital Ratios, 2018

(Percent of total assets; percent of risk-weighted assets)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: SNL.

32. To address a buildup of systemic risk from corporate leverage, the authorities activated macroprudential policies. Staff estimates the credit gap to have reached 2.7 percent of GDP last year (slightly below the 3.2 percent level attained in 2017).19 Corporate debt has been rising sharply since the global financial crisis—reflecting strong corporate debt issuance—to around 140 percent of GDP at end- 2017 on an unconsolidated basis. Nonetheless, given large intra-company lending, consolidated debt is lower, at 90 percent of GDP, while many firms have also built up cash buffers.20 Similarly, household debt has increased but is mitigated by an increase in household assets; and residential house prices, while having risen, remain broadly in line with fundamentals at the national level. In this context, while there are some mitigating factors, a rise in systemic risk cannot be excluded if risk premia rise rapidly or asset prices fall, which could constrain the ability of more vulnerable corporates and households to service debt, which in turn, would affect banks through both credit-risk exposures in the loan portfolio and corporate-bond holdings. In this context, last year, the authorities lowered the large exposure limit of banks to large indebted corporates and introduced a countercyclical capital buffer (CCyB) of 0.25 percent, raised to 0.5 percent this year, in line with staff’s 2018 Article IV recommendation.21

uA01fig28

Consolidated NFC Debt

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Sources: Haver Analytics, and IMF staff calculations

33. Stress-test analysis undertaken in the context of France’s 2019 Financial-Sector Assessment Program (FSAP) indicates that banks, corporates, and insurers are broadly resilient to simulated shocks, although some pockets of vulnerability remain. Overall, banks appear to have sufficient capital and liquidity buffers (notwithstanding high volatility in dollar liquidity ratios) to withstand an adverse shock.22 However, an increase in wholesale funding costs could challenge profitability and solvency, and large outflows of wholesale funding could strain liquidity positions. Corporate debt-at-risk would increase under stress, but overall risks from corporate exposures appear manageable. Insurers are broadly resilient to market shocks, but some risks stem from concentrated exposures, mostly to parent banks; they are also vulnerable to a combination of a rise in interest rates and a mass-lapse event.

uA01fig29

Total Large Exposures of Banks to Corporate Debt at Risk

(Average bank exposure to corporates with ICR < 2 as percent of CET1)

Citation: IMF Staff Country Reports 2019, 245; 10.5089/9781513508450.002.A001

Source: ECB, Worldscope, WEO and IMF staff estimatesNotes: sample includes 5 banks.1/ SNCF not included. Stress scenario estimates the expected debt at risk.

34. Financial sector policies need to continue to focus on bolstering the financial system’s resilience. The authorities have made important progress in improving the institutional and policy framework to support financial stability, both at the national and EU level. Domestically, key accomplishments include the establishment of the High Council of Financial Stability (HCSF), closer monitoring of structural risks, readiness to manage the Brexit fall-out, the proactive use of macroprudential policies, and new initiatives on digital finance, crypto assets, and combating cyber risk. At the European level, significant changes include the Banking Union, Capital Requirements Regulation II/Capital Requirements Directive V (CRR II/CRD V), and Solvency II, among others. Looking forward, policies should build on progress to date to address remaining challenges (text table):

  • Bolstering the monitoring and oversight of financial conglomerates: Currently, even as efforts at the national and EU level are being made to enhance conglomerate oversight, operations of conglomerates are monitored and supervised primarily by separate institutions, and data-reporting gaps exist. To address potential risks stemming from risk transfer and cross-exposures within and across conglomerates, improved cooperation among supervisory agencies is needed to develop common reporting templates, provide supervisory guidance, increase oversight of liquidity including stress testing, and set requirements at the conglomerate level. Intensifying monitoring of insurers’ exposures toward parent banks, which can reach more than 50 percent of insurers’ capital, would also help, and concentration limits on these exposures could be considered.

  • Building resilience against cyclical risk, including related to corporate indebtedness: In view of the existing macro-financial vulnerabilities, the authorities should stay vigilant, continue to monitor financial conditions closely, and stand ready to make use of additional micro- and macro-prudential policies proactively if risks intensify. In this case, the supervisory authorities could consider the introduction of a systemic risk buffer and Pillar II capital measures calibrated to corporate exposure or could further adjust the CCyB. Further reducing the fiscal tax bias favoring debt rather than equity financing could help curb corporate leverage, while further work will be needed to consider development of additional measures to address non-bank financing pressures.

  • Ensuring adequate liquidity buffers: As noted above, while liquidity indicators have improved in aggregate terms, in some cases, banks rely on collateral swaps, and the NSFR in US dollars is still well below 100 percent.23 To minimize residual risks related to potential disruptions in wholesale funding, the supervisory authorities are encouraged to consider imposing liquidity buffers to cover at least 50 percent of wholesale funding outflows up to a five-day horizon for all currencies, which could be linked with monitoring of banks’ use of collateral swaps, to improve liquidity ratios.

  • Enhancing crisis management, safety nets, resolution arrangements and financial integrity: The medium-term challenge is to integrate the existing crisis-preparedness tools by pooling safety-net resources and broadening recovery and resolution-planning exercises to cases where failure within a conglomerate impedes internal support. The insurer-resolution framework could also be enhanced by providing powers to the regulator (ACPR) to mandate the bail-in of liabilities and privately-financed resolution funding. Finally, the authorities should continue to enhance the AML/CFT supervision of smaller high-risk rated banks and develop consistent approaches to risk-based compliance monitoring procedures.

Table 1.

France: 2019 Key FSAP Recommendations

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* I= immediate (within one year), NT= near term (1–3 years), MT= medium term (3–5 years).

Authorities’ Views

35. The authorities welcomed the FSAP and broadly concurred with its findings. They stressed that the conglomerate structure of the financial system had been a source of strength, including as a result of its ability to diversify risks and revenue streams in a low interest-rate environment. They considered that integrating a conglomerate dimension in the resolution framework could be an interesting option, but that this issue could only be addressed from a European perspective. They deemed that liquidity and macroprudential risks are appropriately managed, including on account of preemptive macroprudential measures. Looking forward, they expressed concern about the profitability of the traditional banking business and its ability to generate adequate profits, not least due to a rise in competition from fintech, and rising costs associated with combating cyber and associated risks and urged a speedier progress with the capital markets union and completion of the banking union at the European level. The authorities welcomed the specific recommendations on AML-CFT, an important priority for France.

Staff Appraisal

36. France’s growth has moderated but remained job rich. Activity decelerated last year from its 2017 peak but remained relatively resilient compared to peers. Importantly, the employment rate reached a ten-year high, permanent work contracts increased, and the unemployment rate declined. The external position is assessed to be broadly consistent with medium-term fundamentals and desirable policy settings. Growth is expected to remain solid in the near and medium term, predicated on a recovery of domestic and external demand and gains from recent structural reforms.

37. A number of structural challenges remain, and risks have risen. The government has made notable progress in legislating key labor, tax, education, transport, and business-environment reforms over the last year. But high public and private debt, still high structural unemployment, sluggish productivity growth, and inequality of opportunity remain impediments to long-term growth. Moreover, risks have increased, related to trade tensions, an uncertain Brexit outcome, possible renewed tensions inside the Euro Area, weaker-than-expected growth in Europe, and, in France, support for necessary economic reforms among the general public may falter.

38. Reversing the rising trend of public debt is a key priority. While there is no immediate risk, the elevated debt level could create vulnerabilities from a medium and long-term perspective. Reducing debt is thus key to build buffers against shocks to avoid pro-cyclical tightening—which could affect vulnerable groups disproportionately—and support intergenerational equity. A structural primary fiscal effort of some ½ percent of GDP per year during 2020–23 could put debt on a sustained downward path and bring the fiscal balance to its medium-term objective.

39. To reconcile the government priorities with debt reduction, a significant fiscal effort on the spending side is needed. While the fiscal deficit was reduced in recent years, it will widen again if forthcoming tax cuts are not offset by durable spending cuts. The planned civil service, unemployment benefit, and pension reforms can help in this regard. But additional measures will be needed to underpin consolidation efforts (including on tax expenditures and subsidies, health, education, better targeting social benefits, and eliminating overlaps between central and local government functions), while improving efficiency and supporting social objectives.

40. Fully implementing recent labor-market reforms, coupled with further liberalization of product and service markets, is essential to support inclusive, long-run growth. To reap the benefits of recent collective bargaining and training reforms, efforts should focus on making them fully effective. The authorities should monitor the effects of reforms and stand ready to adjust them if outcomes fall short of objectives. Combining them with further product-market reforms (e.g. regulated professions, sales of medicines, and retail distribution) can create virtuous synergies, improve resilience, and boost living standards. Efforts to combat the supply side of corruption by continuing to enhance enforcement capabilities should be sustained.

41. In line with the findings of the recent FSAP, the authorities need to continue to strengthen financial stability, building on important progress to date. Given the systemic significance and complexity of France’s financial system, further integration of conglomerate-level monitoring and oversight can help ensure that risks are promptly identified and addressed. Having been proactive in responding to the buildup of cyclical risks, the authorities should continue to monitor risks closely and stand ready to make further use of macro- and micro-prudential policies as needed. Ensuring adequate liquidity buffers in all currencies and strengthening liquidity-risk management within financial conglomerates can also help build resilience against risks.

42. It is proposed that the next Article IV consultation take place on the standard 12-month cycle.

Policy Responses to the Gilets Jaunes Protests

Recurrent street protests against the government’s policies took place in the last quarter of 2018. Demonstrations by the social movement of the “gilets jaunes” (yellow vests) were sparked in November 2018 by planned fuel tax increases expected to take effect in January 2019. The movement subsequently expanded to protest against high living costs, the burden of recent tax reforms on the middle class, and the government’s overall reform agenda. Violent rioting in Paris and other cities during the recurrent weekend demonstrations disrupted retail sales and weighed on consumption spending, with an estimated negative impact of about 0.1 percent on output growth in the last quarter of 2018 and first quarter of 2019. While they have not fully subsided, the protests diminished substantially this year.

In response to the protests, the government legislated a number of expansionary fiscal measures in the 2019 budget to support households’ purchasing power (costing an estimated 0.4 percent of GDP in 2019, and 0.6 percent by 2024). The set of measures adopted last December included: (i) the elimination of planned fuel tax increases over 2019–22; (ii) increasing the in-work benefit at the minimum wage by €90 per month; (iii) eliminating, for pensions below €2,000 per month, the 1.7 percent increase in the generalized tax (CSG) introduced in January 2018; (iv) reducing overtime pay tax; and (v) temporarily allowing firms to pay tax-free bonuses for workers earning less than three times the minimum wage. To partially offset the cost of these measures, the government postponed by one year the CIT reduction planned for 2019 (from 33 percent to 31 percent) for firms with annual revenues above €250 million); introduced a tax on large digital service providers (expected to bring in €500 million) and announced intentions to compress spending further by better managing appropriations and reserves.

Fiscal Impact of Key Legislated and Announced Measures

(Cumulative, in percent of GDP; positive = improvement in fiscal balance)

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The government also launched a three-month nationwide debate (“Grand Débat National”) in response to the gilets jaunes protests. The debate—a series of town hall style discussions and internet questionnaires—sought popular input on issues such as taxation and public services, the organization of the state and public bodies, the ecological transition and democracy and representation. The debate, which consisted of 10,134 local meetings and included 1,932,884 online contributions, concluded in mid-March.

Drawing on the conclusions of the debate, the government announced in April 2019 a series of additional fiscal measures (estimated to cost an additional 0.3 percent of GDP). The measures, which are expected to be part of the 2020 budget, include: (i) a reduction in the income tax for middle income taxpayers through a readjustment of the lower tax brackets (cost of 0.2 percent of GDP); (ii) the re-indexation of pensions below €2,000 to inflation rather than to the fixed level of 0.3 percent and an increase in the minimum pension to €1,000 for new retirees (combined cost of 0.1 percent of GDP); (iii) more support to single mothers; and (iv) further decentralization. The government has announced that the measures would be financed through a rationalization of subsidies and tax expenditures (niches fiscales) and incentivizing longer work but has not yet identified specific measures. The authorities have also announced the closure of the administrative elite school (ENA), have committed not to close any hospitals or schools until 2022, indicated that the statutory pensionable age and the 35-hour week will remain unchanged, and have noted that the target for reducing public employment by 120,000 by 2022 may no longer be feasible. The government has maintained the reform replacing the wealth tax with a real estate tax but committed to reassess it in early-2020.

Planned Fiscal Structural Reforms

In the course of 2019, the government plans to legislate a number of fiscal structural reforms to improve government spending efficiency and the quality and fairness of social protection plans. These would also help boost long-term output growth by boosting labor-force participation, tackling potential misallocation of labor, and reducing structural unemployment.

  • Civil service: The planned reform aims at increasing flexibility within the public administration and improving labor allocation by: (i) encouraging the use of contractual employment, including at managerial level; (ii) introducing new types temporary contracts; (iii) simplifying social dialogue; (iv) allowing for voluntary dismissals, as in the private sector; (v) simplifying procedures to change jobs within the public administration and increasing the portability of acquired rights and benefits; (vi) imposing a minimum 35 hour week for all civil servants; and (vi) introducing a merit-based pay system while harmonizing remunerations and promotions criteria across the administration. The reform, currently in parliament, is expected to be legislated by mid-2019.

  • Pension system: The government plans to unify the 42 existing pension systems under one scheme for all private and public workers, with benefits based on points. The new system will require the calculation of pension rights over the whole career, instead of a number of best years, for all groups of workers. It will also introduce a single definition for labor revenues to be used as basis for calculating pension contributions, including bonuses for the public sector. The reform is expected to kick-in gradually, starting from 2025. The authorities have also announced their intention to provide incentives to retire later, such as by accelerating the planned gradual increase in the effective retirement age. The law is expected to be finalized and legislated in 2019 or early 2020.

  • Unemployment benefit system: The authorities have announced a reform aiming to reduce the system’s generosity, improve work incentives, and disincentivize precarious work arrangements. The key measures include: (i) computing unemployment benefits on the basis of average monthly salaries, rather than average earnings over worked days, while ensuring that benefits are between 65 percent and 96 percent of net monthly salaries; (ii) introducing a 30 percent reduction in benefits after six months for high-salary earners (above €4,500), while maintaining the initial maximum benefit cap of €7,700 and introducing a floor of €2,261; (iii) extending the minimum contribution length to six months over the past 24 months (from four months over the past 28 months); (iv) raising from one to six months the minimum working period needed to recharge unemployment insurance rights during the benefit period; and (v) introducing a bonus-malus scheme for firms with 11 workers or more in selected sectors (accommodation and restauration; food; transport and storage; water and sanitation; rubber and plastic; wood, paper, and printing; and certain specialized activities) by which employers would contribute more to the system for using short-term contracts excessively, coupled with a lumpsum tax of €10 for the use of very short term contracts. The new system will also expand rights for independent workers and those quitting jobs and will reinforce support for job seekers. The reform is expected to be implemented in the summer of 2019 (no further legislation is required) with measures taking effect from November 2019 to mid-2020.

  • Healthcare system—The reform aims to improve the quality of health services by “placing the patient at the heart of the system.” The key measures include: (i) introducing a flat price system for hospital stays for certain diseases; (ii) creating 1,000 new territorial health centers by 2022, and 4,000 new positions of doctor assistants; (iii) reforming the administrative authorizations for health services and reinforcing the role of doctors in hospital management; and (v) reforming undergraduate and graduate medical studies. The authorities expect to cover reform costs by the increase of the ceiling on health spending from 2.3 to 2.5 percent in 2019. The reform, now in parliament, is expected to be legislated in mid-2019.

In future years, the authorities aim to introduce further reforms to unify social minimum benefits into a single universal activity benefit, reform old-age care for dependent elderly citizens, and further decentralize powers from the central to local governments.

Recent Efforts in Tackling Corruption and Supply-Side Bribery

In its 2012 report, the OECD Working Group on Bribery raised concerns about anti-corruption enforcement efforts in France. The Working Group on Bribery concluded that foreign bribery enforcement in France was not commensurate with the size and significance of France’s economy. Despite the global presence of French companies in vulnerable sectors, such as defense, transport, infrastructure, and telecommunications, only five convictions for foreign bribery – of which only one (not yet final) was for a legal person – had been secured since France’s ratification of the OECD Anti-Bribery Convention. French authorities were also perceived as exhibiting a “lackluster” response in pursuing cases against companies sanctioned by other Parties to the Convention. Consequently, the Working Group on Bribery recommended that France intensify its efforts to combat the bribery of foreign public officials, including by enhancing the independence of the prosecutors, dedicating sufficient resources to the investigation and prosecution of foreign bribery, and protecting whistleblowers. The next assessment of France by the Working Group on Bribery will take place in 2020.

Since the Phase 3 review in 2012, France has improved its anti-corruption legal framework. In December 2016, France passed the Law on Transparency, the Fight Against Corruption, and the Modernization of the Economy (Loi Sapin 2), expanding France’s jurisdiction with respect to corruption offences by eliminating the dual criminality requirement for prosecution of foreign bribery offences, imposing mandatory compliance requirements for French companies of a certain size and above the statutory threshold, and introducing a deferred prosecution resolution mechanism (Convention Judiciaire d’Intérêt Public – CJIP). Loi Sapin 2 also created the French Anti-Corruption Agency (AFA) to support the prevention, detection, investigation and prosecution of corruption.

France has also bolstered its enforcement efforts against French companies bribing public officials abroad. Efforts since 2013 include the establishment of a new National Financial Prosecutor, cessation of individual instructions from the Minister of Justice to prosecutors, protection for all whistleblowers from retaliation, an increase in criminal sanctions for the foreign bribery offence, and an end to the monopoly of the Public Prosecutor’s Office on foreign bribery prosecutions. As of December 2017, 15 natural persons and 2 legal persons had been convicted of foreign bribery and sanctioned since the entry into force of the Convention in 2000. Further, in 2018, French prosecution authorities entered into the first ever CJIP in close cooperation and coordination with the United States.

Table 2.

France: Selected Economic and Social Indicators, 2015–24

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Sources: Haver Analytics, INSEE, Banque de France, and IMF Staff calculations.
Table 3.

France: General Government Accounts, 2015–24

(In percent of GDP unless otherwise indicated)

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Sources: Haver Analytics, INSEE, Banque de France, and IMF Staff calculations.
Table 4.

France: Balance of Payments, 2015–24

(In percent of GDP)

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Sources: Haver Analytics, Banque de France, and IMF Staff calculations.