EXECUTIVE SUMMARY Extended Arrangement: On May 15, 2013, the Executive Board approved a three-year Extended Arrangement under the Extended Fund Facility in the amount of SDR 891 million (563 percent ...of quota; about €1 billion). Three purchases of amounts equivalent to SDR 74.25 million (about €86 million) each have been made so far, and another purchase of the same amount is proposed to be released upon completion of the third review. The European Stability Mechanism has released €4.6 billion of €9 billion committed, with a disbursement of €150 million expected in early April. Recent Economic Developments: While deep, the 2013 recession was not as severe as anticipated. The adjustment is occurring through both quantities and prices, and signs of stabilization are emerging in the banking sector. However, the outlook remains challenging, with rising unemployment, falling credit, and increasing non-performing loans. In this context, growth projections remain unchanged, with a deep contraction expected in 2014 and a modest and credit-less recovery taking hold in mid-2015. Policy Implementation: The program remains on track. Fiscal targets were met with considerable margins, the coop sector was recapitalized, and additional relaxations of payment restrictions are being implemented. Delays in the implementation of structural reforms have recently been overcome. Looking forward, policies will need to focus on dealing with the high level of non-performing loans, further normalizing payment flows, maintaining fiscal prudence, and stepping up the implementation of the ambitious fiscal structural reform agenda. Risks to program implementation remain significant, including due to remaining financial sector vulnerabilities and diminished political support following the breakup of the governing coalition.
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff ...team after discussions with government officials, is published at the option of the member country.
Euro Area Policies European Dept., International Monetary Fund
2014, Letnik:
v.Country Report No. 14/199
eBook
Odprti dostop
This Selected Issues paper assesses the youth unemployment problem in advanced European economies, especially the euro area. Youth unemployment rates increased sharply in the euro area after the ...crisis. Much of these increases can be explained by output dynamics and the greater sensitivity of youth unemployment to economic activity compared with adult unemployment. Labor market institutions also play an important role, especially the tax wedge, minimum wages, and spending on active labor market policies. The paper highlights that policies to address youth unemployment should be comprehensive and country specific, focusing on reviving growth and implementing structural reforms.
EXECUTIVE SUMMARY Extended Arrangement. On March 15, 2012, the Executive Board approved a four-year arrangement in the amount of SDR 23.79 billion (2,159 percent of quota; €28 billion). Purchases ...totaling SDR 7.2 billion (€8.1 billion) have been made so far, and a purchase in the equivalent of SDR 3 billion (€3.5 billion) is proposed to be released on the completion of the review. Euro area countries have so far disbursed €139.9 billion since this program's approval (of €144.6 billion committed), of which €48.2 billion was for bank recapitalization. Developments. Significant progress has been made toward rebalancing the economy. The fiscal primary and external current account balances are in surplus. Investor sentiment has improved, and the government successfully placed a medium-term bond. The economy is poised to grow in 2014, after six years of deep recession. All this bodes well for a potentially virtuous cycle of recovery to take hold. But a number of challenges remain to be overcome before stabilization is deemed complete and Greece is on a sustained and balanced growth path. The real exchange rate remains overvalued, and non-tourism exports are relatively weak. Banks face a mountain of bad loans that will require adequate capital and oversight to clean up, absent which the prospects are of a prolonged deleveraging antithetical to the assumed recovery. Fiscal gaps are projected for 2015-16, and public debt remains very high. Policies. The authorities over-performed significantly on their 2013 fiscal primary balance target, achieving a surplus of 0.8 percent of GDP. Although the carryover of the over- performance to 2014 is small, the authorities are on track to achieve this year's target. They are implementing a number of structural reform commitments, with a notable acceleration of product and service market liberalization, where progress has lagged. However, in the area of labor market reforms, where Greece has made important progress in the past, the program is now falling short of targets. Following the Bank of Greece's stress tests, the HFSF buffer has been set aside to safeguard financial stability, and ambitious steps are planned to strengthen the private debt resolution framework. Reforms to tax codes have been legislated, aimed at simplifying the system and making tax administration easier and, thus, addressing longstanding weaknesses. But at the same time, the authorities need to guard against pressure to rollback progress. On public administration reform, progress is mixed as Greece is struggling to introduce performance-based management and address the taboo against mandatory dismissals.
KEY ISSUES Context: Weak external demand and inconsistent macroeconomic policies have contributed to a prolonged economic recession. A combination of an effectively pegged exchange rate, loose fiscal ...policy, and sizable quasi-fiscal losses in the energy sector has pushed the fiscal and external current account deficits to very high levels. A gradual depletion of international reserves and other buffers is making the economy particularly vulnerable to external shocks. Outlook and risks: A modest economic recovery should commence in late 2013. However, a difficult business climate and impaired external competitiveness are weighing on the medium-term outlook. The current policy mix is not sustainable as it generates large imbalances and depresses growth. The risk of a costly market-forced adjustment is high. Main policy recommendations: * Allow the exchange rate to adjust to its equilibrium level and increase its flexibility. Accelerate preparations for the introduction of inflation targeting. * Strengthen the financial system's resilience to shocks, including by developing comprehensive contingency plans to cover potential capital and liquidity shortfalls under various scenarios. * Curtail the fiscal deficit through a reform-based current expenditure consolidation and the cancelation of unaffordable tax cuts. * Reduce the quasi-fiscal losses in the energy sector by increasing the very low household gas and heating tariffs in the context of a comprehensive energy sector reform plan, while protecting the most vulnerable households. * Launch broad structural and governance reforms to improve the business climate and boost sustainable growth.
KEY ISSUES 2014 marked the tenth anniversary of accession to the EU of the first group of Central and Eastern European (CEE) countries. The first NMS Policy Forum was launched in the fall of 2014 as ...a platform for discussing policy frameworks and issues relevant for non-euro area NMS. It brought together representatives of the six CEE countries that are EU members but are not yet in the euro area - Bulgaria, Croatia, Czech Republic, Hungary, Poland, and Romania (NMS-6), as well as the ECB, the European Commission and the IMF. Discussions focused on four themes: Euro adoption: A once sizeable country risk premium associated with joining the euro area has mostly vanished, as the euro crisis has exposed flaws in the euro area's institutional framework. Further, the crisis has illustrated both risks and benefits from adoption: monetary autonomy has proven helpful for absorbing shocks, while foreign currency mismatches-that can be much reduced with euro adoption-have shown to be a key vulnerability. Flexible labor markets, fiscal and macro-prudential policy space, and income convergence are prerequisites for successful adoption. Opting into the Banking Union (BU) before euro adoption: The lack of equal (or fully equivalent) treatment of the BU members and non-euro area opt-ins-regarding their role in the Single Supervisory Mechanism (SSM), as well as access to common liquidity and fiscal backstops-makes opting into the BU before euro adoption less attractive. Countries that would benefit most from early opt-in are those that see the BU as a way to enhance the quality and credibility of bank supervision or to gain access to larger industry-funded common backstops. The EU's fiscal framework and pension reform: In the wake of the crisis, many NMS abolished second pillar pension funds. Further reforms to the EU's fiscal framework are warranted to remove
disincentives for setting up and maintaining second pension pillars and, more generally, for structural reforms. Making the most of the EU single market and EU Services Directive: Structural reforms to strengthen human capital, skills match, labor market efficiency, and foreign investment environment will help NMS to reap full benefits from EU integration. Further liberalization of trade in services will likely benefit the NMS-6 more than other EU members.
Belgium European Dept., International Monetary Fund
2013
eBook
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries.
Stand-by Arrangement: Romania successfully completed in June 2013 a 27-month Stand-By Arrangement (SBA), including a three-month extension, equivalent to SDR 3,090.6 million (€3.4 billion, 300 ...percent of quota). The authorities have requested a successor 24-month SBA with proposed access of SDR 1,751.34 million (about €2 billion, 170 percent of quota). The first tranche of SDR 194.7 million would be made available upon program approval. The authorities intend to treat the SBA as precautionary and have also requested support from the European Union (€2 billion), while €1 billion remains available under a World Bank policy loan. Program objectives: Since the 2008 global financial crisis, Romania has made significant progress in reducing macroeconomic imbalances and rebuilding fiscal and financial buffers. However, Romania remains vulnerable to external shocks, in particular uncertainties in the euro area as well as global volatility in capital flows to emerging markets. The new SBA would provide a valuable policy anchor and support Romania's comprehensive economic program for 2013-15 to maintain sound macroeconomic policies and financial sector stability and continue structural reforms to enhance growth prospects. Program conditionality: Romania's cumulative access, net of scheduled repurchases, would be exceptional given its outstanding credit to the GRA arising from purchases under the 2009-11 SBA. The program calls for continued gradual fiscal adjustment and allows for short-term measures in support of domestic demand. Structural reforms build on the previous program with a focus on arrears reduction. Conditionality is front-loaded via a number of macro-critical structural benchmarks. An Ex Post Evaluation is envisaged for around end-2013 and an update of the Safeguards Assessment by the time of the first review. Staff views: Staff supports the authorities' request for a new SBA. A precautionary Fund-supported program would foster policy discipline and provide a reserve buffer, while helping to catalyze support for difficult structural reforms and put Romania on a firm path toward exiting from Fund support.
EXECUTIVE SUMMARY Extended Arrangement: On May 15, 2013, the Executive Board approved a three-year Extended Arrangement under the Extended Fund Facility in the amount of SDR 891 million (563 percent ...of quota; about €1 billion). Four purchases of amounts equivalent to SDR 74.25 million (about €84 million) each have been made so far, and another purchase of the same amount is proposed to be released upon completion of the fourth review. The European Stability Mechanism has released €4.75 billion (of €9 billion committed), and an additional €600 million is expected to be disbursed in early July. Recent Economic Developments: While still deep, the recession continued to moderate in the first quarter. Unemployment remains high, and mild deflation persists. Conditions in the banking sector are normalizing, although non-performing loans remain very high, constraining the ability of banks to provide credit to the economy. The outlook remains challenging, although with a somewhat milder output contraction expected this year, followed by a more gradual recovery. Overall, the economy remains weighed down by large private sector deleveraging needs. Policy Implementation: The program remains on track. Fiscal targets for the first quarter were met with considerable margins, domestic payment restrictions were fully lifted, and the coop sector was consolidated. The authorities intensified efforts to overcome delays in the implementation of structural measures. Looking forward, there are three key policy challenges: (i) addressing the high level of non-performing loans; (ii) maintaining fiscal sustainability; and (iii) strengthening institutions to support fiscal consolidation efforts and long-run growth. Risks to the program remain significant, in particular those related to still strong macro-financial linkages.
EXECUTIVE SUMMARY Extended Arrangement: On May 15, 2013, the Executive Board approved a three-year Extended Arrangement under the Extended Fund Facility in the amount of SDR 891 million (563 percent ...of quota; about €1 billion). Two purchases of amounts equivalent to SDR 74.25 million (about €86 million) each have been made so far, and another purchase of the same amount is proposed to be released upon completion of the second review. The European Stability Mechanism has released €4.5 billion since the program approval (of €9 billion committed). Recent Economic Developments: The recession through September, though deep, has not been as large as expected. Private consumption has been relatively resilient, economic sentiment continues to improve, and exports, including tourism, have held up. Nevertheless, the situation remains difficult, with unemployment on the rise and disposable incomes falling. Banks are curtailing credit as asset quality continues to deteriorate, and private sector indebtedness remains very high. In this context, the growth forecast for 2013 has been revised upwards modestly, but a deeper contraction in 2014 is now envisaged, consistent with a more gradual private sector deleveraging process. Policy Implementation: The program is on track. Fiscal performance continued to exceed targets comfortably, and the 2014 budget is more ambitious than envisaged at program approval. All structural benchmarks were met, albeit with a modest delay in one case. Significant progress has been made in restructuring and recapitalizing the banking sector, including with foreign participation in the share capital of one domestic bank. Looking forward, efforts must concentrate on ensuring full implementation of banks' restructuring plans to clean up balance sheets and pave the way for a return of credit to the private sector. Fiscal structural reforms are proceeding, but strong resolve is needed to kick-start the privatization process. The program remains subject to large uncertainty given lingering financial sector vulnerabilities and continued challenges to policy implementation.
