Category: English Language

Source: IMF – News in Russian

June 10, 2025

• After a strong recovery in 2024, growth is expected to moderate in 2025, amid global and election-related uncertainty, and thereafter to remain close to potential. Inflation is expected to remain close to the midpoint of the target band. The financial system is sound. Risks are tilted to the downside given elevated external uncertainty, but Peru has ample buffers to cope with shocks.
• Meeting the 2025 fiscal deficit target would require additional efforts in a pre-election year. In the medium term, further fiscal consolidation measures should be identified to comply with the fiscal rule deficit targets and debt ceiling. Introducing both spending and revenue measures would make the consolidation more balanced and credible.
• Structural reforms are urgently required to lift potential growth, including updating the fiscal decentralization framework to help boost investments in the critical mineral sector. Enhanced efforts are needed to curb the low but rising level of insecurity, reform labor and tax regulations that impose excessive costs for formalizing or growing a business, enhance the independence and integrity of judicial bodies and tools to combat corruption impunity, build resilience to natural disasters, and embrace the opportunities of digital technologies and artificial intelligence.

Washington, DC: On June 5, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the 2025 Article IV consultation[1] with Peru and endorsed the staff appraisal without a meeting on a lapse-of-time basis.[2]

The economy has recovered from consecutive natural disaster shocks and social turmoil. Inflation is firmly within the target band, owing to the central bank’s early and decisive monetary tightening followed by cautious easing. The financial sector remained sound and profitable. The current account surplus further improved, underpinned by strong terms of trade. However, the fiscal position weakened. A relative political stability persists but pre-election tensions are rising. Lingering political uncertainty weighs on economic prospects and dents the appetite for structural reforms to boost potential growth.

Growth is expected to moderate to 2.8 percent in 2025. A favorable momentum in private consumption and elevated public investment would support continued growth, but pre-election tensions would weigh on the private investment recovery while the impact of the first-round effects of the tariffs and global growth slowdown would be negative, although relatively moderate. Inflation is expected to remain within the target band of 1-3 percent. The current account balance is envisaged to remain in a surplus of 1.7 percent of GDP in 2025, with low external financing and debt rollover risks.

Evolving risks are dominated by the potential for larger adverse impacts on global growth and commodity prices, due to prolonged trade policy uncertainty and financial market volatility, but Peru has ample buffers to cope with shocks. In the short term, key domestic risks include an intensification of political uncertainty, social unrest over security concerns, and weather-related shocks. Key external risks include trade policy uncertainty, tighter financial conditions, and commodity price volatility. Recent government initiatives to accelerate private sector involvement in public investment projects and streamline burdensome regulations could help revive private investment. Peru’s macroeconomic resilience is reinforced by very strong buffers including low public debt, abundant international reserves, and access to international capital markets on favorable terms.

Executive Board Assessment

After a strong recovery, growth is expected to moderate, amid global policy uncertainty and pre-election tensions, and thereafter to remain close to potential. With a closed output gap and firmly anchored inflation expectations, headline inflation would remain within the target band. The current account balance is envisaged to remain in a surplus, only gradually returning to a deficit in the medium term—stabilizing at its norm, of about 1.5 percent of GDP—as private investment recovers and terms of trade normalize. The external position in 2024 was stronger than the level implied by medium-term fundamentals and desirable policies, due to strong terms of trade and a recovery in traditional exports. Risks are tilted to the downside given elevated external uncertainty, but Peru has ample buffers to cope with shocks. Very strong macroeconomic policies and institutional policy frameworks remain in place.

A broadly neutral monetary policy stance is appropriate. Inflation expectations are approaching 2 percent, and the output gap is closed. However, given heightened external uncertainty, monetary policy should remain data dependent. Continued exchange rate flexibility should be allowed to help cushion the impact of external shocks.

Meeting the 2025 fiscal deficit target will require additional efforts in a pre-election year. The 2025 budget envisages a deficit of 2.2 percent of GDP, consistent with the revised fiscal rule target. A tax revenue rebound from the economic recovery and one-off factors will help reduce the deficit in 2025, but additional efforts of about 0.4 percent of GDP will be needed to secure fiscal rule compliance. Additional spending control measures would make this year’s consolidation plans more credible and balanced. In May 2025, the authorities announced initiatives to improve spending efficiency, but further efforts will be needed to comply with this year’s target.

A combination of spending restraint and revenue-raising measures would be needed to comply with the medium-term fiscal targets. To comply with the fiscal rule deficit target of 1 percent of GDP by 2028 and the debt ceiling of 30 percent of GDP by 2035, the authorities’ medium-term consolidation plan envisages a reduction of current spending by about 0.4 percent of GDP per year between 2026 and 2028. Identifying both revenue and spending measures—including efforts to streamline tax expenditures; strengthen tax administration; and control wages, discretionary transfers, and inefficient public investment—would secure a balanced and gradual consolidation. In the absence of measures, public debt would gradually rise over the medium term, while remaining relatively low compared to peers. Legislative initiatives bearing fiscal costs, proposals that erode the tax base, and excessive reliance on private participation schemes would complicate the attainment of fiscal targets. Reforms to significantly reduce Petroperú’s costs and enhance its transparency and governance are also needed to safeguard fiscal credibility.

Systemic risks are limited, but authorities should continue to proactively contain financial vulnerabilities. Banks are profitable, with ample liquidity and capital buffers. While elevated for small- and medium-sized firms, NPLs are expected to continue improving and would support the growth of credit. The authorities should continue to be vigilant of pockets of vulnerability, particularly in corporate loans.

Focused macroprudential policies could reduce financial vulnerabilities from remaining dollarized credit. While the aggregate value of unhedged dollar credit is low, unhedged dollar credit tends to be riskier and concentrated in large- and medium-sized companies in the construction, commerce, and manufacturing sectors. The authorities’ regulation to introduce higher risk weighting in 2026 will help alleviate vulnerabilities from unhedged dollar credit. To ensure the stability of dollar funding for financial institutions, the authorities could consider introducing currency-specific NSFR requirements to complement the existing currency-specific LCR limits.

Policy efforts are needed to revive the domestic capital market. It is critical to maintain the prohibition of future pension withdrawals, as approved in the recent pension reform, to protect the functioning of the domestic capital market, decrease financing costs, and lower the risks of old-age poverty. Measures to broaden the investor base through retail investment products could play a significant role in attracting funds back into the securities market.

Financial resilience would be strengthened by addressing remaining regulatory gaps. The revised Basel III risk-weight framework and improving the activation criteria for the countercyclical capital buffer (CCyB) will help enhance the effectiveness of the entire regulatory framework. Completing the evaluation of recovery plans for domestic systemically important banks and expanding to the financial group level and their resolution planning will eliminate uncertainty under potential systemic events by facilitating orderly crisis management.

Updating the fiscal decentralization framework, along other needed structural reforms, could help boost investments in the critical mineral sector and increase potential growth. A US$64 billion pipeline of mining investment projects has been mostly stalled for many years due to bureaucratic complexity and social conflicts. Unlocking these projects and channeling the additional fiscal revenues could permanently boost potential growth. Updating the fiscal decentralization framework, including redesigning natural resource revenue-sharing formulas, to improve public spending efficiency and generate high-impact public investments could help ensure that mining dividends translate into greater development. Enhanced efforts are also needed to curb the low but rising level of insecurity, reform labor and tax regulations that impose excessive costs for formalizing or growing a business, enhance the independence and integrity of judicial bodies and tools to combat corruption impunity, build resilience to natural disasters, and embrace the opportunities of digital technologies and artificial intelligence. The OECD accession process provides a clear roadmap for other critical reforms to boost the business climate, reduce informality, and reform the civil service.

 

Peru: Selected Economic Indicators

2020 2021 2022 2023 2024 Proj. 2025 2026 2027 2028 2029 2030 Social Indicators Poverty rate (total) 1/ 30.1 25.9 27.5 29 27.6 … … … … … … Unemployment rate for Metropolitan Lima (average) 13 10.7 7.8 6.8 6.4 … … … … … … (Annual percentage change; unless otherwise indicated) Production and Prices Real GDP -10.9 13.4 2.8 -0.4 3.3 2.8 2.6 2.5 2.5 2.5 2.5 Output gap (percent of potential GDP) -5.5 0.8 0.7 -1.3 -0.4 0 0 0 0 0 0 Consumer prices (end of period) 2 6.4 8.5 3.2 2 2 2 2 2 2 2 Consumer prices (period average) 1.8 4 7.9 6.3 2.4 1.7 1.9 2 2 2 2 Money and Credit 2/ 3/ Broad money 29.2 2.7 -0.7 2.2 11.6 1.7 5.6 5.6 5.6 5.6 5.6 Net credit to the private sector 14 6.5 3.3 0.7 0.9 4.7 5.7 6 6 6 6 Credit-to-private-sector/GDP ratio (%) 52.4 45.9 44.4 41.8 38.9 38.9 39.3 39.8 40.4 40.9 41.5 External Sector                     Exports -10.7 47.4 4.8 2 12.4 5.8 3.1 1.9 3.2 3.2 2.7 Imports -15.5 38.2 16.7 -11 4.5 4.1 3.1 4.1 4.4 4.6 4.6 External current account balance (percent of GDP) 0.9 -2.1 -4.1 0.7 2.2 1.7 1.3 0.4 -0.1 -0.8 -1.5 Gross reserves In billions of U.S. dollars 74.9 78.5 72.2 71.3 79.2 84.2 88.7 92.7 96.4 100.4 104.9   Percent of short-term external debt 4/ 491 578 509 404 435 477 505 517 606 641 635   Percent of foreign currency deposits at    banks 222 229 209 204 213 220 219 217 213 210 208 (In percent of GDP; unless otherwise indicated) Public Sector                       NFPS revenue 21.8 25.5 27 23.9 22.7 23.6 23.1 23.1 23.2 23.3 23.4 NFPS primary expenditure 29.1 26.5 27.1 25.1 24.5 24.4 23.9 23.5 23.3 23.2 23.2 NFPS primary balance -7.3 -1 -0.1 -1.2 -1.8 -0.7 -0.8 -0.4 -0.1 0.1 0.2 NFPS overall balance -8.9 -2.5 -1.7 -2.8 -3.5 -2.6 -2.5 -2.2 -2 -1.8 -1.7 NFPS structural balance 5/ -7 -3.9 -2.2 -2.6 -3.7 -2.9 -2.9 -2.5 -2.2 -1.9 -1.8 NFPS structural primary balance 5/ -5.4 -2.4 -0.6 -0.9 -1.9 -1.1 -1.1 -0.6 -0.3 0 0.1 Debt                     Total external debt 6/ 43.7 46.3 42.7 40.3 38.5 35.7 33.8 31.6 30.1 28.8 27.4 Gross non-financial public sector debt 7/ 34.9 36.1 34 33 32.8 33.7 34.7 35.5 35.9 35.9 36 External 14.8 19.4 17.6 15.8 15.5 15.1 14.8 13.7 13 12.3 11.3 Domestic 20 16.7 16.4 17.1 17.3 18.5 19.9 21.8 23 23.6 24.6 Savings and Investment                     Gross domestic investment 18.3 20.8 21 17.7 18.1 17.9 18.1 18.7 19.1 19.5 19.8 Public sector (incl. repayment certificates) 4.3 4.7 5 5 5.3 5.2 4.9 4.9 4.9 4.9 4.9 Private sector 16.7 20.4 20.2 17.9 17.2 17.1 16.9 16.7 16.6 16.5 16.4 National savings 19.2 18.8 16.9 18.4 20.3 19.6 19.4 19.1 19 18.7 18.3 Public sector -3.9 2.8 4.3 3 2.4 3.6 3.2 3.5 3.7 3.9 4 Private sector 23.2 15.9 12.6 15.4 17.9 16 16.2 15.6 15.3 14.8 14.3 Memorandum Items                     Nominal GDP (S/. billion) 722 878 937 1,001 1,085 1,136 1,188 1,242 1,299 1,360 1,423 GDP per capita (in US$) 6,328 6,849 7,319 7,930 8,485 8,814 9,182 9,505 9,825 10,168 10,529 Sources: National authorities; UNDP Human Development Indicators; and IMF staff estimates/projections.   1/ Defined as the percentage of households with total spending below the cost of a basic consumption basket.  2/ Corresponds to depository corporations.  3/ Foreign currency stocks are valued at end-of-period exchange rates.  4/ Short-term debt is defined on a residual maturity basis and includes amortization of medium and long-term debt.  5/ Adjusted by the economic cycle and commodity prices, and for non-structural commodity revenue. The latter uses as equilibrium commodity prices, a moving average estimate that takes 5 years of historical prices and 3 years of forward prices according to the IMF’s World Economic Outlook.   6/ Includes local currency debt held by non-residents and excludes global bonds held by residents.  7/ Includes repayment certificates and government guaranteed debt.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board.

[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.

https://www.imf.org/en/News/Articles/2025/06/09/pr-25186-peru-imf-concludes-2025-art-iv-consultation

MIL OSI

Source: IMF – News in Russian

June 10, 2025

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

• An IMF staff team visited Syria for the first time since 2009, to assess the economic and financial conditions in Syria and discuss with the authorities their economic policy and capacity building priorities to support the recovery of the Syrian economy.
• Amidst enormous challenges, the Syrian authorities are determined to rehabilitate Syria’s economy. In the near term, it is critical to restore public confidence and macro-economic stability through the pursuit of sound fiscal and monetary policies and create conditions for the private sector to lead Syria’s development and growth.
• Syria will need substantial international assistance to support the authorities’ efforts to rehabilitate the economy, meet urgent humanitarian needs, and rebuild essential institutions and infrastructure. This not only includes concessional financial support, but also extensive capacity development assistance.

Damascus, Syria: A staff team from the International Monetary Fund (IMF), led by Ron van Rooden, visited Damascus from June 1–5, 2025, to assess the economic and financial conditions in the country, discuss the authorities’ policy priorities, and develop a roadmap for capacity building to assist the formulation and implementation of economic policies. At the conclusion of the mission, Mr. van Rooden issued the following statement:

“Syria faces enormous challenges following years of conflict that caused immense human suffering and reduced its economy to a fraction of its former size. Some six million people fled the country, mostly to neighboring countries, and an additional seven million were displaced internally. Output has plummeted, real incomes have fallen sharply, and poverty rates are high. State institutions have been weakened, the delivery of basic services has been disrupted, and large parts of the country’s infrastructure have been damaged or destroyed. Humanitarian and reconstruction needs are very large. There is great urgency to address these challenges and achieve a sustainable economic recovery, including to absorb the increasing number of returning refugees.

“The authorities are keen to restore economic growth and improve people’s living standards, and they intend to pursue sound economic policies. In this regard, the mission’s discussions focused on near-term policy and institution building priorities, including: (i) adopting a budget for the remainder of 2025, identifying available domestic and external resources and ensuring that priority spending needs are met, including the government payroll, basic health and education services, and assistance to the most vulnerable segments of the population; (ii) improving revenue mobilization, by modernizing the tax and customs regime, and by strengthening tax and custom administration, bringing both under the purview of the finance ministry; (iii) strengthening public financial management to improve budget execution and monitoring; (iv) empowering the central bank to ensure price stability and restore confidence in the national currency and adopting a monetary policy framework suited to achieve this; (v) rehabilitating the payment and banking systems, while enhancing the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime, to improve transaction efficiency, rebuild confidence in banks and restart financial intermediation, and allow reconnection with the international financial system; (vi) addressing immediate obstacles to market-based private sector development and improving the investment climate; and (vii) enhancing data collection, processing and dissemination, separate from economic planning, to ensure adequate data to support policy formulation and assessment.

“The authorities will need strong international support for their efforts. This includes financial support at highly concessional terms—given Syria’s financing and external sustainability constraints—and extensive capacity development assistance to strengthen economic institutions and upgrade outdated technologies and systems. While the years of conflict and displacement have weakened administrative capacity, staff at the finance ministry and central bank demonstrated strong commitment and solid understanding.

“The mission reaffirmed the IMF’s commitment to supporting Syria in these efforts. Based on the findings of the mission, IMF staff is developing a detailed roadmap for policy and capacity building priorities for key economic institutions, notably the finance ministry, central bank, and statistics agency. Staff will coordinate closely with other development partners in formulating this roadmap and ensuring effective support to the Syrian authorities, also considering constraints in absorptive capacity.     

“The staff team is grateful to the authorities for the candid and constructive discussions, and for their warm hospitality during this mission, the first in 16 years. The team met with Minister of Finance Yisr Barnieh, Governor of the Central Bank of Syria Abdulkader Husrieh, other senior officials, and representatives of the private sector and state-owned banks.”

https://www.imf.org/en/News/Articles/2025/06/10/pr-25188-syria-imf-staff-concludes-staff-visit-to-damascus

MIL OSI

Source: IMF – News in Russian

June 9, 2025

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

• The Zambian authorities and the IMF team have reached a staff-level agreement on the economic policies and reforms needed to conclude the Fifth Review under the 38-month Extended Credit Facility (ECF) arrangement.
• Zambia’s economy proved resilient to the drought, and growth is projected at 5.8 percent in 2025. Rising fiscal pressures and external headwinds call for decisive domestic revenue mobilization and steadfast fiscal discipline to preserve fiscal and debt sustainability.
• Sustaining reform momentum will consolidate gains of Zambia’s homegrown reform agenda to achieving higher and more inclusive growth, promoting job creation and building resilience amid a challenging external environment and declining official support.

Washington, DC: An International Monetary Fund (IMF) team led by Ms. Mercedes Vera Martin, IMF Mission Chief for Zambia, visited Lusaka from April 29 to May 13, 2025, to conduct discussions for the 2025 Article IV Consultation and the Fifth Review under the Extended Credit Facility (ECF). Discussions continued virtually subsequently.

At the end of the discussions, Ms. Vera Martin issued the following statement:

“The Zambian authorities and the IMF team reached a staff-level agreement on economic policies and reforms for the Fifth Review under the ECF arrangement. The agreement is subject to approval by IMF management and the Executive Board in the coming weeks. Once approved by the Executive Board, Zambia will gain access to SDR 139.9 million (about US$194 million) in financing.

“The Zambian economy demonstrated resilience in 2024, despite a severe drought and global headwinds. Real GDP growth is estimated at 4 percent in 2024—up from 1.2 percent projected at the time of the Fourth Review—driven by stronger-than-projected mining and non-mining activity, especially in ICT, financial services and construction, as well as a less severe contraction in agriculture than initially envisaged. Fiscal performance in 2024 was tighter than initially planned, with a primary surplus of 2.9 percent of GDP, driven primarily by spending compression amid tight financing conditions. Social protection spending helped cushion the impact of the drought and rising prices on vulnerable households.

“Growth momentum is expected to continue in 2025, with real GDP growth projected at 5.8 percent. Economic activity would be supported by a rebound in agricultural output, increased copper production, and a gradual recovery in electricity generation, although electricity shortages and reliance on energy imports are expected to persist. Driven by higher food prices and kwacha depreciation, inflation averaged 15 percent y/y in 2024 and peaked at 16.8 percent y/y in February. Inflationary pressures have started to show signs of easing since then, partly reflecting hikes in the policy rate, at 14.5 percent since February 2025. The current account deficit narrowed in 2024, while gross international reserves have continued to increase, to $4.7 billion by mid-May 2025 (4.1 months of prospective imports). The medium-term outlook remains favorable, but downside risks to the outlook dominate given increasing global uncertainty. Advancing the external debt restructuring would help lower risk premia and catalyze investment.

“The overall fiscal balance is expected to widen to 5.3 percent of GDP, with the primary balance (cash basis, program target) projected at 1.1 percent in 2025. Higher-than-initially projected debt service and new social spending needs are adding fiscal pressures. To this end, the authorities have committed to revising the 2025 Budget, to include additional revenue measures and reprioritize expenditures to partly accommodate additional spending needs. Going forward, sustained revenue mobilization and stronger expenditure controls will be critical to safeguarding priority spending and supporting fiscal and debt sustainability. Continued efforts to strengthen tax administration and expenditure efficiency, broaden the tax base, and monitoring fiscal risks will help improve fiscal policy implementation.  

“While inflation is projected to gradually decline in 2025 as food and fuel prices ease, continued vigilance is needed given elevated uncertainty and persistent inflationary pressures. Preserving a data-driven and forward-looking monetary policy stance will be essential to steer inflation toward the target band and support macroeconomic stability. Enhancing the monetary transmission will help develop interbank money markets. Strengthening the financial legal and regulatory framework in line with international best practices, including for bank resolution, and developing an effective deposit protection scheme, will support financial stability.  

“Accelerating reform implementation is needed to lay the foundations for higher and more inclusive growth. Continued efforts to improve the business environment and strengthen governance are critical to boosting investor confidence, reducing the state footprint, particularly in agriculture, and fostering a level-playing field for private sector-led growth. These reforms are key to unlocking investment and creating job opportunities needed for Zambia’s rapidly growing youth population. While the open access regime in the fuel sector is being somewhat implemented, renewed efforts to enhance enforcement and transparency in fuel supply will further promote fair competition.

“The IMF team met with His Excellency President Hakainde Hichilema; Minister of Finance and National Planning, Dr. Situmbeko Musokotwane; Governor of the Bank of Zambia, Dr. Denny Kalyalya; Secretary to the Treasury, Mr. Felix Nkulukusa; Deputy Governor, Dr. Francis Chipimo; senior government officials; and representatives from the private sector, civil society, and development partners. The IMF team extends its sincere gratitude to the Zambian authorities and stakeholders for their warm hospitality and constructive engagement throughout the mission.”

https://www.imf.org/en/News/Articles/2025/06/09/pr-25187-zambia-imf-conducts-2025-art-iv-consult-reaches-agreement-on-5th-rev-of-ecf

MIL OSI

Source: IMF – News in Russian

June 8, 2025

Washington, DC – June 9, 2025

Latvia’s economy is navigating a complex global environment while addressing structural challenges at home. Geoeconomic fragmentation, geopolitical tensions, higher trade barriers and trade policy uncertainty, and labor and skills shortages are adding to challenges to productivity growth. Meanwhile, Latvia faces significant medium- and long-term spending pressures driven by population aging, defense needs, and investments for energy security. To address these spending needs, staff recommends the mobilization of additional revenue and the acceleration of structural fiscal reforms. Improving pension adequacy requires strengthening the second and third pillars of the pension system. The authorities should continue to monitor risks in the financial sector, including banks’ exposure to the commercial real estate sector, and reassess the solidarity contribution on banks. To strengthen resilience and growth—which will also support public finances—the authorities should consider measures to boost productivity. These include increasing the quantity and quality of corporate investment (e.g., by improving firms’ access to finance), supporting the reallocation of labor and capital toward higher value-added products and services, and enhancing digital technology adoption in traditional sectors.

Outlook and Risks

Growth is projected to rebound in 2025. Real GDP growth is projected to recover to about 1 percent in 2025, underpinned mainly by higher public investment, but also a recovery in private consumption and a gradual recovery of external demand. Headline inflation is projected to increase to about 3 percent in 2025, reflecting higher energy prices in the early months of 2025 and higher food prices, and core inflation is expected to moderate but remain above headline reflecting persistent services inflation.

Risks to the outlook are tilted to the downside. Rising geopolitical tensions, and higher tariffs and trade policy uncertainty may dampen the recovery. Although direct trade and financial exposures to the United States are small, weaker demand in key European trading partners and lower consumer and business confidence could affect economic and financial stability through financial contagion. Other downside risks to growth include a further slowdown of growth in Latvia’s trading partners, delays in the absorption of EU funds, new increases in global energy and food prices, and an increase in electricity prices. At the same time, a strong economic recovery in Latvia’s main trading partners, a boost in confidence from improved security, a faster-than-expected disbursement of EU funds, and a swift implementation of structural reforms may contribute to higher-than-expected economic growth. Latvia has a strong track record, solid commitment to fiscal discipline, and strong fiscal institutions. Despite that, the fiscal balance is subject to downside risks from higher spending in defense, contingent liabilities with state-owned enterprisesthat could be in excess of the Fiscal Safety Reserve, and higher capital expenditure with large infrastructure projects.

Fiscal Policy: Addressing Public Spending Pressures

The moderately expansionary budget in 2025 is appropriate, given the currently negative output gap. The headline fiscal deficit is projected to increase to about 3 percent of GDP in 2025, because of higher defense and investment spending needs. At the same time, the 2025 budget includes tax reforms to simplify the personal income tax that will generate minimal revenue gains.

Latvia’s government faces significant medium- and long-term spending pressures.These include rising costs for pensions and health care, increased defense spending, and investments for energy security. The government has recently committed to increasing defense spending to 5 percent of GDP from 2026 onwards. In the absence of measures to raise fiscal revenues and reprioritize government spending, Latvia’s structural fiscal deficit (including one-off expenses) is projected to average about 3 percent of GDP in the medium-term. This would raise public debt close to 50 percent of GDP in 2030, eroding fiscal space and limiting the authorities’ ability to address large adverse shocks in the future.

Going forward, the authorities should proactively preserve fiscal buffers. Staff estimates that bringing public debt to its pre-Covid level of 40 percent of GDP in 2030 requires a fiscal consolidation of about ½ percent of GDP per year between 2026 and 2030.

The government should therefore mobilize additional revenue. Revenue measures could include (i) strengthening tax compliance; (ii) broadening the bases of corporate and personal income taxes (e.g., by reducing the shadow economy); (iii) continuing to improve VAT collection efficiency through further narrowing the compliance gap; (iv) reducing tax exemptions and fossil fuel subsidies; and (v) raising property tax revenue. The government should also consider improving the efficiency of public spending by further improving procurement, eradicating rent-seeking activities, simplifying regulation, reducing bureaucracy, and increasing the efficiency of public administration and public investment management.

The government should adopt measures to support medium- and long-term pressures arising from higher spending with pensions. The government needs a comprehensive approach to improve pension adequacy while ensuring the financial balance of the pension system. This may include pursuing active labor market policies to increase labor force participation, incentivizing pensioners to work, and linking the retirement ages to future life expectancy gains. The authorities should also strengthen pension adequacy by increasing the contribution rates and the returns to the mandatory defined contribution pension pillar and strengthening incentives for higher voluntary savings for retirement through a more flexible and accessible system design.

Financial Policies: Countering Risks and Building Resilience in the Financial Sector

The authorities should monitor loan exposure to commercial real estate (CRE) and reassess the solidarity contribution on banks. If remaining in place for long, the solidarity contribution could distort bank lending toward less productive uses such as real estate and reduce lending to corporates. This is because banks can spread the increased tax costs over the full term of a mortgage, unlike for corporate loans which have shorter maturities. Considering structural changes in the office CRE segment globally, and given that loans to the CRE sector are around 31 percent of banks’ total corporate loan portfolio, CRE developments should be closely monitored.

The macroprudential policy stance remains broadly appropriate. The implementation of a positive neutral countercyclical capital buffer requirement, which will be raised to 1 percent in June 2025, helps build up releasable macroprudential buffers. However, the looser debt-to-income and debt service-to-income limits implemented in 2024 to promote loans for the purchase of energy-efficient housing should be reconsidered. Latvia has made further progress in strengthening its AML/CFT framework.

Structural Reforms: Policies to Boost Investment and Productivity

Latvia’s low productivity growth is driven by sluggish capital accumulation and an inefficient allocation of productive resources. The low capital stock results from inadequate investment in part driven by financial constraints and low risk-adjusted expected returns. Structural bottlenecks like costly and lengthy insolvency processes (despite improvements) or limited occupational and regional mobility of the labor force have hindered the flow of resources from low- to high-productivity firms. Boosting productivity would help to increase the tax base and sustainably lift incomes, while preserving Latvia’s external competitiveness.

Corporate reforms can improve capital allocation and enhance access to finance. Insolvency reforms with a focus on micro companies and timely initiation of insolvency cases that facilitate the exit of firms that are not economically viable could help to reallocate resources to more viable businesses. Initiatives to develop the capital market could help improve the access to finance by smaller firms. Expanding venture capital and equity financing would improve access to finance, therefore boosting opportunities for startups and allowing young firms to scale up. All these reforms will be more successful if combined with deepening the EU’s single market, which will allow Latvia’s firms to leverage economies of scale and greatly improve access to capital markets.

Addressing labor and skills shortages would sustain investment and productivity growth in Latvia. High-quality education and training systems, and targeted upskilling and reskilling measures are key to reducing the labor and skills shortages, improving competitiveness, and boosting productivity. The facilitation of skilled migration and the use of targeted active labor market policies will also help to enhance participation in the labor market.

Product and service market reforms can enhance competition and productivity. The regulatory framework could be improved by reducing the use of retail price regulation, streamlining spatial planning and construction regulations, and further simplifying administrative procedures and digitalization efforts in the construction sector.

The authorities should enhance support for innovation, technology adoption, and digital transformation, as well as strengthen energy security. Despite a modest rise in the past decade, Latvia’s R&D spending as a share of GDP remains among the lowest in Europe, hampering innovation and productivity growth. The authorities should accelerate the digital transformation by centralizing the governance of digital platforms and systems in the public sector, expanding digital training to public employees, promoting digitalization in businesses and in the education sector, and enhancing the broadband infrastructure. Finally, Latvia should continue to enhance its energy security by increasing the share of renewable energy, including biomass, and improving interconnections to other European power grids.

An IMF team conducted meetings in Riga during May 26–June 6, 2025. The mission was led by Mr. Luis Brandao-Marques and includes Gianluigi Ferrucci, Bingjie Hu, and Keyra Primus (all EUR). Carlos Acosta and Anjum Rosha (all LEG) participated virtually in meetings. Gundars Davidsons (OED) participated in the meetings. The mission would like to thank the authorities for their open collaboration, generous availability, and the candid and constructive discussions.

https://www.imf.org/en/News/Articles/2025/06/06/mcs060925-Latvia-Staff-Concluding-Statement-2025-Article-IV-Mission

MIL OSI

Source: IMF – News in Russian

June 6, 2025

With the successful launch of the new data portal—the National Summary Data Page (NSDP) — the Democratic Republic of Congo has implemented a key recommendation of the IMF’s Enhanced General Data Dissemination System (e-GDDS) to publish essential macroeconomic and financial data. The e-GDDS is the first tier of the IMF Data Standards Initiative that promotes transparency as a global public good and encourages countries to voluntarily publish timely data that is essential for monitoring and analyzing economic performance.

The launch of the NSDP is a testament to the Democratic Republic of Congo’s commitment to data transparency. It serves as a one-stop portal for disseminating various macroeconomic data compiled by multiple statistical agencies. The published data includes statistics on national accounts, prices, government operations, debt, the monetary and financial sector, and the external sector.

The launch of the NSDP was supported by an IMF technical assistance mission, financed by the Government of Japan through the Japan Administered Account for Selected Fund Activities, and conducted in collaboration with the African Development Bank from June 2 to 6, 2025. The mission was hosted by the Ministry of Finance – Comité de Pilotage et d’Orientation de la Réforme de Finances,” in close collaboration with the Banque Centrale du Congo and the Institut National de la Statistique.

With this reform, the Democratic Republic of Congo will join 76 countries worldwide and 34 countries in Africa that are using the e-GDDS to disseminate standardized data.  

Mr. Bert Kroese, Chief Statistician and Data Officer, and Director of the IMF’s Statistics Department, welcomed this as a major milestone in the Democratic Republic of Congo’s statistical development. “I am positive that the Democratic Republic of Congo will gain substantial advantages from deploying the e-GDDS as a framework to enhance its statistical system.” Mr. Kroese stated.

https://www.imf.org/en/News/Articles/2025/06/06/pr-25185-democratic-republic-of-congo-dem-repub-of-congo-implements-the-e-gdds

MIL OSI

Source: IMF – News in Russian

June 6, 2025

• The Spanish economy has been performing strongly, supported by services exports and labor force growth. Growth is expected to remain significantly above the euro area average in the near term, before slowing gradually as its recent drivers normalize and demographic aging intensifies. Most risks are to the downside, including from a further escalation of trade measures and domestic political fragmentation.
• The authorities should seize the growth momentum to more swiftly rebuild fiscal space and reduce sovereign debt risks through a clearer consolidation strategy grounded in well-identified tax increase and spending reduction priorities. Additional measures should also be taken to address fiscal pressures from rising future pension expenditures, and to improve the pension system’s safeguard clause.
• Raising productivity is key to boosting income per capita gains, which have been modest since the pandemic. This should be achieved through a new wave of reforms to facilitate firms’ scaling-up and strengthen innovation.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Spain.^[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.^[2]

With a growth rate of 3.2 percent in 2024, Spain has been one of the fastest-growing economies in the euro area. Growth has been fueled by robust services exports and labor force growth, including due to immigration. Because high GDP growth has been accompanied by high employment growth, GDP per capita gains have been more modest. Despite recent progress, Spain still has one of the lowest employment rates in Europe, and a persistent gap in (hourly labor) productivity vis-à-vis the euro area and—even more so—the US.

Growth is projected to reach 2.5 percent in 2025 before slowing to 1.8 percent in 2026 as export and working-age population gains normalize. Growth will be primarily supported by private domestic demand, including due to a decline in the household saving rate and a pickup in investment. Inflation is projected to decline further and return close to the ECB’s target by end-2025.

Executive Board Assessment^[3]

The Spanish economy has continued to outperform the euro area but per-capita income gains have been more modest. Two major drivers of Spain’s strong growth have been, on the supply side, labor force growth, and on the demand side, services exports. Labor force growth has particularly benefitted from recent migration inflows, which have risen sharply above pre-pandemic levels. Services exports have been fueled by the strong post-COVID recovery in tourism, but also by improvements in the performance of Spanish exporters in non-tourism services. Amid strong exports and still subdued imports, the external position in 2024 is preliminarily assessed to be stronger than implied by medium-term fundamentals and desirable policies. Because high GDP growth has been accompanied by high employment growth, GDP per capita gains have been more modest. Still, Spain reduced its per-capita income gap vis-à-vis the highest-income euro area economies by over 3 percentage points during 2022-24, helped by an acceleration in productivity growth. Despite recent progress in reducing the unemployment rate, it remains the highest in the euro area at about 11 percent. Looking through recent volatility, disinflation has continued to proceed steadily.

Growth is projected to remain robust in the near term and to slow gradually thereafter as its recent drivers normalize, with risks predominantly to the downside. Growth should remain strong at 2.5 percent in 2025 before declining to about 1.8 percent next year, close to its medium-term potential. On the demand side, tourism is expected to expand at a slower rate, while a weaker global environment—including elevated trade policy uncertainty and US tariffs—will also weigh on external demand. This drag is expected to be partly offset by robust domestic demand, including a pick-up in investment. On the supply side, a gradual slowdown in net migration and demographic aging will slowly weigh on labor force gains. Key downside risks include an escalation of trade measures, particularly those involving the EU, and domestic political fragmentation, which could hamper the response of fiscal policy in the event Spain’s deficit reduction fell short of its commitments or market concerns about sovereign risks were to emerge.

The authorities should seize upon the strong growth momentum to more swiftly rebuild fiscal space and reduce sovereign debt risks, in the context of an enhanced medium-term fiscal plan. Staff projects that, in the absence of further consolidation measures besides social security contribution increases from the 2021-2023 pension reforms and the non-indexation of PIT brackets (about 1 percent of GDP overall over 2025-29), the deficit would stabilize above 2 percent of GDP by 2030, while the debt-to-GDP ratio would remain above 90 percent before rising again in the longer term as fiscal pressures from aging intensify. Weighing fiscal risks on the one hand, and the economy’s strong cyclical position on the other, staff recommends frontloading the authorities’ planned 3 percent of GDP adjustment over 2025-2029 rather than 2025-2031. This effort, which would require about 2 percentage points of GDP in new measures, should be underpinned by an enhanced medium-term fiscal plan that lays out well-identified tax increase and spending reduction priorities. Harmonizing VAT and enhancing environmental taxation would deliver the recommended effort while reducing economic distortions. Given the widening projected gap between pension expenditures and social security contributions over the coming decades, pension reforms should also be undertaken, prioritizing employment-friendly options. Should downside risks materialize, fiscal policy should remain flexible, letting automatic stabilizers play out. Temporary discretionary support should be considered only in the event of a severe shock and provided sovereign funding costs remain low.

Systemic risks in the financial system remain low but ongoing efforts to further bolster its resilience should be maintained. Banks are well-capitalized, liquid, and profitable, though capital ratios are still somewhat below euro area peers. Household and corporate balance sheets are sound, supported by low debt and rising incomes. The rapid growth in house prices has eroded affordability and should be primarily addressed through measures that stimulate housing supply. While it does currently not raise financial stability risks, pre-emptive borrower-based measures should be considered if there were early signs of an easing in lending standards. Staff supports the ongoing phasing-in of the one-percent positive neutral CCyB and encourages continued implementation of other 2024 FSAP recommendations to further enhance resilience.

Fostering income-per-capita convergence toward higher-income advanced economies requires further raising the employment rate and boosting productivity. Despite recent progress, Spain still has one of the lowest employment rates in Europe, and its (hourly labor) productivity gap vis-à-vis the euro area—which has itself been falling behind the US—remains about as wide as it was 25 years ago. Enhancing activation policies and financial incentives for jobseekers is key to durably reducing unemployment to single digits. The planned reduction of the working week in the private sector should be carefully designed to mitigate adverse effects on output and workers’ incomes, with a major role for collective bargaining including in setting the level and remuneration of overtime. Closing the productivity gap will require reforms that facilitate firms’ scaling-up and innovation. These include completing both the Spanish and EU single markets for goods and services, streamlining firm size-related tax and regulatory thresholds, boosting venture capital through progress toward the CMU complemented by domestic incentives, and promoting excellence in higher education—including through greater autonomy and performance-based funding of universities.

Spain: Selected Economic Indicators (Annual percentage change, unless noted otherwise)
							Projections 1/
		2022		2023		2024	2025		2026	2027
Demand and supply in constant prices
Gross domestic product		6.2		2.7		3.2	2.5		1.8	1.7
Private consumption		4.8		1.8		2.9	2.1		2.0	1.9
Public consumption		0.6		5.2		4.1	3.5		1.7	1.9
Gross fixed investment		3.3		2.1		3.0	5.0		2.1	1.2
Total domestic demand		3.9		1.7		2.9	2.9		2.0	1.8
Net exports (contribution to growth)		2.5		1.2		0.4	-0.2		-0.1	0.0
Exports of goods and services		15.0		3.3		3.4	2.2		2.5	3.1
Imports of goods and services		7.8		0.4		2.6	3.0		3.2	3.4
Potential output		2.1		2.7		2.6	2.6		2.3	2.1
Output gap (percent of potential)		1.1		1.1		1.6	1.6		1.1	0.7
Prices
GDP deflator		4.7		6.2		3.0	2.4		2.4	2.4
Headline Inflation (average)		8.3		3.4		2.9	2.2		2.0	2.1
Headline Inflation (end of period)		5.5		3.3		2.8	1.9		1.9	2.1
Core inflation (average)		5.2		5.8		3.0	1.9		2.0	2.0
Core inflation (end of period)		6.7		4.0		2.6	1.8		2.0	2.0
Employment and wages
Unemployment rate (percent of total labor force)		13.0		12.2		11.3	11.1		11.0	11.0
Labor costs, private sector		2.6		5.6		4.7	3.5		3.4	3.4
Employment		3.6		3.1		2.2	1.3		0.9	0.7
Balance of payments (percent of GDP)
Current account balance		0.4		2.7		3.0	2.5		2.4	2.2
Net international investment position		-57.7		-51.3		-44.0	-38.5		-33.5	-29.7
Public finance (percent of GDP)
General government balance		-4.6		-3.5		-3.2	-2.8		-2.4	-2.3
Primary balance		-2.5		-1.7		-1.3	-0.6		0.1	0.1
Structural balance		-5.3		-4.1		-3.1	-3.2		-2.8	-2.7
General government debt		109.4		105.0		101.8	100.7		99.1	97.7
Sources: IMF, World Economic Outlook; data provided by the authorities; and IMF staff estimates.
1/ The projections incorporate spending financed by the EU Recovery and Resilience Facility (including the grant and the loan component) amounting to about 0.7, 1.7, 1.3 and 0.3 percent of GDP from 2024 to 2027.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] Under the IMF’s Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/en/Countries/ESP page.

[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

https://www.imf.org/en/News/Articles/2025/06/05/pr25183-spain-imf-executive-board-concludes-2025-article-iv-consultation-with-spain

MIL OSI

Source: IMF – News in Russian

June 6, 2025

Washington, DC – June 6, 2025: Lithuania has proved resilient to multiple shocks in recent years. However, new challenges are emerging—including further increases in defense expenditure adding to the existing long-term spending pressures—while long-standing structural issues still require attention. Lithuania needs to reignite its reform momentum to boost productivity while addressing these challenges. A comprehensive strategy is needed to preserve fiscal space through revenue mobilization, enhanced spending efficiency, and limiting further spending pressures by strengthening the multi-pillar pension system. Structural reforms should focus on facilitating investments and accelerating the adoption of new technologies to boost productivity growth, supplemented by labor market policies, including reducing skills mismatches. Financial sector policies should continue to safeguard financial stability and integrity.

Recent Developments, Outlook, and Risks

The economy grew strongly in 2024. Growth accelerated to 2.7 percent—well above peers—driven by private consumption supported by significant real income gains. The recovery was broad-based across sectors, including manufacturing and high value-added services, despite sluggish productivity growth. While inflation remained low for the most part of the year, it has risen since late 2024, driven by higher energy prices and excise duties.

While fiscal performance exceeded expectations, the deficit widened, and the debt ratio is increasing. The deficit almost doubled from 0.7 percent of GDP in 2023 to 1.3 percent of GDP in 2024, reflecting increased public wages and pensions. Higher revenues supported by robust aggregate wage growth and lower-than-anticipated expenditure, mainly from the accrual correction in defense spending, prevented the deficit from increasing further. However, pre-payments for additional orders of defense equipment and the continued buildup of the general government cash buffer contributed to an increase in the debt-to-GDP ratio from 37.3 percent in 2023 to 38.2 percent in 2024, for the first time since 2020.

The banking sector remains financially sound, with high capitalization, ample liquidity buffers, and low non-performing loan (NPL) ratios. Banks continue to be highly profitable, although profitability eased in 2024 compared to the record high levels seen in the previous year, against lower interest rates driven by ECB monetary policy easing.

There are signs of gradual financial expansion. Reflecting decreasing lending rates and recovering credit demand, loan growth to both non-financial corporations and households recovered in 2024 and early 2025, and credit-to-GDP ratios have increased moderately. House price growth stabilized in 2024, down from the 2022 peak. Nevertheless, house prices are likely not significantly above levels justified by fundamentals, given the recent robust demand while housing supply is increasing, and affordability has improved.

The economy is expected to grow at 2.8 percent in 2025 while inflation will increase to 3.1 percent. Growth will be supported by private consumption and rising investment related to EU funds. External demand will remain subdued reflecting uncertainty regarding trade policies, despite the positive outlook of information and communication technologies (ICT) and professional activities. Increased excise duties and persistently high wage growth will keep headline and core inflation above pre-pandemic averages in the coming years. The labor market will tighten reflecting negative labor force dynamics affected by the normalization of migration flows.

Risks to the outlook are tilted to the downside. As a small open economy, Lithuania is exposed to high uncertainty around trade policies and geopolitical risks. A severe downturn in its main trade partners would worsen the external performance and domestic activity. In the medium term, weaker demographics pose risks to labor supply which could add pressures on wages and competitiveness if productivity growth fails to accelerate. In the absence of sufficient measures, the fiscal position is subject to considerable medium-term risk with higher defense spending needs adding to the already high existing long-term pressures.

Fiscal Policy

A moderately less expansionary fiscal stance than currently expected would be helpful in 2025, and the strategy should shift to preserving fiscal space. The deficit is projected to rise to 2.8 percent of GDP in 2025, due to significant increases in pension spending and higher public sector wages. However, with a small and decreasing negative output gap under staff projections and considering mounting spending pressures in the medium term, going forward, a moderately tighter fiscal stance to reduce deficits and stabilize the debt-to-GDP ratio would be appropriate. With a view to safeguarding fiscal buffers and minimize the need for larger adjustments in later years, any unused spending or revenue overperformance this year should be saved to limit the deficit increase.

A stronger fiscal adjustment will be required if defense spending rises notably from current levels. The envisaged increase in defense spending to 5-6 percent of GDP in 2026-30 from the current level of 3 percent would raise financing needs significantly. In the absence of additional fiscal measures, debt could reach 60 percent of GDP by 2030. The proposed tax policy changes to accommodate these spending needs are welcome, but the revenue yield is estimated to be modest. Greater efforts will therefore be needed to maintain debt dynamics on a sustainable path in the medium term to preserve fiscal space to absorb possible future shocks. An average annual adjustment of about 0.5 percentage points of GDP in the general government balance over 2026-30, with the majority of additional defense spending financed by front-loaded increases in tax revenues, would help stabilize debt at around 50 percent of GDP by 2030.

Financing options for additional defense spending should be anchored by revenue mobilization. While temporary measures and productivity-enhancing capital expenditure could be deficit-financed, a sizable part of the additional defense spending is likely to be permanent, warranting higher revenues or lower spending in other areas. The tax policy change proposal appropriately targets a mix of taxes, but there is further scope to raise additional revenues while improving the system, including increasing progressivity and efficiency. This could include raising revenues through making the personal income tax (PIT) system more progressive and streamlining the tax schedules to prevent higher marginal tax rates for lower income earners, limiting exemptions in corporate income taxes (CIT) and property taxes, and reducing the value added tax (VAT) compliance gap while improving VAT efficiency.

Revenue mobilization should be complemented by spending measures. Fiscal savings could be generated by improving spending efficiency, including in healthcare and education. Hospital network rationalization could enhance the quality of service while reducing costs. The teacher-student ratio is relatively high for secondary education and there is room to rationalize the school network while improving quality.

Strengthening the multi-pillar pension system will limit some of the additional spending pressures in the medium-term. The current pension system implies significant increases in public pension expenditure over the next two decades, driven by adverse demographics, while replacement ratios will remain low. The Pillar II reform proposal under discussion, entailing participation to become voluntary and increased options to opt out and suspend participation, is likely to further reduce the replacement rate. These changes could have a material impact on the entire pension system and the public finances. Staff urges the authorities to allow sufficient time to carefully consider all potential ramifications, including through further thorough analysis of the social and fiscal sustainability of the broader pension system.

Financial Sector Policies

Financial sector policies should continue to focus on safeguarding financial stability. Bank profitability is expected to moderate further but to remain high in 2025. Financial conditions are likely to ease in 2025 due to declining ECB policy rates and increased competition in financial sector, such as from the increasing footprint of fintech companies. Solvency and liquidity stress tests conducted by the Bank of Lithuania suggest that banks can withstand adverse macroeconomic scenarios and unexpected liquidity shocks. While some smaller banks require enhancing capitalization and closer oversight, all in all, financial stability risks arising from the banking system are broadly contained. With an increased frequency of cyberattacks on banks in recent years, cyber resilience should continue to be strengthened, including the full implementation of the Digital Operational Resilience Act (DORA) regulation.

The current macroprudential stance is broadly appropriate, but continued vigilance is warranted. Financial cycles including residential real estate and private sector credit so far have exhibited no major signs of overheating, but the sustained pace of expansion requires close monitoring and readiness to act in case early signs of an excessive financial expansion emerge. Despite the low exposure of banks, the commercial real estate market continues to require attention as risks of price corrections remain due to the persistent imbalance between supply and demand. In the event of a significant adverse financial shock with the potential to trigger widespread losses in the banking sector, the relaxation of capital-based measures would be appropriate to minimize credit supply disruptions and support lending to the economy.

The AML/CFT framework has been strengthened significantly, but continued effective implementation is essential. The third national risk assessment identified virtual asset service providers (VASPs), and electronic money institutions (EMI), and payment institutions (PI) as posing significant ML/TF risks. The authorities should continue AML/CFT efforts to mitigate cross-border risks, including Bank of Lithuania’s oversight and market controls for newly licensed VASPs under MiCAR regime, supervision of payment service institutions, and AML/CFT measures for CENTROlink members.

Structural Reforms

Lithuania faces structural headwinds limiting productivity and long-term growth. The recent recovery has been largely driven by higher labor accumulation enabled by temporary net migration, while the contributions from capital and total factor productivity (TFP) growth remained smaller than those observed during earlier periods of faster income convergence. Given expected population declines in the coming years, structural reforms to facilitate greater capital deepening and higher productivity growth are essential.

Higher investment is needed to support potential growth. Low capital intensity remains a key barrier to productivity growth and the transition towards a higher value-added oriented economy. Development of risk capital, co-financing and mechanisms for risk sharing tailored to enhance the flow of credit to small and medium sized enterprises (SMEs), targeted credit guarantee schemes and integrating digital solutions can help alleviate constraints related to the lack of access to finance experienced by some firms. In this context, the expanded role of the state-owned institution ILTE—previously INVEGA—can play a role, complementing the private banking sector in supporting investment in areas such as high value-added sectors, innovation, energy efficiency, and strategic infrastructures. To consolidate the institution’s role as a national development bank, it is essential to ensure effective monitoring and transparency of ILTE operations. More fundamentally, deepening the EU’s single market—combined with stronger incentives to develop domestic capital markets—would help support access to finance of corporates and further productive investments in the country.

Inefficiencies in the education system contribute significantly to the persistent skills mismatches in Lithuania’s labor market. As one of the countries with the highest skills mismatches in Europe, Lithuania faces ongoing challenges despite measures including the government’ active labor market policies and their evaluation and the smart specialization multi-year program aimed at enhancing workforce skills. Critical shortages persist in essential sectors, including nursing, engineering, and scientific fields, highlighting the urgent need for strategic reforms in education and training to better align with market demands.

Ensuring effective integration of migrants into the labor market is crucial to sustain the labor force. Recent immigrants have been successfully absorbed into the Lithuanian labor market and legislative amendments have enabled easier migration for high-skilled workers despite the reduction of the non-EU workers quota in 2025. Policies should focus on integrating migrants in the most productivity-enhancing way possible while facilitating the participation of foreign professionals in those sectors with the largest shortages.

Further investment in digitalization and AI preparedness has the potential to boost productivity growth. Lithuania has invested significantly in digitalizing its economy in recent years, becoming one of the main fintech hubs in Europe. However, despite progress in digitalization and in AI preparedness, its digital infrastructure remains close to the EU average. To unlock possibly substantial productivity gains, policies should aim to facilitate technological diffusion, job transition and AI adoption among firms, while introducing measures to mitigate associated risks in terms of possible job replacements and inequality deepening. In this respect, the recent initiatives included in the START plan aimed at promoting digitalization and the deployment of AI both in the private sector and in public administration will support these efforts.

Energy security has been reinforced in the last years. The Baltic countries joined the European electricity grid in 2025, completely disconnecting from the Russian electricity system. Moreover, Lithuania has diversified its energy sources and import dependency has been lowered through the intensification of domestic electricity production from renewable sources in the recent years. Still, being susceptible to risks associated with climate change, Lithuania needs to accelerate the green transition, particularly for adaptation. In this respect, future investment in new technologies and defense initiatives should not thwart efforts to reduce economy-wide emissions, such as the recently adopted policies in the context of the updated National Energy and Climate Action Plan (NECP) for the period 2021–2030.

The IMF team is grateful for the warm hospitality of the Lithuanian authorities and would like to thank all its interlocutors in government, the Bank of Lithuania, the European Central Bank, the private sector, unions, and business associations for constructive and fruitful discussions.

https://www.imf.org/en/News/Articles/2025/06/06/mcs662025-lithuania-staff-concluding-statement-2025-article-iv-mission

MIL OSI

Source: IMF – News in Russian

June 5, 2025

Washington, DC: On June 3, the Executive Board of the International Monetary Fund (IMF) discussed the staff paper on the contribution of the IMF to the international financing for development agenda, prepared in view of the 4^th Financing for Development Conference (FfD4) to be held in Sevilla, Spain from June 30 to July 3, 2025. The paper outlines the challenging context for development, updates staff’s assessment on the achievability of Sustainable Development Goals (SDGs), and proposes actions to accelerate development progress.

The series of shocks since 2020 has added to longstanding structural challenges, with low-income and fragile countries affected the most. Debt vulnerabilities deserve attention, particularly for low-income countries. While debt appears sustainable for most countries, many are facing high interest costs and elevated refinancing needs that constrain their ability to finance critical spending necessary to progress on their development path. Against this background, achieving the Sustainable Development Goals by 2030 appears increasingly unlikely.

Accelerating development progress will require a major collective effort, including advancing a strong domestic reform agenda, providing adequate international support to complement and facilitate domestic reforms, and proactively addressing debt vulnerabilities. Importantly, while developing countries share many characteristics, increasing heterogeneity across countries calls for appropriate differentiation in countries’ policy and reform agenda, as well as in the support from the international community.

The IMF has a strong role to play in supporting countries maintain or restore macroeconomic and financial stability, which is a key condition to enable sustainable growth and development. Through its surveillance, capacity development, and financial support to countries faced with balance of payment needs, the IMF helps countries advance this agenda, including through continuous adjustments in its policies to ensure they remain fit for purpose and aligned with evolving needs of the membership. It also plays a leading role on debt and the global debt architecture, through its monitoring of debt vulnerabilities and debt sustainability assessments and further enhancing its work to tackle debt challenges and improve debt restructuring processes, including through the Common Framework and progress at the Global Sovereign Debt Roundtable. In all these activities, the IMF collaborates closely with partners, particularly the World Bank.

Executive Board Assessment^[1]

Executive Directors welcomed the opportunity to discuss the contribution of the IMF to the international financing for development agenda, as well as the review of recent experiences in the IMF’s collaboration with the World Bank, ahead of the 4th Financing for Development Conference. Directors concurred with staff’s analysis of the challenging context for development, as the series of shocks since 2020 has added to longstanding structural challenges weighing on economic and social progress in developing countries, with low‑income and fragile countries affected the most.

Directors agreed that debt vulnerabilities deserve specific attention, in particular for low‑income countries. They noted that, while debt appears sustainable for most countries under baseline assumptions, uncertainties and risks to the baseline have increased significantly. In addition, many countries face high interest costs and elevated refinancing needs that constrain their ability to finance critical spending necessary to progress on their development path.

Directors noted with regret that achieving the sustainable developments goals (SDGs) by 2030 appears increasingly unlikely, as it would require financing that exceeds credible assumptions and surpasses what countries could absorb without creating additional macroeconomic imbalances.

Directors agreed that accelerating development progress requires a major collective effort comprising strong domestic reforms, significant international support, and proactively addressing debt vulnerabilities. They noted that, while developing countries share many characteristics, increasing heterogeneity across countries calls for appropriate differentiation in countries’ policy and reform agenda, as well as in the support from the international community.

Directors emphasized the importance of advancing a strong domestic reform agenda to maintain or promote a stable and sound macroeconomic and financial environment and boost private‑sector led growth and job creation. This includes increasing the efficiency of public spending and optimizing the use of available resources, mobilizing domestic resources, strengthening debt management, and improving governance. These reforms are also key to increase resilience against external shocks.

Directors also agreed that international support, through well‑coordinated and sequenced capacity development (CD), and additional public and private financing, will be critical to complement and facilitate domestic reforms. They underlined the importance of proactively addressing debt challenges and supported the proposed approach to: (i) improve further debt restructuring processes to ensure countries with unsustainable debt have access to timely and sufficiently deep debt relief, building on progress already made in particular under the Common Framework and through the work at the Global Sovereign Debt Roundtable (GSDR); and (ii) accelerate the implementation of the “3‑pillar approach” to help countries with sustainable debt and a robust reform agenda, where productive spending is crowded out by high debt service. They welcomed the recent publication of the GSDR “Restructuring Playbook” and supported further strengthening the IMF’s contribution to help address debt vulnerabilities, consistent with its role and policies and respecting its duty of neutrality. They also underlined the importance of further enhancing debt transparency and the accuracy of debt data.

Directors agreed that, while the IMF is not a development institution, it has a strong role to play to help member countries maintain or restore macroeconomic and financial stability, which is a key condition to enable sustainable growth and development. They underlined the importance of IMF surveillance, CD, and financial support to members faced with balance of payment needs, to achieve this objective, and looked forward to the upcoming comprehensive surveillance review and review of program design and conditionality. Directors highlighted the recent reforms to ensure that the lending framework remains fit for purpose, including the finalization in October 2024 of the review of the Poverty Reduction and Growth Trust (PRGT) facilities and financing and the review of the Charges and the Surcharge Policy, and the significant expansion of CD delivery over time, with a strong emphasis on supporting low‑income countries and fragile and conflict‑affected states. In this context, some Directors saw room to further scale up the IMF’s concessional facilities and CD support. Some others cautioned against placing greater emphasis in IMF‑supported programs on development spending needs and higher financing volumes. Directors supported the continued active role of the IMF on debt issues and its sustained engagement in international efforts to address debt vulnerabilities. Some Directors noted that a greater emphasis in the paper on the IMF’s existing work on climate would have better illustrated that the Fund is already actively contributing to help address these challenges, in line with its mandate. A few Directors also highlighted the macro‑critical nature of inequality and its impact on long‑term stability and development, and supported a deeper analytical and operational engagement on these fronts within the Fund’s existing mandate.

Directors underlined the importance of IMF collaboration with partners, in particular the World Bank and relevant UN agencies, building on comparative advantages and consistent with each institution’s mandate. They welcomed the review of recent experiences in the IMF’s collaboration with the World Bank and underscored the critical importance of maintaining or further deepening this efficient collaboration, leveraging the respective expertise of both institutions for an optimal division of work and avoiding duplication.

Directors underscored the importance of clear communication to promote a better public understanding of the institution’s unique role, mandate, and activities in fostering macroeconomic and financial stability, which is a prerequisite for sustainable growth and development.

[1] An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

https://www.imf.org/en/News/Articles/2025/06/05/pr25184-imf-discusses-4th-financing-dev-conference-contribution-imf-intl-financing-for-dev-agenda

MIL OSI

Source: IMF – News in Russian

June 5, 2025

Cairo: Following two days of high-level dialogue and expert analysis, the inaugural IMF MENA Economic Annual Research Conference co-organized by the International Monetary Fund (IMF) and the American University in Cairo, concluded with a strong call for coordinated, evidence-based policy responses to the region’s old and new pressing economic challenges. Held on May 18–19, 2025, the conference served as a critical platform for advancing rigorous research tailored to the realities of the Middle East and North Africa. It brought together global policymakers, academics, government officials and thought leaders to bridge the discussion on global economic issues with regional realities. The event marked a first-of-its-kind collaboration between the IMF and a leading university in the region, reflecting a shared commitment to deepening the link between academic research and policy development.

Jihad Azour, Director of the IMF’s Middle East and Central Asia Department, noted that trade tensions and increasing uncertainty affecting the global economy, alongside ongoing regional conflicts and climate risks, are creating new layers of complexities for MENA policymakers. Azour called for building a regional platform for dialogue and exchange of ideas that connects MENA to world-class research centers to provide reliable analysis and develop workable and innovative policy responses to old and new economic issues facing the region. “We are deeply grateful to President Ahmad Dallal and AUC for their commitment to fostering dialogue, research, and policy innovation in the region.”

AUC President Ahmad Dallal highlighted the event’s role as a vital platform in fostering collaboration between governments, academia and the private sector. “This is about generating ideas that are globally informed but deeply rooted in the realities of our region,” he noted. Dallal affirmed that this type of multi‑stakeholder engagement is at the heart of AUC’s mission and reflects the University’s commitment to research, education, and open dialogue as drivers of stability, resilience, and inclusive growth.

Under the theme “Steering Macroeconomic and Structural Policies in a Shifting Global Economic Landscape,” discussions centered on four pivotal issues shaping the future of the MENA region and the global economy:

• Fiscal Policy: With public debt at historic highs, experts stressed the importance of rebuilding fiscal buffers while tackling social inequalities, aging populations, and climate pressures. Proposals included reforms in fiscal frameworks and measures to mobilize revenues including through multinational taxation and more progressive tax systems.
• Monetary Policy: Participants reflected on the lessons of recent inflationary shocks, emphasizing the need for more preemptive and well communicated policy responses to global shocks and sector-specific disruptions—particularly for emerging markets.
• Industrial Policy: Speakers examined the renewed interest in industrial policy as a tool to drive inclusive growth, innovation, and climate resilience. The discussion highlighted the need to balance vertical strategies with horizontal reforms that promote private investment, trade integration, and productivity.
• Green Transition and AI: The intersection of climate action and digital transformation sparked debate about their potential to reshape labor markets. Recommendations included investing in human capital, developing targeted safety nets, and aligning policy tools to support job creation in low-emission sectors.

Throughout the sessions, there was a clear consensus that the MENA region’s economic resilience depends on institutional reforms, cross-border cooperation, and investment in skills and innovation. Participants also underscored the importance of embedding policy in local realities—an approach that both the IMF and AUC pledged to champion moving forward.

In addition to prominent global and regional academics, as well as economists and government officials from across the region, and representatives of international and regional organizations, the conference brought together policymakers, including Rania El Mashat, minister of planning, economic development and international cooperation, Egypt; Youssef Boutros-Ghali, member of the Specialized Council for Economic Development, Egypt; Mahmoud Mohieldin, United Nations special envoy on financing the 2030 Sustainable Development Agenda; and Martin Galstyan, governor of the Central Bank of Armenia.

As Nigel Clarke, IMF Deputy Managing Director concluded, “This conference is a milestone demonstrating the IMF’s commitment to deepening engagement with the research and academic community, as we strive to ensure that the IMF support is not only responsive to the needs of member countries, but also built on rigorous tested analytics and importantly, it’s aligned with local realities. Through this kind of multi-stakeholder dialogue, we aim to better understand how all our expertise and resources can be directed towards the most pressing challenges of the region.”

Visit the conference website for more details and to rewatch Day 1 and Day 2 of the discussions.

Founded in 1919, The American University in Cairo (AUC) is a leading English-language, American-accredited institution of higher education and center of the intellectual, social, and cultural life of the Arab world. It is a vital bridge between East and West, linking Egypt and the region to the world through scholarly research, partnerships with academic and research institutions and study abroad programs.

The University offers 39 undergraduate, 52 master’s and two PhD programs rooted in a liberal arts education that encourages students to think critically and find creative solutions to conflicts and challenges facing both the region and the world.

An independent, nonprofit, politically non-partisan, non-sectarian and equal opportunity institution, AUC is fully accredited in Egypt and the United States.

https://www.imf.org/en/News/Articles/2025/06/04/pr25180-imf-auc-wrap-up-1st-mena-conf-macroecon-structural-policies-shifting-global-econ-landscape

MIL OSI

Source: IMF – News in Russian

June 5, 2025

• Luxembourg’s fundamentals remain strong and economic recovery is projected to slowly gain pace amidst external headwinds. Downside risks prevail in the short term.
• Surprising on the upside, the fiscal balance improved to a surplus of 1 percent of GDP in 2024, boosted by one-off revenues. Given structurally high revenue volatility, prudent fiscal policy should be based on a more efficient use of fiscal space.
• The financial sector is resilient, with well-capitalized and liquid banks. While the risks are manageable, the housing market, and other pockets of vulnerabilities should continue to be closely monitored.

Washington, DC: On May 30, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the 2025 Article IV Consultation^[1] with Luxembourg, and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.^[2]

Luxembourg’s fundamentals remain strong, but its economic performance has been lackluster. Public debt is low and the 2024 FSAP found the financial sector sound and well-diversified. After contracting by 0.7 percent in 2023, GDP growth turned positive at 1 percent in 2024, mainly driven by public consumption. Private domestic demand though remained lackluster amidst tight financial conditions and a lack of confidence in the real estate sector. The labor market is cooling, following a sizeable increase in labor costs in past years. While the headline fiscal deficit showed a large improvement from one-off revenues, the underlying structural deficit has widened, reflecting a shift from temporary to permanent support. Financial conditions remain tight, and the financial cycle has not yet decisively turned. Despite some deterioration in asset quality, the financial sector remains resilient overall.

An economic recovery is projected to slowly gain pace amidst external headwinds. Growth is projected to increase to 1.6 percent in 2025 and accelerate in 2026–27 supported by improved confidence and a gradual recovery in external demand. The unwinding of labor hoarding and lingering uncertainty would weigh on job creation and unemployment is likely to rise in the near term, before slowly declining to its historical average. Inflation is projected to decline to about 2 percent in 2025 and stay at that level over the medium term. Downside risks prevail in the short term, with headwinds from weaker external demand and tighter and/or more volatile financial conditions triggered by trade policy uncertainty, geopolitical tensions, and possibly higher interest rates for longer. Risks to growth are more balanced over the medium term, but fiscal risks are assessed to be high.

Executive Board Assessment[3]

Luxembourg’s recent economic performance has been lackluster and a projected recovery faces headwinds. Anchored in strong economic fundamentals, the economy is expected to gradually recover from a protracted slowdown. Yet, the global situation is fluid, and there are risks of setbacks stemming from weaker external demand and higher financial market volatility, alongside domestic challenges in the real estate sector and the labor market. Moreover, productivity has been declining, and Luxembourg faces fiscal pressures and risks. While Luxembourg’s current external position is assessed to be substantially stronger than the level implied by medium-term fundamentals, the assessment is subject to several limitations. The country’s specific economic features—a small open economy with a global financial center and a large share of cross-border workers —make the external position subject to significant volatility. This, together with the long-term challenges due to aging costs, call for more prudent policies while incentivizing private sector investment.

Prudent fiscal policy calls for a more efficient use of fiscal space. For 2025, a less expansionary fiscal stance would have been welcome, given low fiscal multipliers and the need to make room for more private sector-led growth. There is scope for reviewing the effectiveness and targeting of current measures, while preserving possible savings from revenue overperformance or budget execution. The authorities’ medium-term expenditure path is broadly appropriate to accommodate future spending pressures, but should be underpinned by measures, which will require containing the growth of the wage bill, enhancing spending efficiency, and avoiding any further erosion of the tax base.

There is scope for increasing revenue resilience. Luxembourg’s revenue performance depends to a large extent on a concentrated and volatile revenue base. Tax reforms should thus aim at diversifying revenue sources. This will help reduce volatility and uncertainty of fiscal receipts.

Fiscal policies should be better anchored in a medium-term perspective. The public consultations on pension reform are welcome, as there is a need for early reforms, including reducing the generosity of benefits—the highest in Europe, increasing both the effective and statutory retirement ages, and a well-calibrated increase in contributions to minimize the negative impact on the labor market. Strengthening the medium-term fiscal framework would enhance policy predictability. The planned implementation of a national fiscal rule is welcome and should combine a debt anchor with a net spending ceiling that consider revenue uncertainty and allow appropriate flexibility. Additional reforms of the budgeting framework and strengthening of the fiscal council are necessary to make the new framework more effective.

Risks in the financial sector, while manageable, should continue to be closely monitored. The financial sector appears broadly resilient. However, persistent solvency and liquidity risks in the corporate sector—especially in real estate—and the potential impact of rising financial market volatility warrant close monitoring. The authorities should continue ensuring adequate provisioning, collateral valuation, and loss absorption capacity. At the same time, continued oversight of the large nonbank financial sector—notably pockets of liquidity mismatches and leverage—and a better understanding of the intermediation role of the OFI sector should be prioritized.

Macroprudential policy should remain agile. The current CCyB level is appropriate. Should the recovery firm up, the authorities should strengthen releasable capital buffers and address still elevated household indebtedness by introducing income-based measures in line with FSAP recommendations. In the event of continued credit pressure, some loosening of the CCyB could be envisaged. Capitalizing on the commendable progress in implementing the 2024 FSAP recommendations in the supervision of banks and investment funds, the authorities should strengthen the macroprudential policy framework.

Structural reforms are needed to boost private sector-led growth and sustain living standards. Wage indexation has become a key constraint on competitiveness, and more labor market flexibility is called for. The authorities should also aim at boosting productivity and containing the cost of living by streamlining the regulatory and administrative burden, removing barriers to entry in some sectors, and addressing housing and infrastructure supply bottlenecks. Efforts should continue to capitalize on the country’s comparative advantages in AI adoption and financial sector development while minimizing potential costs of the transition. Recent measures to enhance technology diffusion and ongoing upskilling programs are welcome.   

Table 1. Luxembourg: Selected Economic Indicators, 2023–26
			Est.	Proj.
		2023	2024	2025	2026
Real Economy (percent change)
Gross domestic product		-0.7	1.0	1.6	2.2
Total domestic demand		1.1	0.1	1.7	2.6
Foreign balance 1/		-1.4	1.1	0.0	0.4
Labor Market (thousands, unless indicated)
Unemployed (average)		16.2	18.0	19.5	20.1
(Percent of total labor force)		5.2	5.7	6.1	6.2
Total employment		512.0	517.8	524.8	533.9
(Percent change)		2.1	1.1	1.4	1.7
Prices and costs (percent change)
GDP deflator		6.3	5.2	2.6	1.2
CPI (harmonized), p.a.		2.9	2.3	2.2	2.1
CPI core (harmonized), p.a.		3.9	2.5	2.1	2.1
CPI (national definition), p.a.		3.7	2.1	2.1	2.0
Public finances (percent of GDP)
General government revenues		46.2	47.9	47.4	47.6
General government expenditures		47.0	46.9	48.3	49.0
General government balance		-0.8	1.0	-0.8	-1.3
General government cyclically-adjusted balance		0.0	0.8	-1.0	-1.3
General government structural balance		1.8	0.8	-0.7	-1.3
General government gross debt		25.0	26.3	26.7	27.6
Balance of Payments (percent of GDP)
Current account		11.2	13.8	8.8	7.8
Balance on goods		0.4	1.7	1.8	1.6
Balance on services		43.5	43.6	42.9	42.0
Net factor income		-31.5	-31.1	-35.5	-35.4
Balance on current transfers		-1.1	-0.4	-0.4	-0.4
Exchange rates, period averages
U.S. dollar per euro		1.08	1.08	…	…
Nominal effective rate (2010=100)		105.3	106.3	…	…
Real effective rate (CPI based; 2010=100)		98.7	98.5	…	…
Credit growth and interest rates
Nonfinancial private sector credit (eop, percent change) 2/		-2.9	-4.7	1.6	3.8
Government bond yield, annual average (percent)		3.1	2.7	…	…
Potential output and output gap
Output gap (percent deviation from potential)		-1.4	-2.0	-2.1	-1.6
Potential output growth		1.6	1.7	1.7	1.7
Sources: Luxembourg authorities; IMF staff estimates and projections.
1/ Contribution to GDP growth.
2/ Including a reclassification of investment companies from financial to non-financial institutions in 2015.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepare a report, which forms the basis for discussion by the Executive Board.

[2] Under the IMF’s Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/luxembourg page.

[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

https://www.imf.org/en/News/Articles/2025/06/04/pr-25177-luxembourg-imf-concludes-2025-art-iv-consultation

MIL OSI