Category: IMF – Russia

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

Source: IMF – News in Russian

June 5, 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.

• The IMF mission held productive discussions with the Lebanese authorities on a comprehensive economic reform program. Discussions are expected to continue, both from IMF headquarters and through follow-up missions.
• Bank restructuring remains a critical priority to restore the health of the banking sector, move away from the cash-based economy, restart credit to the private-sector, and protect depositors to the maximum extent possible.
• Given Lebanon’s substantial reconstruction needs, limited fiscal space, and lack of capacity to borrow, the country will require significant support from external partners on highly concessional terms.

BEIRUT, Lebanon: At the authorities’ request, an International Monetary Fund (IMF) mission led by Ernesto Ramirez Rigo visited Lebanon from May 28 to June 5, 2025, to initiate discussions on policies and a reform program that could be supported by an IMF arrangement.

At the conclusion of the mission, Mr. Ramirez Rigo issued the following statement:

“The IMF mission held productive discussions with the Lebanese authorities on a comprehensive economic reform program aimed at restoring macroeconomic sustainability and supporting financing for reconstruction. These initial discussions covered several reform areas, including (i) restoring the viability of the banking sector and protecting depositors to the maximum extent possible, (ii) achieving fiscal and debt sustainability, while enhancing social safety nets and rebuilding institutional capacity, (iii) establishing credible monetary and exchange rate policy frameworks, (iv) strengthening governance and transparency, (v) enhancing the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime, and (vi) reforming state-owned enterprises.

It was agreed that the rehabilitation of the banking system remains a critical priority to rebuild confidence in banks, move away from the current cash-based economy, and restart credit to the private-sector, which is necessary for growth. The authorities have made some progress recently, including the amendment of the Bank Secrecy Law and submission of a new bank resolution law to Parliament. The next step is for Parliament to approve this legislation, which will establish powers to underpin the recovery of orderly banking intermediation, while safeguarding the public interest. The mission also engaged with the authorities on their emerging bank restructuring and deposit recovery strategy. More work in close cooperation with the authorities will be needed to ensure this strategy is aligned with international standards and debt sustainability requirements.

“The mission also discussed the 2026 Budget and the development of a medium-term fiscal framework. For the 2026 Budget, given the limited fiscal space and available financing, it is critical that any additional expenditures be fully offset by corresponding revenue efforts, including by strengthening enforcement and compliance in tax and customs administration. An ambitious medium-term revenue mobilization and expenditure rationalization strategy along with improved fiscal transparency and public financial management is needed to strengthen public finances and create space for increased social protection and capital expenditures. The medium-term fiscal framework should also support the restructuring of Eurobonds to restore debt sustainability. Given Lebanon’s substantial reconstruction needs, the authorities’ reform efforts will require significant support from external partners, preferably on highly concessional terms. Enhanced support to Lebanon is also needed to help the country shoulder the continued burden of hosting a large refugee population.

“Building on these key reform pillars, discussions on formulating a comprehensive reform program are expected to continue, both from IMF headquarters and through follow-up missions. The mission reaffirmed the Fund’s commitment to supporting Lebanon during this challenging period, consistent with its mandate and policies.

“The mission thanks the Lebanese authorities and all stakeholders for their cooperation and constructive engagement.”

https://www.imf.org/en/News/Articles/2025/06/05/pr-25182-lebanon-imf-staff-concludes-mission-to-lebanon

MIL OSI

Source: IMF – News in Russian

June 4, 2025

Washington, DC: Following the successful conclusion of Stand-by (SBA) and Resilience and Sustainability Facility (RSF) arrangements on May 24, 2025, the Kosovo authorities have made use of SDR 80.122 million (€96.22 million) available under the SBA, approved on May 25, 2023.

The authorities will use the drawing to build buffers against potential shortfalls in external financing in a context of heightened uncertainty, as foreshadowed in their Letter of Intent of April 30, 2025 (see IMF Country Report No. 2025/112).

Kosovo’s SBA and RSF arrangements provided access to SDR 80.122 million (€96.22 million, 97 percent of quota) and to SDR 61.95 million (€74.39 million, 75 percent of quota) respectively, to support Kosovo’s economic policies. Together with the SBA drawdown and already disbursed RSF resources, Kosovo will have outstanding IMF credit of SDR 142.07 million (€170.61 million).

https://www.imf.org/en/News/Articles/2025/06/04/pr25181-kosovo-draws-sdr-80-million-under-the-stand-by-arrangement

MIL OSI

Source: IMF – News in Russian

June 4, 2025

• The IMF Executive Board today completed the third and fourth reviews under the Extended Credit Facility Arrangement for the Central African Republic (CAR). The completion of the third and fourth reviews allows for an immediate disbursement of SDR 43.22 million (about US$58 million) to CAR to address protracted balance of payment needs and sustaining priority spending on basic public services.
• Economic growth is expected to accelerate to 3 percent in 2025, up from 1.9 percent in 2024, while inflation is projected to decline gradually. The outlook depends on faster fuel market and governance reforms, and increased grant and concessional financing.
• Program performance was mixed, while downside risks remain substantial.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the third and fourth reviews of the Extended Credit Facility (ECF) arrangement for the Central African Republic (CAR). The ECF arrangement, with access of SDR 147.48 million (about US$197 million), was approved by the IMF Executive Board in April 2023 (see Press Release No. 23/129). The completion of these reviews allows for the immediate disbursement of SDR 43.22 million (about US$58 million) bringing total disbursements under the ECF arrangement to SDR 92.29 million (around US$124 million).

In completing the reviews, the Executive Board also approved the authorities’ request for waivers of nonobservance of the performance criteria (PC) for the end-June 2024 and end-December 2024 domestic primary fiscal balance and net domestic financing. The Executive Board also approved the authorities’ request for a waiver of nonobservance of the continuous PC on non-accumulation of new external arrears. Further, the Executive Board completed the financing assurances review under the ECF arrangement.

The ECF arrangement is part of coordinated efforts by international financial institutions to support the people of CAR. It will continue to help the country meet the protracted balance of payments needs and sustain spending on basic public services, including in the health and education sectors. Program implementation has helped anchor structural reforms and financing. Fuel supply and revenue have improved. Progress is being made in digitalizing the revenue administration and PFM systems, along with enhancements to the Financial Intelligence Unit and the Court of Audit. Completing the combined reviews creates new opportunities for positive outcomes.

Economic activity is projected to expand by 3 percent in 2025, up from 1.9 percent in 2024, driven by higher energy use, mining recovery, infrastructure projects, and improved security. Inflation would ease by end-2025, in part helped by the cut in pump prices in May 2025. Still, a tighter fiscal stance is needed to arrest rising debt vulnerabilities. The domestic primary deficit would narrow to 2.1 percent of GDP in 2025 from 4.9 percent in 2024, assuming bold political backing for the agreed measures on tax administration and compliance. Reinforced spending controls are also key ahead of elections and cuts in humanitarian aid.

The overhaul of the fuel market remains pivotal for macroeconomic stabilization and both sustained and inclusive growth in CAR. The fuel procurement audit should be accelerated to underpin price reforms and address persistent inefficiencies. Despite recent supply increases and price cuts, pump prices remain high due to costly and opaque imports. Transparent use of the recent diesel grant and a thorough audit of costs and margins could help enhance competition, improve supply efficiency, and boost fiscal revenue.

Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, issued the following statement:

“The Central African Republic (CAR) has shown renewed commitment to structural reforms under the ECF-arrangement despite facing deep-rooted fragility and significant uncertainty. Both financial and technical support from development partners remain vital to the program’s success, to overcome weak capacity, elevated revenue volatility, and to alleviate humanitarian needs.

“Program performance for the combined third and fourth reviews was mixed, which is being addressed with strong corrective actions. Half of the six PCs for end-June and end-December 2024 were met. Still, the domestic primary deficit and net domestic financing targets were missed by wide margins, as was the continuous PC on non-accumulation of external arrears. The indicative targets for social spending and expenditures via extraordinary procedures were also missed.

“Strengthening tax compliance and controls is key to boosting revenue but requires strong political support. Accelerating the fuel procurement audit is also essential to address inefficiencies and enable further reductions in pump prices. A well-functioning fuel market is vital for fiscal and macroeconomic stability.

“Program performance depends on stronger public financial management (PFM), particularly spending controls ahead of the elections. Improved PFM is essential to prevent arrears, limit extraordinary procedures, and ensure effective social spending. It would also help mobilize grants and concessional financing, reduce costly regional borrowing, and safeguard debt sustainability.

“Enhancing governance will reinforce PFM efforts. Progress in strengthening the Financial Intelligence Unit and the Court of Audit is welcome. Adopting the new forestry code and implementing the mining code are key to unlocking CAR’s growth potential. Prompt operationalization of the asset declaration system is also critical to maintaining donor support.

“Policies to enhance growth potential and improve equality should be anchored on the National Development Plan (NDP) (2024-2028). A steadfast execution of the NDP is also crucial to catalyze donor support and start attracting foreign private investment flows.

CAR’s economic program will remain supported by the implementation of policies and reforms agreed among CEMAC regional institutions, which notably aim at supporting an increase in regional net foreign assets which are ultimately critical to program’s success.”

https://www.imf.org/en/News/Articles/2025/06/04/pr-25179-car-imf-completes-3rd-4th-rev-under-ecf-arrang-and-approves-us-58-mil-disburse

MIL OSI

Source: IMF – News in Russian

June 4, 2025

• The IMF Executive Board today concluded the fifth review under the Policy Coordination Instrument (PCI). The PCI continues to support Rwanda’s reform agenda aimed at maintaining macroeconomic stability, promoting sustainable and inclusive growth, and advancing climate-resilient development.
• Rwanda’s economic growth remains among the strongest in sub-Saharan Africa, despite rising fiscal and external pressures linked to large investment projects and reduced concessional financing. Continued fiscal consolidation, supported by stronger domestic revenue mobilization and spending efficiency, is essential to safeguard macroeconomic stability and debt sustainability.
• Program performance under the PCI has been strong. All quantitative targets were met, and most reform commitments were implemented, including in SOE governance, monetary statistics, and digital public financial management. The approval of the comprehensive tax policy package and the rollout of the Global Master Repurchase Agreement were implemented with a delay. Rwanda continues to demonstrate leadership in integrating climate considerations into macroeconomic policy and leveraging institutional reforms to mobilize climate finance.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the fifth review under the Policy Coordination Instrument (PCI) for Rwanda.[1]

Rwanda’s economy expanded by 8.9 percent in 2024, driven by a rebound in agriculture and continued strength in the services and construction sectors. Inflation remained within the National Bank of Rwanda’s 2–8 percent target band, reflecting tight monetary policy and improved domestic food supply. The current account deficit widened in 2024 due to strong consumer and capital goods imports, but reserves remained adequate at 4.7 months of imports as of end-year.

Going forward, the fiscal position will be under pressure from the large infrastructure investment in the New Kigali International Airport and the expansion of RwandAir, as well as the recent pension reform. Public debt is expected to peak in FY2025/26, with the PCI debt anchor now projected to be reached in 2033. Accelerating domestic revenue mobilization and maintaining a credible fiscal consolidation path are crucial to restoring policy space and ensuring long-term fiscal sustainability. Continued vigilance is also needed to manage risks from SOEs, rising debt service costs, and constrained access to concessional financing.

Monetary policy should remain data-driven to contain inflation and support external adjustment. Exchange rate flexibility will be essential to absorb shocks, while reforms to strengthen FX market functioning should continue. Close oversight of credit expansion—including in the microfinance sector—and improved monitoring of large exposures are important to safeguard financial stability.

Program implementation under the PCI remains strong. All quantitative targets were met and most structural benchmarks for this review were completed, including those on SOE governance, PFM digitalization, and monetary statistics expansion. The remaining two structural benchmarks on the Cabinet approval of the comprehensive tax policy package and the rollout of the Global Master Repurchase Agreement were implemented with a delay. The authorities continue to build on the strong foundation established under the now-completed RSF. Progress on climate-related reforms has remained strong, including efforts to implement a climate budget tagging system, develop green taxonomies, and advance the climate finance agenda. Developing a pipeline of viable, bankable green projects will be essential to fully leverage available resources and sustain momentum.

At the conclusion of the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director, and Acting Chair, made the following statement:

“Rwanda’s economy has demonstrated impressive resilience, recording strong growth supported by robust activity in the services, construction, and agriculture sectors. Inflation has remained within the NBR target range, aided by prudent monetary policy and improved domestic food supply. However, the macroeconomic environment has become more complex due to a need to implement difficult reforms against the background of worsening external conditions, including aid withdrawals and regional tensions.

“Sustaining fiscal consolidation remains vital to preserving macroeconomic stability and ensuring debt sustainability. The recently adopted tax reform package is a welcome step toward broadening the tax base and enhancing equity and efficiency. Continued expenditure rationalization and close monitoring of fiscal risks, particularly from SOEs and the ambitious priority investment project, are essential. The fiscal implications of pension reform and the financing needs for the priority infrastructure project must be carefully managed to maintain fiscal discipline.

“Monetary and financial policies remain focused on stability, but vigilance is warranted. Inflationary pressures from fiscal loosening and tax policy changes may necessitate a tightening of the policy stance. Greater exchange rate flexibility is crucial to support external adjustment and safeguard reserve adequacy. The authorities’ efforts to modernize the monetary policy framework and strengthen FX market functioning are welcome. Enhancing risk monitoring, particularly in the microfinance sector, and large exposures, along with building additional capital buffers, will be key to safeguarding financial stability.

“Rwanda continues to advance structural reforms under the PCI, including improvements in SOE governance, public financial management digitalization, and financial sector statistics. Progress on climate-related reforms under the RSF is commendable. Looking ahead, Rwanda’s efforts to build a pipeline of bankable green projects and improve climate finance coordination will be instrumental in mobilizing additional resources. Continued commitment to reform and strong engagement with development partners will be critical to sustaining progress and supporting Rwanda’s ambitious development agenda.”

[1] The PCI arrangement was approved on December 12, 2022.

https://www.imf.org/en/News/Articles/2025/06/04/pr-25178-rwanda-imf-concludes-the-5th-review-under-the-policy-coor-instrument

MIL OSI

Source: IMF – News in Russian

June 4, 2025

• The Kyrgyz Republic has shown strong economic performance despite global uncertainties with robust growth, stabilizing inflation, and declining public debt.
• Growth is expected to gradually moderate as external trade normalizes and domestic demand slows, while inflation remains stable with continued prudent monetary policy.
• Sustaining macroeconomic stability and strengthening inclusive growth will require rebuilding policy buffers, enhancing fiscal sustainability, safeguarding monetary policy independence, and advancing structural reforms to boost productivity.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for the Kyrgyz Republic on a lapse of time basis on May 22, 2025.[1]

The Kyrgyz Republic has performed remarkably well amid a highly uncertain external environment. The economy grew by 9 percent annually since 2022, headline inflation has returned to the central bank’s target range, and public debt declined to 36.6 percent of GDP in 2024.

Looking ahead, growth is projected to moderate to 6.8 percent in 2025 and converge to about 5¼ percent in the medium term as re-export trade moderates and domestic demand eases. Inflation is expected to remain broadly stable under the assumption of prudent monetary policy. The large-scale public investments would widen the overall fiscal deficit, but public debt would remain contained under 42 percent of GDP thanks to robust GDP growth.

In view of the heightened global uncertainty, medium term priorities include rebuilding policy buffers and advancing structural reforms to strengthen economy’s resilience to shocks and support higher and more inclusive growth.

 

Executive Board Assessment

The Kyrgyz Republic has demonstrated remarkable resilience amidst global economic uncertainty. The economy has sustained robust growth supported by considerable expansion of external trade, inflows of remittances and labor, and resilient domestic demand. Inflation has moderated to mid-single digits, though underlying demand pressures warrant vigilance to keep inflation within the central bank’s target range. Lower public debt provides the needed fiscal space for priority investment in public infrastructure, energy generation capacity and human capital development.

Looking ahead, economic activity is expected to moderate from the exceptionally high levels of the past three years as re-export trade normalizes. Growth is projected to converge to its potential rate of 5¼ percent in the medium term, but the outlook is highly uncertain and depends on regional geopolitical developments. A further escalation of sanctions on Russia could weaken remittances and growth due to a depreciation of the ruble and slower growth in Russia. Conversely, a lasting peace in the region could have the opposite impact, but may also unwind some of the trade and financial flows that have boosted growth in recent years. In an increasingly uncertain world, the medium-term priority is to strengthen resilience of the Kyrgyz economy to future shocks by rebuilding policy buffers and enhance prospects for higher and more inclusive growth through structural reforms.

Strong revenue performance and a prudent fiscal stance coupled with high GDP growth have contained public debt. To further strengthen fiscal sustainability and create fiscal space for large development needs, the authorities should enhance tax policy by reducing tax exemptions and special tax regimes, increasing progressivity of the Personal Income Tax, and further strengthening revenue administration. Containing the public wage bill and energy subsidies, channeling Kumtor profits to the budget, and privatization of nonstrategic commercial SOEs would also contribute to fiscal sustainability and provide additional fiscal resources. Containing fiscal deficits would also limit borrowing and ease inflation pressures.

Preserving monetary policy independence is essential to contain inflationary pressures and maintain price stability. In view of robust domestic demand, further efforts are needed to ensure that inflation remains within the central bank’s target range. Tightening of interest rates and liquidity conditions might be warranted, if inflation pressures persist or rise. Monetary policy effectiveness could be enhanced by lifting interest rate caps, extending instrument maturities, phasing out subsidized lending, and enhancing exchange rate flexibility. Staff supports the discontinuation of domestic gold purchases by the NBKR and recommends halting NBKR profit transfers to the budget until its capital reaches the statutory threshold.

Sustaining high growth rates requires structural reforms to increase productivity and improve the business climate. Priority reform areas include governance and SOE management, competition policies, labor markets, and climate adaptation. If duly implemented, the authorities’ anti-corruption strategy could lay a solid foundation for a more resilient and dynamic economy. Strengthening the rule of law and protection of property rights, reducing the SOE footprint and enhancing competition are crucial for building trust in public institutions and improving the business climate to encourage private investment and innovation. Reforms aimed at increasing labor market flexibility, reducing gender gaps, and improving social safety nets would also support more inclusive economic growth, while investments in sustainable energy and infrastructure, and health and education remain vital to enhance resilience to climate risks.

Table 1. Kyrgyz Republic: Select Economic Indicators

 

https://www.imf.org/en/News/Articles/2025/06/04/pr25176-kyrgyz-republic-imf-executive-board-concludes-2025-article-iv-consultation

MIL OSI

Source: IMF – News in Russian

June 4, 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.

Washington, DC: An International Monetary Fund (IMF) team led by Justin Tyson visited Malawi from May 22 to June 3 to hold meetings with the Malawian authorities and other counterparts from the public and private sectors and civil society for the 2025 Article IV consultation. Discussions focused on policies to restore macroeconomic stability, and the structural reforms needed to foster strong, inclusive, and durable growth.

Context, Macroeconomic Outlook, and Risks

The Malawian economy has been buffeted by several shocks. Real GDP growth declined slightly to 1.8 percent in 2024 as a drought affected agricultural production, while foreign exchange and fuel shortages dampened economic activity. Over 20 percent of the population is facing high levels of food insecurity, up five percentage points over 2023. Headline inflation began easing in late-2024 and reaccelerated in early-2025 in the context of maize prices rising to historical levels, elevated money growth and an increasing official-parallel exchange rate spread.

Fiscal and monetary policy has remained too accommodative. The FY2024/25 (April/March) fiscal balance fell short of budget targets and deteriorated relative to the previous year as revenue underperformed and expenditure ceilings were exceeded. Persistent and elevated domestic fiscal financing has fueled money growth and inflation, which in turn exerts pressure on the exchange rate. Monetary policy did not tighten sufficiently in the context of elevated government domestic borrowing. The broader reform momentum has been slowing.

Consequently, domestic, and external imbalances worsened. The current account deficit expanded further to about 22 percent of GDP and gross reserves are critically low, pointing to an overvalued exchange rate. The official-parallel spread is wide and may reflect other factors beyond fundamentals. Malawi remains in external debt distress and domestic debt is growing.

The macroeconomic outlook is subdued and dependent on the agricultural sector output and foreign grant support. Under current policies, the mission expects real GDP growth to be 2.4 percent in 2025 and gradually increase to 3.4 percent over the medium term. Inflation is projected to average 29 percent in 2025 and settle at around 14 percent over the medium term. The current account deficit is projected to improve to about 17 percent of GDP in 2025 based on lower fuel prices and a rebound in key exports. General elections, scheduled for September, have reinforced political-economy constraints to macroeconomic adjustment. After the expiry of the ECF arrangement, the Malawian authorities are designing a homegrown reform program.

Risks are tilted to the downside. Lower-than-anticipated grant inflows and food production, additional global trade tensions, and delayed reforms could deepen macroeconomic instability. Greater-than-expected mining investment and production constitute an upside risk.

Fiscal Policy

Returning to a sustainable fiscal adjustment path is a priority. Tackling the rising interest bill will create space for domestically-financed investment and pro-poor spending, while also ameliorating the sovereign-bank nexus.

Domestic revenue mobilization is urgently needed to achieve fiscal sustainability in an equitable way. This could be achieved through a combination of broadening the tax base and tax policy instruments (e.g., reducing exemptions, and personal and corporate income tax reform). Improving wage bill efficiency and rebalancing expenditures towards human capital and social protection could support these efforts.

Staff welcomes public financial management improvements, which remain critical for strengthening fiscal governance and building public trust. The authorities have made progress in expanding the coverage of the Integrated Financial Management and Information System (IFMIS), bank reconciliations, and increasing the efficiency of public investment. Reform efforts should continue to, inter alia, enhance budget development, execution, and reporting, improve the procurement system, and strengthen State Owned Enterprises (SOE) oversight.

Decisive steps are needed to restore debt sustainability. The authorities have achieved some progress with their bilateral creditors and continue to engage with their external commercial creditors to ensure that external debt is sustainable. Tangible progress on external debt restructuring could pave the way for new concessional inflows. This should be supported by steps to reduce the cost of domestic borrowing.

Price Stability and Exchange Rate Policy

Tighter fiscal and monetary policies would support disinflationary efforts and ease pressure on the exchange rate. High inflation hurts the economy in general, but especially the poorest and most vulnerable. A combination of more restrictive monetary policy and an urgent fiscal adjustment, including enhanced reporting on budget execution, could reduce broad money growth, support policy credibility and re-anchor inflation expectations. Structural constraints may also be contributing to entrenched inflation expectations.

A unified and market clearing exchange rate is critical to reducing imbalances and supporting the authorities’ growth objectives. The current regime with a large and volatile spread between the parallel and official rate creates distortions, impedes exports, subsidizes some imports, and encourages informality and tax avoidance. Foreign direct investments and official aid flows are discouraged, and domestic revenues reduced. Eliminating these imbalances requires unifying the official and parallel exchange rates, at a level reflecting fundamentals and discounting speculative factors, and stabilizing the foreign exchange market. Consistency between the de facto exchange rate regime, the monetary policy framework and fiscal policy are needed to ensure sustainable growth.

Financial Sector Policies

The banking sector’s credit and foreign exchange risks should be monitored to preserve financial stability. While the sector is well-capitalized, liquid, and profitable, its significant exposure to government borrowing and the net foreign liabilities position within the banking sector require continued careful monitoring.

Increased banking sector credit to the private sector would support economic growth. Fiscal adjustment would reduce crowding out of private sector due to public borrowing and support export-oriented investment. In addition, a lower inflation and interest rate environment would further support credit to businesses.

Structural Reforms

Improving the investment climate would help attract investment, diversify the economy, and move up the value chain. Sustained multi-year prudent fiscal policies and removing price distortions (e.g., re-activating the automatic fuel price mechanism) would bolster policy credibility and strengthen external competitiveness. Addressing key structural impediments to growth would durably support efforts to raise productive capacity, reduce inflation and improve self-sustainability, as envisaged under the authorities’ Agriculture, Tourism, Mining and Manufacturing (ATMM) policy umbrella.

Further strengthening governance measures will support confidence in public service provision. Despite government reform efforts, including the two National Anti-Corruption Strategies, gaps persist. For example, the public procurement process and SOE operations would benefit from greater transparency and less discretionary decision-making.

The IMF mission team thanks the Malawian authorities and all other interlocutors for the candid discussions and their hospitality.

https://www.imf.org/en/News/Articles/2025/06/04/pr-25175-malawi-imf-completes-2025-art-iv-mission

MIL OSI

Source: IMF – News in Russian

June 4, 2025

Tbilisi: An International Monetary Fund (IMF) mission led by Mr. Alejandro Hajdenberg conducted discussions for the 2025 Article IV consultation with Georgia from May 21 to June 4, 2025, in Tbilisi. At the end of the visit, Mr. Hajdenberg issued the following statement:

Georgia’s economy has been remarkably resilient despite heightened domestic and geopolitical uncertainty. Growth approached double digits in 2024, is projected at 7.2 percent this year, and is expected to converge to its long-term trend of 5 percent. Inflation has ticked up but remains close to its 3 percent target. Meanwhile, foreign exchange reserves have recovered from last year’s lows and continued fiscal discipline has contributed to a further decline in public debt. However, risks to the outlook are elevated and challenges persist due to still high structural unemployment and income inequality. In this context, the National Bank of Georgia (NBG) should prioritize building additional reserve buffers while monitoring potential financial sector risks. Strengthening NBG’s governance and independence remains central to macroeconomic stability. Fiscal reforms should aim to raise additional revenues to finance development priorities, improve spending efficiency, and contain fiscal risks. Structural reforms should focus on sustaining strong growth and making it more inclusive, including by enhancing labor market opportunities and outcomes.

Recent economic developments, outlook, and risks

Economic activity has remained robust. Real GDP grew by 9.4 percent in 2024 despite domestic political tensions. Growth was driven by consumption, marking a shift from previous years when investment and net exports were the main contributors. Tourism rebounded to pre-Covid levels, while the information and communications technology (ICT) and transport sectors remained key drivers of growth, continuing to benefit from high skilled migrants and transit trade. The unemployment rate continued to decline, albeit remaining structurally high. With strong momentum continuing in the first four months of 2025, growth is projected to moderate slightly to 7.2 percent for this year before converging to its medium-term potential rate of 5 percent.

Inflation has returned to target after undershooting for two years. Headline inflation averaged 1.8 percent over 2023 and 2024 but rose to 3.5 percent year-on-year in May 2025, mainly due to increasing food prices. Core inflation, however, remains subdued, with the NBG keeping the policy rate unchanged at 8 percent since May 2024. Inflation is projected to average 3.4 percent in 2025 and to converge to the NBG’s 3 percent target in 2026 along with easing domestic demand.

The current account deficit narrowed in 2024 to 4.4 percent of GDP, with a similar projection for 2025, but reserve coverage remains below adequate levels. The improvement in 2024 was driven by lower imports, partly reflecting lower oil prices. Foreign direct investment (FDI) declined for the second straight year, in part reflecting the absence of new large greenfield projects. Gross international reserves have fallen from a peak of $5.4 billion in August 2023 to $4.5 billion as of April 2025––equal to 80 percent of the Fund’s Assessment of Reserve Adequacy (ARA) metric. Recent favorable inflows have allowed the NBG to offset the sizeable foreign exchange sales made before the October parliamentary elections.

The fiscal deficit held steady at 2.4 percent of GDP in 2024, despite it being an election year, and is expected to remain unchanged in 2025. Robust tax revenues––supported by strong growth, tax policy measures in the financial and gambling sectors, and improved revenue administration––have helped finance social and capital spending. Amid stronger-than-expected economic activity, the 2025 budget target of 2.5 percent of GDP deficit is well within reach. Public debt, at 36 percent of GDP, has returned to pre-pandemic levels, with an increasing share denominated in local currency. The USD 500 million Eurobond maturing in April 2026 is expected to be rolled over smoothly.

While uncertainty remains exceptionally high, risks to the outlook appear broadly balanced. The direct impact from tariffs imposed by the U.S. is limited as the U.S. accounts for only 2 percent of total exports—mainly ferroalloys, which are exempt. However, the indirect effects of heightened global trade tensions could be more significant. Weaker investor confidence and slower trading partner growth pose negative risks, but Georgia could benefit from lower oil prices and sustained trade diversion through its territory. A resolution of the war in Ukraine could unwind some gains linked to migration and transit trade but increased regional stability and reconstruction in Ukraine could be offsetting positive factors. Persistent domestic political uncertainty and sanctions affecting Georgia could dampen FDI, discourage tourism, and further pressure the lari. Healthy fiscal and financial sector buffers mitigate these risks.

Monetary and exchange policies

The NBG should maintain a broadly neutral policy stance while remaining flexible and data driven to ensure inflation expectations remain anchored. Although wage and employment growth have moderated and business confidence has weakened, heightened global uncertainty warrants caution in considering further policy rate cuts, particularly as the recent increase in domestic food prices may not prove transitory. Should inflationary pressures persist, a tightening of the policy stance may be warranted.

Exchange rate flexibility, opportunistic reserve accumulation, and monetary policy communication should be enhanced. Efforts to rebuild reserve buffers should be sustained while allowing the exchange rate to act as a shock absorber. The NBG should continue to strengthen monetary policy transmission, effectiveness, transparency, and credibility. Communication of monetary policy should be strengthened by clarifying the NBG’s assessment of the balance of risks and how this informs policy decisions.

Strengthening NBG governance and independence remains central to macroeconomic stability. The filling of the board vacancies and the governor position is a welcome first step. Efforts should now focus on amending the NBG law to: (i) ensure a non-executive majority on the NBG’s oversight board, (ii) limit the possibility of discretionary financial transfers to the government, and (iii) clarify and further strengthen [the NBG succession framework and] board member qualification criteria. Moving from a presidential to a collegial decision-making model is also advisable.

Fiscal policy

With public debt at sound levels, maintaining a broadly neutral policy stance over the medium term is appropriate. A fiscal deficit of 2.3–2.5 percent of GDP would help stabilize the debt-to-GDP ratio near its current level. The shift toward domestic debt should proceed carefully, avoiding crowding out the private sector and monitoring borrowing costs and risks linked to a stronger sovereign-bank nexus. While good progress has been made, further tax policy and administration reforms that broaden the tax base and streamline tax expenditures—supported by a stronger medium-term revenue strategy—are needed to secure revenue for spending priorities.  

There is considerable scope to enhance spending efficiency and further strengthen public investment management (PIM). Despite elevated levels of public investment, infrastructure quality remains below that of many emerging market peers, highlighting the need for more effective implementation of PIM processes, building on recent years’ improvements. Spending on education and health could be more efficient, to achieve better outcomes at similar expenditure levels. Spending reviews could help in this regard. Social assistance is relatively generous but targeting could be improved to prioritize the most vulnerable households.

Sustained efforts are needed to manage fiscal risks and increase fiscal transparency. The authorities have taken significant steps in enhancing the Ministry of Finance’s financial oversight of state-owned enterprises (SOEs), and maintaining this momentum will be important. Efforts should focus on legislation that would separate the state’s shareholder, regulatory, and policy functions beyond the energy sector, where implementation has recently taken place, and strengthen the corporate governance of SOEs. The authorities should address gaps in the coverage of fiscal reporting, particularly from non-market SOEs with significant fiscal risks.

Financial sector

Continued vigilance and reforms will help address long-standing and emerging financial sector risks. The banking system remains well capitalized and profitable, and the implementation of the IMF’s 2021 Financial Sector Assessment Program (FSAP) recommendations is nearly complete. Key priorities going forward include enhancing the consolidated supervision of financial groups—particularly non-bank subsidiaries and cross-border activities, operationalizing a fully-fledged bank resolution framework, and improving competition in financial services. The NBG continues to implement its long-term dedollarization policy to support financial stability, and recently raised the FX loan threshold for unhedged borrowers further to GEL 750,000. Nevertheless, the share of unhedged foreign currency bank loans is still high, and the deposit dedollarization trend was interrupted amid heightened political uncertainty. Banks—especially smaller ones—have faced lari funding pressures, and the cost of funding has risen, potentially weighing on profitability. Consumer loans have grown rapidly, while riskier nonbank financing—including foreign currency bond issuances by real estate developers—has increased considerably. Neither risk is assessed to be systemic at this stage, but continued close monitoring is warranted.

Structural reforms

Structural reforms are needed to sustain high growth and make it more inclusive and job rich. Potential growth remains constrained by structurally high long-term and youth unemployment, low educational attainment, infrastructure bottlenecks in the transport and logistics sectors, and low sectoral productivity, especially in agriculture. An aging population, outward migration, and informality pose challenges for the labor market, along with persistent income inequality. Better targeting of agricultural support, improving teacher quality, and expanding vocational training would help raise rural labor force participation and facilitate the integration of workers into the formal economy. Remittances and return migration could be better leveraged to boost productive investments and knowledge transfers from returning migrants. Continued investment in transport and logistics infrastructure, as well as coordination with regional partners to harmonize fees and procedures, are important to support long-term competitiveness. Finally, the authorities should enhance judicial independence and strengthen the autonomy of the Anti-Corruption Bureau to improve the business environment.

The mission team would like to thank the Georgian authorities and other counterparts for their close collaboration, candid and informative discussions, and warm hospitality.

Table 1. Georgia: Selected Economic and Financial Indicators, 2024–28

 

	2024	2025	2026	2027	2028
	Actual Projections
National accounts and prices	(annual percentage change; unless otherwise indicated)
Real GDP	9.4	7.2	5.3	5.0	5.0
Nominal GDP (in billions of laris)	91.9	102.5	111.7	121.5	131.9
Nominal GDP (in billions of U.S. dollars)	33.8	36.7	39.2	41.4	43.6
GDP per capita (in thousands of U.S. dollars)	9.1	9.9	10.6	11.2	11.8
GDP deflator, period average	3.8	4.1	3.5	3.5	3.5
CPI, period average	1.1	3.4	3.1	3.0	3.0
CPI, end-of-period	1.9	3.6	3.0	3.0	3.0
Consolidated government operations	(in percent of GDP)
Revenue and grants	28.0	27.7	27.8	27.7	27.6
o.w. Tax revenue	25.3	25.0	25.6	25.6	25.6
Total Expenditure	30.3	30.0	30.1	29.9	29.8
Current expenditures	22.5	22.6	22.5	22.5	22.5
Net acquisition of nonfinancial assets	7.7	7.4	7.5	7.5	7.3
Net lending/borrowing (GFSM 2001)	-2.3	-2.3	-2.3	-2.3	-2.2
Augmented net lending/borrowing 1/	-2.4	-2.4	-2.4	-2.4	-2.3
Public debt	36.1	34.7	34.1	34.3	34.5
o.w. Foreign-currency denominated	25.2	23.1	22.0	21.7	20.9
Money and credit	(annual percentage change; unless otherwise indicated)
Credit to the private sector	18.5	13.7	9.0	8.7	8.6
In constant exchange rate	17.0	15.5	8.5	7.4	7.3
Broad money	14.5	13.3	11.5	11.3	11.2
Excluding FX deposits	10.4	13.7	11.9	11.7	11.6
Deposit dollarization (in percent of total)	52.7	52.1	51.9	51.7	51.4
Credit dollarization (in percent of total)	42.9	42.5	42.1	41.7	41.3
Credit to GDP (in percent) 2/	66.0	67.4	67.4	67.4	67.4
External sector	(in percent of GDP; unless otherwise indicated)
Current account balance (in billions of US$)	-1.5	-1.6	-1.8	-2.0	-2.1
Current account balance	-4.4	-4.4	-4.6	-4.8	-4.8
Trade balance	-19.2	-18.9	-19.1	-19.2	-19.3
Terms of trade (percent change)	-2.8	-0.2	0.1	-0.3	0.5
Gross international reserves (in billions of US$)	4.4	4.7	4.9	5.5	6.2
In percent of IMF ARA metric 3/	79.6	81.1	82.4	88.0	95.5
In months of next year’s imports	2.7	2.6	2.6	2.7	2.9
Gross external debt	66.8	62.4	58.5	55.9	53.0
Sources: Georgian authorities; and Fund staff estimates.
1/ Augmented Net lending / borrowing = Net lending / borrowing – Budget lending.
2/ Banking sector credit to the private sector.
3/ IMF’s adequacy metric for assessing reserves in emerging markets.

https://www.imf.org/en/News/Articles/2025/06/04/06042025-mcs-georgia-staff-concluding-statement-of-the-2025-article-iv-mission

MIL OSI

Source: IMF – News in Russian

June 3, 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.

• Brazil’s economy has grown strongly over the past three years, surprising on the upside. Inflation rebounded in 2024 amid strong demand, a rise in food prices, and currency depreciation, exceeding the target tolerance interval. IMF staff expects growth to moderate in the near term as inflation converges to target, and then strengthen to 2.5 percent over the medium term.
• The pivot to a monetary policy tightening cycle in September 2024 was appropriate and consistent with bringing inflation and inflation expectations back to the 3 percent target. In the context of heightened global policy uncertainty and inflation expectations above target-consistent levels, maintaining flexibility on the pace and length of the hiking cycle is prudent.
• The authorities’ efforts to continue improving the fiscal position, while trying to meet social spending and investment needs, are welcome and further steps are warranted. Phasing out costly and inefficient tax expenditures, enhancing revenue administration, and tackling budget rigidities would open space for priority investments, support public debt sustainability, and facilitate a lower path of interest rates.
• The authorities are advancing their sustainable and inclusive growth agenda. Implementation of the landmark VAT reform is proceeding and a personal income tax reform that aims to enhance equity is under discussion in Congress.

Washington, DC: An International Monetary Fund (IMF) team, led by Daniel Leigh, conducted discussions for the 2025 Article IV Consultation with the Brazilian authorities and consulted with other stakeholders during May 20 – June 2, 2025. At the conclusion of the visit, Mr. Leigh issued the following statement:

“Brazil’s economy has grown strongly over the past three years, surprising on the upside. Staff projects a moderation in growth from 3.4 percent in 2024 to 2.3 percent in 2025, amid tight monetary and financial conditions, a scaling back of fiscal support, and heightened global policy uncertainty. Inflation is expected to reach 5.2 percent by end-2025, before gradually converging to the 3 percent target by end-2027. The external current account deficit reached 2.8 percent of GDP in 2024, on the back of strong exports and rising imports due to stronger economic activity.

“Over the medium term, growth is forecasted to recover to 2.5 percent, supported by the normalization of monetary policy and supportive structural factors, notably the implementation of the efficiency-enhancing VAT reform and the acceleration in hydrocarbon production. Additional structural reforms and implementation of the Ecological Transformation Plan would further boost medium-term growth prospects.

“Risks to the growth outlook are tilted to the downside amid heightened global policy uncertainty. A sound financial system, adequate FX reserves, low reliance on FX debt, large government cash buffers, and a flexible exchange rate continue to support Brazil’s resilience.

“The Central Bank of Brazil’s (BCB) pivot to a tightening cycle in September 2024 was appropriate and consistent with bringing inflation and inflation expectations back to the 3 percent target. Above-target near- and medium-term inflation expectations, as well as a widening positive output gap, supported the case for the BCB’s rate hikes. In the context of heightened global policy uncertainty and inflation expectations above target-consistent levels, maintaining flexibility on the pace and length of the hiking cycle is prudent.

“The authorities’ efforts to continue improving the fiscal position, while trying to meet social spending and investment needs, are welcome and further steps are warranted. To put public debt on a firmly downward path, open space for priority investments, and facilitate a lower path of interest rates, staff recommends a sustained and more ambitious fiscal effort, supported by an enhanced fiscal framework, revenue mobilization, and spending measures. Implementation of the landmark 2023 VAT reform is expected to significantly simplify the tax system and boost productivity, and efforts rightly aim to secure revenue-neutrality.

“The financial sector was resilient in 2024 and is expected to remain so amid higher interest rates. The authorities are implementing regulatory changes aimed at further strengthening financial sector resilience. Reforms to facilitate a reduction in household leverage are needed. At present, public banks appear well-capitalized, profitable, and liquid, and have been paying dividends to the government. Lending by public banks should continue to focus on addressing market failures, such as supporting long-term investment.

“The BCB continues to advance its financial innovation agenda. Pix, the instant payment system developed by the BCB, now accounts for 49 percent of all electronic payments in Brazil—the most popular method, reflecting its low costs and immediate settlement. The pilot of Brazil’s Central Bank Digital Currency, Drex, has entered the second phase, where additional use cases and integration with external platforms will be tested and enhanced, while continuing to explore data privacy solutions.

“The authorities are delivering on their inclusive and sustainable growth agenda. Structural reforms together with expanding hydrocarbon production have lifted Brazil’s medium-term growth prospects. Additional structural reforms and implementation of the Ecological Transformation Plan would further foster productivity, investment, and job-rich growth, while extending recent gains in social inclusion. Brazil has made notable progress in reducing deforestation in recent years and is on track to meet its Nationally Determined Contribution (NDC) targets.

“The team would like to thank the authorities and private sector representatives for their support, hospitality, and constructive dialogue.”

https://www.imf.org/en/News/Articles/2025/06/03/pr-25174-brazil-imf-completes-2025-art-iv-visit

MIL OSI

Source: IMF – News in Russian

June 2, 2025

• Growth is expected to decelerate to 2.5 percent in 2025 and stabilize at 3 percent in the medium term as Cyprus shifts towards more investment-driven growth.
• The fiscal surplus reached an impressive 4.3 percent of GDP in 2024, while public debt declined to 65 percent of GDP. Fiscal policy should continue to prioritize debt reduction to further build buffers against potential shocks.
• The banking sector boasts substantial capital and liquidity buffers, with financial risks appearing well-contained. The recent tightening of the macroprudential policy stance, will further enhance these financial buffers.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Cyprus and endorsed the staff appraisal without a meeting.[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]

In 2024, Cyprus’s growth accelerated to 3.4 percent—one of the highest rates in the euro area (EA)—driven by a strong tourism season, continued Information and Communication Technology (ICT) sector expansion, and robust public and private consumption. While inflation has remained volatile, it has generally decreased, with headline inflation falling to 2.1 percent by March 2025. Fiscal performance continues to be very strong, with the fiscal surplus increasing to 4.3 percent of GDP in 2024, supported by robust tax revenues. As a result, public debt has declined to 65 percent of GDP by the end of 2024, while cash buffers remain large. Financial conditions remain tight, accompanied by subdued credit growth. Nevertheless, the banking sector possesses sizable capital and liquidity buffers, and overall banking sector risks appear contained.

Growth is expected to moderate to 2.5 percent in 2025 before reaching 3 percent in the medium term, driven by higher investment and structural reforms. Inflation is anticipated to hit the 2 percent target later this year, supported by moderating growth and lower oil prices. Near-term risks are tilted to the downside, including from elevated uncertainty from global trade tensions. In contrast, longer-term risks are more balanced, with risks on insufficient progress on structural reforms acting against the upside potential of Cyprus’s evolving business model.

Executive Board Assessment

In concluding the 2025 Article IV consultation with Cyprus, Executive Directors endorsed staff’s appraisal, as follows:

Cyprus has demonstrated remarkable economic resilience, with growth among the highest in the EA. This strong performance is underpinned by robust service exports and domestic consumption. The labor market remains tight, characterized by a declining unemployment rate and elevated job vacancy levels. While uncertainties persist, there are indications of potential overheating in the economy. This, along with tariff-related trade disruption, will lead growth to moderate this year. While volatile, inflation is projected to stabilize around 2 percent by the end of the year. The current account deficit is estimated to have moderated in 2024, but the external position is assessed to be weaker than the level implied by fundamentals.

The immediate outlook presents downside risks, while longer-term risks appear more balanced. An escalation of trade conflicts—particularly if this broadened to include services trade and FDI—poses an important downside risk. An escalation of regional tensions, and possible new energy price shocks, could affect FDI, tourism, and inflation. Domestically, there are concerns about further overheating, which may arise from a more accommodative fiscal policy. In the medium-to-long term, investment-driven growth will rely on continuous progress in structural reforms. On the upside, Cyprus’s agile and dynamic economy offers substantial potential for growth.

Cyprus’s strong fiscal position has reduced vulnerabilities. In 2024, the primary fiscal surplus reached 5.6 percent, fueled by significant revenue growth that more than compensated for increased public wages and social transfers. As a result, public debt decreased to 65 percent of GDP by the end of 2024, with substantial cash reserves supporting liquidity. This further increased resilience, built policy space for future shocks, and improved investor sentiment.

Fiscal policy should continue to prioritize debt reduction. Given overheating risks, it is crucial to avoid new discretionary measures that would ease fiscal policy and add to inflationary pressures. Instead, efforts should focus on reducing debt well below 60 percent of GDP, thereby ensuring a robust buffer against potential shocks. The authorities’ commitment to maintaining fiscal surpluses through 2028, as specified in the MTFSP under the new EU economic governance framework, supports this goal.

As spending pressures increase, careful management of fiscal space is essential. The financial commitments required for achieving climate and digital transitions will persist beyond the end of EU RRP funding. Additionally, an aging population will necessitate higher expenditures on pensions and healthcare, alongside other long-term expenditures. As a result, the scope for fiscal loosening in the medium term is constrained.

Public spending should emphasize investment while retaining flexibility in response to economic shocks. Capital expenditures should take precedence to enhance potential growth and facilitate the climate transition. At the same time, expanding current spending—such as increasing public wages, broadening subsidies, or introducing untargeted social programs—should be avoided. Specifically, the authorities should resist further increases to the COLA indexation or new ad-hoc salary increases to contain the existing substantial public-private wage gap and prevent additional pressure on real wage growth.

The banking sector boasts substantial capital and liquidity buffers, with financial risks appearing well-contained. Profitability metrics have reached record highs for the second consecutive year, and capitalization levels are now among the highest in Europe. Despite elevated interest rates, asset quality continues to improve, supported by strong economic growth. Nonetheless, ongoing vigilance is essential, particularly concerning the real estate sector.

Recent tightening of the macroprudential policy stance will enhance financial buffers further. The announced increase in the CCyB will bolster resilience by securing already high capital buffers without adversely affecting credit availability or economic growth. In the future, careful calibration of macroprudential policies should continue to strike a balance between financial stability and effective credit intermediation.

Although legacy NPLs continue to decrease, they remain at elevated levels. Most NPLs have been successfully transitioned away from the banking sector and do not pose a significant issue for financial stability. The ongoing resolution of legacy NPLs is expected to accelerate, given the full operationalization of the foreclosure framework and a strong uptake of the mortgage-to-rent scheme. Resolving legacy NPLs is expected to help mobilize domestic capital.

Structural reforms aimed at enhancing judicial efficiency and boosting labor productivity are vital for fostering long-term growth. With employment levels already high, capital deepening will increasingly drive growth. Consequently, policies must create a stable and streamlined business environment conducive to investment. Additional efforts are required in the judicial sector to strengthen the institutional framework for insolvency and creditor rights and to improve court efficiency. Labor policies should focus on addressing skill gaps and mismatches and engaging remaining segments of the labor force, particularly among youth and the long-term unemployed.

Key energy projects and reforms must be expedited to reduce energy costs, enhance energy security, and fulfill climate commitments. Completing the LNG terminal and improving electricity interconnectedness would represent significant progress toward these objectives. Additionally, increasing competition in the electricity market would help lower costs and emissions through market forces. The planned introduction of green taxation would further facilitate the energy transition.

Maintaining a strong AML framework is vital for mitigating reputational risks and business uncertainty. Ongoing efforts to broaden the definition of obliged entities for AML supervision are commendable. Furthermore, the proposed establishment of the National Sanctions Implementation Unit at the Ministry of Finance will enhance clarity for reporting entities regarding compliance with sanctions.

Table 1. Cyprus: Selected Economic Indicators, 2021–2030
	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030
					Projections
Real Economy	(Percent change, unless otherwise indicated)
Real GDP	11.4	7.2	2.8	3.4	2.5	2.7	3.0	3.0	3.0	3.0
Domestic demand	5.6	8.5	5.2	0.7	4.6	3.6	3.6	3.5	3.4	3.2
Consumption	5.7	8.5	4.8	3.3	3.2	2.6	2.8	2.9	2.8	2.8
Private consumption	4.7	9.8	5.9	3.8	2.8	2.9	3.2	3.2	3.2	3.1
Public consumption	8.9	4.7	1.2	1.5	4.4	1.4	1.2	1.7	1.7	1.7
Gross capital formation	5.0	8.5	6.6	-9.5	10.5	7.8	7.0	6.0	5.5	4.5
Foreign balance 1/	5.8	-1.1	-2.3	3.0	-1.9	-0.9	-0.7	-0.5	-0.4	-0.3
Exports of goods and services	27.2	27.1	-2.8	5.3	4.0	4.1	4.0	4.0	4.0	4.0
Imports of goods and services	19.6	29.7	-0.7	2.4	6.1	5.1	4.6	4.5	4.4	4.2
Potential GDP growth	5.5	6.1	4.4	3.3	3.0	2.9	2.9	3.0	3.0	3.0
Output gap (percent of potential GDP)	0.9	2.0	0.4	0.6	0.2	-0.1	0.0	0.0	0.0	0.0
HICP (period average, seasonally-adjusted)	2.3	8.1	3.9	2.3	2.2	2.0	2.0	2.0	2.0	2.0
HICP (end of period, seasonally-adjusted)	4.8	7.6	1.9	3.1	2.0	2.0	2.0	2.0	2.0	2.0
GDP deflator	3.0	6.7	3.8	3.5	4.7	1.6	1.5	1.5	1.5	1.6
Unemployment rate (percent, period average)	7.2	6.3	5.8	4.9	4.8	5.0	5.0	5.0	5.0	5.0
Employment growth (percent, period average)	3.5	5.0	2.8	1.5	0.9	0.8	0.9	0.8	0.8	0.8
Labor force	3.0	4.0	2.3	0.4	0.8	1.0	0.9	0.8	0.8	0.8
Public Finance	(Percent of GDP, unless otherwise indicated)
General government balance	-1.6	2.7	1.7	4.3	3.8	3.5	2.4	2.1	1.9	1.6
Revenue	41.0	40.6	43.7	44.3	44.7	44.3	43.3	43.2	43.2	43.2
Expenditure	42.6	38.0	42.0	40.0	40.9	40.8	40.8	41.1	41.4	41.6
Primary Fiscal Balance	0.1	4.0	3.0	5.6	5.2	4.8	3.8	3.4	3.1	2.9
General government debt	96.5	81.1	73.6	65.1	60.2	54.9	49.7	44.5	41.2	38.3
Balance of Payments
Current account balance	-5.4	-5.4	-9.7	-6.1	-7.1	-7.7	-8.2	-8.7	-9.1	-9.4
Trade Balance (goods and services)	4.7	3.6	1.0	3.6	2.5	1.8	1.1	0.5	0.2	0.0
Exports of goods and services	90.8	105.6	97.2	96.7	95.8	97.4	98.4	99.5	100.5	101.5
Imports of goods and services	86.1	102.0	96.1	93.1	93.2	95.6	97.3	98.9	100.3	101.6
Goods balance	-16.9	-19.7	-23.7	-20.4	-20.4	-21.4	-22.4	-23.3	-24.2	-24.9
Services balance	21.6	23.3	24.7	24.0	22.9	23.2	23.5	23.9	24.4	24.9
Primary income, net	-8.9	-7.9	-9.6	-8.9	-8.6	-8.5	-8.4	-8.3	-8.3	-8.3
Secondary income, net	-1.2	-0.7	-1.1	-0.8	-1.0	-1.0	-1.0	-1.0	-1.0	-1.0
Capital account, net	0.2	0.1	-0.1	0.2	0.2	0.2	0.1	0.1	0.1	0.1
Financial account, net	-7.6	-6.2	-8.7	-5.9	-6.9	-7.5	-8.2	-8.6	-9.1	-9.3
Direct investment	-3.3	-27.2	-21.0	-18.0	-18.0	-18.1	-18.3	-18.3	-18.5	-18.6
Portfolio investment	3.9	3.9	11.0	4.9	5.8	3.6	4.2	3.5	1.5	2.6
Other investment and financial derivatives	-9.6	16.8	1.2	7.2	5.3	7.0	5.9	6.2	7.9	6.7
Reserves ( + accumulation)	1.4	0.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Program financing 2/	0.0	0.0	0.0	0.0	-1.0	-2.7	-2.5	-2.4	-2.4	-2.0
Errors and omissions	-2.5	-0.9	1.1	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Saving-Investment Balance
National saving	13.8	14.9	11.8	14.4	13.7	13.6	13.4	13.3	13.2	13.1
Government	1.8	5.8	6.7	7.9	7.8	7.3	6.3	6.1	6.1	5.8
Non-government	12.0	9.0	5.1	6.5	5.9	6.3	7.1	7.2	7.1	7.3
Gross capital formation	19.2	20.3	21.4	20.5	20.8	21.3	21.7	22.1	22.4	22.5
Government	3.5	3.2	5.0	3.6	3.9	3.8	3.9	4.1	4.2	4.2
Private	15.8	17.1	16.4	16.9	16.9	17.4	17.7	18.0	18.1	18.2
Foreign saving	-5.4	-5.4	-9.7	-6.1	-7.1	-7.7	-8.2	-8.7	-9.1	-9.4
Memorandum Item:
Nominal GDP (billions of euros)	25.7	29.4	31.3	33.6	36.0	37.6	39.3	41.1	42.9	44.9
Structural primary balance	-0.4	3.3	2.6	5.3	5.2	4.8	3.8	3.4	3.1	2.9
External debt	994.1	879.7	828.3	767.6	706.8	669.0	631.4	595.8	564.1	534.0
Net IIP	-105.7	-95.2	-92.7	-98.5	-99.3	-102.6	-106.9	-111.7	-114.6	-118.8
Sources: Cystat, Eurostat, Central Bank of Cyprus, and IMF staff estimates.
1/ Contribution to real GDP growth
2/  Program financing (+ purchases, – repurchases) is included under the Financial Account, with consistent sign conversion

[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. 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.

[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/cyprus page.

https://www.imf.org/en/News/Articles/2025/06/02/pr-25171-cyprus-imf-concludes-2025-art-iv-consultation

MIL OSI