Mr. David Coady, Samir Jahan, Baoping Shang, and Riki Matsumoto
This paper provides an overview of the design of means-tested Guaranteed Minimum Income schemes, which constitute an important component of social protection systems in European countries. It discusses how key design features differ across countries, including how countries balance the primary objective of poverty alleviation against the desire to both manage the work disincentives inherent in such programs and contain fiscal cost. The analysis finds a clear trade-off between both concerns in practice, with many countries combining low generosity with low benefit withdrawal rates (BWRs) thus prioritizing employment incentives over the primary objective of poverty alleviation. Many countries can reduce this trade off by combining higher generosity with higher BWRs. Countries with very high BWRs should consider reducing these, including through allowing income disregards and time dependent (rather than income-dependent) benefit withdrawal. The work disincentives associated with higher BWRs can also be attenuated through strengthening complementary activation policies that incentivize and support participation in the labor market.
While unemployment rates in Europe declined after the global financial crisis until 2018/19, the incidence of long-term unemployment, the share of people who have been unemployed for more than one year to the total unemployed, remained high. Moreover, the COVID-19 pandemic could aggravate the long-term unemployment. This paper explores factors associated with long-term unemployment in European countries, using panel of 25 European countries over the period 2000–18. We find that skill mismatches, labor market matching efficiency, and labor market policies are associated with the incidence of long-term unemployment. Among different types of active labor market policies, training and start-up incentives are found to be effective in reducing long-term unemployment.
This Article IV Consultation highlights that economic performance remains robust but risks to the outlook are tilted to the downside amid slowing external demand. Sound macroeconomic policies notwithstanding, Bulgaria faces a sizable income gap vis-à-vis the EU average and unfavorable demographic prospects. The main policy challenge is to raise growth potential, which calls for broad-based structural reforms to improve public goods provision and institutions. The Article IV discussions focused on medium-term reforms to improve public goods provision and raise potential growth and on near-term policies to enhance financial sector stability. Fiscal policy is broadly appropriate, but the efficiency of spending and revenue administration could be further improved. Stronger public investment management would improve investment efficiency and transparency. Better performance of state-owned enterprises would help raise growth potential and mitigate fiscal risks. Bank profits have risen and non-performing loans (NPLs) have continued to decline, although they are still high among EU countries. The central bank should ensure that banks with high NPLs have adequate capital buffers.
The labor share in Europe has been on a downward trend. This paper finds that the decline is concentrated in manufacture and among low- to mid-skilled workers. The shifting nature of employment away from full-time jobs and a rollback of employment protection, unemployment benefits and unemployment benefits have been the main contributors. Technology and globalization hurt sectors where jobs are routinizable but helped others that require specialized skills. High-skilled professionals gained labor share driven by productivity aided by flexible work environments, while low- and mid-skilled workers lost labor share owing to globalization and the erosion of labor market safety nets.
This 2017 Article IV Consultation highlights that the Bulgarian economy is performing well. Growth has been on an upward trend and is estimated to reach 3.8 percent in 2017 and 2018, driven by strong exports, easier financial conditions, and growing confidence. The current account remained in surplus in 2017, despite rapid wage growth. The economy shows signs of a closing output gap. Headline inflation turned positive in 2017 and inflationary pressure is rising. Fiscal outcomes have been stronger than budgeted in recent years, reflecting mainly revenue overperformance and under-execution of capital spending. The main challenge is to translate this recent recovery into sustained and inclusive growth and convergence with other European Union countries.
The Bulgarian economy has shown resilience since the last Article IV consultation. Growth over the last 4 quarters exceeded expectations. The authorities took concrete steps to correct the fiscal slippage in 2014 and efforts are underway to strengthen confidence in the health of the financial system. Looking ahead, risks to the outlook are broadly balanced. Downside risks stem mostly from weak external demand, possible regional tension, and reversal in domestic policy reforms.
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses the self-funding model of the National Securities and Stock Market Commission (NSSMC) in Ukraine. There are a number of challenges with NSSMC’s funding and the constraints placed on it through the Ukrainian government budget process. The analysis conducted by the NSSMC and reviewed by the mission confirms the general benefits of moving to a self-funding model for the NSSMC. The legislative measures should be complemented by improvements in the NSSMC systems and processes. Self-funding of securities and other financial services regulators is increasingly becoming the international norm. The trend to self-funding is even more pronounced within Europe.