After a deeper pandemic-induced recession than the rest of the euro area in 2020, the Portuguese economy gained ground in 2021, and growth strengthened further in 2022:Q1. Employment reached pre-pandemic levels in 2021:H2 and GDP in 2022:Q1. Nonetheless output is expected to remain below pre-pandemic trend over the medium term. While growth in 2022:Q1 was supported by a strong bounce back in tourism and domestic demand, the recovery for the rest of the year is expected to be hampered by the war in Ukraine despite limited direct linkages with Russia and Ukraine, due to higher commodity prices, supply-side disruptions, and weaker confidence and external demand. The outlook is clouded by uncertainty relating to the war, new virus waves, and the ultimate effect of the pandemic on corporate, bank, and public sector balance sheets. While declining and with improved composition, public debt would remain high.
Since the April 2017 report to the IMFC, the IEO has completed its evaluation on social protection, continued work on evaluations on fragile states and financial surveillance, initiated a new evaluation on advice on unconventional monetary policy, and advanced two updates.
International Monetary Fund. Independent Evaluation Office
This paper discusses that the Independent Evaluation Office (IEO) has also launched three new evaluations—which will analyze the IMF’s role on fragile states, its financial surveillance activities, and its advice on unconventional monetary policies—and two evaluation updates—which will look into the IMF’s exchange rate policy advice and structural conditionality. The evaluation found that, for the most part, the IMF’s euro area surveillance identified the right issues during the pre-crisis period but did not foresee the magnitude of the risks that would later become paramount. The IMF’s surveillance of the financial regulatory architecture was generally of high quality, but staff, along with most other experts, missed the buildup of banking system risks in some countries. The report found several issues with the way decision making was managed by the IMF. In May 2010, the IMF Executive Board approved a decision to provide exceptional access financing to Greece without seeking preemptive debt restructuring, even though its sovereign debt was not deemed sustainable with a high probability.
This paper provides an overview of statistical measurement issues relating to alternative measures of core inflation, and the criteria for choosing among them. The approaches to measurement considered include exclusion-based methods, imputation methods, limited influence estimators, reweighting, and economic modeling. Criteria for judging which approach to use include credibility, control, deviations from a smoothed reference series, volatility, predictive ability, causality and cointegration tests, and correlation with money supply. Country practice can differ in how the approaches are implemented and how their appropriateness is assessed. There is little consistency in the results of country studies to readily suggest guidelines on accepted methods.
This Selected Issues paper and Statistical Appendix provide background information and analytical support for key policy issues discussed in the 2004 Article IV Consultation discussions with Mauritius. The impact of the erosion of trade preferences on exports, growth, and employment is assessed under two scenarios—a moderate and an extreme scenario. To quantify the adverse impact of trade liberalization, the paper estimates various elasticities of GDP growth to exports, and unemployment to growth. The paper also analyzes the labor market institutions and low-skilled employment in Mauritius.
Portugal showed impressive economic performance owing to its macroeconomic policies and structural reforms. Executive Directors commended the authorities for their stability-oriented policies, low inflation, and declining fiscal deficits. Nonetheless, economic policies needed to address signs of emerging macroeconomic imbalances, including the brisk growth of private sector credit, tight labor markets, and a persistent inflation differential in relation to other euro area countries. Moreover, an acceleration of structural reforms and further fiscal consolidation would be essential for a rapid and sustained convergence to European Union income levels.
This paper describes the main elements of inflation targeting, reviews its pros and cons, and examines the experiences thus far in countries using this framework. It discusses the implications and relative merits of such a framework for South Africa, and concludes that it would be feasible and desirable for South Africa to adopt explicit inflation targeting. Doing so could reduce uncertainties about the Reserve Bank’s objectives and enhance the transparency of monetary policy. However, further experience with the operational aspects of the repurchase system and a refinement of the inflation forecasting framework may be needed before inflation targeting is implemented.
This paper examines determinants and leading indicators of banking crises. The paper examines episodes of banking system distress and crisis in a large sample of countries to identify which macroeconomic and financial variables can be useful leading indicators. The best warning signs of the recent Asian crises were proxies for the vulnerability of the banking and corporate sector. Full-blown banking crises are shown to be associated more with external developments, and domestic variables are the main leading indicators of severe but contained banking distress.
Economic interdependence offers the potential for raising global welfare, but there is a fuzzy boundary between national interests and global objectives in the economic policy area. This paper examines the boundary area. It concludes that all international economic regimes must entail a mix of rules and discretion, and it considers the most appropriate weights to be given to rules and discretion.