Statement at the Conclusion of the 2012 Article IV Consultation Mission to Saudi Arabia

Mr. Masood Ahmed, Director of the Middle East and Central Asia Department, made the following statement at the conclusion of the 2012 Article IV Consultation mission that visited Riyadh during May 14–26:¹

Economic performance has been exceptionally strong and the outlook remains buoyant. Oil production has been raised to ease pressures on global oil prices, and increased government spending coupled with accommodative monetary policy has supported continued acceleration in non-oil activity. Overall real GDP is estimated to have grown by 7.1 percent in 2011, with 8 percent growth recorded in the non-oil sector— the highest since 1981—and private sector growth at 8.5 percent. Saudi Arabia has provided important support to the global economy during a period of high global uncertainty, including through its actions in stabilizing the global oil market. Higher imports and increased workers’ remittances linked to the strong growth of the Saudi economy, together with expanded financial assistance have exerted a positive spillover and helped support other economies in the region and beyond.

Reflecting prudent economic management, the economy is likely to remain buoyant. On current trends, real GDP is projected to grow by 6 percent in 2012. The private sector is again expected to lead the way, reflecting the increased role of the private sector in the economy, a clear break from the past. Inflation is likely to remain modest at about 5 percent in 2012, but should be monitored carefully for signs that the economy is overheating. Fiscal and external surpluses are expected to remain very strong at almost 17 and 27 percent of GDP, respectively. However, given the current external environment and possible spillovers to global oil markets, the outlook is subject to some uncertainty.

Taking advantage of the strong state of the economy to advance the reform agenda and further strengthen institutions will help sustain growth in the years ahead. While there has been progress on diversification, the Saudi economy remains dependent on oil exports, and growth has been driven mainly by factor accumulation. Targeted government investment alongside product and labor market reforms can facilitate a more dynamic private sector and stimulate job creation for nationals. A strong and resilient financial sector also supports this process, with the 2011 Financial Sector Assessment Program (FSAP) Update providing a number of options that together with the ongoing implementation of Basel III will further strengthen risk management and promote capital market development.

---

¹ In accordance with Article IV of its Articles of Agreement, the IMF holds bilateral consultations with its members, generally once a year. An IMF staff mission visits the country, gathers economic and financial data, and meets those responsible for the country's economic development and policies. Once they have returned to headquarters, the members of the mission draw up a report to be submitted to the Executive Board for review. Following this review, the Managing Director, as Chairman of the Executive Board summarizes the opinions of the Executive Directors, and this summary is forwarded to the country's authorities.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/statement-at-conclusion-of-2012-article.html

Statement at the Conclusion of an IMF Mission to Sudan

An International Monetary Fund (IMF) mission visited Sudan during May 13–25, 2012, to conduct the 2012 Article IV Consultation. At the conclusion of the visit, the mission chief Mr. Edward Gemayel issued the following statement:

“The IMF team met with Minister of Finance Ali Mahmood Abdulrasool, Minister of Oil Awad AlJaaz, Minister of Mining Kamal Abdelateef, State Minister of Finance Megdi Yasin, Deputy Governor of the Central Bank Badreddin Mahmood Abbas, Under Secretary of Ministry of Finance Yousif AlHussein, members of parliament, representatives of the private sector, civil society organizations, the diplomatic community, and development partners.

“The mission discussed the appropriate policies to address the economic challenges faced by Sudan as a result of South Sudan’s secession. The mission’s preliminary assessment is that economic conditions in Sudan deteriorated in 2011. Economic growth is estimated to have slowed down to 2.7 percent, end-year inflation reached 19 percent, the overall fiscal deficit was about 4 percent of GDP, and the current account registered a surplus of 2 percent of GDP. Preliminary information for 2012 indicates that economic conditions have not improved.

“The mission and the authorities agree that the challenges confronting Sudan are daunting and require appropriate reforms to stabilize the economy. More work is needed to improve prospects for inclusive growth and job creation.

“To address these challenges, the mission recommends a two-pronged reform strategy: short-term emergency measures to regain control of, and stabilize, the economy, including fiscal consolidation, and in the medium-term, a comprehensive structural reform program to recalibrate the economy in line with the country’s economic and financial potential.

“The mission welcomes the government’s reform efforts. It encourages the authorities to expeditiously implement the appropriate policies to address the challenges ahead.

“The mission wishes to thank the authorities for their cooperation and constructive dialogue.”

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/statement-at-conclusion-of-imf-mission_03.html

Statement at the Conclusion of an IMF Staff Visit to Turkey

An International Monetary Fund (IMF) mission, headed by Ernesto Ramirez Rigo, visited Istanbul and Ankara on May 31–June 6, 2012 to discuss recent economic developments and preparations for the 2012 Article IV consultation discussions. The team met with senior officials and staff at the Treasury, Ministry of Finance, Central Bank, and Banking Regulation and Supervision Agency, as well as representatives of the business community.

The Turkish economy has been resilient to heightened stress in the Euro area and a weak recovery in most advanced economies and, although reduced, vulnerabilities remain. The tightening of macroeconomic policies since the second half of 2011 was appropriate and has contributed to slowing domestic demand. Encouragingly, the economy is decelerating toward a soft landing, thus helping redress the imbalances built over the last two years. It will be important to maintain current budget targets for 2012 and tight monetary policy to guard against external shocks and to strengthen existing policy buffers. However, global economic developments pose downside risks. Should these risks materialize, the public sector's strong balance sheet gives the authorities room for countercyclical policies.

The mission thanks the participants of the meetings for their time and candid expression of their views. It is expected that the team will return to Turkey in September for its regular Article IV consultation discussions, which the IMF conducts with its member countries on an annual basis.

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/statement-at-conclusion-of-imf-staff.html

Statement at the Conclusion of the 2012 Article IV Consultation Mission to Korea

An International Monetary Fund (IMF) mission, led by Mr. Hoe Ee Khor, visited Seoul during May 30 – June 12 to conduct the 2012 Article IV consultation discussions. At the conclusion of the mission, the team issued the following statement:

“After a strong rebound in 2010, the Korean economy moderated in 2011 and into 2012 in line with global developments. Reflecting the weakening global economic outlook, Korea’s growth is likely to be weaker than the 3.5 percent in our baseline forecast and we expect growth for this year to be reduced by about ¼ percentage point. Activity in the second half of 2012 is expected to expand at a moderate pace supported by Korea’s competitive export sector and the recently concluded EU and US free-trade agreements. On the domestic side, facilities investment is expected to recover, while consumption should be boosted by stronger wage growth.

“The outlook is, however, subject to substantial uncertainty. The main downside risk relates to the intensification of the crisis in Europe. While the direct exposure to Europe is not high, if weaknesses there were to spill over to the United States and China, the impact on Korea can be substantial.

“The baseline for 2012 envisages the full implementation of the budget. The government’s determination to resist spending pressure in an election year and to continue to consolidate the fiscal position is commendable. However, given its fiscal strength, in the event of a significant worsening of the global economy, there is room for the government to take additional fiscal measures to support the economy, if necessary.

“We commend Korea’s longstanding commitment to fiscal prudence, which creates space for a strong fiscal response when needed. In this regard, we welcome the plan to achieve a balanced budget (excluding the social security fund balance) in 2013. Looking ahead, higher social spending, rapid population ageing, and potential costs related to geopolitical events, all suggest that integrating long-term issues more systematically into the fiscal policy framework remains an important priority.

“Korea’s intention to increase social spending is also laudable, particularly to improve the welfare of the lower income groups. Despite a significant rise over the last two decades, there is still scope for social spending to increase at a measured pace. Ideally, this spending increase should be carried out while maintaining the overall fiscal consolidation path, which could be achieved through a combination of reducing spending in some lower priority areas, and strengthening revenue performance.

“With respect to monetary policy, maintaining the policy rate at the current level is an appropriate response to global economic weakness and uncertainties. However, the monetary policy stance is still accommodative, and when growth strengthens from its current moderation, some increase in the policy rate may be needed in early 2013 to ensure that inflation remains within the target range. If the economy were to weaken significantly more than expected, the Bank of Korea still has room to cut rates as it did effectively in 2008-09.

“The external vulnerability of the Korean financial system has diminished considerably since 2008. This reflects higher international reserves relative to short-term debt, lower reliance on external funding for the banks, and the adoption of a series of macroprudential measures. International reserves are currently at a strong level and have been augmented by the bilateral swap lines with China and Japan. The exchange rate should continue to be market determined with intervention limited to smoothing excessive volatility. If the Euro area crisis intensifies, international reserves should be deployed to support foreign exchange liquidity and maintain orderly market conditions.

“Despite substantial progress in strengthening the financial system, some potential vulnerabilities remain. Korea is one of the most open economies in Asia and is highly exposed to volatile capital flows and foreign currency funding risks. We would therefore encourage the authorities to enhance its contingency planning for tail risks. The high level of household debt has been a concern for some time and the government has taken measures to address it. Recently, lending by nonbank financial institutions to households has grown rapidly and this also needs to be monitored closely with corrective actions taken if necessary.

“Korea is now an advanced industrial economy. Maintaining high potential growth will become more challenging over time and will require improved labor markets and higher productivity, especially in the services sector. Higher labor force participation rates—particularly by females—will support higher growth. Improving competition in the education and health sectors, and expediting the bank-led restructuring of small- and medium-sized enterprises will enhance service sector productivity, as will deregulation measures being implemented under the free-trade agreements with the US and EU.”

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/statement-at-conclusion-of-2012-article_19.html

Statement at the Conclusion of the 2012 Article IV Consultation Mission to Korea

An International Monetary Fund (IMF) mission, led by Mr. Hoe Ee Khor, visited Seoul during May 30 – June 12 to conduct the 2012 Article IV consultation discussions. At the conclusion of the mission, the team issued the following statement:

“After a strong rebound in 2010, the Korean economy moderated in 2011 and into 2012 in line with global developments. Reflecting the weakening global economic outlook, Korea’s growth is likely to be weaker than the 3.5 percent in our baseline forecast and we expect growth for this year to be reduced by about ¼ percentage point. Activity in the second half of 2012 is expected to expand at a moderate pace supported by Korea’s competitive export sector and the recently concluded EU and US free-trade agreements. On the domestic side, facilities investment is expected to recover, while consumption should be boosted by stronger wage growth.

“The outlook is, however, subject to substantial uncertainty. The main downside risk relates to the intensification of the crisis in Europe. While the direct exposure to Europe is not high, if weaknesses there were to spill over to the United States and China, the impact on Korea can be substantial.

“The baseline for 2012 envisages the full implementation of the budget. The government’s determination to resist spending pressure in an election year and to continue to consolidate the fiscal position is commendable. However, given its fiscal strength, in the event of a significant worsening of the global economy, there is room for the government to take additional fiscal measures to support the economy, if necessary.

“We commend Korea’s longstanding commitment to fiscal prudence, which creates space for a strong fiscal response when needed. In this regard, we welcome the plan to achieve a balanced budget (excluding the social security fund balance) in 2013. Looking ahead, higher social spending, rapid population ageing, and potential costs related to geopolitical events, all suggest that integrating long-term issues more systematically into the fiscal policy framework remains an important priority.

“Korea’s intention to increase social spending is also laudable, particularly to improve the welfare of the lower income groups. Despite a significant rise over the last two decades, there is still scope for social spending to increase at a measured pace. Ideally, this spending increase should be carried out while maintaining the overall fiscal consolidation path, which could be achieved through a combination of reducing spending in some lower priority areas, and strengthening revenue performance.

“With respect to monetary policy, maintaining the policy rate at the current level is an appropriate response to global economic weakness and uncertainties. However, the monetary policy stance is still accommodative, and when growth strengthens from its current moderation, some increase in the policy rate may be needed in early 2013 to ensure that inflation remains within the target range. If the economy were to weaken significantly more than expected, the Bank of Korea still has room to cut rates as it did effectively in 2008-09.

“The external vulnerability of the Korean financial system has diminished considerably since 2008. This reflects higher international reserves relative to short-term debt, lower reliance on external funding for the banks, and the adoption of a series of macroprudential measures. International reserves are currently at a strong level and have been augmented by the bilateral swap lines with China and Japan. The exchange rate should continue to be market determined with intervention limited to smoothing excessive volatility. If the Euro area crisis intensifies, international reserves should be deployed to support foreign exchange liquidity and maintain orderly market conditions.

“Despite substantial progress in strengthening the financial system, some potential vulnerabilities remain. Korea is one of the most open economies in Asia and is highly exposed to volatile capital flows and foreign currency funding risks. We would therefore encourage the authorities to enhance its contingency planning for tail risks. The high level of household debt has been a concern for some time and the government has taken measures to address it. Recently, lending by nonbank financial institutions to households has grown rapidly and this also needs to be monitored closely with corrective actions taken if necessary.

“Korea is now an advanced industrial economy. Maintaining high potential growth will become more challenging over time and will require improved labor markets and higher productivity, especially in the services sector. Higher labor force participation rates—particularly by females—will support higher growth. Improving competition in the education and health sectors, and expediting the bank-led restructuring of small- and medium-sized enterprises will enhance service sector productivity, as will deregulation measures being implemented under the free-trade agreements with the US and EU.”

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/statement-at-conclusion-of-2012-article_7228.html

Statement at the Conclusion of the IMF Staff Mission to Sri Lanka

An International Monetary Fund (IMF) staff mission, led by Mr. John Nelmes, visited Colombo June 4 - 15 to discuss economic developments and policies. The team met with government and Central Bank officials, as well as representatives of civil society and the private sector. The team issued the following statement today at the conclusion of its visit:

“The authorities are successfully implementing a bold package of policy measures to curb the current account deficit and safeguard reserves, and these measures are yielding fruit. Credit growth has slowed and imports have declined. Given the new policy framework—in particular the pursuance of exchange rate flexibility—as well as continued strength in remittances and success in attracting capital inflows, international reserves at the central bank have now stabilized. Government revenue collections and interest expenditures are under pressure, but the authorities remain committed to meeting their deficit targets.

“The Sri Lankan economy should grow by around 6¾ percent this year, as tighter macroeconomic policies work to ease demand to a more sustainable pace. The uncertain global environment poses a downside risk, but the rupee depreciation should provide a boost to the economy going forward. Inflation is likely to rise to the upper single digits, and we thus see the need to keep monetary policy focused on inflation pressures for the time being. While the transition has caused difficulty for many segments of society, we share the authorities’ assessment that the new policy framework will strengthen the fundamentals of the economy and lay the basis for sustained economic growth.

“The team will return to Washington and continue to assess policy actions and economic developments. We look forward to moving toward completion of the eighth and final review of the Stand-By Arrangement. The authorities have indicated their interest in continued, close engagement with the IMF—possibly in the form of financial support for the authorities’ economic development agenda—and we will continue such discussions in the near future.”

Source | International Monetary Fund - Blog NEWS | http://imf-news.blogspot.com/2012/06/statement-at-conclusion-of-imf-staff_19.html