Principality Of Andorra 2021 Article Iv Consultation Press Release Staff Report And Statement By The Executive Director For Principality Of Andorra

Andorra, the IMF’s newest member since October 2020, participated in its first Article IV consultation with a commitment to further enhance transparency. Tourism and banking-related services dominate economic activity in the euroized economy. The country enjoys long-standing political stability, a good track-record of fiscal discipline, a gender-balanced work force, and internationally competitive ski resorts. The authorities are managing the pandemic well with universal testing and expanded hospital capacity that kept fatality rates very low despite high case-loads. The testing strategy helped Andorra implement more targeted internal restrictions than in neighboring countries. At the same time, emergency fiscal measures stabilized real incomes and supported firms.

After a remarkable recovery, the Andorra economy continues to grow slightly above potential despite significant external headwinds. Headline inflation is elevated amidst persistent core inflation and a tight labor market. The banking sector remains profitable, well-capitalized, and liquid.

This 2019 Article IV Consultation with Republic of Nauru highlights that it remains vulnerable to climate change and has a narrow economic base and limited capacity. Development challenges are increased by unavailability of land and high incidence of noncommunicable diseases. Growth was stronger than expected in FY2018 but slowed in FY2019. The outlook is subdued, with growth expected to reach 2 percent in the medium term. Revenues are projected to decline, necessitating a fiscal adjustment. Risks are skewed to the downside and include the scaling down of Regional Processing Centre activity and revenues, volatile fishing revenues, climate change, and delays in fiscal and structural reforms. Fiscal adjustment is required to avoid a breach of the fiscal anchor, contain debt, and maintain the Trust Fund contributions. New sources of economic growth and income are needed to support Nauru’s development agenda. Policies should be implemented in the near term to support private sector activity, including through financial sector development, state-owned enterprises reform, and land rehabilitation. The effectiveness of education and health spending needs to be improved to meet development goals.

Although Timor-Leste has made considerable progress in many areas since its independence in 2002, it faces significant medium-term challenges. The nation has pressing development needs, young institutions, and is highly dependent on oil. Oil revenues from active fields, which have been the main source of funding for government spending, are drying up. The non-oil private sector economy remains underdeveloped and lack of good jobs and high youth unemployment are serious concerns.

Against the backdrop of the global financial crisis, the IMF has decided to implement a US$250 billion general allocation of special drawing rights (SDRs). In addition, the Fourth Amendment of the Fund’s Articles of Agreement has recently become effective, and will make available to SDR Department participants a special allocation of up to an additional SDR 21.5 billion (US$33 billion). Nearly US$115 billion of these combined allocations will go to emerging market and developing countries, including about US$20 billion to low-income countries (LICs), thereby providing an important boost to the reserves of countries with the greatest needs.

This 2019 Article IV Consultation focuses on Botswana near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity, and financial markets. Gross domestic product growth is forecasted to pick up to 4.4 percent in 2020 and 5.6 percent in 2021 as the diamond industry recovers somewhat, and a new copper mine comes on stream. Growth will ease back to around 4 percent over the medium term. Risks to the outlook include faster-than-anticipated slowdown in key trading partners, shifts in consumer preferences to synthetic diamonds, and climate shocks. The size and pace of the planned adjustment are consistent with Botswana’s fiscal space, but the composition of the adjustment should protect efficient capital and social spending. Furthermore, given that buffers are being eroded, it is critical that consolidation starts as envisaged in FY2020, as it would help start addressing external imbalances and contribute to a gradual rebuilding of buffers over the medium term. In order to strengthen the monetary transmission mechanism and deepen the domestic financial market, there is a need to develop the secondary market for government securities, leverage Fintech, facilitate the attachment of collateral, and improve credit information.

The pandemic is inflicting much suffering, which has been met with swift, substantial, and well-coordinated policy responses. The anti-crisis measures have helped preserve jobs, provide liquidity to companies and income support to the vulnerable groups. They averted a larger decline in output and kept unemployment under control. After contracting by 5.5 percent in 2020, real GDP is projected to grow by 3.9 percent in 2021 and 4.5 percent in 2022, as vaccinations help achieve herd immunity. However, risks to the outlook are large and tilted to the downside, given the epidemiological situation.

Tonga’s recovery following the devastation of the 2018 Cyclone Gita has been derailed by a double blow from the pandemic and Cyclone Harold. FY2020 GDP growth is estimated to fall to -21⁄2 percent due to domestic containment measures, a sudden stop in tourism, and investment delays. The full brunt of the pandemic will be felt in FY2021 (beginning July) during peak tourism season, when a deeper contraction is expected. A worse outcome was avoided by early actions to close external borders—which has kept Tonga COVID-19-free—and prompt economic support. Beyond FY2021, the recovery is expected to resume in line with the global recovery, but the magnitude and trajectory is uncertain.