|Targeted News Service|
A team from the
At the conclusion of the visit, Ms.
"In this environment, the fiscal position has come under increasing strain. The central government deficit is expected to rise to 9.5 percent of GDP in 2013/14 and central government debt had risen to 94 percent of GDP by
"A strategic, comprehensive approach is needed to address the underlying weaknesses in public finances and to increase efficiency in the public sector. Policy formulation should be guided by a medium-term fiscal anchor to reduce central government debt to below 85 percent of GDP by 2018. A fundamental review of the tax system is warranted, and the authorities have requested technical assistance on this from the IMF. The goal would be to broaden the revenue base, which has been seriously eroded by statutory and discretionary waivers. In the interim, a number of measures could be taken to significantly improve the yield by strengthening compliance and efficiency in revenue and customs administration.
"The central government wage bill rose to 10.3 percent of GDP in 2012/13, the highest in the region, which together with interest payments limits room for investment spending. Staff takes note of the government's decision to reduce the civil service up front. This will lower spending and send a strong signal about policy commitment, though these workers should have access to unemployment support and programs for re-employment. Alternatively, downsizing by attrition and implementing a wage formula that freezes the average wage per worker would also reduce the wage bill significantly over time and would contribute to lowering economy-wide labor costs. This is needed to raise
"There is scope to greatly improve the targeting of social spending and lower costs to ensure that
"It will be critical to address weaknesses in the oversight and operations of the statutory bodies, whose financial performance in many instances is not available. In the near term, the authorities could establish an independent oversight mechanism tasked with enforcing compliance and accountability. Equally urgent, the operations of the main state entities should be reviewed with a view to identifying their strategic purpose, reducing losses and raising efficiency. Fund technical assistance in support of reform of statutory bodies is expected to start in early 2014.
"Under a new interest rate policy framework in place since April, the
"The financial sector, particularly banks, has remained strong, although deteriorating macroeconomic conditions have had a significant impact on asset quality and profitability. Vigilance and strong regulation and supervision will be important in the period ahead, as continued economic weaknesses could further weaken asset quality. The oversight of commercial banks should be strengthened by better monitoring of credit risks and collateral values, as well as aligning the provisioning schedule more closely with international norms. Prudential oversight of credit unions should also be strengthened and a two-tier supervisory framework considered. In the insurance sector, liability valuations and capital adequacy standards should be introduced, and cross-border group supervision and information-sharing enhanced.
"A number of large scale private investment and public works projects are expected to come on stream in the coming months, supporting a rebound in capital inflows and offsetting the drag on growth from fiscal adjustment. While these projects should enhance competitiveness, the role of the state should be carefully considered, particularly in the productive sectors, and contingent liabilities of the state minimized.
"The IMF remains committed to supporting the government of
TNS 18EstebanLiz-131214-30FurigayJane-4578502 30FurigayJane
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