Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with Luxembourg







May 13, 2019















On May 8, 2019, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation
with Luxembourg.

[1]

Luxembourg has benefited from strong growth in recent years, supported by
sound economic policies, a qualified workforce, and favorable global
economic conditions. Driven by strong private consumption and a positive
contribution of the external sector, GDP growth reached 2.6 percent in
2018, above the EU average. Thanks to buoyant corporate and personal income
tax revenues, the fiscal position has remained strong with fiscal surplus
estimated at about 2.4 percent of GDP. With unemployment at record
post-crisis lows and confidence indicators well above long-term averages,
the economy is currently operating close to its potential.

Growth prospects remain favorable, but downside risks arise from a
weaker-than-expected global growth, a disorderly Brexit, changes in
international tax rules, and a sharp tightening of global financial
conditions. Domestically, rising real estate prices could exacerbate
already elevated household indebtedness and increase affordability
challenges.


Executive Board Assessment

[2]

Executive Directors commended the authorities for the sound economic
policies that continue to support a favorable growth outlook, while noting
that risks are tilted to the downside from both external and domestic
factors. Against this backdrop, Directors encouraged the authorities to
maintain prudent fiscal policies, continue to implement new international
tax standards, further enhance the resilience of the financial system, and
address key structural gaps.

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Directors praised the authorities for the strong fiscal position and low
public debt. While stressing the need to maintain adequate buffers, they
welcomed the fiscal plans aimed at lifting the economy’s potential and
making growth more inclusive, by increasing public investment and
introducing more growth‑friendly, equitable, and “green” taxation. They
commended the authorities’ continued commitment to implement the European
and global tax transparency and anti‑tax avoidance initiatives. Directors
noted the need to quantify revenue risks arising from the changing
international tax environment and consider mitigating measures.

Directors welcomed the progress in implementing the 2017 Financial
Stability Assessment Program recommendations while emphasizing efforts to
further enhance the oversight of the highly interconnected financial
sector. In particular, Directors noted the need to continue to strengthen
the supervision of banks’ large cross‑border exposures and complete
resolution plans for less systemic banks and implement Luxembourg’s
component of the euro area credit register. In the investment fund sector,
system‑wide supervision and cooperation with relevant jurisdictions should
be further enhanced. Directors commended the authorities for strengthening
AML/CFT legislation and finalizing their first National Risk Assessment.

While welcoming recent measures to enhance macroprudential surveillance,
Directors called for close monitoring of developments in the real estate
market and vulnerabilities arising from high household indebtedness. In
this context, they also encouraged the authorities to alleviate housing
supply constraints and to expand the macroprudential policy toolkit,
introducing borrower‑based mortgage lending limits.

While acknowledging that Luxembourg’s pension system is sound over the near
term, Directors saw merits in further reforms to ensure its long‑term
sustainability. Given the long lags of pension reforms, they considered it
essential to engage with key stakeholders in a timely manner, taking into
account intergenerational equity and the tradeoffs of various reform
options.

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Directors noted that key structural gaps need to be addressed to boost
Luxembourg’s economic potential and make growth more inclusive. While the
youth and low‑skilled were benefiting the most from the recent strong job
creation, they noted that more needs to be done to tackle structural
unemployment and low elderly labor market participation.

It is expected that the next Article IV consultation with Luxembourg will
be held on the standard 12‑month cycle.

Luxembourg: Selected Economic Indicators, 2014–19 1/

2014


2015


2016


2017


2018


2019

Est.

Proj.

Real economy

(Change in percent, unless otherwise
indicated)

Real GDP

4.3

3.9

2.4

1.5

2.6

2.6

Gross investment

12.2

-4.7

7.6

1.2

0.6

2.6

Unemployment (percent of the labor
force)

7.1

6.8

6.3

5.9

5.5

5.0

Resident employment (thousands)

239.7

244.8

250.3

257.3

264.5

271.7

Total employment (thousands)

396.0

406.1

418.4

432.8

449.0

464.3

CPI (harmonized), p.a.

0.7

0.1

0.0

2.1

2.0

1.6

Public finances

(Percent of GDP)

General government revenues

43.3

43.3

43.7

44.4

45.5

44.6

General government expenditures

42.0

41.9

41.9

43.0

43.1

43.6

General government balance

1.3

1.4

1.9

1.4

2.4

0.9

General government gross debt

22.7

22.2

20.7

23.0

21.4

21.5

Balance of payments

Current account balance

5.2

5.1

5.1

5.0

4.7

4.6

Balance of trade in goods and services

33.3

36.8

35.5

33.0

31.0

29.2

Factor income balance

-28.6

-33.0

-31.7

-27.5

-25.9

-25.0

Transfer balance

0.5

1.3

1.3

-0.5

-0.5

0.3

Exchange rates

U.S. dollar per euro

1.3

1.1

1.1

1.1

1.2

Nominal effective rate (2010=100)

100.5

97.0

98.9

101.5

103.5

Sources: Data provided by the
authorities; IMF, WEO database; and IMF
staff estimates.

1/ Under Article IV of the IMF’s
Articles of Agreement, the IMF holds
bilateral discussions with members,
usually every year. A staff team visits
the country, collects economic and
financial information, and discusses
with officials the country’s economic
developments and policies. On return to
headquarters, the staff prepares a
report, which forms the basis for
discussion by the Executive Board. At
the conclusion of the discussion, the
Managing Director, as Chairman of the
Board, summarizes the views of
Executive Directors, and this summary
is transmitted to the country’s
authorities.


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[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm
.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Gediminas Vilkas

Phone: +1 202 623-7100Email: MEDIA@IMF.org