## 1nldea2021001

## Source details

**Canonical URL:** [1nldea2021001](https://www.imf.org/-/media/files/publications/cr/2021/english/1nldea2021001.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2021/english/1nldea2021001.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2021/english/1nldea2021001.pdf.json)

---

### Summary of recent economic developments
- The Dutch economy contracted by 3.8 percent in 2020, compared with the Euro area’s 6.3 percent contraction.
- Resilience factors:
  - High rate of digitalization and pre-pandemic prevalence of telecommuting enabled a large share of the workforce to work remotely.
  - A strong and agile fiscal policy response focused on supporting affected businesses and households.
- Sectoral impacts in 2020:
  - Household consumption fell by -6.6 percent.
  - Private investment declined by -5.5 percent (narrative) and gross fixed investment by -4.1 percent (table).
  - Net foreign balance contribution to GDP growth: 0.0 in 2020.
  - Contact-intensive sectors (accommodation and food services, culture and recreation, and transport) were most significantly affected.
- Quarterly dynamics in 2021:
  - GDP contracted by 0.8 percent in 2021:Q1 (QoQ, saar).
  - GDP grew by 3.8 percent in 2021:Q2, driven by private consumption and exports of goods and services as mobility restrictions were lifted.

### Outlook and projections
- Real GDP growth forecasts:
  - 2021: 4.0 percent.
  - 2022: 3.3 percent.
- Recovery path:
  - Real GDP expected to surpass its pre-pandemic level by end-2021 (pre-pandemic GDP level to be exceeded in 2021:Q4).
  - Over the medium term the economy is projected to catch up to its pre-pandemic trend; by 2026 output projected to catch up with its pre-pandemic trend.
- Risks:
  - Near-term risks roughly balanced: pandemic trajectory on the downside; a fuller-than-expected drawdown of savings accumulated in the pandemic would support domestic demand on the upside.
  - Further out, real estate market developments present additional risks.
- Scenario notes:
  - Upside: faster private demand if households spend a large fraction of excess savings; pension reform could support stronger consumption; euro area rebound speed could amplify impacts.
  - Downside: evolution of the pandemic, incomplete vaccination coverage or lower vaccine effectiveness against variants, larger-than-anticipated private sector weaknesses as policy support is phased out, disruptions in international value chains.

### Key statistics (selected)
- National accounts (percent change):
  - Gross domestic product: 2019 = 2.0; 2020 = -3.8; 2021 Proj. = 4.0; 2022 Proj. = 3.3.
  - Private consumption: 2019 = 0.9; 2020 = -6.6; 2021 Proj. = 4.3; 2022 Proj. = 4.1.
  - Public consumption: 2019 = 2.8; 2020 = 1.0; 2021 Proj. = 2.1; 2022 Proj. = 2.0.
  - Gross fixed investment: 2019 = 6.2; 2020 = -4.1; 2021 Proj. = 4.1; 2022 Proj. = 3.3.
  - Total domestic demand: 2019 = 3.0; 2020 = -4.3; 2021 Proj. = 3.4; 2022 Proj. = 3.3.
  - Exports of goods and nonfactor services: 2019 = 2.0; 2020 = -4.8; 2021 Proj. = 5.2; 2022 Proj. = 4.3.
  - Imports of goods and nonfactor services: 2019 = 3.3; 2020 = -5.4; 2021 Proj. = 4.6; 2022 Proj. = 4.5.
  - Net foreign balance¹ (contribution to GDP growth): 2019 = -0.8; 2020 = 0.0; 2021 Proj. = 1.0; 2022 Proj. = 0.3.
- Output gap (percent of potential output): 2019 = 0.6; 2020 = -1.8; 2021 Proj. = -1.5; 2022 Proj. = -0.8.
- Prices and wages:
  - Consumer price index (HICP): 2019 = 2.7; 2020 = 1.1; 2021 Proj. = 1.9; 2022 Proj. = 1.7.
  - GDP deflator: 2019 = 3.0; 2020 = 2.3; 2021 Proj. = 1.6; 2022 Proj. = 1.9.
  - Hourly compensation (manufacturing): 2019 = 2.4; 2020 = 6.6; 2021 Proj. = 3.3; 2022 Proj. = 3.3.
  - Unit labor costs (manufacturing): 2019 = 2.4; 2020 = 4.0; 2021 Proj. = 0.4; 2022 Proj. = 0.6.
- Employment:
  - Unemployment rate (ILO definition): 2019 = 3.4; 2020 = 3.8; 2021 Proj. = 3.4; 2022 Proj. = 3.8.
  - NAIRU: 2019 = 5.2; 2020 = 5.2; 2021 Proj. = 5.2; 2022 Proj. = 5.2.
- External trade and balances:
  - Merchandise balance (percent of GDP): 2019 = 7.4; 2020 = 8.1; 2021 Proj. = 8.2; 2022 Proj. = 7.9.
  - Current account balance (percent of GDP): 2019 = 9.4; 2020 = 7.0; 2021 Proj. = 8.0; 2022 Proj. = 8.7.
- General government accounts (percent of GDP):
  - Revenue: 2019 = 43.6; 2020 = 41.1; 2021 Proj. = 42.0; 2022 Proj. = 42.4.
  - Expenditure: 2019 = 41.1; 2020 = 45.4; 2021 Proj. = 48.2; 2022 Proj. = 44.8.
  - Net lending/borrowing: 2019 = 2.5; 2020 = -4.3; 2021 Proj. = -6.1; 2022 Proj. = -2.3.
  - Primary balance: 2019 = 3.2; 2020 = -3.9; 2021 Proj. = -5.8; 2022 Proj. = -2.1.
  - Structural balance² (percent of potential GDP): 2019 = 1.8; 2020 = -3.2; 2021 Proj. = -5.2; 2022 Proj. = -1.9.
  - General government gross debt: 2019 = 47.4; 2020 = 52.5; 2021 Proj. = 57.9; 2022 Proj. = 56.4.
- Footnotes:
  - ¹ Contribution to GDP growth.
  - ² In percent of potential GDP.

### Fiscal and external positions
- Fiscal outcomes and outlook:
  - Pre-pandemic (2019) fiscal balance: 2.5 percent of GDP; government debt: 48 percent of GDP.
  - Fiscal deficit: -4.3 percent of GDP in 2020 due to pandemic support measures and automatic stabilizers.
  - Government debt: 52.5 percent of GDP in 2020.
  - Public debt to GDP ratio expected to remain below 60 percent at end-2021.
  - Public debt ratio projected to fall below 50 percent by 2026 (narrative projection).
- External sector:
  - Current account surplus narrowed to 7.0 percent of GDP in 2020 from 9.4 percent of GDP in 2019.
  - Narrowing reflected an improving trade balance offset by deteriorating primary and secondary income accounts.
  - Surplus expected to rise somewhat in 2021 and over the medium term.

### Labor market and inflation
- Labor market:
  - Unemployment rate rose to 3.8 percent in 2020 from 3.4 percent in 2019.
  - Unemployment fell back to 3.2 percent in August 2021.
  - Labor force participation nearly returned to pre-pandemic levels.
  - Labor market tightened considerably in 2021; vacancies exceed the number of the unemployed.
- Inflation and wages:
  - Headline inflation: 2019 = 2.7 percent; 2020 = 1.1 percent.
  - Inflation picked up to 1.8 percent in 2021:H1 (narrative).
  - Core inflation: 1.9 percent in 2020.
  - Wage growth reverted to pre-pandemic levels in 2021:Q1.
- Housing market:
  - Residential real estate valuations have kept increasing due to high demand and rigidities in housing supply, creating imbalances warranting heightened vigilance.

### Financial sector developments and vulnerabilities
- Banking sector:
  - Banks retained strong pre-pandemic capital positions.
  - Non-performing loans have remained low (aggregate NPL ratio has not grown so far).
  - Banks preemptively increased provisioning in 2020.
  - Bank profitability rebounded to its pre-crisis level.
  - Restrictions on dividend payouts helped bolster capitalization ratios.
- Non-bank financial institutions:
  - Average funding ratio of occupational pension funds dropped below 100 percent in spring 2020 but climbed to 109 percent by mid-2021, above its end-2019 level.
  - Insurers have largely sustained solvency ratios well above regulatory thresholds.
- Credit conditions:
  - Credit growth rebounded from its trough in early 2021.
  - Firms face tighter credit standards than before the crisis; demand for loans has stayed subdued.
- Macrofinancial risks:
  - Imbalances in the real estate market warrant heightened vigilance.
  - Continued low interest rate environment could encourage undue risk-taking; appropriate use of macroprudential tools recommended.

### External position: assessment and adjustments (Annex II highlights)
- 2020 current account: 7.0 percent of GDP (7.5 percent cyclically adjusted).
- Staff adjustments and assessment:
  - Adjusting for biases and temporary Covid-19 effects, staff estimated the underlying current account surplus at around 5.9 percent of GDP in 2020.
  - Staff-assessed current account gap: about 2.4 percent of GDP.
  - REER assessment: IMF staff views the REER as undervalued by about 0.5 to 6.5 percent, with a midpoint of 3.5 percent.
- Foreign asset/liability position:
  - NIIP: 113.9 percent of GDP at end-2020.
  - Gross Assets: 1,165.5 percent of GDP.
  - Gross Liab.: 1,051.6 percent of GDP.
  - Debt Assets: 260.6 percent of GDP.
  - Debt Liab.: 308.2 percent of GDP.
- Assessment:
  - The Netherlands’ safe haven status and sizable foreign assets limit risks from its large foreign liabilities.

### Fiscal space and medium-term fiscal framework
- Despite large pandemic fiscal measures, fiscal space remains substantial to support growth-enhancing reforms.
- Under current policies, staff projects fiscal balance to return to a small surplus in the medium term as emergency measures are phased out.
- Public debt projected to start declining after 2022, returning to about 50 percent of GDP by 2026.
- Extraordinary low Dutch government bond yields provide further room for maneuver.
- Structural fiscal balance projected to return above the pre-pandemic MTO in the medium term.
- Fiscal targets and processes:
  - General elections: March 17, 2021.
  - Fiscal rule process: national budgetary rules reassessed about a year before a new government takes office; cabinet sets expenditure ceilings for the next four years published in the “Startnota”.

### Housing market and macroprudential measures
- Housing vulnerabilities:
  - Household debt totals 100% of GDP – of which almost 95% mortgage debt.
  - Recent sharp increase in house prices: in August by as much as 17.8% compared to a year earlier.
  - Maximum loan-to-value ratio of 100% remains relatively high.
  - Tax deductibility of mortgage interest being partly phased out but housing remains attractively subsidized.
- Macroprudential and policy responses:
  - Introduction of minimum risk weights for mortgages expected to go into effect at the start of 2022 (suspended during the pandemic).
  - Activation of floors for risk weights for mortgage lending from 2022 is welcome and may be complemented by additional reduction in eligible loan-to-value ratios and reviewing the taxation of owner-occupied housing.
  - Authorities to consider supply- and demand-side measures and to invest an additional 100 million a year on average in the next 10 years to address supply shortages in the housing market.

### Financial sector supervision and FSAP recommendations (selected)
- Banking supervision:
  - Continue to build capital buffers; four largest Dutch SIFIs maintain leverage ratios above 4%.
  - Strengthen oversight of loan classification and internal model validation.
- Macroprudential framework:
  - Strengthen the FSC by establishing it under primary law with an alternative accountability mechanism; phase-out of MID accelerated to reach base tax rate level of 37.05% in 2023.
  - Continue gradually reducing maximum limits on LTV ratio; no further reductions foreseen yet.
- Insurance and pensions:
  - DNB to implement a new supervisory approach to address UFR issues in the second half of 2021.
  - Harmonization and group supervision amendments for pensions not foreseen under the new pension system.
- Financial market infrastructure and resolution:
  - Augment supervisory resources for EuroCCP and ICE Clear Netherlands.
  - Develop adequate arrangements for systemic crisis management and make legacy frameworks complementary to the SRM.
- AML/CFT:
  - Central register for beneficial owners of legal persons went live in September 2020.
  - Recommendations: refine accuracy of beneficial ownership information; promptly establish register for legal arrangements; prioritize inter-agency and international cooperation.

### Labor market duality, pensions, education, and structural priorities
- Labor market duality:
  - Policies to reduce duality recommended: mandatory disability insurance and basic pension insurance for the self-employed; realign tax incentives (e.g., gradually reducing the tax credit for self-employed post-pandemic); improve employment protection for flexible contracts; improve childcare availability and affordability.
- Pension reform:
  - June 2019 pension agreement shifts occupational pensions toward defined-contribution type with risk sharing and longevity insurance.
  - Reform effective date postponed to January 1, 2023; present arrangements required to transition by January 1, 2027.
  - Agreement features: delay increase of retirement age to 67 from 2021 to 2024; allow new retirees to claim up to 10 percent of entitlement as lump sum; change increase in retirement age per 1 year rise in life expectancy to 8 months from 1 year; allowances for early retirement in physically demanding jobs.
- Education and human capital:
  - Pre-pandemic: difficulty filling ICT vacancies; pre-primary education spending below EU average.
  - Authorities announced new spending worth 8.5 billion euros over two years (about 1 percent of 2021 GDP) to support a National Education Plan.
  - Recommendation: Additional structural investment in education and public funding for research and development.
- R&D and innovation:
  - Total spending on R&D in the Netherlands in line with the EU average but below frontier countries.
  - Government support for R&D declined in the past decade; National Growth Fund launched with R&D as a main targeted area.
  - Recommendation: Increase public spending on basic research and support digitalization and green technology adoption.
- Climate and green transition:
  - National commitments: reduce greenhouse gas emissions by 49 and 95 percent, by 2030 and 2050, respectively, relative to 1990 levels.
  - Under policies adopted as of 2020, GHG emissions projected to fall by 34 percent by 2030.
  - Newly approved measures in 2021 could reduce emissions by another 9 percentage points, leaving a 6 percentage-point gap relative to the national target.
  - Independent Study Group estimate: public spending on green investment may need to increase by between ½ and ¾ percent of GDP a year in the next decade.
  - Policy recommendations: reinforce carbon pricing with feebates; better align carbon prices across sectors; make industry carbon levy more cost-effective via revenue-neutral feebates; shift some electricity taxation to producer-based CO2 surcharges for power generation/district heating and coal generation.
- International taxation:
  - Reforms include introduction of a cross-border conditional withholding tax (WHT), revisions to APA and ATR practice, modifications to the innovation box regime, and revisions to tax treaty policy.
  - Indicators point to a slight decline in the number of SFIs and reduced conduit benefits since the conditional WHT introduction.

### Near-term policy recommendations and normalization
- Remain ready to reintroduce broader support programs if pandemic risks materialize to protect jobs, viable firms, and limit financial sector spillovers.
- Transition to targeted and forward-looking interventions to ease normalization; stand ready to reactivate broad support policies if significant downside risks materialize.
- Specific near-term actions:
  - Maintain loan guarantees, stretch tax debt repayments, and keep support for sectors still subject to restrictions.
  - Support viable firms through active state engagement with other creditors in restructuring efforts.
  - Facilitate mobility of factors of production: support training and career counseling, expand training allowances and regional employment teams, ensure agile restructuring and insolvency procedures (including the new law to facilitate debt restructuring for companies in financial difficulties).
  - Foster investment: increase public support to R&D, pursue selected public capital projects to crowd in private investment, and establish a credit bureau to improve funding conditions for SMEs.

### Staff appraisal: macroeconomic recovery, fiscal space, and priorities
- The Netherlands has weathered the pandemic comparatively well due to a resilient economy and substantial policy space.
- Ongoing robust recovery expected to carry into 2022; risks broadly balanced but surrounded by substantial uncertainty.
- Fiscal outlook:
  - With extraordinary support measures expiring, the budget deficit will decline and vanish by 2025, bringing public debt ratios to about 50 percent of GDP.
  - Use fiscal room to foster a resilient, green and inclusive economy while replenishing buffers.
- Financial sector and housing:
  - Activation of risk weight floors for mortgage lending from 2022 is prudent; consider additional measures to rein in riskier housing debt and trim subsidization of owner-occupied housing.
  - Increase transparency of exposures and consider macro-/micro-prudential tools to address risks outside the banking sector.

*Source: Staff report for the 2021 Article IV Consultation—KINGDOM OF THE NETHERLANDS—THE NETHERLANDS (October 26, 2021).*

### 3.8 percent in real GDP in 2020, which was less severe than the average in the Euro Area.

### 1nldea2021001 - 3.8 percent in real GDP in 2020, which was less severe than the average in the Euro Area.

### Summary of recent economic developments
- The Dutch economy contracted by 3.8 percent in 2020, compared with the Euro area’s 6.3 percent contraction.
- Resilience factors:
  - High rate of digitalization and pre-pandemic prevalence of telecommuting enabled a large share of the workforce to work remotely.
  - A strong and agile fiscal policy response focused on supporting affected businesses and households.
- Sectoral impacts in 2020:
  - Household consumption fell by -6.6 percent.
  - Private investment declined by -5.5 percent (noted in narrative) and gross fixed investment by -4.1 percent (table).
  - Net exports of goods and services contributed negatively to growth (table: Net foreign balance contribution to GDP growth: 0.0 in 2020).
  - Contact-intensive sectors (accommodation and food services, culture and recreation, and transport) were most significantly affected.
- Quarterly dynamics in 2021:
  - GDP contracted by 0.8 percent in 2021:Q1 (QoQ, saar).
  - GDP grew by 3.8 percent in 2021:Q2, driven by private consumption and exports of goods and services as mobility restrictions were lifted.

### Outlook and projections
- Real GDP growth forecasts:
  - 2021: 4.0 percent.
  - 2022: 3.3 percent.
- Recovery path:
  - Real GDP expected to surpass its pre-pandemic level by end-2021 (pre-pandemic GDP level to be exceeded in 2021:Q4).
  - Over the medium term the economy is projected to catch up to its pre-pandemic trend.
- Risks:
  - Near-term risks roughly balanced: pandemic trajectory on the downside; a fuller-than-expected drawdown of savings accumulated in the pandemic would support domestic demand on the upside.
  - Further out, real estate market developments present additional risks.

### Key statistics (selected from table "The Netherlands: Selected Economic Indicators, 2019–2022")
- National accounts (percent change):
  - Gross domestic product: 2019 = 2.0; 2020 = -3.8; 2021 Proj. = 4.0; 2022 Proj. = 3.3.
  - Private consumption: 2019 = 0.9; 2020 = -6.6; 2021 Proj. = 4.3; 2022 Proj. = 4.1.
  - Public consumption: 2019 = 2.8; 2020 = 1.0; 2021 Proj. = 2.1; 2022 Proj. = 2.0.
  - Gross fixed investment: 2019 = 6.2; 2020 = -4.1; 2021 Proj. = 4.1; 2022 Proj. = 3.3.
  - Total domestic demand: 2019 = 3.0; 2020 = -4.3; 2021 Proj. = 3.4; 2022 Proj. = 3.3.
  - Exports of goods and nonfactor services: 2019 = 2.0; 2020 = -4.8; 2021 Proj. = 5.2; 2022 Proj. = 4.3.
  - Imports of goods and nonfactor services: 2019 = 3.3; 2020 = -5.4; 2021 Proj. = 4.6; 2022 Proj. = 4.5.
  - Net foreign balance¹ (contribution to GDP growth): 2019 = -0.8; 2020 = 0.0; 2021 Proj. = 1.0; 2022 Proj. = 0.3.
- Output gap (percent of potential output): 2019 = 0.6; 2020 = -1.8; 2021 Proj. = -1.5; 2022 Proj. = -0.8.
- Prices, wages, and employment:
  - Consumer price index (HICP): 2019 = 2.7; 2020 = 1.1; 2021 Proj. = 1.9; 2022 Proj. = 1.7.
  - GDP deflator: 2019 = 3.0; 2020 = 2.3; 2021 Proj. = 1.6; 2022 Proj. = 1.9.
  - Hourly compensation (manufacturing): 2019 = 2.4; 2020 = 6.6; 2021 Proj. = 3.3; 2022 Proj. = 3.3.
  - Unit labor costs (manufacturing): 2019 = 2.4; 2020 = 4.0; 2021 Proj. = 0.4; 2022 Proj. = 0.6.
- Employment (percent):
  - Unemployment rate (ILO definition): 2019 = 3.4; 2020 = 3.8; 2021 Proj. = 3.4; 2022 Proj. = 3.8.
  - NAIRU: 2019 = 5.2; 2020 = 5.2; 2021 Proj. = 5.2; 2022 Proj. = 5.2.
- External trade:
  - Merchandise balance (percent of GDP): 2019 = 7.4; 2020 = 8.1; 2021 Proj. = 8.2; 2022 Proj. = 7.9.
  - Current account balance (percent of GDP): 2019 = 9.4; 2020 = 7.0; 2021 Proj. = 8.0; 2022 Proj. = 8.7.
- General government accounts (percent of GDP):
  - Revenue: 2019 = 43.6; 2020 = 41.1; 2021 Proj. = 42.0; 2022 Proj. = 42.4.
  - Expenditure: 2019 = 41.1; 2020 = 45.4; 2021 Proj. = 48.2; 2022 Proj. = 44.8.
  - Net lending/borrowing: 2019 = 2.5; 2020 = -4.3; 2021 Proj. = -6.1; 2022 Proj. = -2.3.
  - Primary balance: 2019 = 3.2; 2020 = -3.9; 2021 Proj. = -5.8; 2022 Proj. = -2.1.
  - Structural balance² (percent of potential GDP): 2019 = 1.8; 2020 = -3.2; 2021 Proj. = -5.2; 2022 Proj. = -1.9.
  - Structural primary balance²: 2019 = 2.7; 2020 = -2.6; 2021 Proj. = -4.8; 2022 Proj. = -1.4.
  - General government gross debt: 2019 = 47.4; 2020 = 52.5; 2021 Proj. = 57.9; 2022 Proj. = 56.4.
- Footnotes in table:
  - ¹ Contribution to GDP growth.
  - ² In percent of potential GDP.

### Fiscal and external positions
- Fiscal outcomes and outlook:
  - Pre-pandemic (2019) fiscal balance of 2.5 percent of GDP and government debt of 48 percent of GDP.
  - Fiscal deficit of 4.3 percent of GDP in 2020 due to pandemic support measures and automatic stabilizers.
  - Government debt reached 52.5 percent of GDP in 2020.
  - Public debt to GDP ratio expected to remain below 60 percent at end-2021.
  - Fiscal deficits projected to gradually vanish over the next several years; public debt ratio projected to fall below 50 percent by 2026 (narrative projection).
- External sector:
  - Current account surplus narrowed to 7.0 percent of GDP in 2020 from 9.4 percent of GDP in 2019.
  - The narrowing reflected an improving trade balance offset by deteriorating primary and secondary income accounts.
  - The surplus is expected to rise somewhat in 2021 and over the medium term.

### Labor market and inflation
- Labor market:
  - Unemployment rate rose to 3.8 percent in 2020 from 3.4 percent in 2019.
  - Unemployment fell back to 3.2 percent in August 2021.
  - Labor force participation nearly returned to pre-pandemic levels.
  - Labor market tightened considerably in 2021.
- Inflation and wages:
  - Headline inflation: 2019 = 2.7 percent; 2020 = 1.1 percent.
  - Inflation picked up to 1.8 percent in 2021:H1 (narrative).
  - Core inflation stood at 1.9 percent in 2020.
  - Wage growth reverted to pre-pandemic levels in 2021:Q1.
- Housing market:
  - Residential real estate valuations have kept increasing due to high demand and rigidities in housing supply, creating imbalances warranting heightened vigilance.

### Financial sector developments and vulnerabilities
- Banking sector:
  - Banks retained strong pre-pandemic capital positions.
  - Non-performing loans have remained low (aggregate NPL ratio has not grown so far).
  - Banks preemptively increased provisioning in 2020.
  - Bank profitability rebounded to its pre-crisis level.
  - Restrictions on dividend payouts helped bolster capitalization ratios.
- Non-bank financial institutions:
  - Average funding ratio of occupational pension funds dropped below 100 percent in spring 2020 but climbed to 109 percent by mid-2021, above its end-2019 level.
  - Insurers have largely sustained solvency ratios well above regulatory thresholds.
- Credit conditions:
  - Credit growth rebounded from its trough in early 2021.
  - Firms face tighter credit standards than before the crisis; demand for loans has stayed subdued.
- Macrofinancial risks:
  - Imbalances in the real estate market warrant heightened vigilance.
  - Continued low interest rate environment could encourage undue risk-taking; appropriate use of macroprudential tools recommended.

### Key policy recommendations (Executive Directors / IMF staff)
- Near-term:
  - Shift to targeted and forward-looking interventions to ease normalization; stand ready to reactivate broad support policies if significant downside risks materialize.
- Fiscal policy:
  - Use available fiscal space for growth-enhancing interventions, including support to R&D and further investment in education.
  - The formation of a new government will set medium-term fiscal objectives and expenditure ceilings for the four-year legislature.
- Structural and medium-term priorities:
  - Facilitate reallocation of factors of production, including improved debt restructuring processes for viable firms and establishment of a credit bureau.
  - Encourage additional investments in education and public funding for research and development.
  - Continue reform of international and capital taxation to fight tax avoidance globally.
  - Further efforts to address labor market duality and implement the agreed pension reform to boost productivity and enhance intergenerational equity.
- Financial stability and housing:
  - Closely monitor risks in the real estate market and continue strong supervision to prevent undue risk-taking.
  - Appropriate use of macroprudential tools encouraged, including activation of risk-based floors for residential mortgage lending.
  - Encourage further efforts to address supply shortages in the housing market.
- Climate and green transition:
  - Consider additional measures to complement existing climate policies, including instruments to reinforce carbon pricing.
  - Safeguard vulnerable households from the costs of the transition.

*Source: Staff report for the 2021 Article IV Consultation—KINGDOM OF THE NETHERLANDS—THE NETHERLANDS (October 26, 2021).*

### 7.      The external position was stronger than implied by fundamentals and desirable policy

### 1nldea2021001 - 7.      The external position was stronger than implied by fundamentals and desirable policy

### External position: assessment and adjustments
- The large current account surplus shrank to 7.0 percent of GDP in 2020 (7.5 percent on a cyclically adjusted basis), from 9.4 percent of GDP in 2019.
- Adjusting for biases in the attribution of corporate savings to foreign shareholders and some temporary Covid-19 effects, staff estimated the underlying current account surplus at around 5.9 percent of GDP in 2020.
- Staff-assessed current account gap: about 2.4 percent of GDP.
- Real effective exchange rate (REER) assessment using the EBA’s estimated elasticities: undervalued by 0.5-6.5 percent in 2020 (Annex II).

### Authorities’ views on the external position
- Authorities shared staff’s assessment that the external position was stronger than implied by fundamentals.
- No need for austerity measures given the limited deterioration of public finances, nor for further fiscal stimulus given the swift rebound of the economy.
- Public expenditures to foster potential growth could also contribute to external rebalancing.
- Authorities suggested enriching the IMF EBA methodology by considering the impact of multinational corporations and cross-country differences in pension arrangements.

### Outlook and macroeconomic projections
- Growth projections: 4 percent in 2021, supported primarily by a strong pickup of domestic demand and a reduction in the household saving rate from its unusually high 2020 level.
- Economic activity projected to exceed its pre-pandemic level in 2021:Q4.
- Output gap: about -1.8 percent in 2020; more than half of that negative gap expected to be closed by 2022.
- Medium-term projections:
  - By 2026 output projected to catch up with its pre-pandemic trend.
  - Unemployment projected to decrease moderately in 2021 and rise somewhat to slightly above pre-pandemic levels in the medium term.
  - Inflation projected to rise gradually toward 2 percent in the medium term.
  - Headline current account unlikely to return to pre-pandemic highs; by 2026 the current account expected to be somewhat above 8 percent of GDP.
  - NIIP anticipated to approach 145 percent of GDP by 2026, bolstering the income balance.

### Risks to the outlook
- Near-term downside risks: evolution of the pandemic (infections, hospitalizations), incomplete vaccination coverage or lower vaccine effectiveness against variants, larger-than-anticipated private sector weaknesses as policy support is phased out, disruptions in international value chains.
- Medium- to long-term risks: financial sector risks from high real estate exposures and valuations; possible corrections in residential real estate could affect consumer behavior more than mortgage quality.
- Upside scenarios: faster private demand if households spend a large fraction of excess savings; pension reform could support stronger consumption; euro area rebound speed could amplify impacts.

### Fiscal and pandemic support measures (size and timing)
- Government pandemic support spending in 2020: some 3.5 percent of GDP.
- Budget set aside for 2021: about 4.7 percent of GDP.
- As of May 2021, tax measures (including deferral of tax payments and other revenue reduction measures): about 3 percent of GDP.
- Public guarantee schemes expanded by up to 6.3 percent of GDP to facilitate firms’ access to financing.
- Repayments of deferred tax debts: can start in October 2022, and businesses have up to five years to fully repay their tax debt.
- Main support programs timeline:
  - The NOW program and other broad support measures were allowed to expire on October 1st 2021, given the strength of economic activity and a tight labor market (vacancies currently exceed the number of the unemployed).
  - Targeted support for sectors still affected by restrictions maintained; loan guarantees kept available until end-2021.

### Financial sector and credit quality
- Q2 2021 bank loan portfolio: €1,958.9bn.
  - Loans under expired moratoria: €43.7bn.
  - Loans under active moratoria: €0.7bn.
  - Loans originated under a public guarantee scheme: €3.2bn.
- Policy measures taken by DNB and regulators:
  - Extended ECB SSM capital and liquidity measures to less significant institutions (LSIs).
  - Recommendations to refrain from payouts to shareholders and limit variable remuneration passed to LSIs.
  - Reduced systemic risk buffer for the three largest Dutch banks; postponed introduction of a floor for mortgage loan risk weights from September 2020 to January 2022.
  - EBA guidance allowed temporary flexibility for classification and provisioning of NPLs subject to general payment moratoria until March 2021.
- Policy guidance: banks should proactively offer debt relief to viable but challenged debtors on a case-by-case basis; losses deemed unavoidable should be acknowledged by deploying provisions and capital buffers; profit distribution should consider limited visibility about the ultimate pandemic impact.
- Authorities indicated readiness to tighten macroprudential policies if credit developments call for it and openness to work with private creditors toward debt sustainability of viable but temporarily challenged borrowers.

### Policy recommendations for near-term normalization
- Remain ready to reintroduce broader support programs if pandemic risks materialize to protect jobs, viable firms, and limit financial sector spillovers.
- Transition policies toward forward-looking interventions as the economy normalizes:
  - Support viable firms through active state engagement with other creditors in restructuring efforts.
  - Facilitate mobility of factors of production: support training and career counseling, expand training allowances and regional employment teams, ensure agile restructuring and insolvency procedures (including the new law to facilitate debt restructuring for companies in financial difficulties).
  - Foster investment: support adaptation of business investment to structural changes, increase public support to R&D, pursue selected public capital projects to crowd in private investment, and establish a credit bureau to improve funding conditions for SMEs.

### Medium-term agenda: boosting potential growth and reducing vulnerabilities
- Priorities include:
  - Increasing public support to R&D.
  - Addressing skill mismatches and shortages.
  - Advancing the climate agenda, international tax reform, and pension agreements.
- Substantial policy space available to foster potential growth and a green recovery while securing financial stability.

*Italic: IMF staff report chapter: "The external position was stronger than implied by fundamentals and desirable policy" (content unit 1nldea2021001).*

### 20.      Despite the large fiscal package deployed to combat the pandemic, fiscal space

### 1nldea2021001 - 20.      Despite the large fiscal package deployed to combat the pandemic, fiscal space

### Fiscal position and policy space
- Despite the large fiscal package deployed to combat the pandemic, fiscal space remains substantial, providing room to support growth-enhancing reforms.
- Under current policies, staff projects the fiscal balance to return to a small surplus in the medium term, as the economy recovers, automatic stabilizers shrink, and pandemic-related emergency support measures are phased out.
- Public debt is projected to start declining after 2022, returning to about 50 percent of GDP by 2026.
- Even if a deficit above current projections were maintained in the medium term, policy space would be more than adequate to deal with unanticipated shocks (See DSA, and Carton and Fouejieu, 2020).
- The extraordinarily low Dutch government bond yields provide further room for maneuver when setting medium-term fiscal objectives.
- Without prejudging future discussions on European fiscal rules after 2022, the structural fiscal balance would return above the pre-pandemic MTO in the medium term.
- Thus, policy space is available to foster a stronger and greener recovery, while contributing to address external imbalances, even as fiscal buffers are gradually replenished.

### Education and human capital investment
- Raising public investment in education can help address skill mismatches and shortages accentuated by the pandemic.
- Pre-pandemic: a significant proportion of Dutch firms found it difficult to fill ICT vacancies; post-pandemic changes may exacerbate skill shortages.
- Total public spending on education is in line with the euro area average, but:
  - Spending in primary education has declined in recent years.
  - Pre-primary education spending is well below the EU average.
  - Student-to-teacher ratios in pre-primary, primary and secondary education are significantly higher than the EU average.
- These factors could explain the deterioration of the Netherlands’ PISA reading score in the last several years, which now falls slightly below the OECD average.
- Persistent educational achievement gaps exist among children from different socioeconomic backgrounds.
- Authorities announced new spending worth 8.5 billion euros over two years (about 1 percent of 2021 GDP) to support a National Education Plan.
- Recommendation: Additional structural investment in education, while addressing potential efficiency problems, to help maintain the Netherlands among frontier countries in educational outcomes.

### R&D and innovation policy
- Increasing direct public support to R&D will generate positive spillovers and boost productivity growth.
- Total spending on R&D in the Netherlands is in line with the EU average, but below that in frontier countries.
- Government support for R&D in the Netherlands has declined in the past decade, while it has increased in frontier countries.
- Increasing public spending on basic research would help maintain the Netherlands’ position as an innovation leader and expand the productivity frontier.
- The launch of the National Growth Fund, with R&D as a main targeted area, is a welcome development.
- Post Covid-19, authorities should support further development of digitalization; Next Generation EU funds earmarked for the Netherlands, while relatively modest, can be useful in this area.

### Climate change mitigation and green investment
- The Netherlands is committed to reducing greenhouse gas emissions by 49 and 95 percent, by 2030 and 2050, respectively, relative to 1990 levels.
- The EU Green Deal envisions a 55 percent emissions reduction by 2030 relative to the 1990 level and net zero by 2050; national commitments are likely to be revised upward in that context.
- The Dutch Climate Agreement (2019) defines targets across five sectors, with the largest emission reductions envisaged in the power sector (over 50 percent by 2030) based on a strong increase in renewable energy and the phaseout of coal generation.
- Under policies adopted as of 2020, GHG emissions are projected to fall by only 34 percent by 2030.
- Newly approved measures in 2021, including a backloaded carbon levy on industry, could reduce emissions by another 9 percentage points—leaving a 6 percentage-point gap relative to the national target.
- The Independent Study Group estimated that public spending on green investment may need to increase by between ½ and ¾ percent of GDP a year in the next decade to ensure the Netherlands meets its goals.
- The inclusion of additional resources for green spending in the 2022 budget is a positive step.
- Policy recommendations:
  - Reinforce carbon pricing with feebates (revenue-neutral tax-subsidy schemes) to reduce emissions per unit of production or activity across the five sectors covered by the Climate Agreement.
  - Better align carbon prices across sectors to avoid distortions.
  - Make the newly introduced industry carbon levy more cost-effective through a revenue-neutral feebate design to embed incentives for all firms to cut emissions and to address competitiveness and leakage concerns.
  - To attain reduction targets in power generation, gradually remove taxes on residential and industrial electricity and replace them with additional surcharges on CO2 emissions from power generation/district heating and coal generation.
  - Use the National Growth Fund to promote public support to innovation and adoption of greener technology among Dutch firms.

### International taxation reforms
- The Netherlands has reformed aspects of its international taxation framework to reduce the scope for aggressive tax planning.
- The Dutch tax system attracted FDI through special financial institutions (SFIs) that transact mainly with non-residents and typically have little (or no) physical production or employment in the Netherlands.
- Government reform initiatives include:
  - Introduction of a cross-border conditional withholding tax (WHT).
  - Revisions to the Advance Pricing Agreements (APA) and Advance Tax Rulings (ATR) practice to strengthen qualifying substance requirements and presence tests.
  - Modifications to the innovation box regime.
  - Revisions to the tax treaty policy.
- Indicators point to a slight decline in the number of SFIs and reduced benefits from using the Netherlands as a conduit since introduction of the new conditional WHT.
- Recommendation: Continue reform efforts.

### Authorities’ views (fiscal, education, climate, taxation)
- Authorities broadly agreed with staff assessment of medium-term fiscal policy recommendations and noted medium-term debt sustainability is not a concern at the moment.
- The 2022 Budget Memorandum forecasts debt-to-GDP ratio to be several percentage points below the 60 percent SGP limit in the medium term.
- Authorities see the need for additional investment in education, including to catch-up with learning losses incurred during the pandemic and to address needs in disadvantaged schools.
- Efforts are being made at regional levels to address skill shortages through cooperation between regional authorities and employers.
- Authorities emphasized the National Growth Fund is aimed at supporting R&D and boosting productivity.
- On climate policy, authorities agree additional measures are needed to meet national climate targets for 2030; they view carbon pricing as most effective but believe it may need to be complemented by expenditure measures, such as subsidies and a ramp-up in green investment including carbon capture and hydrogen infrastructure.
- Authorities note tradeoffs between housing supply and preservation of biodiversity due to construction-related nitrogen emissions and anticipate reductions in farm agriculture, in particular livestock, given disproportionate emissions relative to GDP.
- Authorities deem it important to continue reforms to international taxation and reiterated commitment to an internationally agreed minimum income tax.

### Real estate markets and financial stability
- Real estate markets call for heightened vigilance and policies to address near-term risks and long-term challenges in residential and commercial properties.
- Housing prices and valuations have continued to soar during the pandemic, reflecting longstanding supply bottlenecks, low interest rates, and favorable tax treatment of owner-occupied housing.
- Elevated levels of mortgage debt have risen further, with some households exceedingly stretching their debt servicing capacity.
- Activation of floors for risk weights applied to mortgage lending from 2022 is welcome and may be complemented by:
  - Additional reduction in eligible loan-to-value ratios.
  - Reviewing the taxation of owner-occupied housing.
- Efforts to improve housing supply elasticity are warranted; structural rigidities (distorted planning incentives, restrictive building or zoning laws) maintain imbalances and increase households' exposure to house-price fluctuations.
- Vacancy rates for commercial properties have increased due to the recession, yet with little effect on prices as investment yields stayed attractive relative to other assets.
- Banks maintain comparatively large exposures to commercial real estate; valuation is a concern since long-term structural change may prevent full recovery of some property segments.
- Authorities should contemplate options to better steer the investment cycle of commercial real estate to avoid a build-up of financial stability risks, potentially modeled on policies in place for owner-occupied dwellings.
- Incentivizing climate-friendly modernization or rededication of obsolete structures can help preserve building values.

### Financial sector vulnerabilities and supervisory priorities
- The crisis compounded financial sector challenges by suppressing interest rates further.
- Since end-2019, net interest margins of banks have declined, lowering the share of operating income from traditional intermediation activities.
- Pension funds and insurers have shifted portfolios towards riskier assets by lengthening durations and reducing holdings of safer assets.
- Some asset management companies experienced liquidity pressures during early 2020 financial market turbulences.
- Lending by non-bank financial institutions, such as factoring companies, remains brisk, facilitated by some SMEs' difficulties accessing bank financing.
- Supervisory priorities and recommendations:
  - Heightened supervisory vigilance about possibly undue risk-taking behavior.
  - Improve transparency of exposures, e.g., with a credit registry.
  - Develop macro- or micro-prudential tools to address risks outside the banking sector, e.g., create supervisory leeway to limit investment fund redemptions at times of stress.

### Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT)
- AML/CFT is a key financial stability and integrity issue for the Netherlands given its open economy.
- A central register for beneficial owners of legal persons went live in September 2020.
- Recommendations:
  - Continue refining the accuracy of beneficial ownership information.
  - Promptly establish the planned beneficial ownership register for legal arrangements (e.g., trusts).
  - Prioritize close inter-agency and international cooperation among AML and tax authorities.

### Authorities’ views on financial stability and AML/CFT
- Authorities broadly shared staff’s assessment of financial sector challenges and policy priorities.
- They acknowledged imbalances in real estate markets and the need for combined demand- and supply-side policies to contain financial stability risks.
- Authorities highlighted potential benefits of introducing a credit bureau to support SME financing.
- They perceived risks in the non-bank financial sector as not an immediate cause for alarm but acknowledged the need to monitor developments and improve transparency.
- Authorities considered borrower-based measures and limits on lending activities of non-bank financial institutions, and restricting investment fund redemptions at times of stress, as policy options to preserve liquidity and avoid fire sales.
- They welcome measures suggested by the EU AML Action Plan and stress the importance of international cooperation.

### Labor market vulnerabilities
- While the labor market proved generally resilient during the crisis, the self-employed and workers with flexible contracts were shown to be vulnerable.
- These groups are more likely to lose jobs and incomes and enjoy lower safety-net coverage in downturns.
- The Netherlands has one of the strictest protections for regular contracts among OECD countries, but a comparatively liberal framework for flexible contract arrangements, leaving those workers vulnerable during the pandemic.
- Sectors with a high share of flexible work arrangements tend to exhibit relatively lower labor productivity levels and growth, likely reflecting lower incentives for employers to invest in worker skills.

*Source: 1nldea2021001 - 20.      Despite the large fiscal package deployed to combat the pandemic, fiscal space*

### 35.      Policies to reduce labor market duality can contribute to increase resilience to future

### Policies to reduce labor market duality can contribute to increase resilience to future shocks and support productivity growth

### Labor market duality and social protection
- Policies to reduce labor market duality can increase resilience to future shocks and support productivity growth.
- Ensuring appropriate social protection is recommended, including a mandatory disability insurance and some basic pension insurance for the self-employed, as currently planned.
- Continue realigning tax and other incentives across different types of employment:
  - Example: gradually reducing the tax credit for self-employed once the pandemic has been left behind would contribute to reducing labor market duality.
- Improve employment protection for workers in flexible contract arrangements to enhance labor market resilience and support wage growth.
- Address high prevalence of part-time employment among women by improving availability and affordability of childcare (currently, its cost exceeds EU and OECD averages) to better enable women to work full-time.
- Ongoing reforms of parental leave, including expansion of paternity leave, would facilitate full-time female labor participation.
- Employing a larger share of the workforce on a more permanent basis would incentivize employers and employees to invest in training, supporting higher productivity.

### Pension system stress and reform
- The second pillar occupational pension system has been under stress for several years despite being considered one of the most solid in the world, as it incorporates correction mechanisms to ensure it can stand behind benefits offered.
- Low interest rates have boosted liability valuations, putting pressure on funding ratios.
- Painful corrections have included repeated hikes to contribution rates and suspension of cost-of-living adjustments, leading to waning trust and a decline in active pension contributors over the past decade, especially among younger cohorts.
- Key timelines and modalities:
  - June 2019: government and social partners signed a pension agreement shifting occupational pensions from a defined-benefit to a defined-contribution type model while incorporating elements of risk sharing and insurance against longevity risk.
  - In May 2021, authorities postponed reform effective date from January 1, 2022 to January 1, 2023 to allow time for technical adjustments.
  - Present pension arrangements are now required to transition to the new system by January 1, 2027 only.
- Policy design features in the agreement:
  - Foreseen modifications are anticipated to stabilize contribution rates, encourage early enrollment by acknowledging the time value of money, and dampen some effects of low interest rates on consumption under the current framework.
  - The agreement foresees a delay from 2021 to 2024 in the planned increase of the retirement age to 67 and will allow new retirees to claim up to 10 percent of their entitlement in a lump sum payment.
  - It adjusts the increase in retirement age for every 1 year rise in life expectancy to 8 months from 1 year and allows workers in physically demanding jobs to retire early.
- Transitional and operational aspects need careful and timely management to ensure reform success.
- Offering additional flexibility (e.g., in contribution levels) may strengthen incentives for participation and improve economic stability.

### Authorities’ views
- Authorities agreed the pandemic further stressed long-standing vulnerabilities across job contracts in the Dutch labor market.
- Policies already initiated to reduce labor market duality (including gradually reducing tax incentives for the self-employed) will continue, as noted in the 2022 budget memorandum.
- Recently adopted reform of partner leave and a parental leave reform now being finalized in Parliament; government is supporting municipalities through increased financing to improve childcare services.
- Authorities emphasized more structural policies are needed; the upcoming government will need to take additional steps to increase labor participation rates and reduce the gap between flexible and permanent labor.

### Staff appraisal: macroeconomic recovery, fiscal space, and policy priorities
- The Netherlands has weathered the pandemic comparatively well due to a resilient economy and substantial policy space for effective support.
- A vigorous health sector response and timely sanitary restrictions helped contain the human toll; economic impacts were cushioned by pervasive digitalization and fiscal backing for households and firms, preventing adverse financial sector spillovers.
- Ongoing robust recovery expected to carry into 2022; risks broadly balanced but surrounded by substantial uncertainty:
  - Main downsides: potential resurgence of the pandemic and underlying private sector vulnerabilities, particularly in real estate markets.
  - Counterweight: unexpectedly vigorous rundown of excess savings and external demand recovery.
- Near-term pivot to more targeted aid is appropriate but maintain readiness to reactivate broader measures if warranted:
  - Maintain loan guarantees, stretch tax debt repayments, and keep support for sectors still subject to restrictions.
  - Consider relaunching broader policy instruments if substantial downside risks materialize.
- Support for resource reallocation, viable firms, and investment is needed to guide normalization:
  - Initiatives to support job-seekers and ensure efficient corporate restructuring or insolvency.
  - Avoid unnecessary bankruptcies by keeping financial sector policies appropriately set to enable banks to deploy available buffers for debt restructuring within established frameworks.
  - Consider government engagement with other creditors in restructuring of viable but challenged companies.
  - Public funding for R&D and selected capital projects as well as establishment of a credit bureau may bolster private investment.
- Fiscal outlook and priorities:
  - Comfortable fiscal position allows replenishment of buffers while fostering a resilient, green and inclusive economy.
  - With extraordinary support measures expiring, the budget deficit will decline and vanish by 2025, bringing public debt ratios to about 50 percent of GDP.
  - Continue efforts to reform international and capital taxation to reduce scope for aggressive tax planning.
  - Use fiscal room to retain Netherlands’ position among frontier countries in educational outcomes and improve school achievements of disadvantaged groups; National Education Plan cited as a promising start.
  - Public spending on basic research recommended; National Growth Fund making R&D a target area is an opportunity to be complemented by digitalization and green technology efforts, also using Next Generation EU funds.

### Financial sector resilience and housing
- Maintaining financial sector resilience requires addressing real estate market imbalances and pandemic-exposed challenges.
- With rapidly rising house prices, activation of risk weight floors for mortgage lending from 2022 is prudent; additional measures to rein in riskier forms of housing debt should be contemplated.
- Modifying the income tax framework by trimming further subsidization of owner-occupied housing would help relieve demand-side pressures.
- Tackling long-standing structural rigidities would make supply more elastic.
- For commercial properties, deliberate options to better steer the investment cycle and prevent build-up of financial stability risks, potentially modeled on residential policy, deserve consideration.
- Crisis highlighted need for supervisory vigilance toward undue financial sector risk-taking in a low interest rate environment and need for transparency of financial exposures and instruments to target non-bank financial sector risks.

### Labor market, pension reform, and climate priorities (concluding policy recommendations)
- Reducing labor market duality, complemented by ongoing pension reform, would strengthen productivity growth and resilience to future shocks.
- Ensure appropriate social protection, particularly for the self-employed, and realign incentive structures across different labor contracts to incentivize productivity-enhancing training.
- Implement pension reform without further delay to address modern labor market dynamics, intergenerational equity, and stabilizing contribution rates with positive effects on consumer behavior.
- Strengthen climate change agenda to meet 2030 targets:
  - Swift action is needed given implementation lags; resources earmarked in the 2022 budget seen as a positive step.
  - Options include reinforcement of sectoral carbon pricing or introduction of feebates.
  - For the power sector, consider gradually shifting from consumer- to producer-based emissions charges.
  - In agriculture and building sectors, calibrate policies carefully to account for impacts on vulnerable populations and interactions with structural imbalances such as housing market.
  - Well-designed planning and regulation should make public sector greening efforts a catalyst for private investment.

*Source: KINGDOM OF THE NETHERLANDS—THE NETHERLANDS, INTERNATIONAL MONETARY FUND*

### 4.3 percent of GDP in  2020

### 4.3 percent of GDP in  2020

### Fiscal outcomes and balances
- Overall balance: 4.3 percent of GDP in  2020.
- Structural deficit: 3.2 percent of GDP.
- Primary balance (memorandum, percent of GDP):  -3.9 in 2020 (Table 2a).
- General government balance (percent of GDP): -4.3 in 2020 (Table 1 and Table 2a).
- Revenue (percent of GDP): 41.1 in 2020 (Table 1 and Table 2a).
- Expenditure (percent of GDP): 45.4 in 2020 (Table 1 and Table 2a).
- Interest expenditure (percent of GDP): 0.6 in 2020 (Table 2a, Interest line).

### Public debt and financing
- Public debt increased to about 53 percent of GDP in  2020 but remains comparatively low.
- Gross Debt (percent of GDP): 52.5 in 2020 (Table 2a) and 420.0 billion euros in levels (Table 2b, Gross Debt).
- Gross public debt time series highlights: 2008–2020 chart shows debt rising to above 50 percent by 2020 (figure captions and tables).

### Public investment and tax developments
- Public investment grew moderately in  2020 (figure caption).
- Tax revenues declined as the economy contracted (figure caption).
- Taxes (percent of GDP): 23.7 in 2020 (Table 2a).
- Taxes in levels: 189.5 billion euros in 2020 (Table 2b).
- Gross fixed investment (total) growth (real GDP components): -4.1 in 2020 (Table 1, Gross fixed investment (total)).

### Medium-term macroeconomic framework and projections (2017–26)
Key selected series (growth rates, percent unless otherwise indicated):
- Real GDP: -3.8 in 2020; projections: 4.0 (2021), 3.3 (2022), 2.1 (2023), 1.8 (2024), 1.6 (2025), 1.6 (2026) (Table 1).
- Domestic demand: -4.3 in 2020; projections: 3.4 (2021), 3.3 (2022), 2.1 (2023), 1.9 (2024), 1.8 (2025), 1.8 (2026) (Table 1).
- Private consumption: -6.6 in 2020; projections: 4.3 (2021), 4.1 (2022), 2.5 (2023), 2.2 (2024), 2.0 (2025), 2.0 (2026) (Table 1).
- Unemployment rate (ILO definition): 4.9 (2017), 3.8 (2018), 3.4 (2019), 3.8 (2020) and projected 3.4 (2021), 3.8 (2022), 3.7 (2023), 3.6 (2024), 3.5 (2025), 3.5 (2026) (Table 1).
- Consumer price index (year average): 1.1 in 2020; projections: 1.9 (2021), 1.7 (2022), 1.8 (2023), 1.8 (2024), 1.9 (2025), 1.9 (2026) (Table 1).
- Current account balance (percent of GDP): 7.0 in 2020; projections: 8.0 (2021), 8.7 (2022), 8.8 (2023), 8.6 (2024), 8.6 (2025), 8.4 (2026) (Table 1 and Table 3).
- Nominal GDP (billions of euros): 800.1 in 2020; projections: 845.7 (2021), 890.0 (2022), 924.2 (2023), 957.3 (2024), 990.9 (2025), 1025.2 (2026) (Table 2a, Table 2b).

### Public sector fiscal accounts (tables)
- Revenue (percent of GDP): 41.1 in 2020; projected 42.0 (2021) and 42.4 (2022) (Table 2a).
- Expenditure (percent of GDP): 45.4 in 2020; projected 48.2 (2021) and 44.8 (2022) (Table 2a).
- Net acquisition of nonfinancial assets (percent of GDP): 0.1 in 2019 and 0.2 in 2020 (Table 2a shows small net acquisition entries).
- Net lending/borrowing (percent of GDP): -4.3 in 2020; projected -6.1 (2021), -2.3 (2022) (Table 2a).
- Primary balance (percent of GDP): -3.9 in 2020 (Table 2a Memorandum items).
- Structural balance (percent of potential GDP): -3.2 in 2020 (Table 2a Memorandum items).

### Financial sector developments
- Provisioning for credit losses normalized after spiking early in the pandemic; NPL ratio has declined (Figure 4 caption).
- Bank profitability and capital adequacy: CET1 capital ratio and Return on equity series show profitability rebound (figure captions).
- Bank loan classification: Stage 2 and Stage 3 loans series and cost of risk tracked through 2020–21 (figure captions).
- Credit exposures: considerable to businesses particularly affected by the pandemic and to the real estate sector (figure caption).
- Pension funds: funding ratios and balance sheet effects were affected early in the pandemic but largely abated as market volatility ebbed (figure captions).
- Insurance solvency ratios presented for life, non-life, health insurance, and reinsurance (figure captions).

### External sector developments
- Current account: surplus shrank in 2020 as worsening income balances offset an improving trade surplus (Figure 5 caption).
- Current account components (percent of GDP): Current account 7.0 in 2020; Goods 8.1 in 2020; Services 2.3 in 2020; Factor income -1.7 in 2020; Current transfers, net -1.7 in 2020 (Table 3).
- FDIs: Stock of FDI remains dominated by FDIs attributable to special financial institutions (SFIs) (Figure 5 caption).
- Real Effective Exchange Rate: REER (CPI based) increased in 2020; REER (ULC based) stabilized after several years of decline (Figure 5 caption).
- Exports of goods (percent of GDP): 57.9 in 2020 (Table 3).
- Imports of goods (percent of GDP): 49.9 in 2020 (Table 3).

### Monetary and balance sheet highlights
- Broad Money (end-of-period, in billions of euros): 820.1 in 2019 and 904.2 in 2020 (Table 4).
- Net foreign assets (in billions of euros): 267.1 in 2019 and 287.2 in 2020 (Table 4).
- Claims on private sector (in billions of euros): 1,029.5 in 2019 and 900.7 in 2020 (Table 4 shows series by subsector).
- Velocity (GDP/Broad Money): 99.3 in 2019 and 99.1 in 2020 (Table 4 memorandum items).

### Fiscal framework and election cycle (Annex I)
- General elections: March 17, 2021 (Annex I).
- Fiscal rule process: national budgetary rules reassessed about a year before a new government takes office; key inputs include CPB medium-term macroeconomic forecasts and long-term sustainability analysis; SBR proposes budgetary objectives; cabinet sets expenditure ceilings for the next four years published in the “Startnota” (Annex I).
- SBR 16th report (November 2020) priorities in context of the pandemic:
  - Allow full operation of automatic stabilizers and take discretionary fiscal measures to cushion the pandemic’s impact and avoid premature fiscal consolidation in the medium-term.
  - Ensure long-term public debt sustainability and retain buffers against future downturns.
  - Avoid automatic increases in specific expenditure categories (notably health) or cuts in tax revenue, while providing room for public investments that support long-term economic growth.

*Source: CBS, CPB, Eurostat, DNB, IMF staff calculations, and figures and tables as presented in the source PDF.*

### Annex II. External Sector Assessment

### Annex II. External Sector Assessment

### Overall assessment and policy recommendations
- Overall Assessment: The external position in 2020 was stronger than the level implied by medium-term fundamentals and desirable policies. The Netherlands’ status as a trade and financial center makes an external assessment particularly challenging.
- Potential Policy Responses:
  - The use of available fiscal buffers by the authorities to provide ongoing support to the health care sector and to households and businesses affected by the Covid-19 pandemic remains appropriate, also against the backdrop of the additional space provided by the sustained activation of the escape clause from the EU Stability and Growth Pact.
  - Even after the pandemic subsides, the government will have ample room to pursue a growth-oriented fiscal policy. Policies should avoid premature consolidation, thereby safeguarding the recovery.
  - Foster investment in R&D, advance the green-digital transformation, and follow-through with pension reform to bolster potential growth, while also contributing to external rebalancing.

### Foreign asset and liability position and trajectory
- Background:
  - NIIP reached 113.9 percent of GDP at the end of 2020, reflecting gross assets and liabilities of 1,165.5 and 1,051.6 percent of GDP, respectively, rising from a nearly balanced NIIP at the end of 2009.
  - The largest component of the NIIP comes from the net FDI stock—about €1,111 billion (138.9 percent of GDP) at the end of 2020.
  - According to the latest Coordinated Direct Investment Survey, the inward and outward FDI positions of The Netherlands were second only to those of the United States at the end of 2019, with the largest gross bilateral stocks accounted for by the United States (US$1.85 trillion), the United Kingdom (US$1.06 trillion), and Luxembourg (US$0.87 trillion).
  - The central bank’s net TARGET2 claims on the ECB amounted to €38 billion at the end of 2020.
  - Reflecting a persistent CA surplus, the NIIP is expected to increase as a ratio to GDP in 2021, likely keeping it considerably above the 100 percent mark in the absence of large revaluation effects, despite a rising denominator on the back of a rebound in GDP.
- Assessment:
  - The Netherlands’ safe haven status and its sizable foreign assets limit risks from its large foreign liabilities.
- 2020 (% GDP) key statistics:
  - NIIP: 113.9
  - Gross Assets: 1,165.5
  - Debt Assets: 260.6
  - Gross Liab.: 1,051.6
  - Debt Liab.: 308.2

### Current account (CA)
- Background:
  - In 2020 the CA surplus, in place since 1981, declined to 7.0 percent of GDP (7.5 percent cyclically adjusted).
  - The historically positive goods and services balance, primarily the result of surpluses vis-à-vis EU trading partners, improved at the margin.
  - The primary income balance turned into a 1.7 percent of GDP deficit in 2020, despite the positive NIIP, as lower net investment income on FDI was only partly compensated for by a reduction in payouts on net portfolio investment.
  - The secondary income balance deteriorated to −1.7 percent of GDP, mainly on the back of other current transfers by the nongovernment sector abroad.
  - Substantial FDI outflows have been the key driver of the financial account since 2000, constituting the counterpart to high nonfinancial corporate net saving, whereas household net saving has played a comparatively smaller role due to the offsetting impact of substantial mandatory contributions to second-pillar pension funds and high real estate investment.
  - The Netherlands’ status as a trade and financial center and natural gas exporter also contribute to a structurally strong external position.
  - In 2021 the CA surplus is projected to rebound to 8 percent of GDP.
- Assessment and model results:
  - The EBA CA model estimates:
    - CA norm: 3.4 percent of GDP
    - CA gap: 4.0 percent of GDP in 2020
    - Unexplained residual: 1.1 percent of GDP that primarily reflects the high gross saving of multinationals based in The Netherlands.
  - IMF staff adjustments:
    - Adjustment for foreign ownership bias: −1.4 percent of GDP (approximated using historical data about foreign ownership structure provided by the central bank).
    - Covid-19 (temporary) adjustment: −0.2 percent of GDP (reflecting lower spending on travel services by Dutch residents abroad: −0.3 percent of GDP; and higher-than-usual trade in medical goods: 0.1 percent of GDP).
  - Taking these factors into consideration, and against a norm in a range of 1.4 to 5.4 percent of GDP, the IMF staff assesses a CA gap of 0.4 to 4.4 percent of GDP.
- 2020 (% GDP) summary table:
  - CA: 7.0
  - Cycl. Adj. CA: 7.5
  - EBA Norm: 3.4
  - EBA Gap: 4.0
  - Covid-19 Adj.: −0.2
  - Other Adj.: −1.4
  - Staff Gap: 2.4

### Real exchange rate (REER)
- Background:
  - The annual average CPI-based REER appreciated by 2.0 percent in 2020, with part of the rise in the euro NEER offset by inflation in The Netherlands staying below that of its trading partners.
  - The average ULC-based REER appreciated by 3.8 percent in 2020.
  - Drawing conclusions about shifts in competitiveness in 2020 is hampered by Covid-19 distortions in measurement of consumer prices and ULCs across countries.
  - As of July 2021, the CPI-based REER was nearly unchanged from its 2020 average.
- Assessment:
  - Assuming a semi-elasticity of 0.7, the IMF staff CA gap of 2.4 percent of GDP implies a REER undervaluation of about 3.5 percent.
  - The EBA REER models indicate an overvaluation between 4.2 percent (level model) and 17.8 percent (index model) in 2020, predominantly reflecting unexplained residuals.
  - Taking into account all estimates and the uncertainty surrounding the EBA REER results, the IMF staff views the REER as undervalued by about 0.5 to 6.5 percent, with a midpoint of 3.5 percent, based on its assessment of the CA gap and its range.

### Capital and financial accounts: flows and policy measures
- Background:
  - Net FDI and portfolio outflows dominate the financial account. FDI outflows are driven by the investment of corporate profits abroad, largely by multinationals.
  - More than 40 percent of gross FDI assets and liabilities are attributable to subsidiaries of multinationals.
- Assessment:
  - The strong external position limits vulnerabilities from capital flows.
  - The financial account is likely to remain in deficit as long as the corporate sector continues to invest substantially abroad.

### FX intervention and reserves level
- Background:
  - The euro has the status of a global reserve currency.
- Assessment:
  - Reserves held by euro area economies are typically low relative to standard metrics, but the currency is free floating.

*Source: IMF staff.*

### introduction of  minimum  risk weights for  mortgages was

### 1nldea2021001 - introduction of  minimum  risk weights for  mortgages was

### Mortgage risk weights and timing
- Introduction of minimum risk weights for mortgages was suspended during the pandemic, but is now expected to go into effect at the start of 2022.

### Housing supply policy and budgetary support
- The government has set up a policy agenda for housing supply together with subnational governments (‘woondeals’).
- These include agreements for housing targets with municipalities in the areas with the greatest housing shortage and provinces.
- The 2022 budget also includes new resources to support the construction of social housing.

### Reviving SME dynamism and business investment
- Policy focus includes increasing direct support to Research and Development (R&D) and establishing a credit bureau.

### Initiatives and instruments launched
- Several funds were launched that support innovative SMEs and allow them to invest more in R&D for the technologies of the future (Deeptech Fund & Dutch Future Fund).
- The Dutch Alternative Credit Instrument (DACI) was launched to further strengthen the accessibility of SMEs to alternative financing sources.
- A study on the usefulness and necessity of a credit register was conducted and sent to Parliament.
- In 2020 the Dutch government launched the National Growth Fund (see above).

*1nldea2021001 - introduction of  minimum  risk weights for  mortgages was — https://www.imf.org/-/media/files/publications/cr/2021/english/1nldea2021001.pdf*

### Annex VI. FSAP Recommendations

### Annex VI. FSAP Recommendations

### Financial Risks and Stability Analysis
- Enforce an industry-wide approach to informing IO mortgagors of estimated repayment shortfalls.
  - Time: I
  - Status: AFM and SSM (DNB/ECB) have worked towards an industry-wide approach to informing IO mortgagors about their estimated repayment shortfalls. Efforts are on track to reach all IO mortgagors in the course of 2022.
- Continue to build capital buffers to ensure all banks remain above minimum leverage ratio thresholds in the case of severe adverse events.
  - Time: NT
  - Status: The Dutch authorities remain supportive of an O-SII leverage ratio buffer and note that the Basel 3.5 standards will also contribute to higher leverage ratios of certain Dutch SIFIs. The four largest Dutch SIFIs maintain leverage ratios above 4% and have performed well under the adverse scenario of the 2021 EBA stress test.

### Macroprudential Policy Framework
- Strengthen the FSC by establishing it under primary law and vest it with “comply-or-explain” powers.
  - Time: NT
  - Status: Progress has been delayed as the Dutch Council of State signaled a material conflict between a proposed embedding of the FSC in primary law and the Dutch constitutional system. An amended legislative proposal explored by the Dutch government is foreseen to be submitted to Parliament in autumn 2021. As an ‘act or explain mechanism’ does not fit in with the Dutch constitutional system, an alternative accountability mechanism will forward FSC recommendations to Parliament where the responsible ministers may be questioned.
- Accelerate the phase-out of MID and reduce the final tax rate to a neutral level.
  - Time: NT
  - Status: The phasing down the mortgage interest deductibility has been accelerated from 0.5 to 3 percentage points annually starting in 2020 until the base tax rate level of 37.05% is reached in 2023. However, the tax treatment of owner-occupied housing remains favorable compared to other forms of property.
- Continue gradually reducing maximum limits on LTV ratio to no more than 90 percent after 2018, and place prudential ceilings above which DSTI limits (by income group) cannot be relaxed.
  - Time: NT
  - Status: The maximum LTV-ratio was reduced to 100% in 2018. No further reduction is foreseen yet LTV-ratios have decreased due to rising house prices and the amortization requirement for MID eligibility. No changes have been made in the setting of DSTI limits.

### Cross-cutting Supervisory Issues
- Further enhance supervisory oversight of loan classification and strengthen internal model validation by providing Joint Supervisory Teams more support from risk specialist divisions.
  - Time: I
  - Status: The powers of DNB and AFM to introduce technical regulations have not been enhanced. No actions to do so are currently foreseen. DNB and AFM already have the ability to involve outside expertise in conducting their supervisory examinations.
- Exclude the DNB and AFM from the proposed salary cap, and provide them with greater autonomy in setting their supervisory budgets.
  - Time: I
  - Status: The Ministry of Finance has not provided DNB and AFM with greater autonomy in setting their supervisory budgets. No actions to do so are foreseen.
- The DNB and AFM to undertake a cross-sectoral review of credit underwriting standards of mortgages.
  - Time: I
  - Status: Several on-site examinations in financial institutions’ mortgage portfolios have been carried out in the recent past. Moreover, DNB collects loan level data on the mortgage exposures of banks, insurers, and pension funds to continuously monitor mortgage lending standards.
- Ensure that reliable and complete data is available on a timely basis to support off-site supervision.
  - Time: NT
  - Status: DNB and AFM are actively investigating and applying supervision techniques involving data-driven analytical approaches. In collaboration with the Ministry of Finance, the AFM is exploring an additional legal basis for periodic data requests.
    - Insurers and pension funds: DNB continues to conduct rigorous checks on the quality, consistency and plausibility of the data it receives from insurers and pension funds, also with the help of on-site examinations. AFM is investigating the possibility for a yearly inquiry into complaints about pension funds.
    - Banks: A recent exercise regarding banks’ credit underwriting standards has revealed issues with data availability and aggregation related to the transformation of legacy IT infrastructure. DNB and AFM conduct rigorous checks on the consistency and plausibility of data with the help of analytical tools and on-site examinations. DNB initiatives on Data Driven Supervision have been implemented.
    - Collective investment schemes: Several actions have been taken by DNB and AFM to ensure reliable and complete data is available on a timely basis.

### Banking Supervision and Regulation
- Further enhance supervisory oversight of loan classification and strengthen internal model validation by providing Joint Supervisory Teams more support from risk specialist divisions.
  - Time: NT
  - Status: Supervisory oversight of loan classification: The Ministry of Finance has signaled openness to discuss the DNB’s request to allow the imposition of binding requirements on the size of banks’ impairment charges. In line with EC guidance, DNB is stimulating the usage of article 104 CRD where possible to allow competent authorities to intervene in the case of inadequate provisioning policies and advocates the concept’s inclusion in supervisory manuals.
  - Status: Internal model validation: procedures are in place to provide Joint Supervisory Teams with support for internal model validation.
- Encourage a more active role of the Supervisory Board of Dutch banks via ongoing engagement.
  - Time: NT
  - Status: Engaging the SB is part of ongoing supervision through e.g. periodic interviews and the annual SB self-assessment. DNB discusses the outcomes of the annual Supervisory Review and Evaluation Process (SREP) with the SB’s of all LSI’s it supervises. In addition, the SSM wide Targeted Review of Internal Models (TRIM) will put the supervisory findings on banks' internal models on the SB agenda.

### Insurance and Pension Supervision and Regulation
- Monitor closely and take a series of well-defined actions, under Pillar 2, at different levels of VA and UFR impact on insurers’ solvency position.
  - Time: I
  - Status: DNB has worked on a new supervisory approach to be implemented in the second half of 2021 to address the problems surrounding the UFR. The new approach is forward-looking, anchored in the current legal framework and takes a step away from the current SCR ratio ex VA and UFR approach. It will analyze solvency levels and probability distributions around them to assess the sustainability of the future statutory solvency and the capacity to compensate for the UFR shortfall. It will support a dialogue with insurers at risk to take measures to improve the sustainability of the capital and solvency position.
- Harmonize the relevant laws on the quality of advice and suitability of products and provide authority for group supervision in the pension law.
  - Time: NT
  - Status: No mechanisms have been introduced to ensure pension participants receive financial advice. Supervisory powers for group supervision are not foreseen under the new pension system because of the pension fund structure in the Netherlands.

### Securities Supervision and Regulation
- Broaden the supervisory authority of the AFM with regard to loan-based crowd-funding platforms.
  - Time: NT
  - Status: In October 2020 Regulation 2020/1503 on European crowdfunding service providers for business was published, introducing a fully harmonized regime for the provision of crowdfunding services in the EU. The regulation will apply from 10 November 2021.
- Require prompt public disclose of auditor changes or resignations.
  - Time: NT
  - Status: The prompt public disclose of auditor changes or resignations is already sufficiently covered by existing rules and regulations. No actions are foreseen.

### Financial Market Infrastructure
- Augment the supervisory resources devoted to the oversight of European Central Counterparty (EuroCCP).
  - Time: I
  - Status: The staff resources devoted to EuroCCP supervision have been expanded from 2 FTE to 3 FTE. More generally, the staff resources devoted to ICE Clear Netherlands supervision have been expanded from 1 FTE to 3 FTE, bringing the total for CCP supervision to 6 FTE.
- EuroCCP to strengthen its review of its stress testing and margin models methodology and develop a comprehensive recovery plan.
  - Time: I
  - Status: EuroCCP has enhanced its reverse stress testing approach to consider a wider set of market price scenarios and combinations of participant defaults that would exhaust its financial resources. Its margin model methodology has also been improved. Sensitivity analyses have been developed to examine how the parameters and assumptions affect the outcome of its stress tests. EuroCCP has developed a comprehensive recovery plan, reviewed annually, ahead of the EU legislation on CCP recovery and resolution.

### Crisis Management and Bank Resolution
- Develop adequate arrangements for systemic crisis management and make legacy frameworks for managing failing banks complementary to the new SRM framework and more transparent.
  - Time: NT
  - Status: Adequate arrangements for systemic crisis management: domestically, DNB focused on an update of its crisis management manual, aligning it with the SRB’s. DNB and AFM have defined their roles and responsibilities in resolution and the interactions that take place between them and other institutions, also by updating the tripartite MoU enabling information sharing and delineating responsibilities for crisis management. At the European level, the role and responsibilities of SRB, ECB and Dutch authorities in managing a systemic crisis are formalized in the SRB and DNB crisis management manuals, the Cooperation Framework (CoFra) and horizontal policy guidance. Dry run exercises were held in 2019 and 2020 to test the adequacy of tools and procedures.
  - Status: Legacy legal frameworks: The residual aspects of the former 'Intervention Act' only serve as a fallback option in the (unlikely) case that the powers of the SRM fall short.
- Allow the deposit guarantee scheme to finance deposit transfers in resolution and insolvency.
  - Time: NT
  - Status: Since 2017 it is possible to finance the gross amount of deposits that are transferred in resolution. Technical discussions about allowing the DGS to fund a transfer of covered deposits in insolvency is ongoing. DNB and the Ministry of Finance are investigating technical feasibility while awaiting the outcome of the upcoming CMDI review.

*Source: 1nldea2021001 - Annex VI. FSAP Recommendations*

### Chapter 11 procedure, enables firms or its creditors to initiate an extrajudicial restructuring plan that

### Chapter 11 procedure, enables firms or its creditors to initiate an extrajudicial restructuring plan that

### Corporate restructuring and tax authority measures
- Chapter 11 procedure enables firms or its creditors to initiate an extrajudicial restructuring plan that can be binding for all creditors once the plan is approved by at least one in-the-money creditor class and confirmed by the court.
- The government announced in October that it would allow the tax authority to temporarily deviate from its preferential creditor status in restructuring cases for viable firms with unsustainable debt.
- Selected firms will be granted further postponement of tax obligations after October 2021.
- Authorities remain committed to continue reforms to the international corporate taxation framework to help fight tax avoidance globally.

### Banking sector resilience and stress testing
- Dutch banks prove to be resilient, also to a scenario of increased solvency risks among SMEs.
- Dutch banks’ capital positions have not deteriorated since the pandemic, partly because the proportion of non-performing loans has shown only a limited rise.
- Staff noted that the withdrawn government support may increase the probability of default or write-downs of bank loans.
- Due to the relatively limited exposure to corporate sectors hit hard by the pandemic, banks are resilient to a solvency shock in the corporate sector (SMEs), as a DNB stress test shows.
- The resilience of the Dutch banking sector under severe scenarios is also shown by the July EBA stress test of European banks, having an impact on CET-1 ratios in line with that of the European average of around 5.3%.

### Housing market vulnerabilities and macroprudential policy
- Recent sharp increase in house prices: in August by as much as 17.8% compared to a year earlier.
- Household debt totals 100% of GDP – of which almost 95% mortgage debt – making household debt among the highest in Europe.
- To increase banks’ resilience to a house price shock, DNB plans to introduce a previously announced minimum floor for the risk weighting of bank mortgages starting January 1, 2022.
- Macroprudential policies can only provide so much counterweight to the build-up of vulnerabilities; non-bank players fall outside the scope of the macro-prudential toolkit.
- Authorities will closely monitor developments in the non-bank financial sector to decide on the need for developing macroprudential tools to contain potential vulnerabilities.
- The authorities remain committed to address supply and demand mismatches in the housing market.
  - The maximum loan-to-value ratio of 100% is still relatively high.
  - Although tax deductibility of mortgage interest is being partly phased out since 2013, from a tax perspective mortgage loans remain an attractive means of financing an owner-occupied home.
  - Authorities will seriously consider staff’s proposals to make further progress with the ongoing reduction of the subsidization of owner-occupied housing, while investing an additional 100 million a year on average in the next 10 years to address supply shortages in the housing market.

### Labor market dynamics and inflation risks
- A tight labor market might create inflationary pressures over the medium-term.
- The recent increase in inflation caused by rising gas prices is expected to be mostly temporary.
- With a record growth in new vacancies, the number of open positions exceeded the number of unemployed over the second quarter for the first time since the statistical office started their recordings in 2003.
- The number of vacancies as well as the number of new jobs reached a record high in June.
- The unemployment rate returned to its pre-pandemic level of 3.1% in July 2021.
- Despite an increase in labor supply, the unemployment rate has been rather stable since.

### Climate policy and commitments
- Climate is high on the agenda; no country is immune to natural disasters, especially a country like the Netherlands with more than 25% of its surface below sea level.
- Together with other European countries, the Netherlands has set ambitious targets to reduce its CO2 emissions and move towards greener energy sources.
- Over the past years, the Dutch government has taken significant steps in this direction with the adoption of a climate law and with the national climate agreement.
- Additional measures were announced in this year’s budget, while acknowledging that more needs to be done to become climate neutral in 2050.
- The authorities welcome the proposal of a broad and ambitious policy package by the European Commission and trust that the next government will decide on further national measures to meet these ambitions.

### Education system observations and recommendations
- Authorities welcome the analysis and recommendations to strengthen the education system.
- The Dutch education system performs well by international comparison.
- Authorities acknowledge that Dutch education outcomes have deteriorated in some respects, as reflected in the decreasing PISA test scores.
- Significant gaps exist in primary education among pupils from poorer households compared to the average.
- Authorities agree with the importance of continued investment in education, especially in the quality of education and teachers, and in regions where needed most, and recognize the need to foster early childhood education to help pupils start strong in their curriculum.

*Source: IMF country report excerpt*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1nldea2021001.pdf_