## 1cheea2023001

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---

### SNB balance sheet changes in 2022 — headline findings
- SNB’s balance sheet "contracted by 17 percent in 2022", after having "increased ten-fold since 2007".
- SNB "suffered a significant financial loss in 2022 (CHF132 billion or 17 percent of GDP)", precluding profit transfers to the government in 2023.
- Net SNB FX sales in 2022: "CHF22.3 billion" (vs. net purchases of "CHF110 billion" in 2020 and "CHF21 billion" in 2021).
- Balance-sheet comparison (December 2021 → December 2022; figures as presented):
  - Assets: "1,057" → "881"; Change: "-175"
  - FX investments: "966" → "801"; Change: "-166"
  - o.w. losses: "-131"
  - Other assets: "87" → "81"; Change: "-7"
  - Liabilities: "1,057" → "881"; Change: "-175"
  - Sight liabilities: "727" → "539"; Change: "-188"
  - CHF repos & bills: "0" → "165"; Change: "165"
  - CHF repos: "30" → "-3"
  - Other liabilities: "125" → "111"; Change: "-14"
  - Equity: "204" → "66"; Change: "-138"

### Drivers and operational adjustments
- Main drivers of contraction:
  - Investment losses on foreign exchange holdings and exchange rate valuation changes.
  - Unwinding/adjustment of historically accumulated foreign-exchange positions (SNB purchased "nearly CHF1 trillion worth of foreign exchange" historically as noted).
- Liability-side operational changes:
  - "Sizable shift from sight liabilities to repos and bills" to absorb liquidity and keep money market rates near the high-tier policy rate.
  - Adjusted "the tiering of sight deposits" as policy rate turned positive; this reduced interbank liquidity.
  - SNB did not purchase domestic government or private sector bonds in 2022.
- Operational risks highlighted:
  - Unwinding FX accumulation could cause sharp CHF appreciation "without corresponding strong demand for FX".
  - Mark-to-market accounting amplified the recorded financial loss and challenged communications.

### Monetary policy stance and implications
- Policy rate changes in 2022: from "-0.75 percent in early 2022" to "1.5 percent (including a 50 bps hike in March)".
- Other tightening tools and actions:
  - Adjusted sight-deposit tiering.
  - Liquidity reduction via "repo/bill issuance".
  - Net FX sales of "CHF22.3 billion" in 2022 contributed to tightening and reduced balance-sheet size.
- Staff guidance and conditional scenarios:
  - SNB should proceed data-driven and "continue to tighten if second-round effects persist".
  - Policy rates remain the primary tightening instrument.
  - If foreign-domestic differentials cause depreciation pressures, SNB could continue to reduce FX holdings — which would also reduce balance-sheet size and interest expenses.
  - If safe-haven inflows recur, SNB should refrain from using FX interventions (FXIs) to curb franc appreciation unless excess market volatility warrants it.
  - Enhanced SNB communications and "more frequent publication of data on FXIs" recommended.

### SNB financial-loss and recapitalization considerations
- 2022 loss: "CHF132 billion or 17 percent of GDP".
- SNB equity: "CHF76 billion of equity at end-February" noted; recapitalization risk judged low and "no legal requirements trigger immediate recapitalization when equity turns negative".
- Recommendation: continue regular reviews of investment strategy, maintain safeguards, consider FX sales to reduce balance-sheet and financial risks.

### Financial-stability context — Credit Suisse, UBS, and systemic implications
- March 2023: deterioration at Credit Suisse (CS) led to state-facilitated merger with UBS and extraordinary SNB liquidity assistance.
- Authorities announced additional SNB liquidity assistance loans (secured by preferential rights and partly federal-guaranteed) and a "CHF9 billion second-loss government guarantee", triggering full writedown of CS’s Additional Tier 1 securities before equity.
- FINMA to grant transitional period to build higher capital buffers for the larger combined bank.
- Staff recommendations and supervisory actions:
  - Conduct resolvability assessment for merged UBS‑CS and revise resolution plan as UBS becomes a much larger GSIB.
  - Undertake careful reviews of CS failures: risk-management failings, supervisory actions/inaction, recovery planning and activation, resolution preparedness and tools, liquidity in resolution, creditor treatment predictability, and communication strategies.
  - Disclose cost of the merger and extent of recoveries to the public on an ongoing basis.

### Financial-sector resilience and vulnerabilities
- Broad resilience outside CS:
  - Banks: ample capital and liquidity; NPLs around "~0.65 percent of total loans" (source earlier cited) and reported nonperforming loans series shows "0.6" in 2022.
  - Credit growth (mostly mortgages): "growing by 2.7 percent in 2022 (3.3 pct in 2021, 4.0 pct in 2020)."
  - Outstanding mortgages: "around 150 percent of GDP".
  - Trading portfolio and money-market financial investments: trading portfolio "CHF163 billion" and financial investments in the money market "CHF71 billion" together accounted for less than "7 percent" of banks’ total assets ("CHF3.5 trillion").
  - Liquid assets held by Swiss banks: "CHF540 billion at end-2022".
- Insurance and pensions: insurers and pension funds "suffered large investment losses in 2022" (preliminary data).
- Non‑bank financial institutions (NBFIs) and fintech:
  - NBFIs broadly sound but exposures to managed products and interlinkages could pose risks in global turmoil.
  - Fintech performance mixed; cyber risks elevated. CBDC pilots ongoing (Project Mariana and Project Tourbillon).
- Macroprudential and microprudential recommendations:
  - Urge banks to tighten prudential tools (e.g., raise LTV/DSTI) if residential vulnerabilities persist.
  - Consider activating broad-based CCyB; sectoral CCyB already at the "2.5-percent maximum".
  - Expand legally-mandated macroprudential toolkit and advance supply-side housing measures.

### FSAP (2019) recommendations — implementation status and priorities
- Overall: progress made but implementation "slow"; further and expedited action required given elevated risks.
- Key priorities:
  - Strengthen FINMA autonomy, governance, accountability; ensure primacy of prudential mandate (Timing: C).
  - Increase resources for high-quality data gathering and analysis, esp. fintech, and advance recovery and resolution planning (Timing: MT).
  - Expand macroprudential toolkit with mandated supply- and demand-side tools (Timing: ST).
  - Ensure FINMA-led supervisory audits and increase on-site inspections (Timing: ST); mixed progress on who pays for audits.
  - Strengthen recovery/resolution planning and resolvability, including for FMIs (Timing: I/ST); public liquidity backstop initiated in 2022 and emergency-ordinance adoption noted in March 2023.
  - Deposit insurance reform recommended (Timing: MT); authorities do not intend to fully overhaul DIS as recommended.

### Fiscal policy, amortization, and budget adjustments
- 2022 general government overall balance: larger-than-expected surplus (exact figure not restated).
- General government overall balance expected to moderate to "0.1 percent of GDP in 2023".
- Main driver of lower surplus in 2023: expected zero SNB profit transfers in 2023 (compared with "0.8 percent of GDP in 2022") and sustained spending on refugees and energy/national security.
- Amortization needs and rules:
  - End-2022 amortization needs from extraordinary spending: "CHF 22.7 billion (3 percent of GDP)".
  - Of which "CHF 3.3" and "CHF 0.7 billion" represented 2022 outlays for pandemic-related measures and refugees from Ukraine, respectively.
  - Deadline for eliminating the shortfall in amortization account extended to "2035", with option to prolong to "2039".
- Budget clean-up (early 2023): FC adopted a "CHF 2 billion" package to comply with the debt‑brake rule; package includes deletion of mandatory contribution "CHF 0.6 billion" to Horizon Europe, "CHF 0.3 billion" military savings, "CHF 0.2 billion" from removal of EV tax promotion, and cuts of 1–2 percent in discretionary expenditures.
- Proposed additional savings of "CHF 600–700 million" from tweaks to earmarked items; additional measures still needed for structural deficits in 2025 and 2026.

### Macroeconomic outlook, inflation, and projections
- Growth forecasts: Federal Expert Group mid-March forecasts "0.8 percent for 2023 and 1.8 percent for 2024".
- IMF staff projections (selected):
  - Real GDP (percent change): 2022: "2.1"; 2023: "0.8"; 2024: "1.8"; 2025: "1.2"; 2026: "1.8"; 2027: "1.2".
  - Nominal GDP (billions CHF): 2022: "770.9"; 2023: "798.8"; 2024: "827.0"; 2025: "849.5"; 2026: "877.8"; 2027: "901.6".
  - Consumer price index (period average): 2022: "2.8"; 2023: "2.5"; 2024: "1.9"; 2025: "1.7".
  - Unemployment rate (percent): 2022: "2.2"; 2023: "2.3"; 2024: "2.4".
- Inflation and expectations:
  - Headline inflation: "2.8 percent in 2022" (from "0.6 percent in 2021"); "2.9 percent in March".
  - Domestic inflation: "0.3 percent in 2021" → "1.6 percent in 2022"; "2.7 percent in March".
  - Core inflation averaged "1.7 percent in 2022" and was "2.2 percent in March".
  - Near-term inflation expectations moderated to "2.4 percent in 2023Q1" after spiking to "3.6 percent in 2022Q3"; longer-term expectations "1.6 percent in 2023Q1".
- Staff macro guidance:
  - SNB response judged appropriate; continue data-driven tightening if second-round effects persist.
  - Avoid FXIs to curb appreciation unless excess volatility; consider FX reductions to help contain inflation and reduce balance-sheet risks.

### External sector, BoP, and reserves
- Current account (percent of GDP): 2022: "10.1" (table shows series; staff notes measurement issues).
- Official reserves (end-period, selected): 2021: "966,202" (millions CHF in SNB table) → 2022: "800,566".
- Net IIP (percent of GDP, memorandum): 2022: "93.3" (table series with projections).

### Energy, climate, and sustainable finance actions
- Energy-security short-term measures taken for gas and electricity shortages; measures to be maintained for next winter.
- Third CO2 Act: timely passage critical for emission reductions over 2025–2030; revised parliamentary proposal focuses on targeted support rather than new taxes.
- Climate Protection Act (CPA): if supported in June 2023 vote, would come into force in 2025 and set intermediate 2040 targets for certain sectors.
- Sustainable finance:
  - November 2022: Federal Council adopted an Ordinance on Climate Disclosures to come into force in 2024 requiring double‑materiality reporting for large public companies, banks, and insurers.
  - Authorities’ 2023–25 action plans: ensure availability of sustainability data, increase transparency, encourage impact investments and green bonds, support global carbon-pricing initiatives, and prevent greenwashing.

### Labor market and pensions
- Structural labor‑market tightness driven by robust demand, demographics, high participation, and skill gaps.
- Near-term mitigants: cross-border workers and immigration.
- Policy priorities: promote broader/longer participation; lower early retirement incentives; remove disincentives for hiring older workers; improve childcare support; ease tax disincentives for dual-earner families; target active labor-market policies for skills.
- Pensions:
  - Pillar 1 reform package passed in 2022 ensures financing through 2030; further reforms mandated by Parliament by 2026 for sustainability beyond 2030.
  - Pillar 2 reforms approved March 2023 but likely subject to referendum; measures include lowering conversion rate, enrollment age, and contribution salary threshold.

### Governance, AML/CFT, and COVID reviews
- COVID-support reviews: misuse detected in about "9 percent" of cases inspected on site; returns exceeded "CHF150 million".
- AML/CFT:
  - Latest revision of AML/CFT Act effective January 2023 requires verification of beneficial owners and regular client-data updates.
  - Work in 2022 started on central beneficial ownership register; draft legislation to extend AML provisions to legal professions and refine appeal conditions.
- Anti‑corruption: Interdepartmental Working Group on Combatting Corruption considering solutions to increase sanction ceilings; need to strengthen whistleblower protection noted.

### Debt sustainability and contingent liabilities related to CS‑UBS measures
- Baseline public debt (percent of GDP) (selected):
  - Actual 2022: "39.15"
  - 2023: "51.24"
  - 2024: "49.44"
  - 2025: "47.94"
  - 2026: "46.34"
  - 2027: "45.04"
  - 2028: "43.5"
- Change in public debt (percent of GDP): 2023: "12.1"; 2024: "-1.8"; 2025: "-1.5"; 2026: "-1.6"; 2027: "-1.3"; 2028: "-1.5"
- Staff notes: public debt assumed to rise in 2023 reflecting contingent liability of "CHF 109 billion" from government guarantee credits to SNB and UBS; scenario represents an upper bound as government may recognize contingent liability gradually.
- Gross financing needs (percent of GDP): 2022: "3.3"; 2023: "17.1"; 2024: "3.4"; 2025: "6.6"; 2026: "7.1"; 2027: "8.1"; 2028: "9.2"
- Debt-service (percent of GDP): 2022: "3.9"; 2023: "4.1"; 2024: "4.0"; 2025: "7.1"; 2026: "7.5"; 2027: "8.5"; 2028: "9.5"

### Data, surveillance, and recommended next steps
- Recommendation: next Article IV consultation to take place on the regular 12-month cycle.
- Continue closing regulatory data gaps and enhance FINMA resources and enforcement powers.
- Monitor implementation of TBTF review, recovery and resolution planning, and FSAP recommendations (including deposit insurance and FMIs).
- Maintain fiscal credibility while preparing medium-term plans to address aging, climate, energy, and national security spending needs.
- Enhance SNB transparency on FX interventions and continue data-driven monetary policy.

*Source: IMF staff summary of 1cheea2023001 (Switzerland staff report).*

### 1. SNB Balance Sheet Changes in 2022_____________________________________________________________6

### 1. SNB Balance Sheet Changes in 2022

### Key balance sheet changes and headline figures
- The SNB’s balance sheet "contracted by 17 percent in 2022", after having "increased ten-fold since 2007".
- Losses on FX positions were the main driver of the contraction, causing "a significant drop in SNB equity".
- The SNB "suffered a significant financial loss in 2022 (CHF132 billion or 17 percent of GDP)", precluding profit transfers to the government in 2023.
- Net SNB FX sales totaled "CHF22.3 billion in 2022", versus "net purchases of CHF110 billion and CHF21 billion in 2020 and 2021, respectively."

### Balance sheet items (December 2021 versus December 2022; as presented)
- Assets: "1,057" (December 2021) → "881" (December 2022); Change: "-175"
- FX investments: "966" → "801"; Change: "-166"
- o.w. losses: "-131"
- Other assets: "87" → "81"; Change: "-7"
- Liabilities: "1,057" → "881"; Change: "-175"
- Sight liabilities: "727" → "539"; Change: "-188"
- CHF repos & bills: "0" → "165"; Change: "165"
- CHF repos: "30" → "-3"
- Other liabilities: "125" → "111"; Change: "-14"
- Equity: "204" → "66"; Change: "-138"

(Note: figures are presented in the source table as shown above.)

### Drivers of the changes
- Reduced FX investments primarily due to:
  - Investment losses on foreign exchange holdings.
  - Exchange rate valuation changes.
- Shift in liability composition:
  - "Sizable shift from sight liabilities to repos and bills" to absorb liquidity and ensure money market rates remain close to the policy rate.
  - As policy rate turned positive, the SNB adjusted "the tiering of sight deposits" so the policy rate would be paid to the high tier, requiring a significant reduction of interbank liquidity.
- The SNB did not purchase domestic government or private sector bonds; it purchased "nearly CHF1 trillion worth of foreign exchange" historically, with unwinding risks noted.

### Monetary policy context and operations in 2022
- Policy rate changes: the SNB "raised its policy rate from -0.75 percent in early 2022 to 1.5 percent (including a 50 bps hike in March)".
- Other monetary operations used to support tightening:
  - Adjusted tiering of sight deposits.
  - Reduced liquidity via "repo/bill issuance".
  - Sold FX in recent quarters to support tightening (net FX sales = "CHF22.3 billion" in 2022).
- Purpose of liability changes: transition "from keeping money market rates close to the low-tier rate through ample/excess liquidity to keeping rates near the high-tier rate by balancing liquidity supply with demand".

### Financial-stability and broader financial-sector context related to SNB actions
- The March deterioration at Credit Suisse led to a state-facilitated merger with UBS and additional SNB extraordinary emergency liquidity assistance.
- The authorities announced additional SNB liquidity assistance loans (secured by preferential rights in bankruptcy and partly by federal guarantee) and a "CHF9 billion second-loss government guarantee", triggering full writedown of CS’s Additional Tier 1 securities before equity.
- FINMA will grant a transitional period to build higher capital buffers for the larger combined bank.
- Outside of Credit Suisse, the financial sector showed resilience:
  - Banks maintained ample capital and liquidity; NPLs remained around "~0.65 percent of total loans".
  - Credit growth (mostly mortgages) remained robust: "growing by 2.7 percent in 2022 (3.3 pct in 2021, 4.0 pct in 2020)."
  - Outstanding mortgages were noted at "around 150 percent of GDP".
  - Insurers and pension funds "suffered large investment losses in 2022" (preliminary data).
  - Fintech performance mixed but not severely affected.

### Implications and operational risks highlighted
- Unwinding foreign-exchange accumulation could lead to a sharp CHF appreciation "without corresponding strong demand for FX".
- The balance-sheet losses led to a "significant drop in SNB equity" with implications for profit transfers.
- Transitioning to a liquidity-absorbing stance and positive policy rate required substantial operational adjustments (shift to repos/bills and tiered sight-deposit remuneration).

### Related macro-financial context (brief)
- Headline inflation rose to "2.8 percent in 2022" from "0.6 percent in 2021" and was "2.9 percent in March".
- Domestic inflation rose from "0.3 percent in 2021 to 1.6 percent in 2022" and was "2.7 percent in March".
- Core inflation averaged "1.7 percent in 2022" and was "2.2 percent in March".
- Near-term inflation expectations moderated to "2.4 percent in 2023Q1" after spiking to "3.6 percent in 2022Q3"; longer-term expectations were "1.6 percent in 2023Q1".
- The SNB’s monetary tightening formed part of a broader response to rising inflation and the economic impact of Russia’s war in Ukraine.

*Source: IMF staff summary of "1. SNB Balance Sheet Changes in 2022" from the Switzerland staff report.*

### 14.      The authorities largely shared staff’s view on the outlook and risks. They believe that

### 14.      The authorities largely shared staff’s view on the outlook and risks. They believe that

### Outlook and risks
- Federal Expert Group’s mid-March growth forecasts: "0.8 percent for 2023 and 1.8 percent for 2024".
- Authorities expect limited impact from the UBS-CS merger on growth.
- Near-term positive factors: reopening of the Chinese economy; healthy household balance sheets in Europe and the U.S.
- Authorities and staff agree risks are tilted to the downside.
- SNB revised up conditional inflation forecasts to "2.6 and 2.0 percent for 2023 and 2024, respectively", despite a "50 bps" hike in March.
- Structural drivers of labor-market tightness: robust labor demand; demographics; already high level of labor market participation; skill gaps; only partially offset by immigration.

### Fiscal policy — stance, balances, and amortization
- 2022 general government overall balance: larger-than-expected surplus (exact figure in source context).
- General government overall balance expected to moderate to "0.1 percent of GDP in 2023".
- Main drivers of lower surplus in 2023:
  - Expected zero SNB profit transfers in 2023 (compared with "0.8 percent of GDP in 2022").
  - Sustained spending on refugees (Ukraine) and energy and national security.
- Guarantees connected with the CS-UBS merger affect fiscal position only if called.
- Recommended response if downside growth risks materialize:
  - Allow automatic stabilizers to operate.
  - Consider targeted, timebound, and non-distortionary support to affected households and firms, with recourse to extraordinary provisions of the debt-brake rule.
- Public debt: low level provides a buffer against contingent liabilities (Annex VII).
- Amortization of extraordinary spending:
  - End-2022 amortization needs from extraordinary spending: "CHF 22.7 billion (3 percent of GDP)".
  - Of which "CHF 3.3" and "CHF 0.7 billion" represented 2022 outlays for pandemic-related measures and refugees from Ukraine, respectively.
  - Temporary amendment extended deadline for eliminating the shortfall in the government’s amortization account to "2035", with option to prolong to "2039".
  - Parliament precluded use of past structural surpluses to offset shortfall and assumed no extraordinary revenues via SNB profit transfers for amortization.
  - Authorities view extension as balanced: limits excessive adjustment while maintaining fiscal-framework credibility.
- Tax reforms and revenue impacts:
  - Pillar 2 (OECD-led global minimum corporate tax rate of "15 percent"): plans on track; referendum on constitutional amendment planned for "June 2023".
  - Pillar 1: Parliament decided to make necessary constitutional change; Federal Council to decide on signing and ratification of the Multilateral Convention once technical details are worked out.
  - Overall revenue impact uncertain: Pillar 1 expected to lead to shortfalls and Pillar 2 to gains.
  - VAT tax hike to support Pillar 1 pension reforms effective "January 2024" with estimated revenue impact of "CHF 1.2–1.3 billion".
  - Additional VAT measures to be implemented in "2025" with positive estimated revenue impact.
  - Individual taxation reform likely to lead to revenue losses.
  - Abolition of industrial tariffs scheduled to enter into force in "2024".
  - Parliament discussing introduction of a tonnage tax.
  - Overall recommendation: reforms should not lead to overall revenue losses given sizable medium-term spending needs.
- Medium- and long-term spending needs:
  - Key areas: aging, climate, energy and national security.
  - Need a clear medium-term plan to create space to maintain structural balance.
  - CHF "2 billion" of savings from budget “clean-up” measures aim to ensure a balanced budget for "2024".
  - Additional measures needed to eliminate structural deficits during "2024–26" at the confederation level; more will be needed over medium and long term.
  - Authorities updating public finance sustainability report, including demographics and climate-related spending needs.

### Authorities’ views on fiscal assessment
- Authorities broadly concurred with staff’s assessment and recommendations.
- They recognize generating savings to close structural budget shortfalls in "2025–26" will be challenging but possible.
- On amortization, conservative assumptions suggest upside potential for quicker offsetting.
- For many tax reforms, public policy objectives may outweigh revenue considerations.
- Revenue losses and increased administrative burdens in the short term could yield efficiency gains and raise revenues in the long term.
- Authorities noted complexity and substantial uncertainty in estimating climate-related fiscal costs in the medium to long term.

### Monetary and exchange policy
- SNB policy response to the new inflation environment judged appropriate given broadened inflationary pressures.
- Policy actions taken: policy rate hikes; changes to sight-deposit tiering and repo operations.
- Effects observed:
  - Pushed up overnight rates.
  - Avoided emergence of a large spread vis-à-vis the euro and other major currencies.
  - Widening foreign-domestic interest rate differentials (other central banks tightening more aggressively) reduced franc appreciation pressures.
  - Net FX sales in recent quarters contributed to monetary tightening and reduced SNB balance-sheet size and associated risks (Annex II).
- Forward guidance/recommendations:
  - SNB should proceed in a data-driven manner and continue to tighten if second-round effects persist.
  - Policy rates will remain a powerful tightening tool.
  - If foreign-domestic interest rate differentials result in depreciation pressures, SNB could continue to reduce FX holdings — which would also reduce balance-sheet size, contribute to liquidity absorption, and reduce interest expenses.
  - If safe-haven inflows repeat, SNB should refrain from using FXIs to curb franc appreciation unless necessitated by excess market volatility.
  - Enhanced SNB communications — including more frequent publication of data on FXIs — would be useful.
  - In a downside scenario with more persistent inflation, SNB should raise rates further to keep expectations anchored.
  - Monetary policy should focus on its key mandate; macroprudential tools should focus on financial stability if a tradeoff materializes.
- SNB financial-loss considerations:
  - SNB’s financial loss in 2022 highlighted risks and communication challenges linked to its large balance sheet.
  - The large loss was partly attributed to the SNB’s mark-to-market accounting.
  - Recapitalization risk seems low: SNB had "CHF76 billion of equity at end-February"; no legal requirements trigger immediate recapitalization when equity turns negative.
  - Uncertainty on FX investment returns remains; higher interest rates on franc liabilities may lead to lower returns from franc positions.
  - Recommendation: continue regular reviews of investment strategy, maintain adequate safeguards, and consider FX sales to reduce the balance sheet and lower financial risk.

### Authorities’ views on monetary policy
- Authorities broadly agreed with staff’s assessment and recommendations.
- Emphasized SNB must stay vigilant against inflation risks to maintain credibility.
- SNB agreed on the importance of communication but noted that clear communication does not imply forward guidance; some information disclosure involves trade-offs.
- SNB FX operations are based on monetary policy considerations.
- SNB’s investment strategy is guided by strict risk controls; it will prioritize robust safeguards going forward.

### Financial sector policies and stability
- Overall assessment: buffers remain but financial stability risks have risen.
- Transition risks: higher interest rates may boost income of banks, insurers, and pension funds, but slower growth, higher volatility, and greater uncertainty could lead to losses during transition.
- Asset and exposure context:
  - At end-2022, trading portfolio "CHF163 billion" and financial investments in the money market "CHF71 billion" together accounted for less than "7 percent" of banks’ total assets ("CHF3.5 trillion").
  - Large amount of liquid assets held by Swiss banks: "CHF540 billion at end-2022".
- Nonperforming loans (NPLs) remain low; banks and insurers generally have adequate buffers with provisions and capital/liquidity or solvency ratios well above regulatory minimums.
- Some institutions’ capital buffers may fall short under severe market stress; vulnerable institutions should strengthen buffers, but authorities should encourage use of buffers to absorb losses and keep credit flowing in a downside scenario.
- Non-bank financial institutions (NBFIs) broadly sound but exposures to managed products and interlinkages could create risks in case of global financial turmoil spike.
- Fintech: not severely impacted in 2022, but cyber risks elevated (Annex V); ongoing work on CBDC pilots (Project Mariana and Project Tourbillon).
- Recommendations:
  - Continue closing regulatory data gaps, closely monitor risks, and adapt or strengthen regulations as needed.
  - Regular consultations with fintech players given rapid innovation.
  - Remain vigilant and monitor both bank and NBFI risks despite strong buffers.
- UBS–CS merger implications:
  - Effective consolidation of UBS and CS businesses critical given public-sector risks.
  - Authorities need close monitoring of acquisition implementation, including impact on Swiss bank funding costs, credit flows near term, and competition in credit and financial services medium term.
  - Consolidation expected to be complex, take time, and likely entail sizable job losses.
  - Recommended resolvability assessment for merged UBS-CS and revision of the resolution plan as UBS will become a much larger GSIB.
  - Forthcoming reviews by authorities, FSB peers, and possibly others; careful analysis of case and implications for Swiss and international supervisory/regulatory frameworks needed.
  - Reviews should analyze long-standing risk-management failings at CS, supervisory actions/inaction, and implications for TBTF regime: supervisory intrusiveness, recovery planning and activation, contingency arrangements and coordination, resolution preparedness and tools, liquidity in resolution, shareholder rights and predictability of creditor treatment and hierarchy, predictability of resolution actions, and communication strategies.
  - For taxpayer accountability, cost of the merger and extent of recoveries, if any, should be disclosed to the public on an ongoing basis.
- Real estate and macroprudential policy:
  - Residential real estate market imbalances remain elevated; high prices partly explained by structural factors (supply constraints, demographics).
  - Recent policy rate increases expected to pass through to mortgage rates and help cool the market.
  - If vulnerabilities continue to build:
    - Urge banks to tighten prudential tools (e.g., raise LTV/DSTI requirements) within the self-regulation framework.
    - Consider activating the broad-based CCyB, given sectoral CCyB already at the "2.5-percent maximum".
    - Expand legally-mandated macroprudential toolkit.
    - Advance supply-side actions: zoning flexibility, infrastructure investment, targeted subsidies for new construction, expand social housing.
  - Commercial real estate prices have not declined overall; developments vary by location. Banks’ exposures to CRE mortgages are much smaller than to residential mortgages.

### Financial sector reform and supervision
- Further efforts needed to implement 2019 FSAP recommendations to enhance financial resilience (Annex IV). Key points include:
  - (i) Strengthening FINMA’s autonomy, governance, and accountability while preserving primacy of its prudential mandate.
  - (ii) Ensuring FINMA-led, risk-focused, in-depth, forward-looking supervision.
  - (iii) Providing an explicit early intervention framework addressing material qualitative supervisory concerns with appropriate triggers and measures.
  - (iv) Improving bank recovery and resolvability, including increasing resources and enforcement powers for recovery and resolution planning.
- Progress made:
  - Planned full implementation of Basel III by "January 2025".
  - Enhanced data collection for credit, insurance, investment funds, and Fintech.
  - Preparation and emergency adoption of the public liquidity backstop.
- Given elevated risks, further and expedited progress is needed, including an autonomous, fully-resourced supervisor with power to conduct in-depth risk-based assessments and enforce findings.

*Source: 1cheea2023001 - 14.      The authorities largely shared staff’s view on the outlook and risks. They believe that*

### 28.      The authorities broadly agreed with staff’s assessment of financial sector

### 28.      The authorities broadly agreed with staff’s assessment of financial sector

### Financial sector vulnerabilities and policy response
- Authorities viewed the CS event as idiosyncratic and mostly related to loss of confidence in the bank.
- The merger was considered a better solution than resolution or nationalization to restore market confidence and prevent a crisis.
- The authorities expect the merger to be concluded in the near term and agreed with staff on the need to closely monitor implementation and impacts on the Swiss economy.
- Authorities intend to review the TBTF framework (with a focus on recent events) over the coming year and emphasized the importance of comprehensiveness over speed.
- Authorities and staff noted rising house prices as partly supported by structural factors, but also identified vulnerabilities in the residential real estate market.
- Current macroprudential measures were assessed as sufficient, with agreement to:
  - Continue monitoring mortgage risks.
  - Review whether further measures are necessary.
- Authorities acknowledged the need to monitor risks related to NBFIs and Fintech and have made efforts to improve regulatory data collection in this area.
- On FSAP recommendations, authorities highlighted progress made and noted that some areas would be revisited in planned reviews.

### Energy, climate change, and sustainable finance — short and medium term actions
- Short-term energy-security measures (targeting possible gas shortages and potential electricity shortages during winter peak hours) were taken and will be maintained for the next winter season, as reflected in the budget.
- Specific short-term actions:
  - Procured reserve generation capacity from hydropower plants.
  - Commissioned a reserve (gas) power plant.
  - Passed emergency measures, valid until 2025, to incentivize development of utility-scale solar PV plants in Alpine areas.
- Medium- and long-term aims:
  - Expand renewable capacity.
  - Strengthen security of supply through legislation currently under parliament consideration, including simplified permitting procedures for renewable power generation.
  - Further consideration should be given to expanding the transmission network to integrate additional generation capacity.

### CO2 framework and climate legislation
- Timely passage of the revised proposal for the Third CO2 Act is critical to emission reductions over 2025–2030.
  - Since 2021, emission reduction has relied on an ‘emergency’ extension of the CO2 Act (through 2024).
  - The revised proposal, now in parliament, aims to provide the framework for emission reductions between 2025–2030.
  - Unlike the previous proposal, it does not include new taxes or revisions to existing environmental taxes or carbon-pricing mechanisms and instead focuses on targeted support for emission-reducing investments in the buildings and transport sectors.
  - The new law requires regulators to report on climate and associated financial risks; FINMA and SNB must report on risks for Swiss financial institutions.
- The Climate Protection Act (CPA) would be a welcome step toward a framework for emission reductions beyond 2030, but prompt work on mitigation policies and measures is needed to ensure alignment of sectoral emissions pathways with sector targets through 2040.
  - The CPA specifies intermediate (2040) emissions targets for certain sectors and institutional arrangements.
  - If supported by a public vote in June 2023, the law would come into force in 2025.
  - The law is necessary but not sufficient to mobilize capital investments this decade needed to achieve the 2050 emissions objectives; discussion and development of specific measures for post-2030 should start as soon as possible.

### Sustainable finance and disclosure
- Switzerland has implemented regulations to align the domestic financial industry with the Paris Agreement and position itself as a center of sustainable finance.
  - In November 2022, the Federal Council adopted an Ordinance on Climate Disclosures to come into force in 2024.
  - Large public companies, banks, and insurance companies will have to report on both the effects that climate change has on them and the impact of their activities on climate change ("double-materiality").
  - CPA provisions commit Switzerland to ensure that its financial industry contributes to a low-carbon development (Art. 9.1) and authorize the Federal Council to conclude agreements with the financial industry to align financial flows with climate objectives (Art. 9.2).
- Authorities’ 2023–25 action plans focus on:
  - Ensuring availability of sustainability data from all sectors.
  - Increasing transparency in the financial sector.
  - Encouraging impact investments and green bonds.
  - Supporting global carbon-pricing initiatives.
  - Preventing greenwashing.

### Authorities’ views on mitigation policy
- Authorities broadly agree with staff’s assessment and recommendations.
- They underscored:
  - The important role of measures in the proposal for a Third CO2 Act to achieve 2030 emissions targets.
  - The need to start preparatory work on measures for emission reductions beyond 2030 in a timely manner.
  - The substantial investment needs to reach the 2050 emission reduction targets, implying:
    - (i) the necessity to provide the policy framework to mobilize private capital at a pace and scale consistent with the targets and in the most efficient manner; and
    - (ii) the possibility that additional measures may be needed in the medium term to facilitate transition away from carbon-intensive technologies and processes.

### Labor market and pension reform priorities
- Easing the tight labor market is key to keeping inflation in check and preventing labor shortages from becoming a competitiveness bottleneck.
- Near-term mitigants include cross-border workers and immigration, but authorities should continue to:
  - Promote broader/longer participation.
  - Lower early retirement incentives.
  - Remove disincentives for hiring/retaining older workers.
  - Improve childcare support.
  - Ease tax disincentives for dual-earner families.
  - Target active labor market policies on skill acquisition adapted to demand.
- Pension reforms:
  - The Pillar 1 reform package passed in 2022 is expected to ensure sufficient financing for Pillar 1 pensions through 2030, but additional measures are needed for long-term sustainability.
  - Parliament-mandated plans to develop proposals by 2026 for further Pillar 1 reforms to ensure sustainability beyond 2030 are underway.
  - Pillar 2 reforms: Parliament approved measures in March 2023, but the bill is expected to be subject to a referendum next year. Measures include lowering the conversion rate, enrollment age, and the contribution salary threshold to help improve coverage and sustainability.

### Authorities’ views on labor and pensions
- Authorities broadly agree with staff’s assessment and recommendations but stressed there is no quick fix to structural challenges.
  - Participation rate is already high; altering work-leisure preferences is difficult given high income and ingrained cultural/societal norms.
  - Boosting labor productivity is crucial.
- On Pillar 2, authorities noted the minimum conversion rate affects only the compulsory pension scheme; most pension funds already apply much lower conversion rates.
- Authorities highlighted complexity of Pillar 2 measures and noted reforms to Survivor's Insurance are being considered.

### External relations and economic resilience
- Continued engagement with the EU via political dialogue, exploratory talks, and technical discussions has yielded progress; a Swiss-proposed "package-based approach" was agreed for future negotiations.
  - Federal Council requested preparation of key parameters for a negotiation mandate with the EU by June.
  - Authorities have pursued remedial measures to counteract negative impacts from the current situation (e.g., non-extension of stock exchange equivalence, non-update of mutual recognition for medical devices), while participating in EU programs such as Horizon Europe as a non-associated third country.
- To strengthen resilience against rising geo-economic fragmentation, authorities aim to diversify the economy by:
  - Expanding and modernizing the Free-Trade-Agreement network.
  - Pursuing new forms of bilateral/multilateral cooperation.
  - Unilateral measures such as removing import duties on non-agricultural products and maintaining strategic reserves of essential goods.
- Authorities’ views: largely agreed with staff; emphasized cooperation (not isolation), involvement of domestic stakeholders, commitment to a rules-based international economic and trade system, and continued support to Ukraine (refugee relief, humanitarian assistance, international forums, long-term reconstruction support). Swiss sanctions on Russia and Belarus are aligned with those of the EU.

### Governance, COVID-era reviews, and AML/CFT
- COVID-support reviews:
  - Federal Audit Office examined all major COVID-support measures; other agencies evaluated different aspects.
  - Results show COVID-support measures were appropriate and effective, with room for improvement in transparency, third-party involvement, and due diligence in settlement of COVID testing costs.
  - Instances of misuse were detected in about 9 percent of cases inspected on site, leading to a return of over CHF150 million.
- AML/CFT progress and gaps:
  - Start of work in 2022 on legislation to establish a central register for beneficial ownership information.
  - Latest revision of the AML/CFT Act, effective January 2023, explicitly requires financial intermediaries to verify the identity of beneficial owners and to update client data regularly.
  - Further strengthening needed: refine conditions governing appeals by interested persons in mutual legal assistance and extend AML provisions to lawyers, notaries, and fiduciaries providing non-financial services.
- Combating bribery of foreign officials:
  - Initiatives are encouraging but not yet materialized.
  - Interdepartmental Working Group on Combatting Corruption is considering solutions to increase the ceiling of sanctions applicable to companies and ensure better enforceability.
  - Need to strengthen whistleblower protection; a parliamentary motion was submitted but not yet on the agenda.
  - Changes pending to require external auditors to report indications of foreign bribery to company management (accounting standards).
- Authorities’ views:
  - Reiterated commitment to sound COVID spending, learning lessons for future crisis management, and further strengthening AML/CFT and anti-corruption frameworks.
  - Draft legislation in train on transparency of beneficial ownership and expansion of the AML toolkit to legal professions.
  - Noted the CHF5 million ceiling for fines on legal persons may appear lenient relative to other jurisdictions but does not apply to confiscation, which is not capped.
  - Solutions based on OECD Working Group on Bribery (WGB) recommendations to increase the ceiling of sanctions and strengthen whistleblower protection are being considered.

### Staff appraisal — macroeconomic outlook and policy guidance
- Macroeconomic challenges in 2023:
  - Growth expected to slow further.
  - Inflation is above the price stability range.
  - Risks are tilted to the downside and uncertainty is high.
  - Main drags: weak global outlook, tighter monetary policy, cooling of pent-up demand.
  - Tight labor market, wage pressures, and rent increases linked to higher mortgage rates may keep inflation above 2 percent until 2024.
- External position:
  - The 2022 external position is assessed as broadly in line with medium-term fundamentals and desirable policies.
- Key risks:
  - Lower growth and more persistent inflation, abrupt global slowdown, prolonged high inflation elsewhere.
  - Sharp correction in housing prices or negative shifts in global financial markets could lead to financial stress and economic slowdown.
  - Geopolitical risks, including potential escalation of Russia's war in Ukraine, and geo-economic fragmentation.
- Fiscal policy:
  - Authorities’ expansionary fiscal stance but a continued surplus for 2023 is appropriate given the slowing economy and underlying factors.
  - Expected zero SNB profit transfers result in a significant drop in expected revenues, reducing the fiscal balance amid continued spending on energy security and refugees.
  - If downside risks materialize, allow automatic stabilizers to operate; consider targeted, timebound, and non-distortionary support to households and firms.
  - Authorities’ plans to amortize past extraordinary spending with extension of the amortization period represent a balanced path; credit guarantees related to the CS-UBS merger will only affect the fiscal position if called.
- Medium- and long-term spending needs:
  - Significant needs for aging, climate, energy and national security require a clear medium-term plan to create space to maintain structural balance.
  - Recent measures to generate savings are expected to balance the budget in 2024, but structural deficits remain for 2025–26, requiring additional measures and further measures thereafter.
  - Ongoing tax reforms aim to improve efficiency and remove distortions but should preferably not lead to overall revenue losses given spending needs.
- Monetary policy:
  - SNB’s response to higher inflation has been appropriate and should continue to be data-driven.
  - Policy rate hikes, liquidity absorption via repos/bills, and recent net sales of FX have contributed to tightening.
  - SNB should continue to tighten if second-round effects persist; if facing depreciation pressures, it could continue to reduce FX holdings to help contain inflation while reducing the balance sheet and associated risks.
  - SNB should refrain from using FXIs to curb franc appreciation unless necessitated by excess market volatility.
  - In case of more persistent inflation, the SNB should raise rates further to keep expectations anchored.
  - Enhanced communications, including more frequent publication of data on FXIs, would be useful.
  - SNB’s financial loss in 2022 will not impede monetary operations and recapitalization risk is low; maintain regular reviews of investment strategy and adequate safeguards.
- Financial stability and Credit Suisse (CS):
  - Authorities took decisive actions to address financial stability concerns and potential spillovers from challenges faced by Credit Suisse.
  - Effective consolidation of UBS and CS businesses will be critical, including in light of risks to the public sector.
  - Authorities need to closely monitor merger implementation, including impacts on Swiss bank funding costs, credit flows in the near term, and competitive provision of credit and other financial services over the medium term.
  - Important actions:
    - Conduct a resolvability assessment for the merged UBS-CS.
    - Update the resolution plan for UBS as it will become a much larger GSIB.
    - Undertake careful review and analysis of the case and lessons learned—focusing on CS management’s prolonged unsuccessful efforts to address risk-management failings; Swiss supervisory actions; supervisory intrusiveness; recovery planning and activation; contingency arrangements and coordination; resolution preparedness and tools; liquidity in resolution; shareholder rights and creditor treatment predictability; predictability of resolution actions; and communication strategies.
  - Reviews by authorities, FSB peers, and possibly others provide an opportunity; the cost of the merger and the extent of recoveries, if any, should be disclosed to the public on an ongoing basis.
- Other financial sector risks:
  - Apart from CS, banks and NBFIs have sufficient buffers, but risks have risen amid rising interest rates, slower growth, weaker global confidence, and high real estate prices.
  - Banks and insurers have shown resilience in stress tests; NPLs are low.
  - NBFIs face potential risks from exposure to managed products and interlinkages during global financial turmoil.
  - Real estate market imbalances remain elevated, partly driven by structural factors; higher interest rates are expected to cool the market.
  - If vulnerabilities continue to build, authorities should:
    - Activate the broad-based CCyB.
    - Urge banks to tighten prudential tools within the self-regulation framework.
    - Consider expanding the macroprudential toolkit with legally-mandated tools.
    - Address affordability concerns through supply-side measures.
  - If downside risks materialize, banks should be encouraged to use their buffers to absorb losses and to maintain credit flow.
  - Further efforts on closing regulatory data gaps are warranted to better monitor risks.

*Source: 1cheea2023001 - 28. The authorities broadly agreed with staff’s assessment of financial sector*

### 50.      Further efforts on implementing recommendations from the 2019 FSAP are necessary

### 50.      Further efforts on implementing recommendations from the 2019 FSAP are necessary

### Financial stability and supervisory reform
- Further and expedited action is needed to safeguard financial stability.
- Objective: ensure an autonomous and fully resourced supervisor with the power to conduct in-depth risk-based assessments and enforce its findings.
- Strengthen resolution and crisis management arrangements.
- Rationale: in the context of elevated financial sector risks, these measures would help enforce Switzerland’s standing as a predictable, well governed, financial center.

### Energy security and climate-related financial disclosure
- Short-term energy security risks have been addressed.
- Timely actions are needed to ensure secure supply while emissions are reduced.
- Medium- and long-term energy security depends on measures to avoid infrastructure development bottlenecks, including expansion of the transmission network.
- Timely passage of the revised proposal for the Third CO2 Act is important.
- Switzerland has taken steps to improve disclosure of climate-related financial information to facilitate accurate valuation of assets in light of climate risks.

### Labor market, productivity, and pensions
- The tight labor market highlights the importance of reforms to ease labor shortages and keep inflation in check.
- Key reforms: boost productivity, raise labor force participation, and reduce skill gaps.
- Pension reform package passed in 2022 is expected to ensure sufficient Pillar 1 financing through 2030.
- Future reforms should focus on sustainability of Pillar 1 beyond 2030 and on Pillar 2.

### EU relations and geo-economic fragmentation
- Continued dialogue with the EU has yielded progress.
- The authorities’ strategy to address geo-economic fragmentation risks through diversification is welcomed.
- The “package-based” approach for future negotiations may lead to outcomes that give clarity on EU relations and Swiss access to the EU single market.
- Authorities aim to strengthen resilience by expanding and modernizing the free-trade-agreement network and other bilateral and multilateral cooperation, supported by removing import duties and maintaining strategic reserves.

*From: 1cheea2023001 - 50.*

### 54.      It is recommended that the next consultation takes place on the regular 12-month

### 1cheea2023001 - 54.      It is recommended that the next consultation takes place on the regular 12-month cycle.

### Recommendation
- It is recommended that the next consultation takes place on the regular 12-month cycle.

### Recovery, High-Frequency and Leading Indicators
- Recovery continued in 2022, with a weakened momentum.
- Retail sales contracted in real terms.
- Activity receded, but picked up slightly in recent months.
- Confidence indicators have weakened.
- Manufacturing PMI continued to slide while services PMI saw a rebound.
- Weekly Economic Activity Index (WEA) and GDP (percent yoy) show a drop in 2022 followed by modest pickup through Apr-2023 (charts provided).

### Key Macroeconomic Indicators and Contributions (2000–23 highlights)
- Net exports declined in 2022, but consumption was robust.
- Current account (CA) rose with improved merchanting and services trade.
- Trade and financial services had negative growth in 2022.
- Public debt remains moderate.
- Unemployment rate continued to decline in 2022.
- NEER rose by 4.4pct in 2022, but CPI-based REER fell by 0.9pct in 2022.
- Contributions to Real GDP Growth (2022): consumption, construction, fixed investment, net exports, inventories and others (charts provided).

### Monetary Policy (2007–23)
- The SNB’s policy rate was raised to 1.5 pct.
- CHF strengthened vs. EUR and weakened vs. USD since 2022 (bilateral exchange rate indices shown through Mar-23).
- Valuation losses led to a large drop in FX reserves in 2022.
- Cash in circulation declined along with interbank liquidity.
- Mortgage and investment loan rates were pushed higher; rates for large deposits turned positive.
- Money market rates (SARON, 3M government bond yields, SNB policy rate) rose into 2023 (charts provided).

### Inflation and Monetary Indicators (2010–23)
- Inflation rose above the SNB’s price stability range.
- Import prices were initially the main driver, but domestic prices have recently picked up.
- The euro exchange rate was not the main driver of imported inflation (CHF/Euro level shown).
- Long-term inflation expectations remained anchored (Price Stability Range and Inflation Expectations charts).
- Unit labor costs (y/y percent change) and pressures on labor costs have picked up.
- Higher inflation led to smaller increases in real rates (Real Interest Rates series; real policy rate = nominal rate minus inflation).

### Selected Financial Indicators (2000–23)
- Money multiplier rose in 2022 as monetary base contracted.
- Stock market indices declined in 2022.
- 10-yr government bond yields rose to ~1.6pct in 2022.
- Mortgages growth remained robust.
- Short-term deposit rates and government bond yields of all maturities have risen (1-month, 6-month, 12-month deposit rates; government bond yields 1-Yr to 30-Yr eop).

### External Accounts (2000–22)
- The current account has remained in surplus, supported by exports of chemicals and watches.
- Labor income kept primary income balance negative; secondary income balance remained negative.
- NIIPs are balanced across USD, euro, and other currencies; SNB flows remain the key driver of the NIIP.
- Balance of Payments (2022): positive current account; reserves and components shown in billions of CHF (charts provided).

### Housing Markets and Household Balance Sheets (1996–22)
- Prices continued to rise in all segments through 2022; regional heterogeneity noted.
- Price-to-income (PTI) ratios now ~35pct higher than historical averages.
- Mortgage-to-GDP declined somewhat since COVID, but household debt is high by international standards.
- Note: "While per capita household financial assets in Switzerland are two to three times higher than in neighbouring countries, per capita liabilities are three to four times higher."

### Selected Time-Series and Projections — Key Figures (Table excerpts)
- Real GDP (Percent Change), 2017–2027:
  - 2017: 1.4
  - 2018: 2.9
  - 2019: 1.2
  - 2020: -2.5
  - 2021: 4.2
  - 2022: 2.1
  - 2023: 0.8
  - 2024: 1.8
  - 2025: 1.2
  - 2026: 1.8
  - 2027: 1.2
- Total domestic demand (2017–2027, percent changes): 1.5; 1.2; 2.0; -0.5; -0.9; 1.3; 1.0; 1.8; 1.2; 1.2; 1.2
- Private consumption (2017–2027): 1.2; 0.6; 1.2; -4.2; 1.7; 4.0; 1.8; 1.2; 1.1; 1.1; 1.1
- Nominal GDP (billions of Swiss francs), selected years:
  - 2017: 684.6
  - 2018: 709.7
  - 2019: 717.3
  - 2020: 693.9
  - 2021: 730.8
  - 2022: 770.9
  - 2023: 798.8
  - 2024: 827.0
  - 2025: 849.5
  - 2026: 877.8
  - 2027: 901.6
- Gross national saving (percent of GDP), 2017–2027: 31.2; 31.2; 30.2; 30.3; 35.0; 35.6; 33.9; 34.6; 33.9; 34.1; 33.6
- Gross domestic investment (percent of GDP), 2017–2027: 25.9; 25.6; 26.3; 29.8; 26.2; 25.5; 26.2; 26.6; 26.3; 26.1; 26.0
- Current account balance (percent of GDP), 2017–2027: 5.4; 5.6; 3.9; 0.4; 8.8; 10.1; 7.8; 8.0; 7.6; 8.0; 7.6
- Consumer price index (period average), 2017–2027: 0.5; 0.9; 0.4; -0.7; 0.6; 2.8; 2.5; 1.9; 1.7; 1.5; 1.5
- Unemployment rate (percent), 2017–2027: 3.1; 2.5; 2.3; 3.2; 3.0; 2.2; 2.3; 2.4; 2.4; 2.4; 2.4
- Potential output growth (percent), 2017–2027: 1.8; 1.8; 1.8; -0.5; 2.7; 1.2; 1.5; 1.5; 1.5; 1.5; 1.5
- General Government gross debt (percent of GDP), 2017–2027: 41.8; 39.8; 39.7; 43.3; 41.7; 41.4; 39.9; 38.3; 37.2; 35.9; 34.9

### Balance of Payments (Table 2, selected items, 2017–27)
- Current Account (billions CHF), 2017–2027: 37; 40; 28; 36; 47; 86; 26; 66; 47; 69; 69
- Goods balance (billions CHF), 2017–2027: 63; 71; 71; 59; 101; 121; 141; 211; 301; 391; 50
- Exports (billions CHF), 2017–2027: 324; 338; 341; 331; 401; 451; 479; 513; 544; 576; 610
- Imports (billions CHF), 2017–2027: 260; 267; 270; 272; 294; 338; 365; 392; 414; 437; 461
- Service balance (billions CHF), 2017–2027: -7; -2; -6; -18; -18; -9; -12; -15; -19; -19; -24
- Net primary income (billions CHF), 2017–2027: -7; -20; -24; -23; -12; -13; -26; -26; -32; -35; -42
- Net secondary income (billions CHF), 2017–2027: -13; -9; -12; -15; -12; -12; -14; -13; -14; -15; -15
- Net IIP (in percent of GDP), 2017–2027 (memorandum): 99.3; 111.9; 91.6; 112.8; 108.0; 93.3; 91.6; 93.3; 95.7; 97.2; 99.5
- Official reserves (billions of Francs, end-period): 79.2; 177.6; 82.6; 495.4; 11014.1 (table shows series; staff estimates/notes appended).

### SNB Balance Sheet (Table 3, selected items, 2012–22, Millions of Swiss francs)
- Total assets (selected years): 2012: 499,434; 2013: 490,382; 2014: 561,202; 2015: 640,152; 2016: 746,502; 2017: 843,306; 2018: 817,069; 2019: 860,956; 2020: 999,028; 2021: 1,056,776; 2022: 881,377
- Foreign currency reserves (selected years): 2012: 432,209; 2013: 443,275; 2014: 510,062; 2015: 593,234; 2016: 696,104; 2017: 790,125; 2018: 763,728; 2019: 794,015; 2020: 910,001; 2021: 966,202; 2022: 800,566
- Currency in circulation (banknotes), selected years: 2012: 61,801; 2013: 65,766; 2014: 67,596; 2015: 72,882; 2016: 78,084; 2017: 81,639; 2018: 82,239; 2019: 84,450; 2020: 89,014; 2021: 90,685; 2022: 81,697
- Monetary base 1/ (selected): 2012: 284,381; 2013: 360,765; 2014: 375,305; 2015: 455,863; 2016: 504,140; 2017: 551,849; 2018: 549,374; 2019: 564,161; 2020: 674,297; 2021: 725,618; 2022: 706,823

### General Government Finances (Table 4, selected years and aggregates)
- General Government Revenue (billions CHF), 2018–2027: 234; 239; 237; 254; 254; 259; 266; 272; 281; 288; 296 (table shows 2018–2027 series)
- General Government Expenditure (billions CHF), 2018–2027: 225; 229; 258; 256; 246; 258; 264; 271; 280; 288; 296
- Net lending/net borrowing (billions CHF), 2018–2027: 9; 10; -21; -27; 12; 1; 1; 1; 1; 1; 1
- General Government Gross Debt (percent of GDP), 2018–2027: 28; 28; 30; 30; 30; 32; 31; 31; 31; 31; 31 (table entries show projections and levels)

### Government Finances Detail (Table 5, 2011–22, selected highlights)
- General Government Revenue (billions CHF), 2011–2022: 204.2; 205.3; 210.3; 212.6; 220.5; 221.5; 229.9; 234.5; 238.9; 236.5; 254.1; 253.8
- Taxes (billions CHF), 2011–2022: 125.5; 126.1; 129.1; 130.9; 135.9; 138.0; 144.6; 146.9; 151.2; 145.5; 156.0; 155.8
- Expenditure (billions CHF), 2011–2022: 199.9; 203.8; 213.1; 214.2; 216.9; 219.8; 222.2; 225.3; 229.3; 257.5; 256.3; 246.4
- Net Lending/Borrowing (billions CHF), 2011–2022: 4.3; 1.5; -2.8; -1.6; 3.6; 1.6; 7.7; 9.2; 9.6; -21.0; -2.2; 7.3

### Bank Soundness Indicators (Table 6, 2011–22)
- Regulatory Tier I capital as percent of risk-weighted assets (2011–2022): 15.4; 15.7; 17.8; 16.1; 16.6; 15.7; 18.2; 18.3; 19.0; 19.3; 19.1; 19.4
- Regulatory Tier 1 capital as percent of assets (2011–2022): 5.5; 5.5; 6.1; 6.9; 7.3; 7.1; 8.0; 8.3; 8.6; 8.1; 7.7; 8.4
- Non-performing loans as percent of total gross loans (2011–2022): 0.8; 0.8; 0.8; 0.7; 0.7; 0.7; 0.6; 0.7; 0.6; 0.8; 0.7; 0.6
- Liquidity Coverage Ratio (2015 onward): 33.9; 35.4; 47.4; 47.4; 74.4; 140.3; 152.7; 150.9; 158.3; 160.6; 179.2; 177.6; 165.3 (table shows introduction and series)

*Sources: Haver Analytics; IMF's Information Notice System; Swiss National Bank; Federal Finance Administration; Information Notice System; State Secretariat for Economic Affairs; Federal Customs Administration; Swiss Federal Statistics Office; Thomson Reuters Datastream; Wuest Partners; IAZI; BIS; OECD; and IMF staff calculations and estimates.*

### Annex I. Impact of Russia’s War in Ukraine on the Swiss Economy

### Annex I. Impact of Russia’s War in Ukraine on the Swiss Economy

### Impact on post-pandemic recovery, inflation, and trade
- Energy prices in the CPI basket rose on average by 22.4 percent in 2022 (8.6 percent in 2021, -8.2 percent in 2020), a key driver that pushed inflation to 2.8 percent, above the SNB’s 0–2 percent price stability range.
- The global slowdown, in part driven by Russia’s war in Ukraine, put a significant drag on Switzerland: net exports contributed 5.0 percentage points (pp) to GDP growth in 2021 but only 1.0 pp in 2022.
- Merchanting trade was strong in 2022—the surplus increased by CHF13.6 billion or 1.8 percent of GDP compared to 2021.

### Risks that proved more manageable than expected
- Supply-chain disruptions had a relatively mild impact on Switzerland, attributed to the high competitiveness and diversity of the economy and its extensive supply chain network.
- The impact on the financial industry from the sanctions on Russia and Belarus was mainly confined to target assets and institutions; there was no widespread spillover to the rest of the financial sector.
- Switzerland’s exports to Russia (~0.4 percent of total exports) fell less than those of EU countries due to substantial trade in medicines and immunological products, which were not sanctioned.

### Authorities’ policy measures and fiscal impacts
- Objective: secure supply of essential goods (food, energy).
  - Measures to tackle possible gas and winter electricity shortages included reducing energy consumption, setting up backup power stations and hydro reservoirs, and drafting emergency plans.
  - Government reduced compulsory fuel stocks several times to stabilize supply and curb price volatility.
  - A credit envelope was established to provide liquidity support to power suppliers of systemic importance.
  - In agricultural policy, border protection was reduced and import quotas increased to counter food, feed, and fertilizer price increases and shortages.
- Support and costs:
  - Apart from increasing old-age pension and disability insurance benefits, no broad support measures to offset elevated food and energy prices were rolled out.
  - Switzerland received about 75,000 Ukrainian refugees in 2022; the fiscal cost for the federal government was CHF1.2 billion. CHF1.7 billion of extraordinary expenditure is planned for 2023.
  - The spending was treated as extraordinary expenditure and did not necessitate immediate tax hikes or cuts in other budget areas, but will need to be offset over the medium term under the debt-brake rule.

### Long-run implications and structural considerations
- Geo-economic fragmentation brought to light by the war is likely to persist, prompting discussions about more spending on national defense.
- Businesses may tilt supply-chain decisions toward security over cost, potentially raising costs and lowering efficiency.
- The war reinforced consensus to expedite the transition to green energy.

### Annex I. Box 1 — Measures to Strengthen Energy Supply in 2022
- Measures to Ensure Near-term Natural Gas Supply:
  - March/May: Requirement for the gas industry to secure storage capacities in neighboring countries and develop additional options for gas supplies.
  - August/September: A voluntary target of gas consumption savings of 15 percent (through information campaign, recommendation to switch dual-fuel systems from gas to oil, temporary relaxation CO2 emission requirements for affected consumers).
  - November: Preparation of ordinances on gas usage bans/restrictions and on quota systems.
- Measures to Secure Electricity Supply for the Winter of 2022/23:
  - February/September: Decision/legislation to establish a hydropower reserve.
  - August/September/December: Decision/legislation/contract negotiation to set up reserve power plants.
  - October: Temporary increase of the voltage on two major power lines.
  - November: Consultations on power shortage management measures, including usage restrictions and bans, immediate quotas for large consumers, a quota system for large consumers and grid shutdowns.
- Measures to Boost Green Transition and Long-term Electricity Security:
  - Dispatch on the Federal Act on a Secure Electricity Supply from Renewable Sources (submitted to Parliament in June 2021, still being debated/considered by the parliament).
  - Proposal to streamline construction authorizations by having only one appeal procedure, which could significantly reduce approval times for large wind and hydropower plants.
- Other Measures:
  - Temporary releases of compulsory fuel stocks to stabilize supply and curb price volatility.
  - Framework credit for liquidity support to electricity providers of systemic importance.

*Source: Annex I. Impact of Russia’s War in Ukraine on the Swiss Economy.*

### Annex IV. Implementation of FSAP (2019) Recommendations

### Annex IV. Implementation of FSAP (2019) Recommendations

### Summary
- The authorities are continuing to implement 2019 FSAP advice, but progress has been slow.
- In the context of elevated financial sector risks, further and expedited progress is needed.
- Key priorities highlighted:
  - FINMA: ensure risk-focused, in-depth, forward-looking supervision; fill resource gaps; enhance enforcement powers.
  - System-wide analysis: fintech, asset management, financial market infrastructures (FMIs).
  - Macroprudential framework: broaden the toolkit to address vulnerabilities in real estate and mortgage markets.
  - Deposit insurance: further reform the deposit insurance scheme and develop effective resolution funding arrangements.
  - Recovery and resolution planning: fill gaps for systemically important institutions, including FMIs (particularly after the launch of SDX).
  - Monitor and manage asset management concentration risk and pension fund systemic risks.

### Implementation Status of Key Recommendations (1–12)
- Timing codes: C = Continuous; I = Immediate (within one year); ST = Short Term (within 1–2 years); MT = Medium Term (within 3–5 years).

- 1. Strengthen FINMA’s autonomy, governance, and accountability, and preserve the primacy of its prudential mandate. (FDF/FINMA; ¶32–34) — Timing: C
  - Implementation: Partly taken into account in the 2020 Ordinance to the Financial Market Supervision Act, which is being fully implemented and applied. Steps are needed to strengthen FINMA autonomy, governance, and accountability.

- 2. Increase resources for high-quality data gathering and analysis of financial system risks, especially for the fast-moving fintech sector, and to advance recovery and resolution planning. (SNB/FINMA/OAK BV; ¶15, ¶29, ¶36 ¶41, ¶51, ¶54, ¶58, ¶63) — Timing: MT
  - Implementation: Progress has been made in some areas (fintech, asset management, recovery and resolution planning, FMIs), but gaps remain.

- 3. Expand the macroprudential toolkit with mandated supply- and demand-side tools, and strengthen accountability and expectations to act in decision-making. (SNB/FINMA/FDF; ¶35–36) — Timing: ST
  - Implementation: New mandated tools have not been introduced in the macroprudential toolkit, but adjustments will be considered in the context of Basel III implementation.

- 4. Ensure that FINMA—rather than banks—contracts and pays directly for supervisory audits using ‘audit-level’ practices in critical areas. (FDF/FINMA; ¶38) — Timing: ST
  - Implementation: FINMA can directly contract for supervisory audits (mandated audits), but the bank pays the bill. On audit depth, for risks rated very high, FINMA performs ‘audit level’ reviews. An ex-post analysis of changes in the auditing approach is being carried out and expected to be published in 2023. No additional progress has been made.

- 5. Focus supervisory audits and increase FINMA’s risk-based on-site inspections. (FINMA; ¶38) — Timing: ST
  - Implementation: FINMA has adjusted its supervisory approach by guiding external auditors to follow a more risk-focused approach, working more closely with external auditors, and increasing the number of on-site inspections (supervisory reviews and deep dives).

- 6. Strengthen assessments of key risk management and control practices. (FINMA; ¶39) — Timing: MT
  - Implementation: Progress has been made by integrating measures identified in FINMA Risk Barometer into the supervisory planning process, by formalizing the internal risk assessment process through a ‘risk inventory’, and by influencing bank remediation plans. Additional measures are needed to strengthen ex ante governance assessments and feed them into supervisory action.

### Financial Market Infrastructures (FMIs)
- 7. Strengthen recovery and resolution planning for financial market infrastructures (FMIs). (FINMA/SNB/SIX; ¶49) — Timing: I
  - Implementation: FINMA assesses recovery plans for SIX x-clear and SIX SIS on a yearly basis. After first-time approvals in 2021, FINMA approved both plans again in 2022 as conditions have been addressed and fulfilled. The preferred resolution strategy for SIX x-clear has been defined and resolution planning efforts for SIX SIS continued, but overall development of resolution strategies is still ongoing.

- 8. Improve independence of FMIs governance arrangements. (SNB/SIX; ¶48) — Timing: ST
  - Implementation: Limited progress in consolidated supervision to ensure FMIs governance and autonomy in risk management in crisis situations. Analysis and discussions are ongoing.

### Asset Management
- 9. Better monitor and manage concentration risk of regulated funds, and empower FINMA to impose administrative fines. (FDF/FINMA; ¶52–53) — Timing: ST
  - Implementation: Legislation with additional requirements for risk monitoring has been approved by Parliament. Discussions on additional monitoring, including of concentration risks, are ongoing. The authorities do not intend to empower FINMA to impose fines.

### Fintech and Crypto-Assets
- 10. Enhance the monitoring of activities and address regulatory gaps. (FDF/FINMA; ¶58–59) — Timing: ST
  - Implementation: Authorities have stepped up supervision and monitoring of fintech and crypto activities and increased resources allocated to these sectors.
  - The DLT Act entered into force in 2021:
    - Recognizes transfer of ledger-based securities as legally valid without physical transfer or book-entry.
    - Allows DLT-based FMIs to admit non-financial intermediaries to trade DLT securities.
    - Provides legal certainty in insolvency law by regulating the segregation of crypto-assets in the event of bankruptcy.

### Financial Safety Net and Crisis Management
- 11. Enhance, expand, and expedite recovery and resolution planning, including resolvability. (FDF/FINMA; ¶63–66) — Timing: ST
  - Implementation:
    - Partial progress: FINMA approved G-SIB recovery plans, and banks made further progress on global resolvability.
    - A new regulation on liquidity requirements for SIBs came into force in 2022.
    - The Federal Council (FC) established new rules on incentive setting related to resolvability.
    - A “public liquidity backstop” that covers SIBs was initiated in 2022 and adopted under an emergency ordinance for 6 months in March 2023.
    - Emergency plans to guarantee resolvability are not ready for two domestic SIBs.
    - Non-SIBs currently are not included in resolution planning.
    - For insurers, the FC is expected to set new legislation into force as of beginning 2024, including RRP requirements for insurers with a balance sheet exceeding 5 billion CHF.

- 12. Thoroughly reform the DIS with a public DIA that is included in the crisis management framework, ex-ante DIS funding, and the authority to use deposit insurance funds for resolution funding, subject to safeguards. (FDF; ¶67–68) — Timing: MT
  - Implementation: Current reforms fall short of international norms regarding a public DIA, ex ante DIS funding, and use of deposit insurance funds for resolution funding. The authorities do not intend to overhaul the DIS as recommended.

### Notable Timings and Actions Mentioned
- 2020 Ordinance to the Financial Market Supervision Act: partly addresses recommendation 1 and is being fully implemented and applied.
- DLT Act entered into force in 2021 (fintech/crypto legal framework).
- FINMA approvals of SIX x-clear and SIX SIS recovery plans: first-time approvals in 2021; approved again in 2022.
- New regulation on liquidity requirements for SIBs came into force in 2022.
- Public liquidity backstop initiated in 2022 and adopted under an emergency ordinance for 6 months in March 2023.
- Expected FC legislation for insurers with balance sheets exceeding 5 billion CHF to take effect as of beginning 2024.
- Ex-post analysis of auditing approach expected to be published in 2023.

*Based on information provided by the Swiss authorities.*

### 3.      In early 2023, the FC adopted a CHF 2 billion budget clean-up plan to comply with the

### 3.      In early 2023, the FC adopted a CHF 2 billion budget clean-up plan to comply with the

### Budget clean-up measures (early 2023)
- Objective: Comply with the debt-brake rule and eliminate the structural deficit for 2024.
- Total package: CHF 2 billion focused mainly on spending; intended as first step towards a full-scale medium-term fiscal plan.
- Measures:
  - Deletion of mandatory contribution CHF 0.6 billion to Horizon Europe.
    - Context: Switzerland was refused association for the latest cycle of the EU research funding program Horizon Europe. The FC is still striving for association. If it succeeds, the contribution will be re-applied.
  - Savings of CHF 0.3 billion from military spending growth path flattening out.
    - Rationale: Military spending is now expected to grow more slowly than previously envisaged in 2024–2026.
  - Additional tax contribution of CHF 0.2 billion from removal of a tax promotion on electric vehicles.
    - Implementation: EVs are to be subject to automobile tax from 2024. The consultation on the necessary amendment to the ordinance is to be opened in spring 2023.
  - Financial needs in migration classified as extraordinary expenditure.
    - Implementation: The FC will apply again an extraordinary payment regime for migration spending in 2024 in accordance with Art. 15 FHG.
  - Cuts in discretionary expenditure in all departments of 1 to 2 percent.

### Proposed tweaks announced March 2023 and remaining fiscal gap
- Expected additional savings: CHF 600–700 million from tweaks to strictly earmarked items.
  - Components include:
    - Lowering the federal contribution to unemployment insurance.
    - Adjusting the provision and financing of childcare outside the family.
    - Reducing the deposit in the railway infrastructure fund.
    - Rationalizing survivors’ pensions.
- Assessment: Additional measures are still needed to eliminate the structural deficits in 2025 and 2026.
- FC action: In March 2023 the FC approved parameters for the multi-year financing decisions for 2024–28 that set upper limits on the nominal growth rate of priority items, taking into account the increasing strains on the budget.

### Debt sustainability assessment (Annex VII summary)
- Overall risk of sovereign stress: Low.
  - Near-term: Not published for surveillance-only cases; medium-term: Low; long-term: Moderate.
  - Rationale: Low near- and medium-term vulnerability reflects a relatively low level of vulnerability in the near-term and medium-term, and a moderate level of vulnerability in the long-term. Strength of the debt-brake rule guides fiscal policy.
- Sustainability assessment: Sustainable.
  - Debt stabilization in the baseline: Yes.
  - Commentary highlights:
    - Projected debt path expected to stabilize and GFNs will remain at manageable levels.
    - Medium-term liquidity risks as analyzed by the GFN Financeability Module are low.
    - Longer-run risks are driven by population aging, green transition, and digitalization; authorities’ planned measures and fiscal plan will help contain long-run risks.

### Baseline scenario (selected quantitative indicators)
- Public debt (percent of GDP):
  - Actual 2022: 39.15
  - 2023: 51.24
  - 2024: 49.44
  - 2025: 47.94
  - 2026: 46.34
  - 2027: 45.04
  - 2028: 43.5
- Change in public debt (percent of GDP):
  - 2023: 12.1
  - 2024: -1.8
  - 2025: -1.5
  - 2026: -1.6
  - 2027: -1.3
  - 2028: -1.5
- Contribution of identified flows (percent of GDP): mirrors changes above for 2023–2028.
- Primary deficit (percent of GDP):
  - 2022: -0.3
  - 2023: -0.5
  - 2024: -0.3
  - 2025: -0.2
  - 2026: -0.1
  - 2027: -0.1
  - 2028: -0.1
- Noninterest revenues (percent of GDP): 33.5 (2022); 33.1 (2023); 32.8 (2024); 32.6 (2025–2028)
- Noninterest expenditures (percent of GDP): 33.2 (2022); 32.6 (2023); 32.5 (2024); 32.4 (2025–2026); 32.5 (2027–2028)
- Automatic debt dynamics (percent of GDP): -2.2 (2022); -0.9 (2023); -1.3 (2024); -1.0 (2025); -1.2 (2026); -0.9 (2027); -1.1 (2028)
- Real interest rate and relative inflation (percent): -1.3 (2022); -0.6 (2023); -0.4 (2024–2027); -0.3 (2028)
- Real GDP growth (percent):
  - Actual 2022: 2.1
  - Projection: 0.8 (2023); 1.8 (2024); 1.2 (2025); 1.8 (2026); 1.2 (2027); 1.8 (2028)
- Inflation (GDP deflator; percent): 3.3 (2022); 2.5 (2023); 1.5 (2024–2028)
- Nominal GDP growth (percent): 5.4 (2022); 3.3 (2023); 3.3 (2024); 2.7 (2025); 3.3 (2026); 2.7 (2027); 3.3 (2028)
- Effective interest rate (percent): 0.0 (2022); 0.9 (2023); 0.7 (2024–2028)
- Gross financing needs (percent of GDP):
  - 2022: 3.3
  - 2023: 17.1
  - 2024: 3.4
  - 2025: 6.6
  - 2026: 7.1
  - 2027: 8.1
  - 2028: 9.2
- Debt service (percent of GDP):
  - 2022: 3.9
  - 2023: 4.1
  - 2024: 4.0
  - 2025: 7.1
  - 2026: 7.5
  - 2027: 8.5
  - 2028: 9.5
- Staff commentary: Public debt is assumed to rise in 2023 reflecting contingent liability of CHF 109 billion from government guarantee credits to SNB and UBS. This scenario represents an upper bound of the debt/GDP ratio as the government may recognize the contingent liability gradually over time. The low public debt level also provides a buffer against uncertainties stemming from the contingent liabilities. Public debt will gradually stabilize over the years, reflecting the strength of the fiscal rule and expectations of stable economic performance.

*Source: Fund staff.*

### Annex VII. Figure 5. Switzerland: Realism of Baseline Assumptions

### Annex VII. Figure 5. Switzerland: Realism of Baseline Assumptions

### Fund Relations and Key Financial Indicators
- Membership Status: Joined May 29, 1992; Article VIII.
- Quota: SDR Million 5,771.10 (100.00 percent of Quota).
- Fund holdings of currency: SDR Million 4,054.15 (70.25 percent of Quota).
- Reserve position in Fund: SDR Million 1,717.03 (29.75 percent of Quota).
- New arrangements to borrow: SDR Million 43.41.
- SDR Department net cumulative allocation: SDR Million 8,819.38 (100.00 percent allocation).
- SDR Department holdings: SDR Million 9,105.87 (103.25 percent allocation).
- Outstanding Purchases and Loans: None.
- Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Interest: 0.12 in 2023, 0.12 in 2024, 0.12 in 2025, 0.12 in 2026.
  - Total: 0.12 in 2023, 0.12 in 2024, 0.12 in 2025, 0.12 in 2026.

### Exchange Rate Arrangement and International Operations
- De jure exchange rate arrangement: free floating; Swiss franc determined by market forces; SNB reserves the right to intervene.
- SNB publishes quarterly information regarding its foreign exchange transactions on the SNB data portal, starting with data for Q1:2020.
- De facto exchange rate regime reclassified from crawl-like to floating, effective January 7, 2022.
- Switzerland has accepted obligations of Article VIII, Sections 2, 3, and 4; maintains exchange system free of multiple currency practices except notified security-related restrictions.
- On April 24, 2023, Switzerland notified the IMF of exchange restrictions imposed against certain countries, individuals, and entities in accordance with relevant UN Security Council resolutions and EU regulations.

### Statistical Capacity and Data Adequacy
- General assessment: Data provision is adequate for Fund surveillance; timely economic statistics published and documentation posted online.
- National Accounts:
  - Quarterly national accounts published by the State Secretariat for Economic Affairs; annual national accounts published by the Federal Statistical Office.
  - GDP by canton published with significant lag (2020 data released in October 2022).
- Price Statistics:
  - CPI and PPI disseminated monthly by the Federal Statistical Office.
  - CPI weights updated every year based on household budget survey.
  - Agricultural and industrial PPI weights based on average value of production in 2017 and 2018; updated every five years.
  - Quarterly residential property price index compiled from mortgage lender price data.
- Government Finance Statistics:
  - Compiled by the Federal Finance Administration; general government data released with one quarter lag; finalized with longer delay due to canton and commune fiscal accounts.
  - Full reconciliation with national accounts published September 28, 2020.
- Monetary and Financial Statistics:
  - SNB reports monetary statistics for monetary authorities, deposit money banks, and other banking institutions for IFS, but with long lags and report forms not initially consistent with SRFs.
  - Migration to SRFs underway; SRFs 1SR and 2SR compiled and reported for dissemination; STA working to fix remaining issues on 1SR, 2SR, and 5SR.
- Financial Sector Surveillance:
  - Switzerland reports 10 core FSIs, six additional FSIs for deposit takers, and two additional FSIs for real estate markets quarterly; two core and two additional deposit-taker FSIs semi-annually; two additional real estate FSIs annually.
- External Sector Statistics:
  - BOP and IIP statistics published in BPM6 format from 1999 onwards.
  - Reports to IMF: annual CDIS; semi-annual and annual CPIS; monthly International Reserves and Foreign Currency Liquidity; annual and quarterly BOP and IIP for Special Purpose Entities.
  - Switzerland reports quarterly external debt data to the World Bank database.
- Data Standards:
  - Adhered to SDDS Plus in January 2021; SDDS subscriber since 1996 with flexibility options maintained.

### Recent Events and Financial Sector Stability
- Statement date: May 31, 2023.
- Authorities’ actions on March 19, 2023:
  - Enabled acquisition of Credit Suisse by UBS to avoid Credit Suisse failing on March 20, 2023.
  - Authorities (Swiss government, SNB, FINMA) combined private sector takeover with supporting measures, notably liquidity provision, to restore trust, ensure market functioning, and protect taxpayers.
  - Implementation of the acquisition is progressing; timely completion is a key priority.
- Resolution policy and TBTF:
  - A resolution plan including a full bail-in was prepared and considered.
  - Authorities will undertake a broad review of the Too-Big-to-Fail (TBTF) regulatory regime by end-March 2024, covering:
    - recovery and resolution planning;
    - capital and liquidity requirements;
    - FINMA’s competencies (including the power to impose fines);
    - rules governing compensation practices, auditing, and responsibilities of senior management;
    - provision of emergency liquidity assistance;
    - the deposit insurance system.

### Economic Outlook, Growth, and Labor Market
- Swiss GDP growth:
  - 2022: grew by 2.1 percent.
  - Q4 2022: growth was flat.
  - Q1 2023: current indicators point to a more solid performance.
  - Forecast: Swiss GDP is expected to expand by around 1 percent in 2023, significantly below average.
  - Forecast assumption: no energy shortages with widespread production outages next winter.
- Inflation:
  - Peak: 3.5 percent in August 2022.
  - April 2023: 2.6 percent.
  - SNB conditional inflation forecast (published in March): inflation set to decrease further and reach 2 percent by the end of the year.
  - SNB considers 0–2 percent range as price stability.
  - Further policy rate hikes cannot be ruled out to bring inflation back to 0–2 percent.
  - Sales of foreign currency used to dampen depreciation pressure and imported inflation; SNB willing to buy foreign currency if excessive appreciation pressures materialize.
- Labor market:
  - Unemployment rate: following an average of 2 percent in 2023, projected to slightly increase in 2024.
  - Impact of UBS acquisition of Credit Suisse on economy expected to remain limited; low unemployment and strong labor demand should cushion negative impact of job cuts.

### Fiscal Policy, SNB Profit Transfers, and Amortization
- Fiscal rule: debt brake at central government level has served Switzerland well, maintaining fiscal credibility and sustainability while allowing extraordinary spending in past crises.
- Guarantees related to UBS’s acquisition of Credit Suisse: will only affect fiscal position if called; currently generating interest revenue for the central government.
- SNB profit transfers:
  - Current projection of no profit transfers from the SNB until 2026 is described as a conservative assumption.
  - Drop in future profit transfers may affect planned amortization of past extraordinary spending.
- Amortization account deadlines and options:
  - Extension of deadline for eliminating shortfall of amortization account to 2035, with option for further prolongation to 2039.
  - Use of future structural surpluses expected to facilitate compensation of extraordinary spending even without SNB profit transfers.
- Authorities agree that medium- and long-term spending needs for ageing, climate, energy, and national security must be addressed.

### External Sector Assessment and Measurement Issues
- Authorities agree with staff that current account surplus is broadly in line with fundamentals; staff assessment to be finalized in upcoming External Sector Report.
- Measurement issues significantly inflate the Swiss current account balance; staff adjusted EBA current account gap accordingly.
- Authorities note that measurement adjustments are integral to EBA methodology and applied systematically to other countries; measurement issues help explain discrepancies between cumulated current account balances and NIIP.

### Financial Sector Risks, Macroprudential Policy, and AML/CFT
- Residential real estate:
  - Vulnerabilities remain elevated.
  - High prices partly explained by structural factors (tight supply of single-family houses and apartments).
  - Authorities will monitor risks and review need for further measures, including expanding macroprudential toolkit with legally mandated tools.
- Non-bank financial institutions (NBFIs) and fintech:
  - Need to monitor risks to enhance resilience and mitigate downside risks.
- AML/CFT framework:
  - Robust framework; latest amendments to the AML Act and AML Ordinance came into effect at the beginning of the year.
  - Draft legislation on a central register for beneficial ownership of legal entities in progress.
  - Work underway to extend AML provisions to legal professions; draft legislation to be submitted to public consultation in August.
- Sanctions:
  - Switzerland continues to implement EU financial and economic sanctions against Russia; authorities in close contact with international partners on enforcement.

### Structural Policy Priorities
- Climate policy:
  - Timely passage of revised proposal for the Third CO2 Act is critical to emission reductions over 2025–2030.
  - Substantial investments needed to reach 2050 emission reduction targets.
  - Authorities recognize necessity to provide policy framework to mobilize private capital at a pace and scale consistent with targets and in the most efficient manner.

*Prepared by European Department; informational annex and staff report material as provided.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1cheea2023001.pdf_