## KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

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### Context and Recent Developments
- Real GDP grew by 4.9 percent in 2021, surpassing its pre-pandemic level.
- Real GDP returned to pre-pandemic trend in H1 2022.
- Output gap is estimated to be positive at about 1.5 percent in 2022.
- The economy appears to be overheating.
- The war in Ukraine poses new challenges; direct exposures to Russia and Ukraine are limited (about 3 percent of external trade).
- Terms of trade deteriorated by 2.5 percent between October 2022 and January 2021, compared to the euro area average of -14 percent.
- The Netherlands is a net gas importer; gas constitutes 40 percent of the energy mix for electricity generation (16.4 percent in EA) and renewables account for 54 percent of installed capacity.
- Economic growth surprised positively at 6 percent year-on-year in 2022H1; GDP shrank by 0.2 percent quarter-on-quarter in 2022Q3 (seasonally adjusted).
- High frequency indicators showed slowdown in Q3–Q4 2022: negative retail sales and industrial production; confidence dropped.

### Outlook and Risks
- Growth projections:
  - 2022: 4.2 percent
  - 2023: 0.6 percent
- Inflation projections with activation of the energy price cap:
  - Headline inflation: from 11.6 percent in 2022 to 4.8 percent in 2023
  - Core inflation: from 5.5 percent in 2022 to 7.2 percent in 2023
- Medium-term projections and gaps:
  - Potential output growth estimated at about 1.5 percent.
  - Output gap forecast to remain positive at 1.2 percent in 2023 and slowly close by 2028.
  - Current account projected to rebound to 6.2 percent of GDP in 2023, then gradually decrease to 5.7 percent of GDP in 2028.
  - Over 2022–27 the current account balance expected to remain at 5–6 percent of GDP.
- Downside risks dominate, mainly from:
  - Further increases in energy prices
  - Energy supply disruptions
  - Lower external demand
  - A severe correction in the housing market
- Two illustrative scenarios highlighted:
  - (i) adverse war evolution leading to stagflation;
  - (ii) global slowdown (e.g., from China or the U.S.), which would reduce growth via trading-partner spillovers and could lower commodity prices and headline inflation.

### Inflation and Labor Market
- Inflation dynamics:
  - Headline inflation peaked at 17.1 percent y/y in September 2022; eased to 11.0 percent in December 2022.
  - Core inflation accelerated to 8.4 percent by December 2022.
  - HICP headline inflation: 11.6 (11.0 eop) percent in 2022; expected to fall to 4.8 (1.7 eop) percent in 2023 with the energy price ceiling activation.
  - Core inflation projected to peak in 2023 at 7.2 percent (5.8 eop) and recede over the medium term, reaching the ECB target in 2026.
- Reported energy price transmission drivers:
  - Liberalized energy markets → fast and higher pass-through.
  - Gas share in electricity generation: 40 percent (16.4 percent in EA).
  - Statistics based on flexible electricity contracts; about half of households in mid-2022 remained on longer-term fixed contracts.
- Labor market indicators:
  - Unemployment: 3.7 percent as of November 2022 (up from 3.3 percent in mid-2022).
  - Participation rate: 74.9 in Q3 (historical high).
  - Vacancy rate: 122 percent in 2022Q3 (from 66 percent at end-2019).
  - Hourly collective bargaining agreement wage growth: 3.7 percent y/y in November 2022 (from about 1.9 percent y/y in 2017–19).
  - Public sector wage growth: 5.5 percent y/y.
  - Minimum wage is set to increase by 10 percent in 2023; minimum wage applies to about 6 percent of workers.
  - Real wages continued to decline across all major sectors.

### Public Finances and Debt
- Government debt:
  - 2022Q3: 49.0 percent of GDP, down from 52.4 percent by end-2021.
- Fiscal balances and indicators:
  - 2020: -3.7 percent of GDP
  - 2021: -2.6 percent of GDP (despite 3.6 percent of GDP in COVID-related spending)
  - 2022 (staff projections and authorities): overall balance: -1.0 percent of GDP in 2022.
  - Cyclically adjusted balance: 1.9 percent (stabilized at 1.9 percent in 2022).
  - Structural balance: 0.1 percent in 2022.
  - 2022Q3: fiscal balance reached 0.5 percent of GDP.
- 2023 fiscal stance and measures:
  - The fiscal stance is expected to be expansionary in 2023 with a sizable fiscal impulse of around 1⅔ percent of GDP.
  - 2023 budget measures: added fiscal measures amounting to 2.8 percent of GDP, of which 0.4 percent of GDP is offset through revenue measures.
  - The gas and electricity price cap for small consumers in 2023 will add about 0.8 percentage points of GDP in 2023.
  - 2023 cyclically adjusted deficit projected to rise to 3.5 percent of GDP, implying an impulse of 1.7 percentage points of GDP.
- 2022 fiscal composition:
  - Spending to deal with high cost of living: 0.7 percent of GDP in 2022.
  - Spending on the green transition: 0.8 percent of GDP in 2022.
  - 2022 fiscal balance stronger than budgeted: -1.0 percent of GDP compared to -2.4 percent of GDP budgeted.
- Key fiscal table figures (selected, percent of GDP):
  - Revenue: 44.0 (2022), 43.8 (2023), 43.3 (2024), 43.3 (2025).
  - Expenditure: 45.0 (2022), 46.6 (2023), 45.1 (2024), 44.8 (2025).
  - General government balance: -1.0 (2022), -2.8 (2023), -1.8 (2024), -1.5 (2025).
  - Structural balance (percent of potential GDP): 0.1 (2022), -2.1 (2023), -2.4 (2024), -2.0 (2025).
  - Gross Debt: 48.3 (2022), 48.5 (2023), 47.9 (2024), 47.4 (2025).
- Nominal figures (selected, billions of euros):
  - Revenue: 416.8 (2022), 438.4 (2023), 455.7 (2024), 475.4 (2025).
  - Expenditure: 426.1 (2022), 466.3 (2023), 474.5 (2024), 491.3 (2025).
  - Net Lending/Borrowing: -9.2 (2022), -28.0 (2023), -18.7 (2024), -15.9 (2025).
  - Gross Debt (billions): 457.4 (2022), 485.4 (2023), 504.0 (2024), 519.6 (2025).
  - Nominal GDP (billions of euros): 947.3 (2022), 1000.4 (2023), 1052.1 (2024), 1097.0 (2025).

### Financial Sector, Housing, and Macroprudential Policy
- Banking sector resilience and risks:
  - Banking sector remains well-capitalized and liquid; profitability has rebounded from the pandemic.
  - NPL ratio improved to 1.3 percent by 2022Q2.
  - Banks have bolstered provisions in anticipation of possible asset impairments from the energy crisis.
  - Average funding ratio of occupational pension funds has returned above prudential limits by a comfortable margin, but financial market gyrations may pose renewed challenges for non-bank financial institutions.
- Credit and housing market:
  - Mortgage lending expanded at a brisk rate; housing prices started to decline, falling 2 percent below their July 2022 peak.
  - Interest rates for housing and corporate loans have started to rise from historic lows as monetary accommodation is phased out.
  - Banks have tightened credit standards due to deteriorating risk perceptions.
  - Household indebtedness: more than 100 percent of GDP.
  - Non-financial corporate debt: more than 140 percent of GDP.
  - Residential real estate sector deemed overvalued on a broad range of measures.
  - Fixed-rate mortgages: more than 90 percent of the total; maturities typically 30 years.
  - About a quarter of outstanding mortgages face an interest rate reset in the coming five years.
  - Prevalence of interest-only mortgages: around two fifths of the total.
- Macroprudential guidance and measures:
  - Avoid a pro-cyclical stance given a fluid macro-financial environment and a possibly sharper turn in the housing cycle.
  - Capital buffers should be released if financial stability risks materialize.
  - Once outlook clarity resumes, evaluate the creation of additional capital buffers if the financial cycle continues to strengthen.
  - Heightened vigilance required for Non-bank financial institutions; close data gaps; advance comprehensive macroprudential policy frameworks targeted at the sector.
- Existing macroprudential calibration (selected, preserved from source):
  - Capital conservation buffer: 2.5 percent.
  - Counter-cyclical capital buffer: 1.0 percent (May 2022 (announced), May 2023 (effective)).
  - G-SII buffer: 1.0 percent (ING).
  - O-SII buffer: 1.0-2.5 percent (ABN Amro (1.5 percent), BNG (1.0 percent), ING (2.5 percent), Rabobank (2.0 percent), Volksbank (1.0 percent)).
  - Risk weight floors on IRB mortgage exposures: 12 and 45 percent since 2022; 12 percent risk weight for up to 55 percent of collateral value, 45 percent risk weight beyond.
  - Maximum LTV for residential mortgages: 100 percent since 2018.
  - Household DSTI ratio: 13.0-41.5 percent adjusted annually.
  - Interest-only mortgages borrowing limit: maximum 50 percent of property value.

### Structural Policies and Medium-Term Priorities
- Fiscal space and planned spending:
  - Staff assessed fiscal space is available to foster stronger and greener long-term growth while contributing to reduce external imbalances.
  - Climate and Transition Fund: 4 percent of GDP.
  - New spending over two years to support a National Education Plan: about 1 percent of GDP.
  - RRP: National Recovery Resilience Plan allocates 48 percent of its total allocation for the green transition and includes R&D and knowledge development as main targeted areas.
- Labor market and social policies:
  - Tackle labor market duality to reduce skill shortages and increase resilience.
  - Policy measures: increases in childcare subsidies over the medium term; minimum wage increase in 2023; ongoing reforms of parental leave and childcare allowance.
  - RRP reforms support upskilling, job search, and improved social protection for the self-employed, including introducing a mandatory disability insurance.
- Energy security and climate transition:
  - The Netherlands became a net gas importer after ending production on Groningen (Annex VII).
  - New floating LNG terminal at Eemshaven doubled gas import capacity.
  - Two new nuclear plants planned; KCB’s operating life extended beyond 2033.
  - 40 percent tax reduction for investments in gas in the North Sea to stimulate exploration and production.
  - Netherlands and Germany announced joint drilling for a new North Sea gas field; gas production expected by end-2024.
  - CPP: Climate Policy Program updates include target change to at least a 55 percent reduction in 2030 (replacing 49 percent).
  - Staff recommends reinforcing carbon pricing with feebates and better aligning carbon prices across sectors.
- Housing policy recommendations:
  - Maintain minimum risk weight floors for mortgage loans (activated January 2022) until December 1, 2024.
  - Increase awareness about risks from interest-only lending.
  - Address structural imbalances in the housing market and strengthen means-testing for social housing eligibility.
  - Re-evaluate expansive rent control.

### Energy Measures and Cost-of-Living Mitigation (Annex I)
- Measures to mitigate energy-price effects:
  - Reduced VAT on energy from 21 percent to 9 percent, from 1 July to 31 December 2022.
  - Reduced excise duty on petrol and diesel by 21 percent (from April 1 to December 31, 2022); in 2023 excise duties kept at the same amount January–June 2023, and gradually reduced in H2 2023.
  - Temporary rise in energy tax credit by €265.
  - Temporary tariff cap proposal: maximum tariff for electricity and gas that applies to the median consumption; compensation scheme for utility companies defined.
  - Additional €300 million to the National Insulation Program in 2023–24.
  - One-off energy allowance: households living on 120 percent of the social minimum to receive a second one-off transfer of 1.300 euros in 2023 (same amount and targeted group as in 2022).
  - €35 million for municipalities for early warning to prevent disconnection.
  - Subsidy scheme for energy-intensive SMEs (TEK); compensation based on energy-costs as a percentage of turnover.
- Income support measures:
  - One-off increase in health care allowance by €412 euros.
  - 10 percent increase of the statutory minimum wage, including social benefits and old-age pensions.
  - Reimbursement percentage of the childcare allowance to be increased from 95 percent to 96 percent as of 2025.
  - One-off transfer of 1.300 euros for targeted households noted above.
- Measures to secure energy supply and reduce consumption:
  - Tightening energy savings targets for businesses.
  - Lift output restriction on coal-fired power stations for 2022–24 to operate at full capacity.
  - Gas Protection and Recovery Plan (BH-G) with three levels: alert, crisis, and post-crisis; early warning activated in June 2022.
  - Filling of the gas storage facility Bergermeer: public support includes insurance against negative winter-summer gas price spreads and a profit-sharing mechanism in case of excessive unexpected profits.

### AML/CFT and Governance Findings
- Foreign bribery and supply-side corruption:
  - OECD WGB highlighted efforts to raise awareness and reorganize enforcement agencies, but reiterated concerns about the low number of concluded cases.
  - Legal changes recommended to ensure whistleblower protection.
- Anti-money laundering / concealment-side:
  - Larger banks and some professions generally apply sophisticated customer due diligence measures, including for PEPs.
  - Understanding of risks and implementation of AML/CFT controls is particularly weak in the non-financial sector, including domicile providers.
  - Authorities released an action plan in 2022 to target compliance in the non-financial sector.
  - Identification of beneficial owners in complex international structures poses challenges across sectors.
  - Despite low number of sentences, the Netherlands has strong money laundering enforcement capacities, including effective confiscation mechanisms.
- Implementation deficiencies:
  - Recent high-profile cases identified deficiencies in customer due diligence processes.
  - NBPs tend to rely on self-declarations of PEP status rather than automated screening.
  - Notaries often register information in beneficial ownership register yet may not apply robust AML/CFT controls.
  - Resources allocated to tackling illegal trust services considered inadequate.
  - Authorities published an action plan on September 23, 2022, aimed at improving AML/CFT compliance by NBPs.

### Staff Appraisal and Policy Recommendations (selected)
- Fiscal policy:
  - For 2023: focus support on those in need and ensure energy security; maintain a non-expansionary or mildly contractionary fiscal stance that aligns with monetary policy in the fight against inflation.
  - Specify additional fiscal measures to secure such a stance; better target the price cap (e.g., compensate a lower percentage of the population or significantly reduce subsidized consumption).
  - Protect public investment on medium-term challenges (climate, labor markets, housing, education).
  - Possible revenue measures: contemplated changes to wealth tax and/or one-time solidarity tax increases on high incomes and businesses; removal of non-targeted tax measures to lower energy prices (0.5 percent of GDP); temporary solidarity contribution from the fossil fuel sector expected to yield 0.3 percent of GDP.
  - Caution on one-off windfall taxes; consider devising a permanent, well-designed excess profit tax regime as part of regular corporate taxation.
- Fiscal flexibility and shock responses:
  - Automatic stabilizers should provide a first line of response to adverse scenarios.
  - Adverse supply shock (stagflation) could necessitate greater fiscal adjustment; a negative demand shock could call for a smaller fiscal adjustment.
  - A severe housing market correction threatening financial stability could require discretionary fiscal support.
- Financial sector policies:
  - Continue monitoring vulnerabilities from a cooling richly valued housing market, energy crisis impacts on borrower debt servicing, and tightening financial conditions.
  - Avoid a pro-cyclical macroprudential stance; release capital buffers if financial stability risks materialize; evaluate creating additional capital buffers once outlook clarity resumes.
  - Heighten vigilance on NBFIs, close data gaps, and advance comprehensive macroprudential frameworks for the sector, contributing to international efforts.
- Structural policies:
  - Tackle labor market duality to reduce skill shortages and increase resilience.
  - Continue investment in energy security, the green transition, and digital technologies to enhance resilience and productivity growth.
  - Reinforce carbon taxation and strengthen climate adaptation by focusing government actions on adaptation with large positive externalities.
  - Use substantial fiscal space to devote to medium-term priorities (Climate and Transition Fund: 4 percent of GDP; National Education Plan: about 1 percent of GDP).

*International Monetary Fund — Staff Report: Kingdom of the Netherlands — The Netherlands (February 8, 2023).*

### 8.4 percent y/y. The economy appears to be overheating. The war in Ukraine is posing

### KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

### Context and Recent Developments
- Real GDP grew by 4.9 percent in 2021, surpassing its pre-pandemic level.
- Real GDP returned to pre-pandemic trend in H1 2022.
- Output gap is estimated to be positive at about 1.5 percent in 2022.
- The economy appears to be overheating.
- The war in Ukraine poses new challenges; direct exposures to Russia and Ukraine are limited (about 3 percent of external trade).
- Terms of trade deteriorated by 2.5 percent between October 2022 and January 2021, compared to the euro area average of -14 percent.
- The Netherlands is a net gas importer; gas constitutes 40 percent of the energy mix for electricity generation (16.4 percent in EA) and renewables account for 54 percent of installed capacity.
- Economic growth surprised positively at 6 percent year-on-year in 2022H1; GDP shrank by 0.2 percent quarter-on-quarter in 2022Q3 (seasonally adjusted).
- High frequency indicators showed slowdown in Q3–Q4 2022: negative retail sales and industrial production; confidence dropped.

### Outlook and Risks
- Growth projections:
  - 2022: 4.2 percent
  - 2023: 0.6 percent
- Inflation projections with activation of the energy price cap:
  - Headline inflation: from 11.6 percent in 2022 to 4.8 percent in 2023
  - Core inflation: from 5.5 percent in 2022 to 7.2 percent in 2023
- Downside risks dominate, mainly from:
  - Further increases in energy prices
  - Energy supply disruptions
  - Lower external demand
  - A severe correction in the housing market

### Inflation and Labor Market
- Headline inflation peaked at 17.1 percent y/y in September 2022; eased to 11.0 percent in December 2022.
- Core inflation accelerated to 8.4 percent by December 2022.
- Reported energy price increase drivers:
  - Liberalized energy markets → fast and higher pass-through
  - Gas share in electricity generation: 40 percent (16.4 percent in EA)
  - Statistics based on flexible electricity contracts; about half of households in mid-2022 remained on longer-term fixed contracts
- Labor market indicators:
  - Unemployment: 3.7 percent as of November 2022 (up from 3.3 percent in mid-2022)
  - Participation rate: 74.9 in Q3 (historical high)
  - Vacancy rate: 122 percent in 2022Q3 (from 66 percent at end-2019)
  - Hourly collective bargaining agreement wage growth: 3.7 percent y/y in November 2022 (from about 1.9 percent y/y in 2017–19)
  - Public sector wage growth: 5.5 percent y/y
  - Minimum wage is set to increase by 10 percent in 2023; minimum wage applies to about 6 percent of workers
  - Real wages continued to decline across all major sectors.

### Fiscal Developments
- Fiscal balance:
  - 2020: -3.7 percent of GDP
  - 2021: -2.6 percent of GDP (despite 3.6 percent of GDP in COVID-related spending)
  - 2022Q3: fiscal balance reached 0.5 percent of GDP
- Strengthening factors: higher gas revenues and strong post-pandemic growth.
- The purchasing power package from July onwards: 0.7 percentage points of GDP.

### Key Policy Recommendations

Fiscal Policy
- For 2023:
  - Focus on providing support to those in need and ensuring energy security.
  - Maintain a non-expansionary or mildly contractionary fiscal stance that aligns with monetary policy in the fight against inflation.
  - Additional fiscal measures need to be specified to secure such a stance.
- Fiscal policy should remain flexible given high uncertainty.
  - Automatic stabilizers should provide a first line of response to adverse scenarios.
  - A negative supply shock could necessitate a greater fiscal adjustment compared to the baseline as inflation would rise.
  - A negative demand shock could call for a smaller fiscal adjustment.
- Over the medium term:
  - Continue focus on the climate transition.
  - Implement policies to alleviate skill shortages and boost labor participation and productivity.
  - These measures should improve resilience and reduce the external surplus while remaining affordable given substantial fiscal space.

Financial Sector Policies
- Continue monitoring financial sector vulnerabilities from:
  - Cooling of a richly valued housing market.
  - Energy crisis weighing on debt servicing capacity of borrowers.
  - Tightening of financial conditions.
- Macroprudential policy guidance:
  - Avoid a pro-cyclical stance given a fluid macro-financial environment and a possibly sharper turn in the housing cycle.
  - Capital buffers should be released if financial stability risks materialize.
  - Once outlook clarity resumes, evaluate the creation of additional capital buffers if the financial cycle continues to strengthen.
- Non-bank financial institutions:
  - Heightened vigilance required.
  - Close data gaps.
  - Advance comprehensive macroprudential policy frameworks targeted at the sector.
  - Contribute to international efforts in this area.

Structural Policies
- Tackle labor market duality to reduce skill shortages and increase resilience.
- Continue investment in:
  - Energy security
  - Green transition
  - Digital technologies to enhance resilience and productivity growth.
- On energy supply, the Netherlands can help bolster energy security of other EU countries in an emergency, given domestic production, a developed gas network and increased import capacity.
- Enhance carbon taxation to help achieve ambitious emission reduction goals.
- Strengthen climate adaptation by focusing government actions on adaptation with large positive externalities.

*International Monetary Fund — Staff Report: Kingdom of the Netherlands — The Netherlands (February 8, 2023).*

### 2022. Government debt declined to 49.0 percent of GDP in 2022Q3, from 52.4 percent by end-2021

### 2022. Government debt declined to 49.0 percent of GDP in 2022Q3, from 52.4 percent by end-2021

### Public finances and debt
- Government debt: 49.0 percent of GDP in 2022Q3, down from 52.4 percent by end-2021.
- 2022 fiscal outturn (staff projections and authorities):
  - Overall balance: -1.0 percent of GDP in 2022.
  - Cyclically adjusted balance: 1.9 percent (stabilized at 1.9 percent in 2022).
  - Structural balance: 0.1 percent in 2022 (table entries).
- 2023 fiscal stance and projections:
  - The fiscal stance is expected to be expansionary in 2023 with a sizable fiscal impulse of around 1⅔ percent of GDP.
  - 2023 budget measures: added fiscal measures amounting to 2.8 percent of GDP, of which 0.4 percent of GDP is offset through revenue measures.
  - The gas and electricity price cap for small consumers in 2023 will add about 0.8 percentage points of GDP in 2023.
  - 2023 cyclically adjusted deficit projected to rise to 3.5 percent of GDP, implying an impulse of 1.7 percentage points of GDP.
- 2022 fiscal composition and performance:
  - Spending to deal with high cost of living: 0.7 percent of GDP in 2022.
  - Spending on the green transition: 0.8 percent of GDP in 2022.
  - 2022 fiscal balance stronger than budgeted: -1.0 percent of GDP compared to -2.4 percent of GDP budgeted.

### Credit, housing market, and financial conditions
- Credit and housing:
  - Mortgage lending expanded at a brisk rate; housing prices started to decline, falling 2 percent below their July 2022 peak.
  - Interest rates for housing and corporate loans have started to rise from historic lows as monetary accommodation is phased out.
  - Banks have tightened credit standards due to deteriorating risk perceptions.
- Financial sector resilience and risks:
  - Banking sector remains well-capitalized and liquid; profitability has rebounded from the pandemic.
  - NPL ratio improved to 1.3 percent by 2022Q2.
  - Banks have bolstered provisions in anticipation of possible asset impairments from the energy crisis.
  - Average funding ratio of occupational pension funds has returned above prudential limits by a comfortable margin, but financial market gyrations may pose renewed challenges for non-bank financial institutions.
  - Outstanding follow-up: some 2017 FSAP recommendations remain unimplemented (e.g., more aggressive tightening of LTV limits or prudential ceilings for DSTIs).

### External position
- Current account:
  - Current account surplus declined to 5.5 percent of GDP in 2022, from 7.2 percent of GDP in 2021.
  - Staff-estimated cyclically adjusted current account surplus: 6.8 percent of GDP for 2022.
  - Preliminary staff-assessed current account gap: 1.3 percent of GDP (2022).
  - REER assessed as undervalued by about 1.4–3.0 percent in 2022 using EBA elasticities.
- Drivers of change:
  - Decline driven by deteriorating terms of trade (notably from Russia’s war in Ukraine), strong domestic demand, and a notable worsening of the primary income balance.
- Medium-term outlook:
  - Current account projected to rebound to 6.2 percent of GDP in 2023, then gradually decrease to 5.7 percent of GDP in 2028.
  - Over 2022–27 the current account balance expected to remain at 5–6 percent of GDP.

### Outlook, inflation, and risks
- Growth projections:
  - Real GDP growth projected at 0.6 percent in 2023 (down from 4.2 percent in 2022).
  - Potential output growth estimated at about 1.5 percent.
  - Output gap forecast to remain positive at 1.2 percent in 2023 and slowly close by 2028.
  - Medium-term public investment support: averaging 3¾ percent of GDP over the next 5 years.
- Inflation projections:
  - HICP headline inflation: 11.6 (11.0 eop) percent in 2022; expected to fall to 4.8 (1.7 eop) percent in 2023 with the energy price ceiling activation.
  - Core inflation projected to peak in 2023 at 7.2 percent (5.8 eop) and recede over the medium term, reaching the ECB target in 2026.
- Risks:
  - Downside growth risks from escalation of the war in Ukraine, renewed energy price increases, weaker external demand, and tighter financial conditions from ECB tightening.
  - Upside inflation risks from commodity price increases and second-round wage effects that could de-anchor expectations.
  - Two illustrative scenarios: (i) adverse war evolution leading to stagflation; (ii) global slowdown (e.g., from China or the U.S.). Both would reduce growth via trading-partner spillovers; global slowdown could lower commodity prices and headline inflation.
  - Domestic risk: a sharp downturn in house prices could induce households to cut consumption to service debts, amplifying real-financial feedback loops.
- Authorities’ view differences:
  - Authorities more optimistic: project higher growth at 0.8 to 0.9 percent GDP in 2023 and expect less persistent core inflation.
  - Authorities expect house price declines in 2023 and 2024 but view household financial risks as smaller due to lower loan-to-value ratios.

### Policy recommendations and fiscal strategy
- Overall policy stance:
  - While greater public spending for medium-term challenges is welcome, a non-expansionary or mildly contractionary fiscal stance in 2023 is warranted given high inflation, tight labor market, and positive output gap.
  - Macroprudential policies should avoid a pro-cyclical stance amid high macro-financial uncertainty.
  - Structural policies: prioritize investment in energy security and green technologies, enhancing labor supply, and advancing digitalization.
- Fiscal policy specifics:
  - Keep the 2023 cyclically adjusted deficit broadly in line with 2022; this would require an adjustment of about 1½ percent of GDP given projected natural gas prices (but uncertainty is high).
  - Protect public investment on medium-term challenges (climate, labor markets, housing, education).
  - Improve targeting of the price cap (e.g., compensate a lower percentage of the population or significantly reduce subsidized consumption) to:
    - Reduce fiscal exposure to volatile international energy prices.
    - Preserve price signals and incentivize energy saving.
  - Possible revenue measures to finance adjustment:
    - Contemplated changes to wealth tax and/or one-time solidarity tax increases on high incomes and businesses.
    - Removal of non-targeted tax measures to lower energy prices (0.5 percent of GDP).
    - Recently announced temporary solidarity contribution from the fossil fuel sector expected to yield 0.3 percent of GDP.
  - Caution on windfall taxes: one-off windfall taxes imposed ex-post are not preferred as they undermine tax certainty, can be complex to implement, and could be challenged legally; consider devising a permanent, well-designed excess profit tax regime as part of regular corporate taxation.
- Fiscal flexibility and shock responses:
  - Fiscal policy should remain flexible and adjust if risks materialize:
    - Adverse supply shock (stagflation) could necessitate greater fiscal adjustment.
    - A negative demand shock could allow a more limited fiscal adjustment, though discretionary measures would be constrained unless inflation eases substantially.
    - A severe housing market correction threatening financial stability could require discretionary fiscal support.

*Source: 1nldea2023001 - 2022. Government debt declined to 49.0 percent of GDP in 2022Q3, from 52.4 percent by end-2021.*

### 21. The authorities command substantial fiscal space to devote to medium-term

### 21. The authorities command substantial fiscal space to devote to medium-term

### Fiscal space and recent fiscal measures
- Staff assessed fiscal space is available to foster a stronger and greener long-term growth while contributing to reduce external imbalances.
- Measures welcomed by staff:
  - Climate and Transition Fund: 4 percent of GDP.
  - New spending over two years to support a National Education Plan: about 1 percent of GDP.
  - Launch of the National Growth Fund with R&D and knowledge development as the main targeted areas.
- National Recovery Resilience Plan (RRP) includes structural investment and reform plans to:
  - Allay housing and labor market shortages.
  - Reinforce the education system.
  - Advance digitalization.

### Authorities’ views on fiscal measures and price support
- Authorities noted implementation will be politically difficult.
- Policy stance and rationale:
  - Aim to target cost-of-living support to most vulnerable households and lower middle-income households.
  - Some targeted policies are costly or practically impossible to implement, but support was considered necessary for households affected by the energy price shock.
  - Price cap set at a relatively high price, protecting households and a very small number of corporates for situations in which the energy price is multiple of the price levels before the war.
  - Purpose of price cap: safeguard social cohesion and protect households from unusually high price volatility.
  - Working on measures to cover the budgetary costs, to be announced in the Spring.
  - Working on better targeted measures if further support is needed beyond 2023.

### Energy security and climate policy — measures and tradeoffs
- Energy security measures and developments:
  - The Netherlands became a net gas importer after ending production on Groningen (Annex VII).
  - New floating LNG terminal at Eemshaven doubled gas import capacity, benefitting other EU countries.
  - Two new nuclear plants planned; KCB’s operating life extended beyond 2033.
  - 40 percent tax reduction for investments in gas in the North Sea to stimulate exploration and production.
  - Netherlands and Germany announced joint drilling for a new North Sea gas field; gas production expected by end-2024.
  - Slowed the decline of gas production from small fields.
  - Energy-intensive companies that comply with an emission reduction target will be partially compensated for indirect costs under the ETS.
  - Scheme to hedge gas prices implemented, supporting gas storage.
  - Demand-side measures: tightening energy savings targets for businesses, lifting output restrictions to coal-fired power stations, extension of the National Isolation Program to promote energy efficiency.
- Security of supply outlook:
  - No gas shortages are expected in the Netherlands this winter.
  - Gasunie advised that further measures would be needed for the next winter if the supply shock persists, including structural increase in supply and structural and significant reduction in demand combined with network optimizations.
  - Boosting investment in clean energy (part of the RRP) would enhance energy security.
- Climate policy framework:
  - Climate Policy Program (CPP) presented in June 2022 updates Climate Plan 2021–30.
  - Target change: 49 percent reduction in 2030 will be replaced by a target of at least a 55 percent reduction.
  - CPP measures include tightening of CO2 tax and introduction of a CO2 minimum price; generic subsidy schemes; indirect cost ETS compensation scheme; investments in sustainable infrastructure; agreements with largest industrial emitters; stimulating renewable generation; phasing out coal; reinforcing grid capacity.
  - National Climate Adaptation Strategy (NAS, 2016) and the Delta Program (DP, 2010) center Dutch climate adaptation policy.
- Staff recommendations on mitigation and pricing:
  - Reinforce carbon pricing with feebates, considering country-specific institutional settings.
  - Better align carbon prices across sectors to avoid distortions.
  - Replace taxes on residential and industrial electricity with additional surcharges on CO2 emissions from power/generation/district heating and coal generation.
- RRP and green transition:
  - RRP earmarks 48 percent of its total allocation for the green transition.

### Climate adaptation
- Strengths and further actions:
  - Netherlands at the forefront of good practices for climate change adaptation.
  - Recommendations to further strengthen adaptation:
    - Integrate adaptation holistically into long-term government planning frameworks.
    - Focus on adaptation with large positive externalities (research about climate risks, updating building codes, reinforcing infrastructure, developing early warning systems).
    - Remove barriers to private adaptation and address equity (compensate vulnerable populations negatively affected by adaptation policies).
    - National Adaptation Plan could highlight the cost of market distortions for adaptation.

### Housing market valuation, vulnerabilities, and policy guidance
- Current vulnerabilities and indicators:
  - Household indebtedness: more than 100 percent of GDP.
  - Non-financial corporate debt: more than 140 percent of GDP.
  - Residential real estate sector deemed overvalued on a broad range of measures.
  - Large share of assets concentrated in illiquid pension and insurance claims.
  - Fixed-rate mortgages: more than 90 percent of the total; maturities typically 30 years.
  - About a quarter of outstanding mortgages face an interest rate reset in the coming five years.
  - Prevalence of interest-only mortgages: around two fifths of the total.
  - Debt service to income ratios (DSTIs) becoming more binding for new mortgages due to rising interest rates.
- Policy recommendations:
  - Maintain minimum risk weight floors for mortgage loans (activated in January 2022) until December 1, 2024, to stabilize the housing cycle and preserve buffers to absorb credit losses in a severe downturn.
  - Increase awareness about risks from interest-only lending among borrowers and lenders.
  - Address structural imbalances in the housing market to lessen incentives for households to live in highly leveraged, owner-occupied housing.
  - Strengthen means-testing for social housing eligibility and re-evaluate the need for expansive rent control.
- Authorities’ views on housing and financial stability:
  - Central bank stress tests showed no direct financial stability risks from a turn in the housing cycle, but authorities concurred that potential second-round real economy effects warrant vigilance.
  - Authorities support leaving the door open to raise the CCyB further from the current level of 1 percent to approach the 2 percent level considered neutral by DNB.

### Financial sector resilience, macroprudential policies, and data gaps
- Financial sector context and risks:
  - Dutch financial institutions command considerable buffers, providing resilience.
  - Non-bank financial institutions (NBFIs) vulnerabilities and data gaps warrant attention.
  - A rapid and disorderly adjustment of yields, financial market volatility, or an economic downturn could negate benefits of interest rate normalization for banks and heighten pressures on NBFIs.
  - Diversified nature of Netherlands’ pension funds could mitigate risks on Liability-Driven Investment Funds, but lessons from tensions abroad should be integrated.
- Macroprudential stance and instruments:
  - Raising the counter-cyclical capital buffer (CCyB) from 0 to 1 percent in May 2022 was appropriate to bring it closer to the 2 percent level considered neutral by DNB and to lock-in capital buffers for potential release.
  - Recommendation to pause further tightening of capital-based macroprudential measures given high macro-financial uncertainty to avoid a pro-cyclical stance.
  - Once outlook clarity resumes, evaluate creating additional capital buffers if the financial cycle continues to strengthen.
  - Explore options opened by EU macroprudential framework evolution (e.g., sectoral systemic risk buffers under CRDV and CRRII) to refine policy instruments.
- Existing macroprudential calibration (selected items preserved from source):
  - Capital-based measures:
    - Capital conservation buffer: 2.5 percent.
    - Counter-cyclical capital buffer: 1.0 percent (May 2022 (announced), May 2023 (effective)).
    - G-SII buffer: 1.0 percent (ING).
    - O-SII buffer: 1.0-2.5 percent (ABN Amro (1.5 percent), BNG (1.0 percent), ING (2.5 percent), Rabobank (2.0 percent), Volksbank (1.0 percent)).
    - Risk weight floors on IRB mortgage exposures: 12 and 45 percent since 2022; 12 percent risk weight for up to 55 percent of collateral value, 45 percent risk weight beyond.
  - Borrower-based measures:
    - Maximum LTV for residential mortgages: 100 percent since 2018.
    - Household DSTI ratio: 13.0-41.5 percent adjusted annually.
    - Interest-only mortgages tax deductibility since 2013; 30 year amortisation requirement for tax deductibility of mortgage payments.
    - Interest-only mortgages borrowing limit: maximum 50 percent of property value.
- Authorities’ views on macroprudential issues:
  - Largely shared staff’s assessment of vulnerabilities and recommendations.
  - Agreed that any further tightening of the CCyB should avoid a pro-cyclical stance given high macro-financial uncertainty, but wish to retain option to raise it further from 1 percent toward 2 percent neutral level.
  - Recognized limitations due to data gaps and constrained policy options for NBFIs; recent global tensions prompted NBFIs to review risks and liquidity contingency plans.
  - Viewed likelihood of similar tensions in the Netherlands as limited due to pension fund diversification in the Euro area.
  - Occupational pension reform under parliamentary voting should be completed within the foreseen timeframe to stabilize contribution rates and appropriately acknowledge the time value of money.

### Additional structural policies to enhance resilience
- Labor markets:
  - Further progress in tackling labor market duality could boost labor participation and productivity.
  - Steps taken: accelerated phasing out of the self-employed person’s tax deduction.
  - Policies to support participation:
    - Increases in childcare subsidies over the medium term.
    - Minimum wage increase in 2023.
    - Ongoing reforms of parental leave, including expansion of parental birth leave and increasing the childcare allowance.
  - RRP reforms welcomed: support upskilling and job search; improve social protection for the self-employed, including introducing a mandatory disability insurance.
  - Staff encouragement: continue to realign tax and other incentives across different employment types to reduce labor market duality.
- Digitalization:
  - Renewed emphasis would help reduce labor shortages and support productivity.
  - Netherlands ranks among top-performers in Europe on internet access and digitalization.
  - Shortages of IT professionals reported even before the pandemic; SMEs need faster adoption of digital technologies.
  - RRP allocates 26 percent of the financing to accelerate the digital transition by investing in quantum technology, digital upskilling, and improving rail connectivity.

*Source: 1nldea2023001 - 21. The authorities command substantial fiscal space to devote to medium-term*

### 35. The Netherlands continues to develop measures and good practices to combat foreign

### 1nldea2023001 - 35. The Netherlands continues to develop measures and good practices to combat foreign

### Foreign bribery (supply-side)
- The OECD Working Group on Bribery (WGB) highlighted the Netherlands’ efforts to raise awareness and reorganizing the enforcement agencies, including through a dedicated institutional framework to streamline investigation and prosecution of foreign bribery cases.
- The WGB reiterated concerns about the still low number of concluded cases relative to the size and specific risk profile of the Dutch economy.
- Legal changes were recommended with a view to ensure whistleblower protection.
- Information relating to supply-side corruption in this section draws on the WGB’s Phase 4 Report of the Netherlands (2020), the follow up report (2021), and the follow up report (2022).

### Anti-money laundering / concealment-side
- The anti-money laundering framework establishes important safeguards against cross-border concealment of the proceeds of corruption, while there are also shortcomings.
- Larger banks and some of the other relevant professions servicing international customers, such as trust offices, generally apply sophisticated customer due diligence measures, including for Politically Exposed Persons (PEPs).
- Understanding of risks and implementation of AML/CFT controls is particularly weak in the non-financial sector, including domicile providers servicing conduit companies.
- The authorities released an action plan in 2022 to target compliance in the non-financial sector.
- The identification of beneficial owners in complex international structures poses challenges across both financial and non-financial sectors.
- In spite of the low number of sentences, the Netherlands has strong money laundering enforcement capacities, including effective confiscation mechanisms.
- Information relating to the concealment-side of corruption derives largely from the relevant parts of the 2022 Mutual Evaluation Report of the Netherlands conducted by the Financial Action Task Force.

### Capital taxation — findings and reform options
- Staff welcomes the tax reforms to reduce disparity between effective taxes on different types of incomes and firms (Annex IX).
- Consideration could be given to a more ambitious reform toward achieving tax neutrality. Options noted include:
  - eliminate the reduced CIT rate altogether and consider a fundamental reform of Box 2;
  - equalize the sum of the CIT and the distribution tax with the tax in Box 1; or
  - treat Box 2 firms as passthroughs whereby profits are attributed to the owners to be taxed under Box 1.
- Less complex option within the current system:
  - eliminate the reduced CIT rate and the option of borrowing from one’s own company including to finance home ownership.
  - These two measures would result in fewer opportunities for tax-motivated behavior.
- Housing market tax issues and reform options:
  - Generous deductions erode up to 90 percent of already under-valued imputed rents in Box 1, so mortgage interest deductions in practice exceed the tax on imputed rent.
  - This net housing subsidy favors excessive mortgage financing.
  - Reform option: raise the value of imputed rents to market levels through moving housing to Box 3, which together with the planned taxation of actual returns, would achieve less unequitable taxation across different assets.
  - Alternative within Box 1: increase the imputed income from housing and reduce the mortgage interest tax relief, without moving the house to Box 3.

### Authorities’ views
- The authorities agreed that a comprehensive reform package is needed to enhance resilience.
- Noted that wide-ranging reforms of labor markets and digitalization, including in the RRP, should provide further incentives for labor participation, counter labor market duality and boost productivity.
- Stressed that the capital taxation reform would help reduce wealth inequality, thereby enhancing social cohesion.
- Welcomed the voluntary assessment of supply side corruption and reiterated commitment to continue to strengthen the AML/CFT framework.
- Targeted campaigns of the Financial Intelligence Unit helped raise awareness about foreign bribery.
- The innovative whistleblower protection regime will further be enhanced through the implementation of the EU directive on that matter.

### Staff appraisal — macroeconomic and policy guidance
- Recent macro context:
  - After showing impressive resilience during and after the pandemic, the Dutch economy was hit by an energy shock caused by Russia’s invasion of Ukraine.
  - Real GDP returned to its pre-pandemic trend in 2022.
  - Growth is projected to slow in 2023, mainly reflecting weaker demand in trading partners, eroded purchasing power, and tighter financial conditions.
  - After peaking in 2022, inflation is expected to moderate in 2023 as the energy price cap is activated, though it remains elevated as does core inflation.
  - The external position in 2022 is preliminarily assessed to be moderately stronger than the level implied by medium-term fundamentals and desirable policies.
- Fiscal policy and energy support:
  - Extensive government measures have cushioned the impact of high energy prices, but better targeting is needed.
  - The support package is mostly targeted and mainly consists of social transfers to households and subsidies to SMEs.
  - The gas and electricity price cap for consumers in 2023 is not targeted and mutes price signals.
  - Staff welcomes the government’s stated intention to explore additional coverage measures to offset the cost of the price cap and make the support more targeted.
- Recommended fiscal stance and measures for 2023:
  - A non-expansionary or modestly contractionary fiscal stance is called for in 2023 to help monetary policy fight inflation, given high inflation and the tight labor market.
  - Such a stance could be secured by better targeting of the price cap and/or specifying additional fiscal measures.
  - Example measures: contemplated changes to wealth tax and/or a one-time solidarity tax increases on high-incomes and businesses.
  - Over the medium term, the authorities could devise a permanent, well-designed excess profit tax regime as part of regular corporate taxation.
  - Fiscal adjustment must protect public investment on the medium-term challenges.
- Fiscal flexibility and scenarios:
  - Fiscal policy should remain flexible, given high uncertainty.
  - Automatic stabilizers should provide a first line of response to adverse scenarios.
  - A negative supply shock could necessitate a greater fiscal adjustment compared to the baseline as inflation would rise; a negative demand shock could call for a smaller fiscal adjustment.
- Energy security and climate policy:
  - Measures to enhance energy security and climate policies are commendable.
  - Government efforts to diversify sources of gas and stimulate exploration and production are welcome.
  - Boosting investment in clean energy, part of the NRRP, will enhance energy security while contributing to the green transition.
- Financial sector stability and oversight:
  - The financial sector has so far weathered the crisis, but close monitoring is warranted given higher risks stemming from the energy crisis and tighter financial conditions.
  - Dutch financial institutions have considerable capital buffers, providing resilience.
  - Flagging house price momentum heightens vulnerabilities from the housing market.
  - The increase in the counter-cyclical capital buffer was appropriate; a pro-cyclical stance should be avoided going forward given high uncertainty.
  - If financial stability risks materialize, capital buffers should be released.
  - If the financial cycle continues to strengthen, creation of additional capital buffers should be evaluated once more clarity about the outlook resumes.
  - To address vulnerabilities among NBFIs and mitigate the risk of tensions on Liability-Driven Investment Funds, authorities should continue close monitoring of NBFIs, work towards closing data gaps, and improve supervision of these institutions, also by contributing to international efforts.
- Medium-term priorities:
  - Continue to use ample fiscal space to invest on medium-term challenges to enhance economic and social resilience.
  - Support spending and policies to advance the green and digital transitions and to tackle structural challenges in housing, labor markets, and the education system.
  - Further progress in reducing labor market duality could enhance resilience and increase labor participation and productivity.
  - Investment in digitalization would attenuate labor shortages.
  - Ongoing reform of capital taxation and efforts to address inequality induced by the current tax system are important steps to further strengthen social resilience.

*Source: 1nldea2023001 - 35. The Netherlands continues to develop measures and good practices to combat foreign (IMF country report content).*

### 47. It is proposed that the next Article IV consultation take place on the standard 12-month

### 1nldea2023001 - 47. It is proposed that the next Article IV consultation take place on the standard 12-month

### Economic Activity
- Following strong growth in the first half of 2022, economic activity slowed in Q3 2022 across all sectors.
- Domestic demand has been slowing recently, along with declining exports.
- Retail trade and IP have recovered to pre-pandemic trends (Index, 2015=100).
- Consumer confidence reached an all-time low amid declining real disposable incomes.
- Investment growth slowed in 2022Q3 on the back of lower construction growth.
- Contributions to GDP growth (percent, q-o-q growth): charts show Consumption, Investment, Change in inventories, Net exports; GDP growth, % change.
- Domestic and Foreign Demand (2 quarters average, percent change) and Domestic demand vs Exports of goods (RHS) indicate weakening external demand.
- Consumption indicators: Consumer confidence (% balance) and Private consumption (RHS); Real disposable income, 3qma (RHS).
- Contributions to Investment Growth (Year-over-year growth rate): Construction, Equipment, Other.

### Labor Market
- Overall, employment declined only marginally in 2020, and more than recovered in 2021.
- Full-time employment increased in 2021.
- Labor market has tightened considerably, with the unemployment rate at historical low by mid-2022 since early 2000s and high vacancy rate.
- Labor costs have recovered to pre-pandemic levels.
- Real wages have fallen due to high inflation, largely driven by energy.
- Population, Labor Force and Employment (Millions of people): chart covering 2007–2021.
- Contributions to Total Employment Growth, 15-64 (Percent): Full-Time, Part-Time, Total.
- Labor Market Tightening Indicators (Percent): Unemployment rate and Job vacancy rate (RHS).
- Wages and Labor Costs (Y-o-y percent change): Compensation of employees; Wages and salaries; Labor Costs.
- Contributions to Headline Inflation (Percent): Energy; Food, alcohol, tobacco; Core; Headline.

### Fiscal Developments
- Fiscal balance strongly recovered in 2021 despite large COVID package in place.
- Public debt fell to 52.3 percent of GDP, below pre-pandemic level, supported by positive denominator effects.
- End of pandemic programs and higher revenues helped a further correction of the deficit in 2022.
- Strong policy response to cushion the cost-of-living crisis is expected to deteriorate the deficit in 2023 significantly.
- Strong fiscal impulse expected to deteriorate further the structural balance in 2023, in a context of the need to promote investments aligned with the climate policy agenda.
- Overall Balance (Percent of GDP): historical chart showing COVID-expenditure, Interest expenditure, Primary balance (exc COVID), Overall balance.
- Gross Public Debt (Percent of GDP): historical chart and Maastricht target.

Key fiscal figures from Table 2a (Percent of GDP)
- Revenue: 43.7 (2019), 44.1 (2020), 44.0 (2021), 44.0 (2022), 43.8 (2023), 43.3 (2024), 43.3 (2025), 43.3 (2026), 43.2 (2027), 43.2 (2028).
- Expenditure: 42.0 (2019), 47.9 (2020), 46.6 (2021), 45.0 (2022), 46.6 (2023), 45.1 (2024), 44.8 (2025), 44.7 (2026), 44.7 (2027), 44.6 (2028).
- General government balance: 1.7 (2019), -3.7 (2020), -2.6 (2021), -1.0 (2022), -2.8 (2023), -1.8 (2024), -1.5 (2025), -1.3 (2026), -1.5 (2027), -1.4 (2028).
- Structural balance (percent of potential GDP): 1.1 (2019), 2.2 (2020), 1.6 (2021), 0.1 (2022), -2.1 (2023), -2.4 (2024), -2.0 (2025), -1.7 (2026), -1.6 (2027), -1.4 (2028).
- Gross Debt: 48.5 (2019), 54.6 (2020), 52.3 (2021), 48.3 (2022), 48.5 (2023), 47.9 (2024), 47.4 (2025), 46.9 (2026), 46.6 (2027), 46.4 (2028).

Selected nominal figures from Table 2b (Billions of Euros)
- Revenue: 355.6 (2019), 351.6 (2020), 376.7 (2021), 416.8 (2022), 438.4 (2023), 455.7 (2024), 475.4 (2025), 493.3 (2026), 509.1 (2027), 527.5 (2028).
- Expenditure: 341.6 (2019), 381.2 (2020), 398.9 (2021), 426.1 (2022), 466.3 (2023), 474.5 (2024), 491.3 (2025), 508.6 (2026), 526.3 (2027), 544.9 (2028).
- Net Lending/Borrowing: 14.0 (2019), -29.6 (2020), -22.2 (2021), -9.2 (2022), -28.0 (2023), -18.7 (2024), -15.9 (2025), -15.3 (2026), -17.2 (2027), -17.4 (2028).
- Gross Debt (billions): 394.6 (2019), 434.8 (2020), 448.1 (2021), 457.4 (2022), 485.4 (2023), 504.0 (2024), 519.6 (2025), 533.9 (2026), 549.5 (2027), 565.9 (2028).
- Nominal GDP (billions of euros): 813.1 (2019), 796.5 (2020), 856.4 (2021), 947.3 (2022), 1000.4 (2023), 1052.1 (2024), 1097.0 (2025), 1137.3 (2026), 1178.1 (2027), 1220.8 (2028).

### Financial Sector Developments
- Housing remains among the least affordable and the most richly valued in Europe; Price-to-income ratio and Price-to-rent ratio indexed (Q2 2022, Index, 2015 = 100).
- Banks maintain a high exposure to residential mortgages (Percent of Q2 2022 total assets).
- Financial assets of households far surpass their debt, but a large share is concentrated in illiquid instruments — heightening risks from prolonged house price declines, particularly if coupled with an economic downturn.
- Household Debt and Financial Assets (EUR billion): Debt and assets series from Mar-15 to Mar-22.
- Household Debt to Gross Disposable Income, 2021 (Percent).
- Pension Fund Funding Ratios: funding ratio distribution and Policy Funding Ratios of Dutch Pension Funds with prudential limits at 104.2%, 100%, and 90%.
- Occupational pension funds: aggregate funding ratios recovered; most providers surpassing regulatory limits in 2022Q3 for the first time in many years.

Financial Soundness Indicators (selected)
- Regulatory capital to risk-weighted assets: 20.1 (2015), 22.4 (2016), 22.0 (2017), 22.3 (2018), 22.9 (2019), 22.8 (2020), 22.4 (2021).
- Tier 1 capital to risk-weighted assets: 16.2 (2015), 17.7 (2016), 18.4 (2017), 18.8 (2018), 18.9 (2019), 19.3 (2020), (2021 value shown).
- Nonperforming loans to total gross loans: 2.7 (2015), 2.5 (2016), 2.3 (2017), 2.0 (2018), 1.9 (2019), 1.9 (2020), 1.8 (2021).
- Return on assets: 0.6 (2015), 0.6 (2016), 0.7 (2017), 0.7 (2018), 0.6 (2019), 0.3 (2020), 0.7 (2021).
- Residential real estate loans to total gross loans: 23.5 (2015), 24.4 (2016), 27.3 (2017), 24.4 (2018), 38.2 (2019), 36.4 (2020), 44.0 (2021).

### External Sector Developments
- Current account surplus declined in 2022Q1–Q3, reflecting deteriorating trade and income balances.
- Decline mainly due to worsening savings-investment balances of households and non-financial corporations.
- Cost pressures reduced corporate profitability and savings while investment stayed strong.
- Reflecting elevated inflation, household savings declined yet remained above pre-pandemic levels.
- Net IIP declined, mainly driven by net portfolio investment and financial derivative positions.
- Real Effective Exchange Rate: CPI-based REER continued to increase; ULC-based REER has remained on a declining trend (Index, 2010=100).
- Current Account (Percent of GDP) time series shows Goods, Services, Primary income, Secondary income, Current account for 2003–2022Q1–Q3.
- Saving-Investment Balance (Percent of GDP) broken down by NFCs, Households, Government, Financial sector, Total.
- NFCs: Saving and Investment (Percent of GDP) and Households: Saving and Investment (Percent of GDP).
- External Assets and Liabilities (Percent of GDP): components include FDI, Portfolio Equity, Portfolio Debt, Other Investment, Financial Derivatives, Net (RHS).

### Medium-Term Macroeconomic Framework (Table 1, selected projections 2019–28)
Real GDP (Growth Rates, Percent)
- 2019: 2.0
- 2020: -3.9
- 2021: 4.9
- 2022: 4.2
- 2023 (Proj.): 0.6
- 2024 (Proj.): 1.2
- 2025 (Proj.): 1.6
- 2026 (Proj.): 1.6
- 2027 (Proj.): 1.5
- 2028 (Proj.): 1.6

Domestic demand (Growth Rates, Percent)
- 2019: 3.0
- 2020: -4.2
- 2021: 3.9
- 2022: 3.3
- 2023 (Proj.): 1.7
- 2024 (Proj.): 1.6
- 2025 (Proj.): 1.8
- 2026 (Proj.): 1.8
- 2027 (Proj.): 1.8
- 2028 (Proj.): 1.8

Inflation and labor
- Consumer price index (headline, period avg.): 2.7 (2019), 1.1 (2020), 2.8 (2021), 11.6 (2022), 4.8 (2023), 3.9 (2024), 2.6 (2025), 2.0 (2026), 2.0 (2027), 2.0 (2028).
- Unemployment rate (percent): 4.4 (2019), 4.9 (2020), 4.2 (2021), 3.7 (2022), 4.1 (2023), 4.2 (2024), 4.5 (2025), 4.7 (2026), 4.9 (2027), 5.2 (2028).

External and saving
- Current account balance (percent of GDP): 6.9 (2019), 5.1 (2020), 7.2 (2021), 5.5 (2022), 6.2 (2023), 6.1 (2024), 6.0 (2025), 5.9 (2026), 5.7 (2027), 5.7 (2028).
- Gross national saving (percent of GDP): 29.0 (2019), 26.9 (2020), 28.6 (2021), 27.0 (2022), 27.6 (2023), 27.5 (2024), 27.4 (2025), 27.4 (2026), 27.3 (2027), 27.2 (2028).

Public sector (Percent of GDP)
- Revenue: see Fiscal Developments bullet list above.
- Expenditure: see Fiscal Developments bullet list above.
- Structural balance (percent of potential GDP) and Cyclically-adjusted balance listed in Table 1 consistent with Table 2a.

### Monetary and Financial Aggregates (selected from Table 4)
- Net Foreign Assets (Billions of Euros): 210.4 (2015), 207.8 (2016), 183.4 (2017), 218.3 (2018), 267.1 (2019), 284.2 (2020), 283.9 (2021).
- Broad Money (Billions of Euros): 755.2 (2015), 772.2 (2016), 789.5 (2017), 789.6 (2018), 827.6 (2019), 908.8 (2020), 982.5 (2021).
- Claims on private sector (Billions of Euros): 770.0 (2015), 811.6 (2016), 820.4 (2017), 816.4 (2018), 818.5 (2019), 837.0 (2020), 946.1 (2021).
- Household claims (Billions of Euros): 450.8 (2015), 499.7 (2016), 514.7 (2017), 510.9 (2018), 521.4 (2019), 535.0 (2020), 548.4 (2021).
- Velocity (GDP/Broad Money): 0.9 (2015), 0.9 (2016), 0.9 (2017), 1.0 (2018), 1.0 (2019), 0.9 (2020), 0.9 (2021).
- Euros per U.S. dollar (end of period): 0.9 (2015), 0.9 (2016), 0.8 (2017), 0.9 (2018), 0.9 (2019), 0.8 (2020), 0.9 (2021).

*Source: IMF staff calculations and figures, tables, and notes contained in the provided content unit.*

### Annex I. Measures to Mitigate the Impact of High Cost of Living

### Annex I. Measures to Mitigate the Impact of High Cost of Living and Energy Security

### Measures Taken to Mitigate the Impact of Higher Energy Prices — Measures to Mitigate the Price Effect
- Reduced electricity tax. The electricity tax was temporary reduced by the previous cabinet by about 2 3 � points in 2022.
- Reduced VAT. Lower VAT on energy (natural gas, electricity, and district heating) from 21 percent to 9 percent, from 1 July to 31 December 2022.
- Reduced excise duties. Reduced excise duty on petrol and diesel by 21 percent (from April 1 to December 31, 2022). In 2023, the excise duties will be kept at the same amount as in 2022 during the period January to June. In the second half of 2023, the excise duty reduction will be gradually reduced.
- Temporary rise in energy tax credit by €265.
- Additional Energy Package to be Considered in 2023 Budget:
  - Temporary tariff cap. Introduce a tariff ceiling with a maximum tariff for electricity and gas that applies to the median consumption. A compensation scheme for utility companies is also defined.
  - Closure Policy Adjustments. Agreement on a temporary broadening of the situations in which energy suppliers are not allowed to cancel the contract during the coming winter period.
  - Permanent contracts on electricity and gas for households—fixing the variable price for a period of time—will be offered again in 2023.
  - Accelerate energy saving and sustainability. Provision of advice on energy-saving, for example by deploying local fixe brigades and energy coaches.
  - Additional €300 million to the National Insulation Program in 2023–24. The number of subsidy applications for cavity wall insulation, heat pumps and solar boilers has doubled in recent months.
  - €5 million in subsidies to ensure that households gain more insight into their financial position, equipment for (local) volunteers to guarantee support for people who need help.
  - Early warning to prevent disconnection. €35 million for municipalities in incidental resources to offer targeted assistance both through early detection and special assistance based on energy suppliers monthly early warning collection process.
  - One-off energy allowance. People who live on 120 percent of the social minimum will receive a second one-off transfer of 1.300 euros in 2023 (same amount and targeted group as in 2022).
  - Subsidy scheme for energy-intensive SMEs (TEK). Temporary and partial compensation for the increase in energy costs, based on energy-costs as a percentage of turnover.
  - Resources for making SMEs more sustainable. Guarantee to facilitate SMEs to attract credit for sustainability investments.

### Income Support Measures
- Increase in health allowance. One-off increase in health care allowance by €412 euros.
- 10 percent increase of the statutory minimum wage, including social benefits and old-age pensions.
- Increase in the child-related allowances, all child amounts, and single parents. The reimbursement percentage of the childcare allowance will be increased from 95 percent to 96 percent as of 2025.
- Reduction in the first bracket of the Personal Income Tax by 0.11 percent.
- Increase of the housing allowance.
- Extension of income-related rent reduction until July 2023.
- Increase in the employed person’s tax credit. The second and third tipping points are increased by €89, and the reduction percentage increases to 6.51 percent.

### Measures to Support Firms
- Reduced incapacity for work (Aof) premium for small employers and expansion of the work-related costs scheme (WKR).
- Increase of the energy investment allowance (EIA), the environmental investment allowance (MIA) and the arbitrary depreciation of environmental investments (VAMIL).
- Energy cost contribution scheme (TEK). Energy-intensive SMEs -SMEs with energy costs over turnover above -7 percent will receive compensation for 50 percent of the increase in the energy cost above a fixed threshold (€1.19 per cubic meter of gas and €0.35 per kilowatt hour of electricity).

### Measures Taken to Secure Energy Supply — Measures to Reduce Consumption
- Tightening energy savings targets for businesses.
- Lift output restriction on coal-fired power stations for 2022–24, which will be enabled to operate at full capacity to generate electricity, substituting gas-fired stations sources.
- Additional measures to compensate coal-fired power stations for the extra CO2 emissions (announced but not specified).
- “Dial it down” (Zet ook de knop om) energy saving campaign provides energy saving advice for businesses and households. It includes a particular tool for SMEs to assess energy savings and sustainability measures, and subsidies available for that purpose.

### Measures to Promote Energy Efficiency
- Urgent call to save energy and national energy saving target.
- Temporary gas saving scheme major gas consumers. Scheme to compensate for indirect costs under the ETS those energy-intensive companies that comply with an emissions’ reduction target, a minimum share of carbon free sources on their electricity consumption, and investments to reduce GHG emissions.

### Additional Measures
- Gas Protection and Recovery Plan (BH-G). Three levels of risk defined: alert, crisis, and post-crisis phase. Activation in    June 2022 of the first level, the early warning, in which gas firms will have to share daily information on gas supplies and stocks with the authorities.
- Filling of the gas storage facility Bergermeer. The aid will take the form of insurance against negative winter-summer gas price spreads. The public support includes provisions to limit undue distortions of competition, including a profit-sharing mechanism with the Dutch government in case of excessive unexpected profits.

*Annex I. Measures to Mitigate the Impact of High Cost of Living and Energy Security — source PDF content.*

### Annex V. Past IMF Policy Recommendations

### Annex V. Past IMF Policy Recommendations

### Fiscal Policy
- Recommendation: Start the policy shift to targeted and forward-looking interventions to ease the road to normalization.
- Implementation notes and findings:
  - The remaining COVID-support programs ended in early 2022, and further reduction on expenditure is projected to 2023.
  - Some pandemic-related measures will be maintained, such as the National Education Program, tests and vaccine development, representing 0.5 percent of GDP in 2023.
  - Use the substantial fiscal space to promote growth-enhancing interventions, including support to R&D and further investment in education.
  - The Resilience and Recovery Plan (RRP) includes 180 million EUR in education, including the development of a National Education Lab AI (NOLAI) and increasing subsidies for schools to support digitalization and limit learning delays with programs’ implementation announced for 2022Q4.
  - To meet climate policy goals, policies should further incentivize emissions reductions and increase public support to innovation and the adoption of greener technologies.
  - Acceleration of the climate and energy transition through several measures included in 2023 budget:
    - Reform of the energy tax, shifting taxation from electricity to gas.
    - Introduction and tightening up of CO2 levy on industry, with an increase in the reduction target for the CO2 tax from 1.3 to 18.3 million ton in 2030.
    - Extension of the promotion of the National Isolation Program and alternative energy sources (offshore wind, green energy hydrogen).
    - Specific measures for the structural nitrogen package and the transition fund in the long term.

### Structural Reforms
- Recommendation: Push forward with second-pillar pension reform to improve pension transparency and flexibility, clarifying transition costs, and designing a compensation package for those adversely affected by the transition.
- Implementation notes and findings:
  - In June 2020, the government signed an agreement with trade unions and employers on pension reform—affecting all three pillars of the pension system, with agreements on sustainable employability and early retirement.
  - Enactment of pension reform legislation is expected in 2022 so it can go into effect on January 1, 2023, with full operation of the new system expected by January 1, 2027, at the latest.

### Financial Sector Policies
- Recommendation: Continue tightening macro-prudential policies to reduce households’ indebtedness, and expedite reforms to increase housing supply, particularly in the private rental market.
- Findings and measures:
  - Mortgage debt as a percentage of GDP decreased from around 106 percent in 2012 to 93 percent in 2020.
  - Key policy measures contributing to the decline:
    - Tightening the legally binding loan to value (LTV) limit from 106 percent in 2013 to 100 in 2018.
    - Restrictions on non-amortizing mortgages since 2013.
    - 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.
  - Government policy agenda for housing supply with subnational governments (‘woondeals’), including agreements for housing targets with municipalities and provinces.
  - The 2022 budget includes new resources to support the construction of social housing.

- Recommendation: Revive SMEs dynamism and business investment, including by increasing direct support to Research and Development (R&D) and establishing a credit bureau.
- Implementation notes and measures:
  - Several funds launched to support innovative SMEs (Deeptech Fund & Dutch Future Fund).
  - Dutch Alternative Credit Instrument (DACI) launched to strengthen SMEs’ access to alternative financing.
  - 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.

### FSAP Recommendations — Financial Risks and Stability Analysis, Macroprudential, and Supervision (selected)
- Timeframe key: Immediately (I) is within one year; near term (NT) is 1–3 years.
- Financial risks and stability:
  - Enforce an industry-wide approach to informing IO mortgagors of estimated repayment shortfalls. Status: I. AFM and SSM (DNB/ECB) established an industry-wide program; by September 2022 SIFIs met targets, approaching more than 95 percent of their clients with IO mortgages. Program foreseen to conclude by July 2023, to be followed by ongoing supervision of IO exposures.
  - Continue to build capital buffers to ensure all banks remain above minimum leverage ratio thresholds in the case of severe adverse events. Status: NT. Authorities supportive of an O-SII leverage ratio buffer; Basel 3.5 standards, activation of a 1 percent CCyB, and extension of the floor on risk weights for Dutch mortgages will contribute to higher leverage ratios. The four largest Dutch SIFIs maintain leverage ratios above 4 percent.

- Macroprudential policy framework:
  - Strengthen the FSC by establishing it under primary law and vest it with “comply-or-explain” powers. Status: NT. A Bill is currently debated in Parliament expected to enter into force no later than July 1, 2023; alternative accountability mechanism will forward FSC recommendations to Parliament.
  - Accelerate the phase-out of MID and reduce the final tax rate to a neutral level. Status: NT. Phasing down mortgage interest deductibility accelerated from 0.5 to 3 percentage points annually starting in 2020 until the base tax rate level of 37 percent is reached in 2023.
  - 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. Status: NT. Maximum LTV ratio for new mortgages reduced to 100 percent in 2018; no further reduction foreseen. No changes to DSTI limits.

- Cross-cutting supervisory issues:
  - Enhance the DNB and AFM powers to introduce technical regulations (consistent with the SSM) and to conduct examinations using outside expertise. Status: I. Powers not enhanced; DNB and AFM already adopt self-binding policy rules and can involve outside expertise.
  - Exclude the DNB and AFM from the proposed salary cap, and provide them with greater autonomy in setting their supervisory budgets. Status: I. No greater autonomy provided; no actions foreseen.
  - Undertake a cross-sectoral review of credit underwriting standards of mortgages. Status: I. Several on-site examinations carried out; DNB collects loan level data on mortgage exposures across banks, insurers, and pension funds.
  - Ensure reliable and complete data is available on a timely basis to support off-site supervision. Status: NT. DNB and AFM implementing data-driven supervision techniques; DNB implemented new information products and rigorous checks; initiatives for Data Driven Supervision implemented; AFM developed tools to monitor IO mortgages with coverage to be expanded.

- Banking supervision and regulation:
  - Further enhance supervisory oversight of loan classification and strengthen internal model validation. Status: NT. Ministry open to discussing DNB’s request on binding requirements for impairment charges; procedures 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. Status: NT. Engaging the SB is part of ongoing supervision; DNB observed SB meetings of several SIs in 2022 and conducted on-site inspections focused on governance, behavior, and culture.

- Insurance and pension supervision:
  - Monitor closely and take actions under Pillar 2 at different levels of VA and UFR impact on insurers’ solvency position. Status: I. DNB developed a new forward-looking supervisory approach to address UFR issues and assess sustainability of statutory solvency.
  - Harmonize laws on quality of advice and suitability of products and provide authority for group supervision in pension law. Status: NT. No mechanisms introduced for financial advice to pension participants; new pension system intended for 2023 but group supervision powers not foreseen.

- Securities supervision:
  - Broaden AFM authority over loan-based crowd-funding platforms. Status: NT. Regulation 2020/1503 on European crowdfunding service providers applicable since November 10, 2021, introduced a harmonized regime.
  - Require prompt public disclose of auditor changes or resignations. Status: NT. Already covered by existing rules; no actions foreseen.

- Financial Market Infrastructure:
  - Augment supervisory resources devoted to oversight of European Central Counterparty (EuroCCP). Status: I. Staff resources expanded from 2 FTE to 4 FTE; additional IT/OPS supervision resources (2 supervisors).
  - EuroCCP to strengthen review of stress testing and margin models and develop comprehensive recovery plan. Status: I. Reverse stress testing, margin methodology, sensitivity analyses, and an annually updated comprehensive recovery plan implemented.

- Crisis management and bank resolution:
  - Develop adequate arrangements for systemic crisis management and make legacy frameworks complementary to the SRM. Status: NT. DNB updated crisis management manual aligning with SRB; roles and responsibilities defined; tripartite MoU updated; dry run exercises held in 2019 and 2020 and foreseen to be repeated.
  - Allow the deposit guarantee scheme to finance deposit transfers in resolution and insolvency. Status: NT. Since 2017, financing gross amount of deposits transferred in resolution possible with a cap of 50 percent of the size of the deposit guarantee fund. Funding by the DGS of deposit transfers in insolvency is a Member State option not implemented in the Netherlands; Ministry of Finance awaits CMDI review outcome.

### Annex VII. Groningen Gas Field — Gas Sector Findings and Policy Actions
- Policy decision and timeline:
  - In March 2018, the Dutch government decided to phase out gas production completely from the Groningen field by 2030, after consequences of extraction became unacceptable following the 3.6 magnitude earthquake in 2012.
  - Mining Act amended so no more gas is extracted than necessary for security of supply; level of gas extraction determined annually from 2019.
  - From 2022–2023, the Groningen field will only be available as back-up in exceptional situations.
  - The projected closure date is set now in 2023 or 2024.
- Production and supply context:
  - Dutch gas production from non-Groningen fields has been declining for 20 years due to natural depletion and limited replenishment.
  - The Netherlands moved from a net exporter to a net importer of gas in 2018, though domestic production still accounted for 57 percent of supply in 2022, remaining a key supplier to neighboring countries.
- Sector transition measures and demand management:
  - End of Groningen production accelerated need to reduce consumption of low-calorific gas by:
    - Encouraging large-scale industrial users to switch to other forms of energy.
    - Phasing out natural gas as a heating source from the built-up environment (since July 2018 there is no longer a requirement for newly built housing to have a gas connection).
    - Reducing external demand in consultation with Belgium, Germany and France.
    - Constructing a nitrogen plant to allow imported high-calorific gas to be converted into low-calorific natural gas.
  - Note: The gas extracted from Groningen is known as low-calorific gas; gas from elsewhere is high-calorific gas. Belgium, Germany, and France will have to eliminate dependence on low-calorific gas from the Netherlands between now and 2030.
- Recent production quotas and contingency stance:
  - For the gas year 2021/22 (from October 1, 2021, to September 30, 2022) the Dutch government set the production quota at 4.5 bcm, down from 6.5 bcm in 2020/21 gas year.
  - Given tight EU gas supply, debate on potential extension of Groningen production is ongoing. With activation of the early warning phase of the emergency plan in June 2022, authorities decided not to definitively close any drilling in 2022.
  - Closure of production is still expected for 2023, and Groningen remains a very last option if the energy supply to households is seriously at risk.

*IMF — Annex V. Past IMF Policy Recommendations; Annex VI. FSAP Recommendations; Annex VII. Groningen Gas Field.*

### Annex VII I. CCyB Adjustment in the Context of the EU

### Annex VII I. CCyB Adjustment in the Context of the EU

### Background and DNB policy change
- In February 2022, the DNB revised its approach to set the CCyB, moving to a 2 percent neutral rate and considering a wider set of indicators on top of the Basel credit gap measure.
- The DNB followed through on its March 2020 announcement when it cut the systemic risk buffer of the three largest banks while indicating its intention to compensate its easing of capital requirements with a higher CCyB in the future.
- Targeting a two percent CCyB in a “standard risk environment” characterized by a well-advanced balance sheet recovery and a moderately growing economic and financial cycle is intended to:
  - address uncertainties surrounding the measuring of cyclical systemic risk;
  - create a buffer that could be released at times of stress;
  - require clearer identification of the phase of the cycle, arguing for a more expansive array of indicators covering the macroeconomic environment, the (non) financial sector and financial markets.

### Context within the EU macroprudential framework
- The CCyB modifications occur amid a reassessment of the EU’s macroprudential policy toolkit and efforts to operationalize CRDV and CRRII.
- Similar approaches to the DNB’s changes have been followed in other European countries, e.g., Lithuania, Sweden, United Kingdom.
- The European Commission launched a review of macroprudential rules in December 2021 planned to close by end-2022; both the ECB and the ESRB, in responses to the EC, propose:
  - a positive neutral CCyB; and
  - consideration of a broader range of economic and financial indicators to gauge the stage of the credit cycle.
- To operationalize CRDV and CRRII (in force in The Netherlands since late-2020 and mid-2021, respectively), the DNB conducted a consultation about available national options and discretions over the summer of 2022.
- Conclusion drawn: adjusting the CCyB framework against a changing macroprudential policy landscape appears timely.

### Advantages of setting a positive neutral CCyB at 2 percent
- DNB estimates indicate that a CCyB rate at 2 percent is proportional to peak accumulated losses Dutch banks experienced in previous crises.
- A 2 percent CCyB could create space for maintaining credit provision, particularly in the event of a sudden shock such as the COVID-19 pandemic.
- Measurement uncertainty and lagged assessment of the credit cycle argue for:
  - consulting a broader set of indicators; and
  - potentially keeping a positive neutral rate ahead of the curve.

### Drawbacks and trade-offs of a positive neutral CCyB
- Equity capital is expensive; a positive neutral CCyB may structurally increase:
  - the capital costs of banks; and
  - the price of lending to the private sector.
- Moving the CCyB to a positive neutral level shifts it away from its original intention to address cyclical rather than structural risk.
- Other instruments may be more suitable to achieve desired benefits at lower cost, including:
  - bank- or exposure-specific systemic risk buffers; and
  - microprudential interventions.

### Policy implication and recommended analysis
- A more thorough analysis comparing the costs and benefits of maintaining a positive neutral CCyB is advisable.
- Such analysis should inform the setting of the appropriate neutral rate.

*Annex VII I. CCyB Adjustment in the Context of the EU — International Monetary Fund.*

### 4. The implementation of the AML/CFT safeguards is uneven and identification of

### 1nldea2023001 - 4. The implementation of the AML/CFT safeguards is uneven and identification of

### Findings on AML/CFT implementation
- Financial institutions are generally compliant with their AML/CFT obligations, but recent high-profile cases identified deficiencies in customer due diligence processes.
- Large banks and other financial institutions struggle with identification of beneficial owners in complex international conduit structures that are common in the Netherlands.
- Non-financial businesses and professions (NBPs) — including lawyers, notaries, real estate agents, and domicile providers — have a low understanding of money laundering risks, including from foreign proceeds of crime, and weak AML/CFT controls.
- NBPs tend to rely on self-declarations of a PEP status rather than automated screening processes.
- Doubts exist about NBPs’ application of additional requirements regarding clients from high-risk countries.
- Notaries are particularly concerning because they often register information in the beneficial ownership register, yet may not apply robust AML/CFT controls.
- Trust offices are relatively compliant with their AML/CFT obligations; however, illegal trust services (e.g., disaggregating of services to be miscategorized as domicile providers) are more likely to fail to implement beneficial ownership obligations or report unusual transactions.

### Institutional capacity, resources, and actions
- The resources currently allocated to tackling illegal trust services are considered inadequate.
- The authorities published an action plan on September 23, 2022, aimed at improving AML/CFT compliance by non-financial businesses and professions.

### Enforcement and deterrence
- The level of sentencing remains low and there are concerns about the dissuasiveness of the applicable sanctions.

*Source: Kingdom of the Netherlands — STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION — INFORMATIONAL ANNEX (excerpts).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1nldea2023001.pdf_