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### Context and key messages
- A strong and timely policy response helped cushion the impact of the pandemic and energy crisis, but the crisis response and slower-than-expected recovery have weighed on public finances and reduced fiscal space.
- Labor market performance has remained robust, although labor productivity remains below its pre-COVID trend.
- Reforms of the pension and unemployment benefit systems have started to yield results, but substantial additional efforts will be needed in 2024 and over the medium term to strengthen public finances, lift potential growth, and create jobs.
- Article IV discussions in May focused on policies and structural priorities to rebuild buffers and ensure an orderly adjustment to the green and digital transitions.
- Political uncertainty following the European elections and the announcement of parliamentary elections for June 30 and July 7 led to market pressures in early June.

### Recent economic developments
- Growth and demand
  - Real GDP growth was 1.1 percent in 2023.
  - Real GDP growth rose by 0.2 percent (q/q) in 2024Q1, supported by net exports amid still weak domestic demand.
  - Investment, especially residential construction, surprised on the downside by year-end 2023.
  - Household savings rate remained well above its long-term average after a significant pandemic-era build-up.
- Industrial activity and sentiment
  - Industrial production grew by 0.5 percent in April (from −0.2 percent in March), with a rebound in manufacturing notably in machinery and equipment goods.
  - Composite PMI worsened in May due to a decline in services activity.
  - Business and household sentiment indicators remained stable in May; purchases intentions up for households but offset by tighter financial prospects.
- Inflation and wages
  - Headline inflation was 2.6 percent (y-o-y) in May, down from a 7.3 percent peak in February 2023.
  - Inflation increased from 2.4 percent in April to 2.6 percent in May driven by higher energy prices (base effects).
  - Core inflation was 2.3 percent in May; services inflation remained stickier at about 3 percent (one-year ahead expectations by businesses).
  - Nominal average wages: 4.9 percent in 2023Q1; slowed to 3.1 percent in 2023Q4.
  - Hourly wage indicators: nominal wage growth at 2.8 percent in 2024Q1.
- Labor market and productivity
  - Unemployment rate stable at a historically low level of 7.5 percent in 2024Q1.
  - Employment rate remained well above its pre-pandemic trend in 2024Q1, supported by higher labor force participation.
  - Total hours worked since end-2019 increased by 5.6 percent.
  - Banque de France December 2023 macroeconomic outlook estimated per-capita productivity losses at 8.5 percent; national account rebasing in May revised the loss to 5.9 percent relative to the pre-pandemic trend.
- External position and markets
  - Current account (CA) deficit adjusted to 0.7 percent of GDP in 2023 from 2 percent in 2022.
  - Staff assesses the 2023 CA gap to be between −1.3 and –0.5 percent of GDP, with a midpoint of –0.9 percent of GDP.
  - Contributors to the 2023 overall policy gap (0.1 percent of GDP): positive credit gap of 0.4 percent, negative health expenditure gap of 0.3 percent, fiscal policy gap 0 percent, negative domestic fiscal gap of 1.2 percent.
  - In 2024Q1, the current account recorded a surplus of 0.1 percent of GDP.
  - Market movements: French equities registered gains of about 6 percent (January–May 2024); sovereign bond and CDS spreads widened by 28 and 15 bps, respectively, during June 9–17; the stock market dropped by around 6 percent over the same June period.

### Outlook and scenarios
- Short- and medium-term projections
  - Real GDP growth projected to reach 1.3 percent by 2025 from 0.9 percent in 2024.
  - Average headline inflation projected at 2.3 percent for 2024 and 1.8 percent for 2025.
  - Over the medium term, growth is projected to converge towards a potential rate of 1.3 percent, then decelerate towards 1 percent in the long run as the population ages.
  - Recent pension and unemployment benefit reforms are expected to reduce structural unemployment below 7 percent and raise potential output by a cumulative 0.5 percent by 2028 relative to a no-reform scenario.
- External outlook
  - The CA deficit is expected to further decline over the medium term, supported by ongoing fiscal consolidation and recent structural reforms.
- Risks and uncertainty
  - Downside risks: heightened political fragmentation delaying fiscal consolidation and reforms; social tensions; escalating geopolitical tensions raising energy prices and disrupting trade and financial flows; an abrupt global slowdown weakening external demand; monetary and financial tightening persisting or intensifying.
  - Upside risks: faster structural reform momentum domestically and at the EU level (including deeper integration); quicker normalization of household saving rates boosting consumption; stronger business investment tied to digital and green transitions; export performance surprises.
- Climate transition impact
  - Physical risks from extreme weather events have caused economic damages averaging 0.1 percent of GDP per year over the past three decades.
  - Under alternative Fit-for-55 transition scenarios, real GDP could be 1.3 percent lower relative to the baseline by 2030, driven by the energy-intensive sectors.

### Authorities’ views
- Authorities broadly shared staff’s views on the outlook and balance of risks but were somewhat more optimistic on growth.
- PSTAB projections: real GDP growth at 1.0 and 1.4 percent in 2024 and 2025, respectively.
- Authorities concurred on disinflation expectations and external position assessments, and viewed medium-to-long-term potential growth broadly in line with staff while seeing room for a stronger labor contribution from reforms.
- Authorities emphasized benefits from digitalization and deeper EU integration to support productivity and competitiveness and reiterated that climate mitigation policies generate medium- and long-term benefits.

### Policy discussions and priorities
- Primary policy objective: advance fiscal and structural efforts to rebuild fiscal buffers, place public debt on a downward trajectory, and modernize the economy sustainably.
- Fiscal policy
  - Substantial additional efforts are needed starting in 2024 to strengthen public finances while making space for targeted growth-enhancing spending.
  - As monetary policy eases, it can help mitigate the contractionary impact of fiscal tightening.
- Structural and financial stability policies
  - Continue reforms to support jobs and potential growth amid geopolitical and economic transitions.
  - Proactive efforts to strengthen financial stability have helped support banking system resilience and should be sustained to mitigate systemic risks.
  - Safeguard and deepen the European single market to support competitiveness and integration.

### Fiscal stance and 2023 outturn
- Headline deficit reached 5.5 percent of GDP in 2023.
- Structural primary stance was 0.9 percentage points looser in 2023 than in 2022.
- Deficit was 0.6 percentage points above the budget target in 2023; 0.1 percentage points of this gap is attributed to a statistical rebasing.
- Revenue underperformance drivers
  - Weaker social security contributions reflecting slower underlying real wage dynamics.
  - VAT underperformance mainly due to larger tax refunds.
  - Fall in CIT revenues driven by lower taxable profits.
- Policy changes and spending
  - Initial cuts in a distortive value-added tax (CVAE), expected to be fully eliminated by 2027, accounted for 0.1 percent of GDP.
  - Energy and other purchasing power support measures were reduced by 0.3 percent of GDP in 2023 (to 1.2 percent of GDP).
  - Reduction in support more than offset capital spending under the France 2030 plan by about 0.2 percent of GDP.
- All main categories of primary spending contracted as a share of GDP, but local government spending was higher-than-expected.

### 2024 budget, revisions, and staff baseline
- 2024 budget initially targeted a deficit of 4.4 percent of GDP.
- With the 2024-2027 Stability Program (PSTAB) last April, the 2024 deficit target was revised up to 5.1 percent of GDP.
- Staff’s baseline estimate for 2024 is 5.2 percent of GDP (current-policy scenario based on legislated and clearly specified measures).
  - Staff baseline includes only a small part of new additional measures announced in the PSTAB (0.3 percent of GDP).
  - Staff baseline reflects the 2020 national accounts rebasing published at the end of May.
- Authorities approved by decree in February further budget cuts to line ministries to mitigate fiscal underperformance.

### Medium-term projections, debt dynamics, and risks
- Under current policies, staff projects the overall deficit to decline modestly to 4.5 percent of GDP by 2027.
- PSTAB targeted deficit level for 2027 is 2.9 percent of GDP.
- Under staff’s baseline, debt would rise to 111 percent of GDP in 2024 and increase by about 1 percentage points a year over the medium term.
- Interest rate shock example (based on PSTAB estimates):
  - A permanent increase by 100 basis points in interest rates could translate into a cumulative increase in the debt burden of about 0.1 percent of GDP in the first year, by 0.5 percent in 5 years, and by 0.9 percent in 10 years.
- Staff assesses that France’s overall risk of sovereign debt stress remains low, given commitment to further fiscal consolidation, a liquid debt market, a diversified investor base, and the stabilizing role of the ECB.
- Market developments: spreads on sovereign bonds increased during June 9-17 (by about 30 bps), sovereign yields increases were about 10 bps amid compression in German bund yields.

### Recommended additional consolidation and fiscal path
- For 2024, staff recommends identifying additional new measures for about 0.4 percent of GDP (beyond staff’s current policy scenario and building on what has been announced in the PSTAB).
  - Rationale: improve debt dynamics while smoothing adjustment in outer years and reducing potential negative effects on the economy.
- Additional fiscal effort should draw from ongoing spending reviews, including action on local government spending.
- PSTAB consolidation objective of bringing the deficit below 3 percent of GDP by 2027 is deemed appropriate.
  - Meeting it would require a substantial structural primary effort of nearly 3 percent of GDP over 2025-27, on top of the recommended effort in 2024.
  - Equivalent to an average annual effort of almost 1 percent (or an average additional annual effort of 0.6 percent relative to the baseline).
  - After 2027, the effort could be marginally reduced, with public debt declining by about 3 percentage points of GDP over 2025-29.
- Staff’s debt sustainability analysis indicates the recommended fiscal path would significantly reduce medium-term risks and allow France to reach its debt-stabilizing primary balance by 2027.
- Staff recommends saving any surprise revenue overperformance to strengthen fiscal buffers.

### Areas for efficiency gains and structural fiscal measures
- Continued focus on targeted measures to lower current spending while preserving growth-friendly investment (green and digital transition).
- Specific areas and measures with estimated savings or reform impact
  - Better targeting unemployment benefits and support schemes for workers and enterprises; complement prior reforms (2019 and 2023) projected to generate future savings of around 0.2 percent of GDP per year.
  - Broad-based spending reviews to target inefficiencies across line ministries, including health spending, social security, education, and active labor market policies.
  - Contain increase in public sector salary bill by reducing overlaps between different levels of government and greater reliance on automation and digitalization.
  - Redesign tax expenditure to increase economic efficiency while lowering fiscal costs.
  - Involve local governments more by ensuring strict adherence to existing targets on current spending.
- Institutional suggestion: the High Council of Public Finances should remain a building block of France’s fiscal framework, evaluating realism and internal consistency of macroeconomic and budgetary forecasts and commitments under EU fiscal rules.

### Authorities’ views on fiscal consolidation
- Stability Program for 2024-2027 sets a deficit target below 3 percent of GDP in 2027, relying on continued efforts to control current spending.
- Authorities saw limited scope for further adjustment in 2024 compared to what was already announced, to avoid weighing on the recovery.
- Authorities emphasized ongoing efforts to identify structural measures and reforms to stimulate jobs and growth while generating fiscal savings.
- Remaining measures for 2024 and 2025 expected to be finalized in time for the new EU Medium Term Fiscal-Structural Plan and 2025 budget in early October.

### Financial sector stability and housing market
- Tighter financial conditions continued to weigh on credit growth in 2023; conditions started stabilizing in 2024Q1 with new pressures emerging ahead of the mid-June elections.
- Household and non-financial corporate (NFC) credit growth dropped markedly in 2023 and early 2024; NFC refinancing needs remain contained.
  - 11 percent of outstanding bank fixed-rate loans expected to be renewed by end-2025.
- Bankruptcies among SMEs increased but remain in line with pre-pandemic trends.
- Banks’ non-performing loans (NPL) averaged 1.9 percent of total by end-2023.
- Housing market developments
  - NPLs in housing mortgages remained low at 2.1 percent in 2023Q4.
  - Fixed-rate mortgages account for 99 percent of total, with average maturity of 23 years.
  - Prudent borrower-based lending standards include a 35 percent DSTI ratio cap and a maximum loan maturity of 25 years for 80 percent of loan production.
  - In June 2023 authorities adjusted allocations within banks’ 20 percent flexibility margin (allowing compliance to be assessed over a quarter and increasing to 30 percent the margin proportion that is free to be used).
  - Zero Rate Loans (Prêt à Taux Zéro or PTZ) base broadened (relaxed maximum income threshold, better targeting) and extended till end-2027 to support first-time home buyers.
- Banking sector resilience and prudential metrics
  - Liquidity Coverage Ratio (LCR) of 150 percent in 2023Q4.
  - Net Stable Funding Ratio (NSFR) of 115.8 percent in 2023Q4.
  - Common Equity Tier 1 (CET1) ratio of 16 percent.
  - Countercyclical buffer (CCyB) increased to 1 percent starting in January 2024.
  - Implementation of a systemic risk buffer (SyRB) against highly indebted firms.
  - The impact of the recent increase in spreads (+30 basis points) on banks’ CET1, through sovereign exposures (1.65 percent of assets) and own financing costs, is estimated at about 5 basis points.
- Recommendation: ensure the Haut Conseil de Stabilité Financière (HCSF) has operational independence and sufficient legal powers to respond flexibly and proportionately to emerging risks.

### CRE exposures and REIFs; climate transition risks for banks
- CRE and REIFs
  - Direct banking exposures to CRE are small: about 6 percent of total loans.
  - NPLs in the CRE sector account for less than 10 percent of total NPLs (compared to EA averages of 13 and 21 percent, respectively).
  - REIF sector has grown significantly, reaching €150 billion in 2023 (about 0.8 percent of total financial system’s assets).
  - Declining CRE prices have heightened liquidity risks in REIFs, but vulnerabilities appear contained given a stable investor base comprised mainly of domestic participants and insurers.
  - Supervisory actions and recommendations: close data gaps and establish metrics to monitor systemic risk from indirect exposures via non-bank financial institutions (NBFIs); advance risk-monitoring efforts and leverage results from system-wide stress tests; continue to encourage liquidity management tools for investment funds, including gates and notice periods; support new European macroprudential initiatives targeting build-up of risks in the CRE market for REIFs and other NBFIs.
- Climate transition risks for French banks
  - Under staff’s Fit-for-55 scenario (EU and UK achieve a 55 percent emissions reduction by end-2030), key systemic banks may face rising credit losses.
  - Estimated impact: NPLs could increase over the medium term for the energy-intensive chemical, metals, and manufacturing sectors by about 1.5 percent of total loans under the central scenario.
  - Policy and supervisory priorities: integrate climate transition risks into governance, strategy, and risk management processes; expand analytical capacity across the financial sector to assess climate risks; ECB requirement: banks to progressively reach full alignment with supervisory expectations on climate and environment-related risks by 2024; increase compliance with EU Corporate Sustainability Reporting Standards (CSRD), EU taxonomy regulatory requirements, and Pillar 3/ESG risks reporting and disclosures; further integrate transition plans into the prudential framework to encourage diversification of banks’ investments.

### Green transition, carbon pricing, and transport fiscal policy
- Emissions and targets
  - Since 2005, emissions have decreased by 23 percent, with reductions concentrated in power generation, industry, and buildings.
  - Under Fit-for-55, France targets to reduce emissions by 52 percent by 2030 relative to 2005 levels and achieve net zero by 2050.
  - France’s 2020 NECP is expected to contribute towards a 33.5 percent emissions reduction by 2030 relative to 2005 (48.1 and 28.7 percent for EU Emission Trading System (ETS1) and non-ETS1 sectors, respectively), but the 2022 European Environmental Agency assessment indicates these policies do not fully close the gap to targets.
- Green spending
  - Green spending is set to reach about 1.3 percent of GDP in 2024.
  - Key programs include MaPrimeRenov (building renovations), industry decarbonization, and support for zero-emission passenger vehicles; many measures are means-tested and have been fine-tuned to target lower abatement costs.
  - Policy suggestion: consider revenue-neutral continuous feebate schemes for non-ETS1 sectors to improve efficiency and limit fiscal costs.
- Carbon pricing and transport fiscal policy
  - Current explicit carbon contribution: EUR 44.6/tCO2.
  - Policy option: progressively increase carbon pricing for non-ETS sectors to around $100 per ton by 2030.
    - Projected effect: reduce non-ETS1 emissions by nearly 10 percent relative to the baseline (assuming no additional policies).
    - Would generate net welfare benefits and mobilize additional revenues that could be recycled via cash transfers to offset impacts on lower-income households.
    - Coupling non-ETS carbon pricing with a gradually increasing ETS1 price floor would equalize abatement costs across the economy and ensure efficiency.
    - Emphasize transparent, extensive communication on distributional impacts and revenue uses to secure buy-in.
  - Road transport fiscal challenges
    - Road transport emissions expected to have peaked in 2023; reductions driven by declining EV prices and stricter EU vehicle fuel standards.
    - Fuel tax base erosion: expected revenue loss of about 0.05 percent of GDP per year, down from 1.4 percent of GDP in 2024.
    - Policy response: transition to distance-based charges to address driving externalities and maintain revenue; balance with short- to medium-term incentives for switching to zero-emission vehicles (including heavy duty vehicles) and increasing road fuel charges.
    - Transport fiscal reforms should incorporate equity and environmental considerations.

### Employment, training, productivity, and transitions
- Labor market outcomes and reforms
  - Recent reforms and programs have increased employment above pre-pandemic trend and supported real GDP growth.
  - Apprenticeship reforms added 850,000 additional workers in 2023.
  - France Travail registration and job-seeking support can facilitate integration; strengthening targeting to lower skilled workers can improve reskilling outcomes (e.g., France Compétences).
  - Pension and unemployment benefit reforms support labor participation by increasing work incentives and faster unemployment-to-employment transitions.
    - Pension reform highlights (as introduced in 2023): the minimum retirement age is set to gradually increase from 62 to 64 years by 2030; the minimum contribution period for a full pension will be raised from 42 years to 43 years by 2027; the age to retire without having met the minimum contribution period and without incurring any discounts will remain at 67.
- Preparing for green and digital transitions
  - Green transition is affecting labor demand: gains for workers with transferable skills to green occupations; displacement for specialized workers in carbon-intensive occupations.
  - AI adoption: France ranks high in AI preparedness; about 50 percent of workers in jobs with high exposure to AI are expected to be disrupted (disproportionately women); young, highly educated workers likely to gain most from AI complementarities.
- Policy recommendations
  - Education and training reforms to upskill the workforce, close attainment gaps, and smooth transitions (including vocational training reform, training certification, and professional qualification schemes).
  - Target ALMPs and retraining to workers at risk of skill obsolescence (e.g., older workers in carbon-intensive or AI-substitutable occupations).
  - Address low school enrolment of women in STEM and better integrate women in industry (IndustriElles).
  - Complement labor-side measures with firm-level policies to boost productivity: further reduce regulatory burden and barriers to entry (especially in some service sectors), streamline authorizations and reporting (Simplification Bill), and assess scope to rationalize tax expenditures for R&D and innovation toward highest-impact schemes.

### Deepening geoeconomic fragmentation: exposure and policy responses
- Exposure and vulnerabilities
  - France has a well-diversified economy, with a marked fall in manufacturing as a share of GDP balanced by dynamism in the services sector, including services exports.
  - France is relatively less dependent than most EU peers on imports of critical intermediate goods from geopolitically distant countries, but remains exposed directly and through key trading partners to risk of supply disruptions and technological and payments systems fragmentation.
- State aid and investment initiatives
  - As of 2022, France’s state aid spending accounted for nearly 1 percent of GDP (including subsidies, tax expenditure and non-financial instruments).
  - Recent and ongoing programs: France Relance recovery plan ~€30 billion (including €9 billion from the NGEU for digital transformation); France 2030 national investment plan ~€54 billion over five years.
  - Despite these efforts, R&D and ICT investment by French firms still lags the United States; venture capital investment in France remains limited relative to the United States.

### Staff appraisal — macroeconomic outlook and fiscal policy
- Recent performance and outlook
  - Real GDP growth is expected to reach 0.9 percent in 2024 and 1.3 percent in 2025.
  - Disinflationary process remains on track.
- Public finances
  - Crisis response and slower-than-expected recovery produced sizable fiscal underperformance in 2023, reducing fiscal space when investment needs for green and digital transitions are rising.
  - The fiscal consolidation goal under France’s Stability Program of bringing the deficit below 3 percent of GDP by 2027 is considered appropriate to set debt on a downward trajectory.
  - Despite overall low risk of sovereign debt distress, public finances remain exposed to potential increases in sovereign interest spreads and volatility or reductions in growth.
- Recommended focus
  - Identify a well-specified and credible package of measures following the elections to underpin fiscal consolidation plans.
  - Continue fiscal consolidation centered on rationalizing current spending while preserving room for growth-friendly investment, including green and digital transitions.
  - Monetary policy easing can help mitigate contractionary impacts of fiscal tightening.
  - Reduction in fiscal risks would lower additional fiscal effort required beyond 2027.

### Key tables and medium-term projections (selected figures)
- Real GDP (change in percent, 2019–2029): 2.1, -7.6, 6.8, 2.6, 1.1, 0.9, 1.3, 1.5, 1.5, 1.4, 1.3
- CPI (year average, 2019–2029): 1.3, 0.5, 2.1, 5.9, 5.7, 2.3, 1.8, 1.8, 1.8, 1.8, 1.7
- General government balance (percent of GDP, 2019–2029): -2.4, -8.9, -6.6, -4.7, -5.5, -5.2, -5.0, -4.6, -4.5, -4.4, -4.3
- General government gross debt (percent of GDP, Maastricht definition, 2019–2029): 97.6, 114.6, 112.6, 111.1, 109.9, 111.3, 112.8, 113.5, 114.4, 115.2, 116.2
- Current account (percent of GDP, 2019–2029): 0.5, -1.6, 0.4, -2.0, -0.7, -0.3, -0.5, -0.4, -0.4, -0.2, -0.1
- NIIP: −29.2 percent of GDP in 2023.
- Gross assets: 334.9 percent of GDP in 2023.
- Gross liabilities: 364.1 percent of GDP in 2023.
- Average TARGET2 balance in 2023: about €120.5 billion.
- Public external debt (percent of GDP) in 2023: 53.7 percent.
- Banks’ short-term debt securities stock in 2023: €149 billion (5.3 percent of GDP).
- Financial derivatives in 2023: about 47.7 percent of GDP.

### Debt sustainability, risk assessment, and scenarios
- Staff baseline and debt dynamics
  - Under staff’s baseline, fiscal deficit projected to decline moderately to 5.2 percent of GDP in 2024 and to remain well above 3 percent of GDP in the medium term.
  - Under staff’s baseline, debt would rise to 111 percent of GDP in 2024 and increase by about 1 percentage points a year over the medium term.
  - Over a 10-year horizon, the interest rate burden increases by 1½ percentage points of GDP; debt ratio projected to increase by about 10 percent of GDP to 122 percent of GDP by 2033 under a no-new-measures baseline.
- DSA and risk signals
  - Overall assessment: France is at a low risk of sovereign stress; medium-term sovereign risks: Moderate.
  - Average baseline GFN: 21.6 percent of GDP.
  - GFN financeability index (GFI): 9.7.
  - Prob. of missed crisis, 2024-2029, if stress not predicted: 18.2 pct.
  - Prob. of false alarms, 2024-2029, if stress predicted: 30.7 pct.
- Long-term scenarios
  - Four illustrative policy scenarios: Historical; Baseline; Baseline and DSPB; Custom (deficit ~2.2 percent of GDP after 2029, primary balance of 0.7 percent of GDP).
  - Mechanical signals of the three standard scenarios breach GFN thresholds; Custom scenario returns GFN and debt ratios to a downward long-run trajectory under conservative assumptions.

### Annex IV — Medium-to-long-term potential output
- Methodology and key calibration
  - Multivariate filter for short-to-medium-term potential; Cobb-Douglas production function for medium-to-long-term decomposition.
  - Capital share 훼 around 0.62 (2004–2019 average) and held constant after 2019.
  - TFP converges to 0.7 percent in the medium-to-long term.
- Population and labor assumptions
  - UN World Population Prospects 2022 medium scenario: working-age population expected to decline by around 1 percent by 2030 and by a further 3 percent by 2040.
  - Gender convergence parameter 휉 = 4% (closes about half of a five-percentage point gap by 2040).
  - Parameter Δ_a = 0.1 percentage points for 50−64 group to reflect higher participation.
  - Average hours per worker projected to remain at 2023 values.
- Potential output projections and contributions
  - Potential output growth projected to reach around 1.3 percent by 2029 and converge to around 1.0 percent in the long run.
  - Capital growth ≈ 1.0 percent in the medium term.
  - Employment projected to weigh on potential output by around 0.1 percentage points per year versus historical positive contribution of around 0.5 percentage points.
- Policy implications
  - Structural reforms to support labor participation of underrepresented groups (women, older workers).
  - Promote technology adoption, digitalization, and green transition to boost TFP and capital-skill complementarities.
- Balance of risks to potential growth
  - Downside risks: steeper population decline; aging-induced investment substitution; prolonged secular TFP slowdown.
  - Upside risks: quality-adjusted employment gains; stronger migrant inflows and integration; faster convergence in female and older-worker participation; automation and AI boosting capital and productivity.

### Governance, corruption, and AML/CFT assessments
- OECD WGB Phase 4 Follow-up (March 2024)
  - WGB commended progress in enforcing the foreign bribery offence and legislative efforts since 2021, but recommended continued work on resource issues in the criminal justice system, clarifying corporate criminal liability for foreign bribery, and reinforcing guarantees of independence of the Public Prosecutor’s Office.
  - Noted that only 1.5% of initiated money laundering investigations are related to the proceeds of corruption.
  - France published an updated National Risk Assessment (NRA) in 2023 with specific analysis on corruption threats and increased specialized resources for law enforcement.
  - WGB recommendations include removing obstacles to prompt and effective mutual legal assistance; preventing professional secrecy from impeding identification of suspicious transactions; ensuring defense secrecy classification does not hamper investigations.
- Structural risk factor: out of the 500 largest multinational enterprises (MNE) in the world, 18 are headquartered in France, with some operating in high-risk sectors and jurisdictions.

### Institutional and regulatory initiatives
- Regulatory incentives to channel private savings to capital investment: introduction of a new pension saving product and targeted changes in life-insurance legal framework.
- Institutional changes for ecological transition: creation of General Secretariat for Ecological Planning (SGPE) in mid-2022; monitoring via 250 public indicators.
- Decarbonization strategy: multi-year strategy defining financing of the ecological transition and national energy policy to be submitted to Parliament in coming months.
- Key climate statistics: Objective carbon neutrality by 2050; 2023 outcome: France experienced a 5.8% reduction in its greenhouse gas emissions.

*Source: Extracted content from the IMF PDF chapter "France — Selected Economic Indicators" (1fraea2024001-print-pdf).*

### 1.    Selected Economic Indicators _________________________________________________________________ 31

### 1.    Selected Economic Indicators

### Context and key messages
- A strong and timely policy response helped cushion the impact of the pandemic and energy crisis, but the crisis response and slower-than-expected recovery have weighed on public finances and reduced fiscal space.
- Labor market performance has remained robust, although labor productivity remains below its pre-COVID trend.
- Reforms of the pension and unemployment benefit systems have started to yield results, but substantial additional efforts will be needed in 2024 and over the medium term to strengthen public finances, lift potential growth, and create jobs.
- Article IV discussions in May focused on policies and structural priorities to rebuild buffers and ensure an orderly adjustment to the green and digital transitions.
- Political uncertainty following the European elections and the announcement of parliamentary elections for June 30 and July 7 led to market pressures in early June.

### Recent economic developments
- Growth and demand:
  - Real GDP growth was 1.1 percent in 2023.
  - Real GDP growth rose by 0.2 percent (q/q) in 2024Q1, supported by net exports amid still weak domestic demand.
  - Investment, especially residential construction, surprised on the downside by year-end 2023.
  - Household savings rate remained well above its long-term average after a significant pandemic-era build-up.
- Industrial activity and sentiment:
  - Industrial production grew by 0.5 percent in April (from −0.2 percent in March), with a rebound in manufacturing notably in machinery and equipment goods.
  - Composite PMI worsened in May due to a decline in services activity.
  - Business and household sentiment indicators remained stable in May; purchases intentions up for households but offset by tighter financial prospects.
- Inflation and wages:
  - Headline inflation was 2.6 percent (y-o-y) in May, down from a 7.3 percent peak in February 2023.
  - Inflation increased from 2.4 percent in April to 2.6 percent in May driven by higher energy prices (base effects).
  - Core inflation was 2.3 percent in May; services inflation remained stickier at about 3 percent (one-year ahead expectations by businesses).
  - Nominal average wages: 4.9 percent in 2023Q1; slowed to 3.1 percent in 2023Q4.
  - Hourly wage indicators: nominal wage growth at 2.8 percent in 2024Q1.
- Labor market and productivity:
  - Unemployment rate stable at a historically low level of 7.5 percent in 2024Q1.
  - Employment rate remained well above its pre-pandemic trend in 2024Q1, supported by higher labor force participation.
  - Total hours worked since end-2019 increased by 5.6 percent.
  - Banque de France December 2023 macroeconomic outlook estimated per-capita productivity losses at 8.5 percent; national account rebasing in May revised the loss to 5.9 percent relative to the pre-pandemic trend.
- External position and markets:
  - Current account (CA) deficit adjusted to 0.7 percent of GDP in 2023 from 2 percent in 2022.
  - Staff assesses the 2023 CA gap to be between −1.3 and –0.5 percent of GDP, with a midpoint of –0.9 percent of GDP.
  - Contributors to the 2023 overall policy gap (0.1 percent of GDP): positive credit gap of 0.4 percent, negative health expenditure gap of 0.3 percent, fiscal policy gap 0 percent, negative domestic fiscal gap of 1.2 percent.
  - In 2024Q1, the current account recorded a surplus of 0.1 percent of GDP.
  - Market movements: French equities registered gains of about 6 percent (January–May 2024); sovereign bond and CDS spreads widened by 28 and 15 bps, respectively, during June 9–17; the stock market dropped by around 6 percent over the same June period.

### Outlook and scenarios
- Short- and medium-term projections:
  - Real GDP growth projected to reach 1.3 percent by 2025 from 0.9 percent in 2024.
  - Average headline inflation projected at 2.3 percent for 2024 and 1.8 percent for 2025.
  - Over the medium term, growth is projected to converge towards a potential rate of 1.3 percent, then decelerate towards 1 percent in the long run as the population ages.
  - Recent pension and unemployment benefit reforms are expected to reduce structural unemployment below 7 percent and raise potential output by a cumulative 0.5 percent by 2028 relative to a no-reform scenario.
- External outlook:
  - The CA deficit is expected to further decline over the medium term, supported by ongoing fiscal consolidation and recent structural reforms.
- Risks and uncertainty:
  - Downside risks: heightened political fragmentation delaying fiscal consolidation and reforms; social tensions; escalating geopolitical tensions raising energy prices and disrupting trade and financial flows; an abrupt global slowdown weakening external demand; monetary and financial tightening persisting or intensifying.
  - Upside risks: faster structural reform momentum domestically and at the EU level (including deeper integration); quicker normalization of household saving rates boosting consumption; stronger business investment tied to digital and green transitions; export performance surprises.
- Climate transition impact:
  - Physical risks from extreme weather events have caused economic damages averaging 0.1 percent of GDP per year over the past three decades.
  - Under alternative Fit-for-55 transition scenarios, real GDP could be 1.3 percent lower relative to the baseline by 2030, driven by the energy-intensive sectors.

### Authorities’ views
- Authorities broadly shared staff’s views on the outlook and balance of risks but were somewhat more optimistic on growth.
- PSTAB projections: real GDP growth at 1.0 and 1.4 percent in 2024 and 2025, respectively.
- Authorities concurred on disinflation expectations and external position assessments, and viewed medium-to-long-term potential growth broadly in line with staff while seeing room for a stronger labor contribution from reforms.
- Authorities emphasized benefits from digitalization and deeper EU integration to support productivity and competitiveness and reiterated that climate mitigation policies generate medium- and long-term benefits.

### Policy discussions and priorities
- Primary policy objective: advance fiscal and structural efforts to rebuild fiscal buffers, place public debt on a downward trajectory, and modernize the economy sustainably.
- Fiscal policy:
  - Substantial additional efforts are needed starting in 2024 to strengthen public finances while making space for targeted growth-enhancing spending.
  - As monetary policy eases, it can help mitigate the contractionary impact of fiscal tightening.
- Structural and financial stability policies:
  - Continue reforms to support jobs and potential growth amid geopolitical and economic transitions.
  - Proactive efforts to strengthen financial stability have helped support banking system resilience and should be sustained to mitigate systemic risks.
  - Safeguard and deepen the European single market to support competitiveness and integration.

*Source: France — Selected Economic Indicators (extracted content).*

### 14.      The fiscal stance was expansionary in 2023, well beyond the original budget plans. The

### 1fraea2024001-print-pdf - 14.      The fiscal stance was expansionary in 2023, well beyond the original budget plans. The

### Fiscal stance and 2023 outturn
- Headline deficit reached 5.5 percent of GDP in 2023.
- Structural primary stance was 0.9 percentage points looser in 2023 than in 2022.
- Deficit was 0.6 percentage points above the budget target in 2023; 0.1 percentage points of this gap is attributed to a statistical rebasing.
- Revenue underperformance drivers:
  - Weaker social security contributions reflecting slower underlying real wage dynamics.
  - VAT underperformance mainly due to larger tax refunds.
  - Fall in CIT revenues driven by lower taxable profits.
- Policy changes and spending:
  - Initial cuts in a distortive value-added tax (CVAE), expected to be fully eliminated by 2027, accounted for 0.1 percent of GDP.
  - Energy and other purchasing power support measures were reduced by 0.3 percent of GDP in 2023 (to 1.2 percent of GDP).
  - Reduction in support more than offset capital spending under the France 2030 plan by about 0.2 percent of GDP.
- All main categories of primary spending contracted as a share of GDP, but local government spending was higher-than-expected.

### 2024 budget, revisions, and staff baseline
- 2024 budget initially targeted a deficit of 4.4 percent of GDP.
- With the 2024-2027 Stability Program (PSTAB) last April, the 2024 deficit target was revised up to 5.1 percent of GDP.
- Staff’s baseline estimate for 2024 is 5.2 percent of GDP (current-policy scenario based on legislated and clearly specified measures).
  - Staff baseline includes only a small part of new additional measures announced in the PSTAB (0.3 percent of GDP).
  - Staff baseline reflects the 2020 national accounts rebasing published at the end of May.
- Authorities approved by decree in February further budget cuts to line ministries to mitigate fiscal underperformance.

### Medium-term projections, debt dynamics, and risks
- Under current policies, staff projects the overall deficit to decline modestly to 4.5 percent of GDP by 2027.
- PSTAB targeted deficit level for 2027 is 2.9 percent of GDP.
- Under staff’s baseline, debt would rise to 111 percent of GDP in 2024 and increase by about 1 percentage points a year over the medium term.
- Interest rate shock example (based on PSTAB estimates):
  - A permanent increase by 100 basis points in interest rates could translate into a cumulative increase in the debt burden of about 0.1 percent of GDP in the first year, by 0.5 percent in 5 years, and by 0.9 percent in 10 years.
- Staff assesses that France’s overall risk of sovereign debt stress remains low, given commitment to further fiscal consolidation, a liquid debt market, a diversified investor base, and the stabilizing role of the ECB.
- Market developments: spreads on sovereign bonds increased during June 9-17 (by about 30 bps), sovereign yields increases were about 10 bps amid compression in German bund yields.

### Recommended additional consolidation and fiscal path
- For 2024, staff recommends identifying additional new measures for about 0.4 percent of GDP (beyond staff’s current policy scenario and building on what has been announced in the PSTAB).
- Rationale: improve debt dynamics while smoothing adjustment in outer years and reducing potential negative effects on the economy.
- Additional fiscal effort should draw from ongoing spending reviews, including action on local government spending.
- PSTAB consolidation objective of bringing the deficit below 3 percent of GDP by 2027 is deemed appropriate.
  - Meeting it would require a substantial structural primary effort of nearly 3 percent of GDP over 2025-27, on top of the recommended effort in 2024.
  - Equivalent to an average annual effort of almost 1 percent (or an average additional annual effort of 0.6 percent relative to the baseline).
  - After 2027, the effort could be marginally reduced, with public debt declining by about 3 percentage points of GDP over 2025-29.
- Staff’s debt sustainability analysis indicates the recommended fiscal path would significantly reduce medium-term risks and allow France to reach its debt-stabilizing primary balance by 2027.
- Staff recommends saving any surprise revenue overperformance to strengthen fiscal buffers.

### Areas for efficiency gains and structural fiscal measures
- Continued focus on targeted measures to lower current spending while preserving growth-friendly investment (green and digital transition).
- Specific areas and measures with estimated savings or reform impact:
  - Better targeting unemployment benefits and support schemes for workers and enterprises; complement prior reforms (2019 and 2023) projected to generate future savings of around 0.2 percent of GDP per year.
  - Broad-based spending reviews to target inefficiencies across line ministries, including health spending, social security, education, and active labor market policies.
  - Contain increase in public sector salary bill by reducing overlaps between different levels of government and greater reliance on automation and digitalization.
  - Redesign tax expenditure to increase economic efficiency while lowering fiscal costs.
  - Involve local governments more by ensuring strict adherence to existing targets on current spending.
- Institutional suggestion: the High Council of Public Finances should remain a building block of France’s fiscal framework, evaluating realism and internal consistency of macroeconomic and budgetary forecasts and commitments under EU fiscal rules.

### Authorities’ views
- Stability Program for 2024-2027 sets a deficit target below 3 percent of GDP in 2027, relying on continued efforts to control current spending.
- Authorities saw limited scope for further adjustment in 2024 compared to what was already announced, to avoid weighing on the recovery.
- Authorities emphasized ongoing efforts to identify structural measures and reforms to stimulate jobs and growth while generating fiscal savings.
- Remaining measures for 2024 and 2025 expected to be finalized in time for the new EU Medium Term Fiscal-Structural Plan and 2025 budget in early October.

### Financial sector stability and housing market
- Tighter financial conditions continued to weigh on credit growth in 2023; conditions started stabilizing in 2024Q1 with new pressures emerging ahead of the mid-June elections.
- Household and non-financial corporate (NFC) credit growth dropped markedly in 2023 and early 2024; NFC refinancing needs remain contained.
  - 11 percent of outstanding bank fixed-rate loans expected to be renewed by end-2025.
- Bankruptcies among SMEs increased but remain in line with pre-pandemic trends.
- Banks’ non-performing loans (NPL) averaged 1.9 percent of total by end-2023.
- Housing market developments:
  - NPLs in housing mortgages remained low at 2.1 percent in 2023Q4.
  - Fixed-rate mortgages account for 99 percent of total, with average maturity of 23 years.
  - Prudent borrower-based lending standards include a 35 percent DSTI ratio cap and a maximum loan maturity of 25 years for 80 percent of loan production.
  - In June 2023 authorities adjusted allocations within banks’ 20 percent flexibility margin (allowing compliance to be assessed over a quarter and increasing to 30 percent the margin proportion that is free to be used).
  - Zero Rate Loans (Prêt à Taux Zéro or PTZ) base broadened (relaxed maximum income threshold, better targeting) and extended till end-2027 to support first-time home buyers.
- Banking sector resilience and prudential metrics:
  - Liquidity Coverage Ratio (LCR) of 150 percent in 2023Q4.
  - Net Stable Funding Ratio (NSFR) of 115.8 percent in 2023Q4.
  - Common Equity Tier 1 (CET1) ratio of 16 percent.
  - Countercyclical buffer (CCyB) increased to 1 percent starting in January 2024.
  - Implementation of a systemic risk buffer (SyRB) against highly indebted firms.
  - The impact of the recent increase in spreads (+30 basis points) on banks’ CET1, through sovereign exposures (1.65 percent of assets) and own financing costs, is estimated at about 5 basis points.
- Recommendation: ensure the Haut Conseil de Stabilité Financière (HCSF) has operational independence and sufficient legal powers to respond flexibly and proportionately to emerging risks.

*Source: Extracted content from the provided IMF PDF chapter.*

### 24.      While direct exposures of the banking system to the commercial real estate (CRE)

### While direct exposures of the banking system to the commercial real estate (CRE) market are limited

### CRE exposures and real estate investment funds (REIFs)
- Direct banking exposures to CRE are small: about 6 percent of total loans.
- NPLs in the CRE sector account for less than 10 percent of total NPLs (compared to EA averages of 13 and 21 percent, respectively).
- REIF sector has grown significantly, reaching €150 billion in 2023 (about 0.8 percent of total financial system’s assets).
- Declining CRE prices have heightened liquidity risks in REIFs, but vulnerabilities appear contained given a stable investor base comprised mainly of domestic participants and insurers.
- Supervisory actions and recommendations:
  - Close data gaps and establish metrics to monitor systemic risk from indirect exposures via non-bank financial institutions (NBFIs).
  - Advance risk-monitoring efforts and leverage results from system-wide stress tests.
  - Continue to encourage liquidity management tools for investment funds, including gates and notice periods.
  - Support new European macroprudential initiatives targeting build-up of risks in the CRE market for REIFs and other NBFIs.

### Climate transition risks for French banks
- Under staff’s Fit-for-55 scenario (EU and UK achieve a 55 percent emissions reduction by end-2030), key systemic banks may face rising credit losses.
- Estimated impact: NPLs could increase over the medium term for the energy-intensive chemical, metals, and manufacturing sectors by about 1.5 percent of total loans under the central scenario.
- These results align with past exercises by Banque de France (2020-21) and the ECB (2023).
- Policy and supervisory priorities:
  - Integrate climate transition risks into governance, strategy, and risk management processes.
  - Expand analytical capacity across the financial sector to assess climate risks.
  - ECB requirement: banks to progressively reach full alignment with supervisory expectations on climate and environment-related risks by 2024.
  - Increase compliance with EU Corporate Sustainability Reporting Standards (CSRD), EU taxonomy regulatory requirements, and Pillar 3/ESG risks reporting and disclosures.
  - Further integrate transition plans into the prudential framework to encourage diversification of banks’ investments.

### Authorities’ views on financial stability and climate risk
- Broad agreement that the financial system weathered recent shocks well, though some vulnerabilities merit improved identification and monitoring.
- Authorities expect monetary policy easing, following disinflation, to provide relief to banks’ net interest margins.
- Corporate sector: orderly deleveraging despite high indebtedness, with continued access to finance and comfortable cash buffers.
- Credit protections: fixed-rate mortgages and borrower-based limits helped preserve households and banks from a rise in NPLs.
- Macroprudential stance: reaffirmed last March the appropriateness of the CCyB and SyRB.
- On NBFI vulnerabilities: largely contained and expected to decrease structurally with increased take up of liquidity management tools by investment funds.
- Support for system-wide stress tests, including EU-level exercises to gauge cross-border risks.
- Authorities welcome focus on climate risk and emphasize timely, well-managed climate transition to mitigate risks; noted no notable increase in credit risks so far even in more energy-intensive sectors.

### Accelerating the green transition: policy progress and remaining gaps
- France’s role: active in international mitigation initiatives (COP framework, NDC Partnership, International Solar Alliance, Africa Renewable Energy Initiative, Green Climate Fund).
- Emissions and targets:
  - Since 2005, emissions have decreased by 23 percent, with reductions concentrated in power generation, industry, and buildings.
  - Under Fit-for-55, France targets to reduce emissions by 52 percent by 2030 relative to 2005 levels and achieve net zero by 2050.
  - France’s 2020 NECP is expected to contribute towards a 33.5 percent emissions reduction by 2030 relative to 2005 (48.1 and 28.7 percent for EU Emission Trading System (ETS1) and non-ETS1 sectors, respectively), but the 2022 European Environmental Agency assessment indicates these policies do not fully close the gap to targets.
- Green spending:
  - Green spending is set to reach about 1.3 percent of GDP in 2024.
  - Key programs include MaPrimeRenov (building renovations), industry decarbonization, and support for zero-emission passenger vehicles; many measures are means-tested and have been fine-tuned to target lower abatement costs.
  - Policy suggestion: consider revenue-neutral continuous feebate schemes for non-ETS1 sectors to improve efficiency and limit fiscal costs.

### Carbon pricing, non-ETS sectors, and transport fiscal policy
- Current explicit carbon contribution: EUR 44.6/tCO2.
- Policy option: progressively increase carbon pricing for non-ETS sectors to around $100 per ton by 2030.
  - Projected effect: reduce non-ETS1 emissions by nearly 10 percent relative to the baseline (assuming no additional policies).
  - Would generate net welfare benefits and mobilize additional revenues that could be recycled via cash transfers to offset impacts on lower-income households.
  - Coupling non-ETS carbon pricing with a gradually increasing ETS1 price floor would equalize abatement costs across the economy and ensure efficiency.
  - Emphasize transparent, extensive communication on distributional impacts and revenue uses to secure buy-in.
- Road transport fiscal challenges:
  - Road transport emissions expected to have peaked in 2023; reductions driven by declining EV prices and stricter EU vehicle fuel standards.
  - Fuel tax base erosion: expected revenue loss of about 0.05 percent of GDP per year, down from 1.4 percent of GDP in 2024.
  - Policy response: transition to distance-based charges to address driving externalities and maintain revenue; balance with short- to medium-term incentives for switching to zero-emission vehicles (including heavy duty vehicles) and increasing road fuel charges.
  - Transport fiscal reforms should incorporate equity and environmental considerations.

### Supporting employment, training, and productivity through the transition
- Labor market outcomes and reforms:
  - Recent reforms and programs have increased employment above pre-pandemic trend and supported real GDP growth.
  - Apprenticeship reforms added 850,000 additional workers in 2023.
  - France Travail registration and job-seeking support can facilitate integration; strengthening targeting to lower skilled workers can improve reskilling outcomes (e.g., France Compétences).
  - Pension and unemployment benefit reforms support labor participation by increasing work incentives and faster unemployment-to-employment transitions.
    - Pension reform highlights (as introduced in 2023): the minimum retirement age is set to gradually increase from 62 to 64 years by 2030; the minimum contribution period for a full pension will be raised from 42 years to 43 years by 2027; the age to retire without having met the minimum contribution period and without incurring any discounts will remain at 67.
- Preparing for green and digital transitions:
  - Green transition is affecting labor demand: gains for workers with transferable skills to green occupations; displacement for specialized workers in carbon-intensive occupations.
  - AI adoption: France ranks high in AI preparedness; about 50 percent of workers in jobs with high exposure to AI are expected to be disrupted (disproportionately women); young, highly educated workers likely to gain most from AI complementarities.
- Policy recommendations:
  - Education and training reforms to upskill the workforce, close attainment gaps, and smooth transitions (including vocational training reform, training certification, and professional qualification schemes).
  - Target ALMPs and retraining to workers at risk of skill obsolescence (e.g., older workers in carbon-intensive or AI-substitutable occupations).
  - Address low school enrolment of women in STEM and better integrate women in industry (IndustriElles).
  - Complement labor-side measures with firm-level policies to boost productivity: further reduce regulatory burden and barriers to entry (especially in some service sectors), streamline authorizations and reporting (Simplification Bill), and assess scope to rationalize tax expenditures for R&D and innovation toward highest-impact schemes.

*Source: Excerpt from IMF staff report content provided in the supplied PDF chapter/section.*

### 36.      Deepening geoeconomic fragmentation poses additional challenges to France’s

### 36.      Deepening geoeconomic fragmentation poses additional challenges to France’s

### Exposure and vulnerabilities
- France has a well-diversified economy, with a marked fall in manufacturing as a share of GDP balanced by dynamism in the services sector, including services exports.
- France is relatively less dependent than most EU peers on imports of critical intermediate goods from geopolitically distant countries, but remains exposed directly and through key trading partners to:
  - risk of supply disruptions; and
  - technological and payments systems fragmentation from geopolitical tensions and the reconfiguration of global trade and investment.
- Fragile intermediate good imports from geopolitically distanced countries and export/import partner shares imply exposure channels via trade (figure references in source).

### Policy responses and state aid
- As of 2022, France’s state aid spending accounted for nearly 1 percent of GDP (including subsidies, tax expenditure and non-financial instruments).
- Recent and ongoing programs:
  - France Relance recovery plan: about €30 billion (including €9 billion from the NGEU for digital transformation) to support firms’ exports, investment, and digital transformation.
  - France 2030 national investment plan: another €54 billion over five years for strategic development of critical technologies and the green and digital transformation.
- Past policies targeted:
  - reducing taxation on production (Crédit d’impôt pour la compétitivité et l’emploi); and
  - supporting innovation and R&D through reform of tax credits.
- Despite these efforts, R&D and ICT investment by French firms still lags the United States; venture capital investment in France remains limited relative to the United States.

### Investment, R&D, and venture capital
- France’s public and private investment initiatives emphasize digital and green transitions, breakthrough technologies, and industrial start-ups (France 2030 commitments by year shown in source figures).
- Venture capital investments (2013-2023) in France are comparatively low as a share of GDP versus several peers (figures provided in source).

### Authorities’ views
- Authorities emphasize support for jobs and reindustrialization in the context of green and digital transitions.
- They endorse complementing subsidy programs with measures that mitigate distributional impact and operational complexity.
- Authorities highlighted:
  - success of labor policies in boosting activity rates and reducing unemployment;
  - focus on integrating and requalifying workers;
  - opportunities from increasing women’s labor force participation via parental leave revamp, improving childcare, and promoting STEM;
  - role of France 2030 in supporting riskier projects to facilitate green and digital transition;
  - importance of EU-level coordination and strengthening the capital market union.

### Voluntary assessment of transnational aspects of corruption
- France continues efforts to fight significant risks of foreign bribery.
- OECD Working Group on Bribery (WGB) in the 2024 Follow-up Report welcomed progress in enforcing the foreign bribery offence and legislative efforts since 2021, but recommended continued work on:
  - resolving resource issues in the criminal justice system;
  - clarifying corporate criminal liability framework for foreign bribery; and
  - reinforcing guarantees of independence of the Public Prosecutor’s Office.
- Anti-money laundering and combating the financing of terrorism (AML/CFT):
  - FATF assessed that investigations and prosecutions related to laundering of proceeds of corruption did not entirely align with France’s risk profile.
  - Only 1.5% of initiated money laundering investigations are related to the proceeds of corruption.
  - In 2023, France published an updated National Risk Assessment (NRA) with specific analysis on corruption threats and has increased specialized resources for law enforcement. Continued efforts are recommended to improve understanding of money laundering threats posed by corruption and to enhance capacity to pursue related investigations and prosecutions.
- Structural risk factor noted: out of the 500 largest multinational enterprises (MNE) in the world, 18 are headquartered in France, with some operating in high-risk sectors and jurisdictions.

### Staff appraisal — macroeconomic outlook and fiscal policy
- Recent performance and outlook:
  - French economy showed resilience despite a recovery slowdown in 2023 amid financial tightening and weaker euro area external demand.
  - Real GDP growth is expected to reach 0.9 percent in 2024 and 1.3 percent in 2025.
  - Disinflationary process remains on track.
- External position in 2023: assessed broadly in line with medium-term fundamentals and desirable policies.
- Public finances:
  - Crisis response and slower-than-expected recovery produced sizable fiscal underperformance in 2023, reducing fiscal space when investment needs for green and digital transitions are rising.
  - The fiscal consolidation goal under France’s Stability Program of bringing the deficit below 3 percent of GDP by 2027 is considered appropriate to set debt on a downward trajectory.
  - Despite overall low risk of sovereign debt distress, public finances remain exposed to potential increases in sovereign interest spreads and volatility or reductions in growth.
- Recommended focus:
  - Identify a well-specified and credible package of measures following the elections to underpin fiscal consolidation plans.
  - Continue fiscal consolidation centered on rationalizing current spending while preserving room for growth-friendly investment, including green and digital transitions.
  - Monetary policy easing can help mitigate contractionary impacts of fiscal tightening.
  - Reduction in fiscal risks would lower additional fiscal effort required beyond 2027.

### Financial stability and structural reform recommendations
- Financial sector:
  - French banking system remains resilient with adequate capital and liquidity buffers, despite compression in net interest margins.
  - Fixed-rate loan prevalence has shielded non-financial corporates and housing mortgage segments from tighter financial conditions.
  - Higher countercyclical buffer and systemic risk buffer mitigate risks from highly indebted firms.
  - Direct bank exposure to commercial real estate is limited, but vulnerabilities in real estate investment funds require close monitoring.
  - Banks should integrate climate transition risks into governance, strategy, and risk management.
- Structural reforms:
  - Continue advancing reforms to support jobs and raise productivity amid green and digital transitions.
  - Continue integrating and requalifying workers and pursue unemployment benefit reforms to promote longer and less fragmented careers while preserving adequate coverage.
  - Education and training reforms critical to prepare workers for transitions.
  - Revamping parental leave, expanding childcare provision, and promoting STEM enrollment can boost women’s labor force participation.
  - Review existing tax expenditure for R&D and innovation to focus on highest-impact schemes.
  - Limit state intervention to addressing market failures and maintain a level-playing field, in a non-discriminatory manner against trading partners.
  - Industrial policies for critical industries should be pursued cautiously and coordinated closely at the EU level.

### Climate mitigation and green transition
- Progress and targets:
  - France’s emissions have declined by 23 percent since 2005.
  - France 2030 and the green transition plan identify measures to meet key emission-reduction targets, including actions in high abatement cost sectors.
- Policy options:
  - Complement ongoing spending efforts with revenue-neutral schemes and higher carbon pricing, with revenues recycled to minimize distributional impacts.
  - Over the medium term, consider new charges for road transportation to maintain coverage of road transport externalities, offset declining fuel tax revenue, and integrate equity and environmental considerations.

*Source: IMF staff report excerpt — “Deepening geoeconomic fragmentation poses additional challenges to France’s” (extracted content).*

### 48.      It is proposed that the next Article IV consultation takes place on the standard 12-

### France: Selected Economic Indicators, 2019-29 (Tables and Annexes)

### Real Economy: Growth, Demand, Prices, and Potential
- Real GDP (change in percent): 2.1, -7.6, 6.8, 2.6, 1.1, 0.9, 1.3, 1.5, 1.5, 1.4, 1.3 (2019–2029)
- Domestic demand (change in percent): 2.0, -6.3, 6.0, 2.9, 0.6, 0.3, 1.2, 1.2, 1.2, 1.2, 1.1
- Private consumption (change in percent): 1.7, -6.5, 5.3, 3.2, 0.9, 1.2, 1.5, 1.6, 1.6, 1.5, 1.3
- Public consumption (change in percent): 1.1, -4.3, 6.6, 2.6, 0.8, 1.2, 0.7, 0.5, 0.5, 0.7, 0.7
- Gross fixed investment (change in percent): 4.2, -6.2, 9.6, 0.1, 0.8, -1.1, 0.6, 1.3, 1.2, 1.1, 1.1
- Foreign balance (contribution to GDP growth): 0.0, -1.3, 0.7, -0.3, 0.5, 0.6, 0.1, 0.3, 0.2, 0.2, 0.2
- Exports of goods and services (change in percent): 2.2, -16.8, 11.1, 8.3, 2.5, 3.1, 3.0, 3.5, 3.4, 3.3, 3.1
- Imports of goods and services (change in percent): 2.1, -12.6, 8.0, 9.1, 0.7, 1.2, 2.8, 2.5, 2.7, 2.7, 2.6
- Nominal GDP (billions of euros): 2,432, 2,318, 2,508, 2,655, 2,822, 2,922, 3,018, 3,125, 3,227, 3,332, 3,432
- CPI (year average): 1.3, 0.5, 2.1, 5.9, 5.7, 2.3, 1.8, 1.8, 1.8, 1.8, 1.7
- GDP deflator: 1.2, 3.1, 1.3, 3.2, 5.1, 2.6, 2.0, 1.9, 1.8, 1.8, 1.7
- Potential output (change in percent): 1.2, -3.2, 4.2, 1.4, 1.2, 0.7, 1.2, 1.4, 1.3, 1.3, 1.3
- Output gap: 0.0, -4.5, -2.1, -0.9, -0.9, -0.7, -0.6, -0.5, -0.3, -0.2, -0.1

### Labor Market and Credit
- Employment (percent change): 0.3, -0.4, 1.8, 2.0, -0.1, 0.1, 0.4, 0.2, 0.2, 0.2, 0.2
- Labor force (percent change): -0.3, -0.8, 1.6, 1.4, 0.0, 0.1, 0.0, 0.0, 0.1, 0.1, 0.1
- Unemployment rate (percent): 8.4, 8.0, 7.9, 7.3, 7.4, 7.4, 7.0, 6.9, 6.8, 6.7, 6.7
- Growth of credit to the private non-financial sector (percent): 5.3, 7.1, 4.5, 5.7, 3.6, 0.9, 1.8, 3.0, 2.8, 2.8, 2.6
- Money market rate (Euro area): -0.5, -0.5, -0.5, 0.1, 3.3, … (ellipsis in source)
- Government bond yield, 10-year: 0.1, -0.1, 0.0, 0.1, 1.7, 3.0, … (ellipsis in source)

### Public Finance: Revenue, Expenditure, Debt, and Balances
- General government balance (percent of GDP): -2.4, -8.9, -6.6, -4.7, -5.5, -5.2, -5.0, -4.6, -4.5, -4.4, -4.3
- Revenue (percent of GDP): 53.0, 52.8, 52.9, 53.7, 51.5, 51.4, 51.4, 51.4, 51.3, 51.3, 51.3
- Expenditure (percent of GDP): 55.3, 61.7, 59.5, 58.4, 57.0, 56.7, 56.4, 56.0, 55.8, 55.7, 55.6
- Primary balance (percent of GDP): -0.9, -7.7, -5.2, -2.9, -3.7, -3.4, -3.0, -2.4, -2.0, -1.7, -1.5
- Structural balance (percent of potential GDP): -1.4, -5.9, -5.1, -4.1, -4.9, -4.8, -4.6, -4.3, -4.3, -4.3, -4.3
- Nominal expenditure (change in percent): 1.4, 6.3, 4.3, 4.0, 3.7, 3.0, 2.8, 2.7, 3.0, 3.0, 2.9
- Real expenditure (change in percent): 0.1, 5.7, 2.2, -1.8, -1.8, 0.6, 1.0, 0.9, 1.2, 1.2, 1.2
- General government gross debt (percent of GDP, Maastricht definition): 97.6, 114.6, 112.6, 111.1, 109.9, 111.3, 112.8, 113.5, 114.4, 115.2, 116.2

Detailed general government composition (percent of GDP, selected items):
- Taxes: 30.4, 30.3, 30.0, 30.7, 29.0, 28.9, 29.0, 29.0, 29.0, 29.0, 29.0
  - Direct taxes: 13.1, 13.2, 12.9, 13.5, 12.7, 12.6, 12.6, 12.6, 12.6, 12.6, 12.6
  - Indirect taxes: 17.3, 17.1, 17.1, 17.2, 16.3, 16.3, 16.4, 16.4, 16.4, 16.4, 16.4
- Social contributions: 16.7, 16.9, 16.7, 16.7, 16.4, 16.3, 16.3, 16.2, 16.2, 16.2, 16.2
- Interest (percent of GDP): 1.5, 1.3, 1.4, 1.9, 1.9, 1.9, 2.1, 2.4, 2.6, 2.8, 2.9
- Social benefits (percent of GDP): 25.5, 28.8, 27.1, 25.9, 25.2, 25.4, 25.0, 24.8, 24.6, 24.5, 24.4
- Gross public investment (percent of GDP): 4.2, 4.2, 4.1, 4.2, 4.3, 4.2, 4.2, 4.1, 4.1, 4.1, 4.1
- Net lending / borrowing (percent of GDP): -2.4, -8.9, -6.6, -4.7, -5.5, -5.2, -5.0, -4.6, -4.5, -4.4, -4.3
- Structural primary balance (percent of potential GDP): 0.0, -4.7, -3.8, -2.3, -3.1, -3.0, -2.6, -2.1, -1.8, -1.6, -1.5
- Change in structural primary balance: -0.1, -4.8, 0.9, 1.5, -0.9, 0.1, 0.4, 0.6, 0.3, 0.2, 0.2

### Balance of Payments and External Accounts
- Current account (percent of GDP): 0.5, -1.6, 0.4, -2.0, -0.7, -0.3, -0.5, -0.4, -0.4, -0.2, -0.1
- Trade balance of goods and services (percent of GDP): -0.9, -1.8, -1.3, -3.2, -1.6, -0.6, -0.7, -0.5, -0.5, -0.3, -0.2
- Exports of goods and services (percent of GDP): 32.8, 28.4, 31.2, 36.3, 34.5, 34.1, 33.8, 33.3, 33.2, 33.4, 33.9
- Imports of goods and services (percent of GDP): -33.6, -30.2, -32.5, -39.5, -36.0, -34.7, -34.5, -33.9, -33.8, -33.8, -34.1
- FDI (net, percent of GDP): 1.1, 0.4, 0.5, 0.4, 1.5, 1.3, 1.2, 1.2, 1.2, 1.2, 1.2
- Official reserves (US$ billion, end-of-period): 69., 77.6, 101.7, 100.4, 79.2, … (ellipsis in source)
- Euro per U.S. dollar, period average: 0.89, 0.88, 0.82, 0.95, 0.92, … (ellipsis in source)

Detailed balance of payments (selected items, percent of GDP):
- Net exports of goods: -1.9, -2.5, -2.7, -5.2, -2.9, -1.9, -2.0, -1.7, -1.5, -1.3, -1.2
- Exports of goods: 21.9, 19.1, 21.0, 24.0, 22.7, 22.5, 22.4, 22.2, 22.2, 22.3, 22.6
- Imports of goods: 23.8, 21.6, 23.7, 29.1, 25.5, 24.4, 24.5, 23.9, 23.7, 23.6, 23.8
- Net exports of services: 1.1, 0.7, 1.4, 2.0, 1.3, 1.3, 1.3, 1.1, 1.0, 1.0, 1.0
- Exports of services: 10.9, 9.3, 10.3, 12.3, 11.8, 11.6, 11.3, 11.1, 11.1, 11.1, 11.3
- Income balance: 3.2, 2.1, 3.3, 2.9, 2.4, 2.1, 2.1, 2.1, 2.1, 2.1, 2.1
- Capital account: 0.1, 0.1, 0.4, 0.4, 0.3, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2
- Financial account: 0.0, -2.1, 0.2, -2.2, -1.9, 0.0, -0.3, -0.2, -0.2, 0.0, 0.1
- Portfolio investment: -2.6, -1.1, 0.5, -4.5, -4.9, -1.1, -0.4, 0.2, 0.4, 0.7, 0.9
- Other investments net: 1.2, -0.5, -2.4, 3.4, 2.8, 0.4, -0.8, -1.4, -1.6, -1.8, -1.9
- Reserve assets (change): 0.1, 0.2, 0.9, 0.1, -0.7, -0.3, 0.0, 0.1, 0.1, 0.1, 0.2

### Vulnerability Indicators and Market Conditions (2015–2023)
External indicators (selected):
- Exports (annual percentage change, in U.S. dollars): -10.4, 0.3, 6.8, 10.0, -2.7, -15.9, 23.6, 9.5, 3.6
- Imports (annual percentage change, in U.S. dollars): -11.6, 0.8, 8.1, 10.5, -3.4, -12.8, 20.9, 14.5, -0.5
- Current account balance (percent of GDP): -0.4, -0.5, -0.8, -0.8, 0.5, -1.6, 0.4, -2.0, -0.7
- Total reserves minus gold (US$ billion, end-of-period): 55.2, 56.1, 54.8, 66.1, 69.7, 76.1, 101.7, 100.4, 79.2
- Euros per U.S. dollar (period average): 0.90, 0.90, 0.90, 0.80, 0.90, 0.90, 0.80, 0.90, 0.9

Market indicators (selected):
- Public sector debt (percent of GDP): 95.5, 98.1, 98.4, 98.1, 97.6, 114.6, 112.6, 111.1, 109.9
- 3-month T-bill yield (percentage points): -0.2, -0.6, -0.6, -0.6, -0.6, -0.6, -0.7, 0.0, 3.3
- 10-year government bond (percentage points): 0.8, 0.5, 0.8, 0.8, 0.1, -0.1, 0.0, 1.7, 3.0
- 10-year government bond (United States): 2.1, 1.8, 2.3, 2.9, 2.1, 0.9, 1.4, 3.0, 4.0
- Spread with US bond (percentage points): -1.3, -1.4, -1.5, -2.1, -2.0, -1.0, -1.4, -1.3, -1.0
- Yield curve (10 year - 3 month, percentage points): 1.0, 1.0, 1.5, 1.4, 0.7, 0.4, 0.7, 1.7, -0.3
- Stock market index (period average, 1995=100): 216.2, 218.6, 221.7, 224.0, 227.3, 229.5, 230.4, 231.7, 231.3
- Real estate prices (index, Q1-10=100, period average): 100.0, 100.9, 104.0, 107.2, 110.7, 116.8, 124.6, 132.5, 131.6

Credit market growth rates (end-of-period 12-month):
- Credit to the private sector: 2.5, 4.3, 4.6, 6.3, 5.3, 8.5, 3.8, 5.8, -0.4
- Bank credit to households: 3.3, 3.3, 5.6, 5.3, 6.0, 4.7, 5.3, 4.9, 1.0
- Bank credit to nonfinancial enterprises: 4.3, 4.3, 5.8, 5.7, 4.2, 13.0, 3.5, 7.3, 1.4

Sectoral risk indicators (selected):
- Household savings ratio: 14.0, 13.9, 14.0, 13.9, 14.6, 20.5, 19.1, 16.9, 16.9
- Share of nonperforming loans in total loans: 4.0, 3.7, 3.1, 2.7, 2.5, 2.7, 2.4, 2.3, 2.1
- Liquid assets to total short-term liabilities: 17.5, 20.2, 20.7, 19.3, 20.1, 26.0, 27.0, 27.0, 24.3
- Return on assets (ROA): 0.6, 0.5, 0.4, 0.4, 0.4, 0.2, 0.5, 0.3, 0.5
- Return on equity (ROE): 9.2, 8.4, 6.3, 6.7, 6.4, 3.9, 7.5, 6.1, 5.9

### Core Financial Soundness Indicators (2015–2023)
Deposit-taking institutions (selected ratios):
- Regulatory capital to risk-weighted assets: 17.1, 18.3, 18.9, 18.8, 19.6, 19.9, 20.4, 19.7, 19.5
- Regulatory Tier I capital to risk-weighted assets: 13.8, 15.1, 15.4, 15.6, 16.0, 17.1, 16.9, 16.8, 17.2
- Nonperforming loans net of provisions to capital: 18.0, 16.2, 15.0, 13.6, 12.2, 11.9, 10.3, 11.0, 11.5
- Nonperforming loans to total gross loans: 4.0, 3.7, 3.1, 2.7, 2.5, 2.7, 2.4, 2.1, 2.1
- Bank provisions to Nonperforming loans: 50.6, 51.0, 50.6, 50.4, 49.9, 48.7, 49.2, 46.5, 45.0
- Liquid assets to total assets: 0.0, 13.0, 13.9, 13.7, 14.1, 18.0, 18.5, 17.4, 16.9
- Liquid assets to short-term liabilities: 17.5, 20.2, 20.7, 19.3, 20.1, 26.0, 27.0, 27.0, 24.3

### Authorities’ Response to IMF 2022 Article IV Recommendations (Annex I)
Fiscal policy recommendations and authorities’ responses:
- IMF recommendation: Begin to normalize the fiscal stance in 2023 through a structural effort of ¾ ppt of GDP relative to staff’s baseline.
  - Authorities’ response: The fiscal stance was expansionary in 2023, significantly above budgetary plans.
- IMF recommendation: Better target energy support and accelerate the phase out of energy price controls.
  - Authorities’ response: The tariff shield for gas ended in July 2023 and regulated electricity prices have increased, nearly closing the gap vis-à-vis market prices.
- IMF recommendation: Sustain a steady, expenditure-led consolidation, consistent with reaching France’s medium-term objective (MTO).
  - Authorities’ response: The 2024-27 Stability Program targets a deficit of 2.9 percent of GDP by 2027, but key measures are yet to be specified.

Financial policy recommendations and responses:
- IMF recommendation: Banking supervision to remain vigilant against possible negative effects of increased credit risk from vulnerable corporates.
  - Authorities’ response: In August 2023, the HCSF introduced a 3-percent sector-specific systemic risk buffer for exposures above 5 percent of capital to heavily indebted large French companies.
- IMF recommendation: Support plans to further tighten the counter-cyclical bank capital buffer (CCyB) to a rate above pre-pandemic levels.
  - Authorities’ response: In December 2022, the HCSF raised the CCyB to 1 percent. The requirement took effect on January 2, 2024.

Structural policy recommendations and responses:
- IMF recommendation: Ensure smooth transition of apprentices into permanent work, while addressing skills shortages and inferior educational outcomes.
  - Authorities’ response: In November 2023, the law on full employment was approved to provide more effective employment support through “France Travail”.
- IMF recommendation: Continue structural reforms in pensions, unemployment, and product and services markets.
  - Authorities’ response: In 2023, the authorities approved and started implementing the pension and unemployment insurance benefit reforms.
- IMF recommendation: Accelerate green transition through energy conservation and faster switch to renewable energy.
  - Authorities’ response: The authorities are implementing the five-year budget under the National Low-Carbon Strategy.

*Sources: Haver Analytics, INSEE, Banque de France, Banque de France (BdF), ECB, French authorities, ACPR, and IMF Staff calculations.*

### Annex II. 2019 Key FSAP Recommendations—Implementation

### Annex II. 2019 Key FSAP Recommendations—Implementation

### Preemptive Management of Systemic Vulnerabilities
- Recommendation: Engage with ECB and other EU agencies on use of Pillar II measures to address bank-specific residual risk from concentration of exposures to large, indebted corporates.  
  - Agency: ACPR; Timing: I; Implementation Status: D  
  - Implementation details: ECB published further explanation with the “guide on leveraged transactions” dated May 2017. Bank-specific letters sent to the most exposed banks (of which 4 French groups). Responses analyzed by the SSM and fed to the SREP analysis. In France, HCSF replaced measure art. 458 “Large exposure” with a sectoral systemic risk buffer (sSyRB) of 3% on exposures of French banks to large, heavily indebted corporates (press release published on July 31st).
- Recommendation: Develop analytical framework for borrower-based measures for corporates. Consider a sectoral Systemic Risk Buffer (SRB) if risks intensify.  
  - Agency: HCSF; Timing: NT; Implementation Status: On July 28th, 2023 action noted  
  - Implementation details: On July 28th, 2023, the French macroprudential authority introduced a sectoral systemic risk buffer of 3% on the exposures of French banks to large, heavily indebted corporates (press release published on July 31st).
- Recommendation: Evaluate options to further incentivize corporates to finance through equity rather than debt.  
  - Agency: MoF; Timing: NT; Implementation Status: NA

### Ensuring Adequate Liquidity Management and Buffers
- Recommendation: Develop with the ECB options to manage any disruptions in wholesale funding markets. Consider liquidity buffers to cover at least 50 percent of wholesale funding outflows over/up to five days horizon for all major currencies.  
  - Agency: ACPR, ECB; Timing: NT; Implementation Status: PD  
  - Implementation details: Banks maintain a significant liquidity buffer, above the 100% usual threshold for LCR and NSFR introduced as a prudential requirement in June 2021. ECB’s 2022 SREP judged liquidity risks not particularly high and frameworks globally adequate; no change to liquidity buffer requirements currently. Monitoring will be reinforced in the context of higher rates, including effects of termination of extraordinary monetary policy actions (TLTRO reimbursement) and impacts of higher funding prices.
- Recommendation: Actively engage with the ESRB and others for a speedy development of liquidity and leverage related tools for insurers and investment funds.  
  - Agency: BdF, HCSF, ACPR, AMF; Timing: NT; Implementation Status: PD  
  - Implementation details: Revision of the AIFM Directive will strengthen liquidity management rules for open-ended funds (managers required to choose at least two tools); article 25 provides capacity to impose leverage limits for macroprudential concerns. Review of Directive 2009/138/EC enhances liquidity monitoring and introduces power to suspend redemptions in event of liquidity crisis. Banque de France and AMF closely monitor liquidity and leverage risks, publish analyses, participate in HCSF and international fora (FSB, ESRB), and co-signed an AMF position paper with Spanish, Italian and Austrian regulators. French Treasury participates in FSB Working Group on OEFs and MMF Peer review.

### Further Integration of Financial Conglomerate Oversight
- Recommendation: Report intragroup exposures and transactions within conglomerates on a flow and stock basis at quarterly or regular frequency; develop guidance to address direct and indirect, and common exposures of entities in the conglomerate.  
  - Agency: ACPR, AMF; Timing: NT; Implementation Status: PD  
  - Implementation details: French conglomerates report common exposures and intragroup transactions on a flow and stock basis at regular frequency (CONGLOMER reporting). Enhanced reporting developed by European Joint Committee on Financial Conglomerates; European Commission should adopt through an Implementing Technical Standard by 2024. First reporting date should be 31/12/2023.
- Recommendation: Develop with the ECB and other EU agencies liquidity risk management requirements and stress testing at the conglomerate level.  
  - Agency: ACPR, AMF; Timing: NT; Implementation Status: PD  
  - Implementation details: No liquidity risk management requirement considered at this stage given supervisory framework aligned with prudential consolidation perimeter. ACPR carrying out ad hoc research and presented liquidity analysis and stress testing research to the ACPR Scientific Committee; ongoing work to improve oversight and assessment of liquidity risk.
- Recommendation: Strengthen conglomerate oversight and work with the Joint Committee of the ESAs to finalize common reporting templates, and with the ECB on common supervisory guidance for conglomerates.  
  - Agency: ACPR, AMF; Timing: NT; Implementation Status: PD  
  - Implementation details: ACPR deputy Secretary General chairs JC of the ESAs on common reporting templates; group expected to deliver full set by end 2021. ACPR participated in ESA work on digital finance and potential review of FICOD. ACPR and ECB are establishing coordination arrangements for each financial conglomerate to formalize cooperation.

### Enhancing Governance, Financial Policies and Financial Integrity
- Recommendation: ACPR and AMF should have autonomy to determine their resource levels based on forward-looking review of supervisory and monitoring needs.  
  - Agency: ACPR, AMF, MoF; Timing: I; Implementation Status: NA (constitutional constraint)  
  - Implementation details: NSAs free to allocate resources to needed fields, but cannot constitutionally determine global resource level as resources are fiscal and require parliamentary decision; parliamentary decision is informed by an independent NSA report; current arrangement includes a vote on a resource threshold guaranteeing stable funding.
- Recommendation: Government should recuse itself from all supervisory decision-making committees at the ACPR and the AMF to avoid perception of conflict and facilitate independence.  
  - Agency: MoF; Timing: I; Implementation Status: NA (provides the legal underpinning to sharing confidential information)  
  - Implementation details: Presence of MoF observer does not prevent independent decisions; cross participation provides legal framework for sharing information between NSAs and with MoF on policy and oversight.
- Recommendation: Reduce further the spread between market interest rates and the return on regulated savings products. Ensure timely and effective implementation of CDC governance reform under the Loi PACTE and undertake a full review of regulated savings framework at the appropriate time.  
  - Agency: MoF; Timing: NT; Implementation Status: PD  
  - Implementation details and figures: Two decisions in 2018 and 2023 contributed to reducing the spread. 2018: new formula to calculate return on Livret A and LDDS removed “inflation floor” and replaced EONIA with €STR; since implementation, LA and LDDS rates increased at a slower pace. Livret A rate rose from 0.5% in January 2022 to 3% in February 2023. Minister froze the rate at 3% for eighteen months until February 2025; strict formula would have yielded 4,1% in August 2023 and 3,9% in February 2024. Under Loi PACTE ACPR became CDC’s supervisor; “Commission de surveillance” is now a decision-making body; budgetary process clarified.
- Recommendation: Enhance AML/CFT supervision of smaller banks rated as high-risk; explore ways to provide systematic guidance on detection of potential terrorist financing activities.  
  - Agency: ACPR, Tracfin; Timing: I; Implementation Status: D  
  - Implementation details: ACPR implements risk-based AML/CFT supervisory approach linking intensity to individual risk assessment. Over 2015–2020 onsite inspection cycle: 88% of higher-risk banks were inspected onsite, 44% of medium-high-risk, 9% of medium-low risk, and 1% of lower-risk banks. ACPR/TRACFIN joint Guidelines list criteria including weak signals obliging entities to consider them. Sectoral Risk Assessment published by ACPR describes risks and focuses on CFT for each activity.

### Reinforcing Crisis Management, Safety Nets, Resolution Arrangement
- Recommendation: Work toward an enhanced resolution framework for insurers by including wider powers to restructure liabilities (bail-in), and enhanced safeguards and funding.  
  - Agency: ACPR; Timing: MT; Implementation Status: NA (EU single market issue)  
  - Implementation details: European Directive on Insurance Recovery and Resolution (IRRD) to be transposed by end of 2026/early 2027. IRR Directive foresees inclusion of write-down or conversion tool, solvent run-off tool, asset and liability separation tool, sale of business tool, and bridge undertaking tool. No funding arrangements or harmonization of national Insurance Guarantee Schemes in first proposal; Member States shall establish financing arrangements to ensure resolution authority has funds to cover at least payment of No-Creditor-Worth-Off (NCWO) claims (article 77a). Authorities consider the EU Directive essential; ACPR provided technical input during French Presidency and will continue to assist EIOPA.
- Recommendation: Change eligibility of FGDR’s Supervisory Board membership from bank executives in activity to independent members only.  
  - Agency: FGDR; Timing: MT; Implementation Status: NA
- Recommendation: Develop modalities for providing ELA in currencies other than euros and establish general rules to assist banks in identifying assets that might be proposed as ELA collateral and buttress readiness to pledge them.  
  - Agency: BdF, ACPR; Timing: MT; Implementation Status: PD  
  - Implementation details: Main responsibility for ELA lies with National Central Banks but must comply with ECB ELA agreement. Banque de France has an internal and recently updated procedure for efficient and quick implementation of ELA; arrangements are confidential.

### Annex II I. External Sector Assessment — Overall Assessment and Key Statistics
- Overall assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. CA deficit declined to 0.7 percent of GDP in 2023, driven by unwinding of the terms-of-trade shock and strong non-oil goods export performance. Over the medium term, CA deficit expected to continue to shrink as fiscal consolidation and structural reforms improve competitiveness.
- Potential policy responses: Sustained fiscal consolidation and structural reforms to support productivity and attract private investment for green and digital transitions. Industrial policies should be cautious, targeted, and avoid favoring domestic producers over imports.
- Foreign asset and liability position (2023 figures):
  - NIIP: −29.2 percent of GDP in 2023 (worsened by 5.5 percent of GDP since end-2022, largely driven by decrease in direct and portfolio investment).  
  - Gross assets: 334.9 percent of GDP in 2023.  
    - Banks’ non-FDI-related assets accounted for about 46.2 percent (of GDP), reflecting global activities.  
  - Gross liabilities: 364.1 percent of GDP in 2023.  
  - Debt assets: 190.7 (percent of GDP).  
  - Debt liabilities: 227.5 (percent of GDP) in 2023 (58 percent accounted for by banks and 24 percent by the public sector).  
  - About three-quarters of France’s external debt liabilities are denominated in domestic currency.  
  - Average TARGET2 balance in 2023 was about €120.5 billion.  
  - Vulnerabilities: large public external debt (53.7 percent of GDP in 2023); banks’ short-term debt securities stock was €149 billion in 2023 (5.3 percent of GDP); financial derivatives stood at about 47.7 percent of GDP.
- Current account (2023 and projections):
  - 2023 CA: −0.7 percent of GDP (from −2 percent in 2022).  
  - Gross national savings increased in 2023 by 0.4 percent of GDP; domestic investment declined somewhat after a 2022 peak.  
  - CA expected to be about 0.3 percent of GDP in 2024.  
  - Over the medium term, CA projected to shrink to a small deficit by 2029 as reforms and fiscal consolidation take effect.
  - 2023 (% GDP) CA: −0.7; Cycl. Adj. CA: −0.9; EBA Norm: 0.0; EBA Gap: −0.9; Staff Adj.: 0.0; Staff Gap: −0.9.
- Real exchange rate:
  - ULC-based REER appreciated by 4.1 percent in 2023 vs 2022; CPI-based REER appreciated by 1.9 percent. As of April 2024, ULC-based REER was 0.6 percent below the 2023 average; CPI-based measure about 0.5 below 2023 average.  
  - IMF staff assesses REER overvaluation in range 1.7 to 5 percent, midpoint 3.3 percent (IMF staff CA gap implies REER gap of 3.3 percent applying semi-elasticity of 0.27). EBA REER index model points to −5.1 percent; EBA REER level model points to 2.9 percent.
- Capital and financial accounts: After normalization in 2021–22, inward and outward FDI declined in 2023 (inward from 3.8 to 0.7 percent of GDP; outward from 4.2 to 2.2 percent of GDP). Financial account is open. Public external debt and banks’ gross financing needs increased in 2023. Assessment: exposure to financial market risks due to large refinancing needs of sovereign and banking sectors.
- FX intervention and reserves: The euro has status of a global reserve currency. Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.

*Source: Annex II. 2019 Key FSAP Recommendations—Implementation (1fraea2024001-print-pdf).*

### Annex IV. Projecting Medium-to-Long-Term Potential Output in

### Annex IV. Projecting Medium-to-Long-Term Potential Output in France

### Methodology and Short-to-Medium-Term Projections
- Short-to-medium-term potential growth is projected using a multivariate filter model that incorporates the current unemployment gap and inflation data to inform the potential output gap and growth.
- The multivariate filter model is supplemented with high-frequency indicators, other economic modeling tools (including analysis on the anticipated impact of structural reforms), and expert judgement.
- Staff projects potential output growth to reach around 1.3 percent in 2029; this 2029 projection is used as an input to the medium-to-long-term analysis.
- For medium-to-long-term projections, a production function (Cobb-Douglas) approach is employed to decompose potential output into contributions from total factor productivity (TFP), capital, hours per worker, and labor participation.

### Production Function and Calibration
- Real GDP follows a Cobb-Douglas specification with TFP, aggregate capital stock (capital share 훼 taken from Penn World Tables v10.0), and total hours worked as inputs. The average capital share 훼 is around 0.62 between 2004 and 2019 and is assumed constant after 2019.
- Output-per-capita is decomposed into four components: TFP, capital intensity (capital stock divided by GDP), hours worked per employee, and the labor participation rate.
- Capital stock is constructed using the perpetual inventory method; the initial capital stock uses the formula 퐶퐶퐶퐶퐶퐶퐶퐶퐶퐶퐶퐶  푙푙0 = 퐼퐼퐼퐼푣푣0/(푔푔̅퐼퐼퐼퐼퐼퐼 + Δ0) where 푔푔̅퐼퐼퐼퐼퐼퐼 is the average growth rate between 1980 and 2019; the depreciation rate 훿 is taken from Penn World Tables v10.0 up to 2019 and then held constant thereafter.
- Capital is projected as a constant ratio of output (consistent with neoclassical steady state); productivity and employment growth drive capital growth, yielding capital growth of around 1.0 percent in the medium term.

### Population, Employment, and Labor-Supply Assumptions
- Working-age population projections use the UN World Population Prospects 2022 medium scenario.
  - The French working-age population is expected to decline by around 1 percent by 2030 and by a further 3 percent by 2040.
  - INSEE population projections imply a slower population decline (around 0.04 percentage points per annum on average) but follow a similar overall path; using INSEE projections would raise medium-to-long-term potential output growth to around 1.1 percent.
- Employment is constructed by age groups {15−24, 25−49, 50−64} and sex {M, F} with subgroup-specific dynamics:
  - A gender convergence parameter 휉 = 4% captures catch-up of the employment rate of women, implying the five-percentage point gap between men and women in 2023 is expected to close by around half by 2040.
  - A parameter Δ_a is set to 0.1 percentage points for the 50-to-64-year-old group to account for increased labor participation as life expectancy increases; this closes the 20-percentage point gap between 50−64 and 25−49 by around 10 percent over 20 years.
  - The parameter choices imply that the total employment rate increases by around 0.1 percent per annum (similar to OECD, 2023).
  - Average hours per worker are projected to remain at their 2023 values going forward.

### Total Factor Productivity (TFP)
- TFP is estimated period-by-period as GDP divided by the capital-input and labor-input combination implied by the Cobb-Douglas specification.
- Historical TFP fluctuations:
  - High of 1.4 percent in the pre-global financial crisis period (2004-2006).
  - Low of -0.7 percent in 2020-2023 during the pandemic and energy crisis.
- TFP converges to 0.7 percent in the medium-to-long term (based on the middle point of historical non-crisis periods and accounting for potential head and tailwinds). The estimate is similar to estimates for other advanced economies and implies a near constant productivity gap between France and peers.

### Potential Output Estimates and Key Projections
- Potential output growth is projected to increase to around 1.3 percent by 2029 and then converge to around 1.0 percent over the long run, mainly driven by population aging.
- Over the medium-to-long term:
  - Potential output growth ≈ 1.0 percent.
  - Capital growth ≈ 1.0 percent in the medium term.
  - TFP contribution stabilizes at around 0.7 percent.
  - Employment is projected to weigh on potential output by around 0.1 percentage points per year, versus its historical positive contribution of around 0.5 percentage points over the last two decades.
- At shorter horizons, these projections are broadly in line with estimates by French Treasury (2022) and the OECD (2023), though staff projections are more conservative on employment growth.

### Policy Implications and Recommendations
- Structural reforms to support labor participation of underrepresented groups can offset population-aging headwinds:
  - Policies to support employment of women (consistent with the assumed 4% convergence parameter).
  - Reforms to encourage older workers to remain in the labor market (supporting the Δ_a = 0.1 percentage point assumption for 50−64 year-olds).
- Policies to boost productivity and capital accumulation:
  - Promote technology adoption, digitalization, and preparedness for the green transition to boost TFP and capital-skill complementarities.
  - Advance structural reforms to boost competitiveness and investment.
- Policy actions can help delay the decline in employment and mitigate the projected drag from population aging.

### Balance of Risks to Potential Growth
- Downside risks:
  - Population decline could be steeper than expected and/or have larger spillovers to investment or TFP growth.
  - Aging may lead to substitution of investment for private and public consumption, lowering aggregate capital stock and productivity growth.
  - Secular trends of slower TFP growth may continue or intensify after the post-pandemic recovery, and weaker growth abroad or global fragmentation could reduce productivity.
- Upside risks:
  - Growth in quality-adjusted employment (education, better skill matching) could buttress the labor stock despite aging.
  - Stronger-than-expected migrant flows, if well integrated, could slow aging’s impact and increase employment.
  - Stronger labor market participation convergence of older workers and women due to policy reforms could delay employment decline.
  - Automation and AI could increase the capital share and/or capital-skill complementarities, reducing labor bottlenecks and pressures from a declining labor force.

*International Monetary Fund, Annex IV. Projecting Medium-to-Long-Term Potential Output in France*

### 1.      Background. Since 2020, the French economy has suffered two consecutive negative shocks

### 1.      Background

### Macroeconomic shocks and fiscal outcomes
- Since 2020, the French economy suffered two consecutive negative shocks: the COVID-19 pandemic and the subsequent spike in European energy prices precipitated by Russia’s invasion of Ukraine.
- Actions taken by the authorities to cushion the shocks combined with a sizable revenue underperformance in 2023 weighed on public finances.
- In 2023:
  - Deficit reached 5.5 percent of GDP.
  - Debt ratio increased to 111 percent, from 98 percent in 2019.
- In May, S&P downgraded the sovereign debt rating to AA-, without any repercussion on market interest rates.
- Bond market movements:
  - Spreads on sovereign bonds remained stable in 2023 and early 2024, but increased during June 9-17 by about 30 bps.
  - Sovereign yields increases were more limited (at only 10 bps), amid a compression in German bund yields.

### 2.      Baseline

### Assumptions and scope
- Staff’s baseline projection incorporates only measures that are legislated, including:
  - the 2024 budget and the subsequent February decree,
  - measures contained in sectoral and medium-term programming laws that are sufficiently specified.
- The projection abstracts from commitments under the European fiscal rules.

### Fiscal projections under the baseline
- Under staff’s baseline, and barring further adjustment:
  - Fiscal deficit is projected to decline moderately to 5.2 percent of GDP in 2024.
  - In the medium term, the deficit remains well above 3 percent of GDP.
- Interest and debt dynamics:
  - The differential between the effective real rate and real GDP growth is initially negative, but over the next 10 years it progressively increases and turns marginally positive.
  - Projected baseline reduction in the primary deficit is not enough to prevent an increase in the debt ratio.
  - Over the same horizon, the interest rate burden increases by 1½ percentage points of GDP.
  - The debt ratio increases by about 10 percent of GDP to 122 percent of GDP by 2033, reflecting a projected primary deficit that is about 1 percentage point above its debt-stabilizing level.

### 3.      Realism of the medium-term projections

### Historical track record and comparison
- The realism analysis points to some optimism in staff’s past projections for the drivers of debt:
  - Realized values for the primary deficit and the r-g differentials were significantly larger than initially projected over the medium term.
- Looking ahead:
  - Projected fiscal efforts and debt reductions are well within norms of both past fiscal consolidation episodes in France and in other advanced economies.
  - The largest one-year adjustment occurs in 2026 with the expiration of the European Recovery Plan and its associated public spending measures.

### 4.      Risks and mitigating factors

### Key risk drivers
- High debt ratio is highly sensitive to future paths of real interest rates and real growth, posing risks that unfavorable shocks may put the debt ratio on a steeper upward trajectory.
- Additional long-term spending pressures from the climate transition could materialize.
- Potential higher increase in healthcare spending:
  - Estimated by the European Commission at 0.4 percentage points of GDP between 2030 and 2050.

### Mitigating elements
- Baseline fiscal projection is relatively conservative because it excludes consolidations that are planned but not yet sufficiently specified (including those under the new EU fiscal rules).
- France’s sovereign debt features that mitigate risks:
  - Large investor base.
  - Traded in a liquid market.
  - Stabilizing role of the ECB.

### 5.      Debt coverage and disclosures

### Coverage in the DSA
- Debt coverage unchanged from recent AIVs: covers general government debt, with most debt issued by the central government.
- Bank loan guarantees issued in response to the pandemic and energy crises (PGE) amount to some 6 percent of GDP.

### Subsectors included in the chosen coverage (baseline inclusion)
- Budgetary central government: Yes
- Extra budgetary funds (EBFs): No
- Social security funds (SSFs): Yes
- State governments: Yes
- Local governments: Yes
- Public nonfinancial corporations: No
- Central bank: No
- Other public financial corporations: No

### 6.      Public debt structure indicators

### Composition and market features
- Debt is predominantly in domestic currency and marketable.
- Share held by the central bank has increased steadily since 2015 but is now projected to decrease.
- Shares are similar across the other identified holders, with a relatively larger presence of external private creditors.
- All public debt is governed by domestic law.
- About half of debt is long term.
- Overall average residual maturity is about 8 years.

### 7.      Risk assessments and scenario summaries

### Sovereign stress and DSA summary assessment
- Overall assessment: France is at a low risk of sovereign stress.
- Medium-term sovereign risks: Moderate, stemming from high debt levels and sensitivity to interest rates and growth.
- Significant mitigating elements cited:
  - Conservative deficit projection based only on legislated measures sufficiently specified (thus excluding most planned consolidations).
  - Deep and liquid debt market reducing rollover risks from non-fundamental shocks.
- Long-term risks: Assessed as moderate given potential additional spending pressures from demographic and green transitions.

### Mechanical and probabilistic indicators
- Mechanical signal has improved from last year and is now closer to the low-risk threshold, but risks remain moderate.
- Probabilistic fan chart indicates moderate risks of non-stabilization under conservative scenarios.
- Gross financing needs (GFN) index and financeability:
  - Average baseline GFN: 21.6 percent of GDP.
  - GFN financeability index (GFI): 9.7 (relatively close to the low-risk threshold of 7.6, but driving a moderate risk signal).
- Medium-term assessment:
  - Final medium-term risk signal: Moderate.
  - Prob. of missed crisis, 2024-2029, if stress not predicted: 18.2 pct.
  - Prob. of false alarms, 2024-2029, if stress predicted: 30.7 pct.

### 8.      Long-term risk assessment and scenario analysis

### Large Amortization module: scenario types
- Four illustrative policy scenarios for long-term GFN and debt:
  - Historical: After 2029 debt drivers evolve on average as in the past decade (including large shocks), with no new fiscal measures.
  - Baseline: After 2029 debt drivers kept constant at their 2029 level, with no new fiscal measures.
  - Baseline and DSPB: Starting in 2030, authorities undertake new fiscal measures to stabilize the debt ratio. Under this scenario, the government’s deficit remains throughout the projection period above the 3 percent of GDP EDP limit.
  - Custom: Calibrated so that, after 2029, the deficit remains at around 2.2 percent of GDP (corresponding to a primary balance of 0.7 percent of GDP). Assumes no new fiscal measures are taken between 2024 and 2029 and uses staff's potential longer GDP growth projection of 1 percent.

### Long-term scenario outcomes and interpretation
- Mechanical signals of the three standard scenarios breach the GFN thresholds, pointing to long-term risks in absence of new fiscal measures.
- Under the Custom scenario, gross financing needs and the debt ratios return to a downward long-run trajectory under conservative assumptions for fiscal policy and GDP growth.

### Climate change modules
- Adaptation standardized scenario:
  - Assumes adaptation costs of 0.16 percent of GDP a year.
  - These costs are already embedded under the baseline Custom scenario; even in the more pessimistic case, impact on public finances would be negligible.
- Mitigation customized scenario (based on French Treasury study, n. 342, April 2024):
  - Puts total net additional cost of mitigation at 63 billion euros a year over a 9-year period, or 2 percent of GDP a year.
  - Assuming half is financed by the government, the impact on the deficit of mitigation policies would amount to 1 percent of GDP a year.
  - Under the customized mitigation scenario, additional spending pressures remain manageable under conservative fiscal and growth assumptions.
- Standardized mitigation scenario:
  - Considers a higher total (public and private) annual cost of 3.7 percent of GDP (not calculated specifically for France and not accounting for current French mitigation spending).

*Source: IMF staff.*

### 1.3 percent of GDP on mitigation policies.

### 1.3 percent of GDP on mitigation policies.

### Climate mitigation scenarios and chart elements
- Chart elements shown:
  - Vertical scales include values: 0.0, 50.0, 100.0, 150.0, 200.0.
  - Time axis labels: 2016, 2018, 2020, 2022, 2024, 2026, 2028, 2030, 2032, 2034, 2036, 2038, 2040, 2042, 2044, 2046, 2048, 2050, 2052.
  - Series labels shown:
    - Baseline: Custom
    - With climate mitigation (standardized scenario)
    - With climate mitigation (customized scenario)
- A second chart element shows vertical scale values: 0.0, 10.0, 20.0, 30.0, 40.0, 50.0, 60.0 with the same time axis and series labels as above.

### Annex VII — Data Issues: Data Adequacy Assessment for Surveillance
- Table VII.1. and Table VII.2. headings present; sector headings include:
  - National Accounts
  - Prices
  - Government Finance Statistics
  - External Sector Statistics
  - Monetary and Financial Statistics
  - Inter-sectoral Consistency
- Data adequacy assessment elements and ratings observed:
  - Median Rating: AAAAAAA
  - Coverage: AAAAA
  - Consistency: AA (for one row), A (for another)
  - Frequency and Timeliness: AAAAA, A, B, C, D (appear across cells)
  - Data Adequacy Assessment Rating: A
  - Granularity 3/ (note on granularity distinctions for Government Finance Statistics and Monetary and Financial Statistics)
  - Questionnaire Results 2/ and Detailed Questionnaire Results
- Text findings and staff assessments:
  - "The data provided to the Fund is adequate for surveillance."
  - "The data provided to the Fund has some shortcomings but is broadly adequate for surveillance."
  - "The data provided to the Fund has some shortcomings that somewhat hamper surveillance."
  - "The data provided to the Fund has serious shortcomings that significantly hamper surveillance."
  - Specific staff rationale excerpt: "Staff assess the overall data quality as adequate for the Fund's surveillance. France's economic and financial statistics are comprehensive, generally of high quality, and are provided to the Fund in a comprehensive manner. The authorities regularly publish a full range of economic and financial data, as well as a calendar of dates for the main statistical releases. France is also subject to the statistical requirement of Eurostat and the European Central Bank, including the timeliness and reporting standards, and it has adopted the European System Accounts 2010."
  - Use of data and/or estimates different from official statistics: "Staff do not use data and/or estimates different from official statistics."
  - Other data gaps: "It is critical to close data gaps and establish relevant metrics for monitoring broader systemic risk stemming from indirect exposures via NBFIs."
  - Changes since the last Article IV consultation: "N/A"
  - Corrective actions and capacity development priorities: "N/A"
- Notes and methodological references:
  - Note 1/: "The overall data adequacy assessment is based on staff's assessment of the adequacy of the country’s data for conducting analysis and formulating policy advice, and takes into consideration country-specific characteristics."
  - Note 2/: "The overall questionnaire assessment and the assessments for individual sectors reported in the heatmap are based on a standardized questionnaire and scoring system (see IMF Review of the Framework for Data Adequacy Assessment for Surveillance, January 2024, Appendix I)."
  - Note 3/: "The top cell for 'Granularity' of Government Finance Statistics shows staff's assessment of the granularity of the reported government operations data, while the bottom cell shows that of public debt statistics. The top cell for 'Granularity' of Monetary and Financial Statistics shows staff's assessment of the granularity of the reported Monetary and Financial Statistics data, while the bottom cell shows that of the Financial Soundness indicators."

### Data dissemination and standards
- France adheres to the Special Data Dissemination Standard (SDDS) Plus since February 2015 and publishes the data on its National Summary Data Page.
- "The latest SDDS Plus Annual Observance Report is available on the Dissemination Standards Bulletin Board (https://dsbb.imf.org/)." (URL preserved as in source.)

### Annex VIII — Transnational Aspects of Corruption: Supply-Side of Corruption
- Key findings from the 2024 Phase 4 Follow-up Report by the OECD WGB:
  - The OECD WGB "commended France’s efforts to enhance enforcement of the foreign bribery offence and adopt reforms to strengthen the institutional and legislative framework for combating serious economic crime."
  - Since the Phase 3 evaluation, authorities achieved "notable progress in enforcing the offence of bribery of foreign public officials, with a significant increase in the number of investigations opened and the imposition of final sanctions both on legal and natural persons."
  - Sanctions imposed on legal persons in foreign bribery cases through the Convention judiciaire d'intérêt public (CJIP) "since 2021 appeared to remain at high levels."
  - Legislative and institutional reform progress noted:
    - Preservation of "the major overhaul of its institutional and legislative framework in combating foreign bribery noted in 2021"
    - Introduction of "several possibilities for significantly extending the duration of preliminary investigations to address the limitations imposed by the Act on 'confidence in the judiciary' (2021)"
    - "Carrying out a major new reform of the whistleblower protection system to transpose the European Union directive on whistleblowers."
  - The WGB recognized efforts "to alleviate concerns regarding the guarantees of the Anti-Corruption Agency (AFA)’s independence and missions, preserve the role and actions of the National Financial Prosecutor’s Office (PNF) in investigations, prosecutions and non-trial resolution of foreign bribery cases, and further cooperation between the PNF and the AFA were also recognized by the WGB."

*Source: 1fraea2024001-print-pdf - 1.3 percent of GDP on mitigation policies.*

### 2.      The WGB noted that France should continue to take steps to tackle foreign bribery,

### 2.      The WGB noted that France should continue to take steps to tackle foreign bribery

### Major findings on enforcement and institutional capacity
- The WGB noted that France should continue to take steps to tackle foreign bribery, particularly pursuing efforts made to address the prevalent resource issues for the criminal justice system, clarifying the corporate criminal liability framework, and reinforcing the guarantees of the independence of the Public Prosecutor’s Office.
- Given the scale of the deficits and the growing number of complex foreign bribery cases, efforts to strengthen the resources allocated to specialized investigative departments, prosecutors, investigative judges and trial judges responsible for these cases should continue.
- Although the authorities initiated steps to clarify the corporate criminal liability framework for foreign bribery as part of ongoing negotiations on the anti-corruption directive at the EU level, weaknesses in the legislative framework for corporate liability remain a major obstacle to enforcement outside the CJIP.
- The WGB also noted that France needs to further its reflection about its non-trial resolution tools available to natural persons to promote, in particular, better coordination between the non-trial resolution mechanisms applicable to natural and legal persons.
- Another challenge identified by the WGB lies in the guarantees of the independence of the Public Prosecutor’s Office, considering:
  - the non-completion of the constitutional reforms to strengthen the independence of the public prosecution service; and
  - the persistence of the principle of requiring the Prosecutor General’s Office to transmit information to the Ministry of Justice in certain sensitive cases.
- Further efforts in fighting foreign bribery were called for, among others:
  - removing the obstacles to prompt and effective mutual legal assistance;
  - preventing the assertions of professional secrecy obligations from impeding the identification of suspicious financial transactions; and
  - ensuring that defense secrecy classification would not hamper the investigation and prosecution of foreign bribery cases.

### Context and sources of assessment
- Information relating to supply-side corruption in this annex draws on the WGB’s Phase 4 Follow-Up Report of France (March 2024).
- The IMF staff and France have provided additional views and information whose accuracy have not been verified by the WGB or the OECD Secretariat, and which do not prejudice the WGB’s monitoring of the implementation of the OECD Anti-Bribery Convention.

*Source: Excerpt from the IMF staff report informational annex (France) as provided.*

### introduction of regulatory incentives to channel private savings to capital investments through the creation

### introduction of regulatory incentives to channel private savings to capital investments through the creation

### Regulatory and market reforms to channel private savings
- Introduction of a new pension saving product and targeted changes in the legal framework governing life-insurance products.
- Next steps at the EU level:
  - Accelerate efforts to deepen and complete the capital markets union.
  - Develop European long-term savings products.
  - Revitalize the securitization market.
  - Move towards an integrated supervision for capital market activities.
- France plays a leading role in the EU agenda on capital markets union.

### Institutional changes and governance for the ecological transition
- Significant institutional changes implemented to accelerate climate mitigation and broader ecological transition objectives (biodiversity, natural resources, water, etc.).
- Creation of a new General Secretariat for Ecological Planning (SGPE) in mid-2022; the SGPE reports directly to the Prime minister.
- The SGPE has played a major role in aligning all sectors and ministries with France’s decarbonization objectives.

### Decarbonization strategy, monitoring, and regional coordination
- A plan was designed to break down decarbonization efforts across sectors of the economy, monitored by 250 public indicators.
- Cooperation between the State and local authorities is being consolidated through adaptation of the work at regional level as part of an ongoing consultation process (regional “COPs”).
- A multi-year strategy defining the financing of the ecological transition and national energy policy is under preparation and is due to be submitted to Parliament in the coming months.
  - The Strategy will provide multi-year visibility for the various public and private players.

### Key statistics and targets
- Objective: achieving carbon neutrality by 2050.
- SGPE creation date: mid-2022.
- Monitoring scope: 250 public indicators.
- 2023 outcome: France experienced a 5.8% reduction in its greenhouse gas emissions, which is fully consistent with France’s decarbonization targets for 2030.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1fraea2024001-print-pdf.pdf*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1fraea2024001-print-pdf.pdf_