## 1. Economic Growth ## Source details **Canonical URL:** [1. Economic Growth](https://www.imf.org/-/media/files/publications/cr/2024/english/1nldea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1nldea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1nldea2024001.pdf.json) --- ### Context and recent developments - Dutch post-pandemic growth: 6.2 and 4.3 percent in 2021 and 2022. - GDP exceeded pre-pandemic output level by 6 percent by 2023Q4. - Political developments: Disagreements over nitrogen and immigration led to November 2023 elections and prolonged government formation, which may delay or weaken pro-growth and climate policies. - 2023 growth outcome: - Annual real GDP growth: about 0.1 percent (negative q/q in the first three quarters; modest positive q/q in Q4). - 2023 slowdown drivers: - Eroding consumer purchasing power reduced private consumption in 2023 H1. - Industrial production and exports sluggish due to weak external demand. - Higher borrowing costs weighed on investment. - Reduction in inventories provided a drag on growth. - Output gap: declined from about 2 percent in 2022 to 0.4 percent in 2023, easing overheating pressures. ### Labor market and wages - Labor market conditions: - Unemployment: 3.6 percent as of 2023Q4. - Participation rate: 75.9 percent (highest in the euro area). - Job vacancy rate: among the highest in the euro area overall and in nearly all sectors. - Characteristics and dynamics: - Labor market remained tight, reflecting hoarding and structural labor shortages. - Real wage levels remain below the pre-inflationary period in level terms despite recent improvements in real wage growth. - Labor cost per unit of output and labor productivity broadly kept up with euro area averages. - Corporate profits remained robust, contributing to inflationary pressures. - Contribution of wage growth to the GDP deflator increased in 2023. ### Inflation (recent and projection highlights) - Recent outcomes: - Adjusted HICP inflation rate: 2.2 percent y/y in December 2023 (adjusted to account for a structural break in June 2023). - Published HICP inflation in December 2023: 1.0 percent. - Core inflation (HICP excluding energy, food, alcohol, and tobacco): declined substantially from a peak of 8.2 (May 2023) to lower levels by December 2023, but remained above target. - Inflation decomposition (adjusted): diminishing contribution of food, persistent core inflation, negative contribution of energy components. - In adjusted terms, HICP inflation was below the euro area average in December 2023. - Outlook: - Headline inflation (annual average) projected to decline from 4.1 percent in 2023 to 2.7 percent in 2024 and 2.1 percent in 2025. - Core inflation projected to moderate from its 2023 peak (7.3 percent), underpinned by easing wage pressures and closure of the output gap. - Headline and core inflation expected to fall to the ECB inflation target in mid and late 2025, respectively. - Core inflation definition used: HICP headline inflation excluding energy and unprocessed food. ### Public sector accounts and fiscal stance - Recent outturns: - Post-pandemic fiscal balance strengthened despite energy-price mitigation measures. - 2022 fiscal balance: broadly balanced (after a deficit of 2.3 percent of GDP in 2021). - Fiscal balance through 2023Q3: small surplus of 0.1 percent of GDP (4-quarter cumulative fiscal balance as percent of 4-quarter cumulative GDP). - Public debt: declined to 45.9 percent of GDP in 2023Q3, from 50.1 percent in 2022. - 2023 fiscal measures and 2024 stance: - 2023 measures initially estimated at 2.9 percent of GDP to cushion high energy prices (including 0.8 percent gas and electricity price cap for small consumers and 0.4 percent offsetting revenue measures). - 2023 deficit is now estimated at 1.1 percent of GDP due to reduced energy support costs, better revenues, and under-execution of investment spending. - 2024 budget is moderately expansionary: - Cyclically adjusted fiscal deficit projected to increase by 0.3 p.p. to 1.7 percent of GDP in 2024. - Permanent structural package: 0.5 percent of GDP to bolster purchasing power of vulnerable households, offset by taxes on higher-income individuals, corporate tax changes and a hike in the bank levy. - Energy package largely phased out in 2024, except temporary emergency fund extended to mid-2024 and reduced excise duties on petrol and diesel through end-2024 (0.1 percent of GDP). - Increased employment tax credit for low-wage workers described as well-targeted and supply-side oriented. - Near-term guidance and fiscal space: - Recommendation: a risk-based approach warrants a non-expansionary near-term fiscal stance. - Keeping the 2024 cyclically adjusted deficit broadly unchanged would require an adjustment of about 0.3 p.p. of GDP. - Fiscal space and medium-term pressures: - 2023 public debt/GDP ratio: 47.2 percent (noted as low relative to peers). - Projected spending increases by 2028: healthcare from 9.5 to 10.5 percent of GDP; old age pensions from 4.6 to 5.2 percent of GDP; defense from 1.4 to 2 percent of GDP. - Staff estimate required adjustment to stabilize debt: about 0.3 percentage points per year on average over 2024–28. - This aligns with the 17th Budget Space Study Group recommendation of an adjustment of €17 billion to stabilize debt at its 2028 level while keeping the deficit well below 3 percent of GDP. - Quality of adjustment emphasized: - Should not be achieved by lower overall investment spending. - Should protect or increase investment on climate, labor markets, housing, and education. - Address structural factors behind investment underspending. ### Fiscal projections (precise figures) - Primary balance under current policies (2024–2028): -1.3, -1.4, -1.8, -1.9, -2.2. - 2028 Debt stabilizing primary balance: -0.8. - Required deficit reduction: 1.3. - Implied annual average adjustment: 0.3, 0.3, 0.3, 0.3, 0.3. - Cumulative adjustment: 0.3, 0.5, 0.8, 1.1, 1.3. - Target primary balance: -1.0, -0.9, -1.0, -0.8, -0.8. ### Credit developments and financial sector - Credit growth dynamics (y/y): - Credit to households: declined from 8.7 percent y/y in June 2022 to 2.2 percent in December 2023. - Corporate credit growth: contracted from 9.1 percent y/y in October 2022 to 2.1 percent y/y in December 2023. - Banking sector: well-capitalized and liquid; bank profitability has risen. - Corporate bankruptcies: remained below pre-pandemic levels, with some pickup since mid-2022. - Loan provisioning and NPL ratios: remain in check. - Housing market: cooled with a 6 percent peak-to-trough decline in prices through June 2023 before recovery. - Life insurers' solvency: remained stable. - Occupational pension fund funding ratios: benefit from rising interest rates. - Elevated financial risks: household and corporate debt, real estate, nonbank financial institutions, and climate change. ### Financial sector vulnerabilities (FSAP findings) - Main vulnerabilities identified: - Household and corporate debt: - Household debt burden declining since 2010 but levels and servicing remain high relative to peers. - Corporate debt (percent of GDP) has declined but firms’ debt-to-surplus ratios are elevated relative to other EU countries. - Prolonged high-interest rates could raise credit risks to banks. - Real estate: - Residential (RRE) and commercial real estate (CRE) valuations appear elevated. - Exposure of Dutch banks to RRE and CRE collateralized loans is among the highest in the euro area. - NBFIs have expanded RRE lending; CRE significant among insurers and occupational pension funds. - Mitigants: large share of fixed-rate mortgages, falling prevalence of interest-only loans, full legal recourse of lenders, public mortgage-guarantee scheme, some macroprudential tightening. - Younger and lower-income borrowers more vulnerable; housing affordability concerns call for increased supply. - NBFIs and pensions: - Pension funds and insurers face market, liquidity, and inflation risk; rising interest rates raise concerns about potential margin calls on derivatives. - FSAP finds resilience of pension funds to liquidity risks but recommends monitoring repo market conditions. - Transition to defined-contribution pensions by 2028 improves long-term sustainability but requires careful management. - Climate risk: - Physical risks from sea-level rise and extreme rainfall; FSAP finds banks and insurers largely resilient to a wide range of flood events so far. - Greening of the economy, including nitrogen reduction, can pose risks in absence of clarity on transition path. ### Macroprudential actions and recommendations - DNB actions: - May 2023: countercyclical capital buffer rate raised by 1 percentage point to its 2 percent neutral level (effective May 2024), with reductions in other buffers for largest banks by 0.25–0.75 CET 1 percentage points to reflect European Banking Union progress. - Minimum risk weight floors for residential mortgages to remain in place at least until December 1, 2024. - Selected buffer and measure levels: - Capital conservation buffer: 2.5 percent. - Counter-cyclical capital buffer: 2.0 percent (May 2023 announced, May 2024 effective). - G-SII buffer: 1 percent (ING). - O-SII buffer: 0.25–2.0 percent (May 2023 announced, May 2024 effective) with specific reductions for ABN Amro, BNG, ING, Rabobank, Volksbank. - Risk weight floors on IRB mortgage exposures: 12 and 45 percent since 2022 until at least December 2024 (12 percent risk weight for up to 55 percent of collateral value, 45 percent risk weight beyond). - Borrower-based measures: Maximum LTV for residential mortgages 100 percent since 2018; interest-only mortgages tax deductibility limits since 2013; 30 year amortisation requirement for tax deductibility of mortgage payments; interest-only mortgages borrowing limit maximum 50 percent of property value. - FSAP recommendations (selected): - Macroprudential: calibrate borrower-based measures; gradually reduce LTV limit to 90 percent; phase out mortgage interest deductibility; secure legal basis for loan-level data access. - Supervision: adapt approaches, ensure budgetary autonomy and delegated powers, clarify independent board member requirements, monitor pension transition risks. - Climate risk oversight: integrate climate risks, strengthen data, scenario analysis, disclosure; establish interagency coordination. - Crisis management: operationalize resolution plans, identify national liquidity sources for resolution, develop/test national financial crisis management plan. - Financial integrity: analyze risks from misuse of legal entities, enhance AML/CFT supervision, improve beneficial ownership information. ### External position and current account (2023 assessment) - Preliminary assessment: external position stronger than implied by fundamentals and desirable policies in 2023. - Current account: - Projected to have rebounded to 10.2 percent of GDP in 2023, from 9.3 percent in 2022. - Staff cyclically-adjusted CA surplus: 10.4 percent of GDP in 2023 (staff estimate noted elsewhere as 10.3 percent). - Preliminary staff-assessed current account gap: 3.6 percent of GDP (mid-point). - REER and valuation: - ULC-based REER appreciated by 0.9 percent from its 2022 average in 2023. - Using EBA estimated elasticities, REER assessed as undervalued by about 4.6–6.2 percent in 2023 (midpoint 5.4 percent). - Authorities’ view: broadly shared staff’s assessment of a strengthened current account in 2023, citing elevated primary income receipts from robust profitability of Dutch multinationals and a higher trade surplus; judged risks to competitiveness from rising wages contained while higher energy costs challenge energy-intensive industries. ### Annex I external-sector precise 2023 snapshot (preserved figures) - NIIP (2023Q3): 68.2 (percent of GDP). - Gross Assets: 988.3 (percent of GDP). - Debt Assets: 239.8 (percent of GDP). - Gross Liab.: 920.1 (percent of GDP). - Debt Liab.: 253.1 (percent of GDP). - Current Account 2023 (% of GDP): CA: 10.2; Cycl. Adj. CA: 10.3; EBA Norm: 4.2; EBA Gap: 6.1; Staff Adj.: –2.5; Staff Gap: 3.6. ### Outlook and risks (growth, output gap, medium term) - Staff macro projections (selected series, precise figures preserved): - Real GDP growth: 2023: 0.1; 2024: 0.6; 2025: 1.3; 2026: 1.9; 2027: 1.9; 2028: 1.8; 2029: 1.6. - Output gap: 2023: 0.4; 2024: -0.4; 2025: -0.6; 2026: -0.2; 2027: 0.1; 2028: 0.0; 2029: 0.0. - Potential output growth: 2023: 1.7; 2024: 1.5; 2025: 1.5; 2026: 1.5; 2027: 1.6; 2028: 1.8; 2029: 1.6. - Consumer price index (headline, period avg.): 2023: 4.1; 2024: 2.7; 2025: 2.1. - Unemployment rate (percent): 2023: 3.6; 2024: 3.9; 2025: 4.2; 2029: 5.0. - Current account balance (percent of GDP): 2023: 10.2; 2024: 9.1; 2025: 8.8; 2029: 8.7. - Medium-term growth: staff expect about 1.6 percent, underpinned by public investment and reforms (including RRP), though ageing will have offsetting effects. - Downside risks dominate (selected): - Rising geopolitical tensions and geo-economic fragmentation, increasing energy prices and prompting further monetary tightening. - Further weakening of external demand, hurting exports and industry. - Core inflation becoming entrenched via wage-price second-round effects. - Severe housing market correction risking financial stability through a real-financial feedback loop. - Vulnerability to climate change; insufficient progress on structural reforms to address labor supply shortages could weigh on potential growth and delay green transition. ### Policy discussion and recommendations (overall mix and sectoral) - Overall policy mix: - Balance upside inflation risks with downside growth risks. - Given higher cost of underestimating core inflation persistence, adopt a risk-based approach favoring a non-expansionary fiscal stance. - Recommendations include monitoring housing market and financial risks, ensuring access to loan-level data, further adjustments to macroprudential borrower-based measures, and structural policies for energy security, green technologies, labor supply, and digitalization. - Selected structural and fiscal reform recommendations: - Pensions: link retirement age one-on-one to longer life expectancy. - Healthcare: combine efficiency gains, possible reduction of basic policy package, or increase out-of-pocket payments; a December 2023 health spending review provides feasible options. - Climate/tax: tilt away from fossil-fuel subsidies toward pricing/carbon taxes; streamline tax expenditures (noting exemptions are high at 15 percent of GDP, declining to 8 percent excluding top three items). - Housing: increase supply and adopt supply-side measures to improve affordability. - Digitalization/productivity: support R&D and education; RRP allocates 26 percent of financing over 2023–26 to accelerate digital transition. ### FSAP and authorities’ responses (selected) - Authorities welcomed FSAP integration into bilateral surveillance. - Authorities’ assessments: - Residential real estate risks mitigated by long-term fixed mortgages and macroprudential measures. - CRE risks considered limited given relatively low bank exposure, but monitoring warranted. - Institutional settings for borrower-based tools considered adequate; calibration objectives include consumer protection, financial stability, and access to home ownership. - Support for pension reform transition and for strengthening climate risk coordination. - Emphasis on testing resolution capacities and operationalization of resolution liquidity provisions. *Source: 1nldea2024001 - 1. Economic Growth* ### 1. Economic Growth ______________________________________________________________________________ 5 ### 1. Economic Growth ### Context and recent developments - The Dutch economy was more resilient than its peers during and after the pandemic, with post-pandemic growth of 6.2 and 4.3 percent in 2021 and 2022, respectively. - GDP exceeded the pre-pandemic output level by 6 percent by 2023Q4. - Disagreements over environmental legislation on nitrogen and over immigration policy led to new elections in November 2023, yielding fragmented results and prolonged government formation, which may cause delays or less ambitious pro-growth and climate policies. - The economy cooled in 2023: growth declined to about 0.1 percent, with negative q/q growth in the first three quarters and modest positive q/q growth in Q4. - Drivers of the 2023 slowdown: - Eroding consumer purchasing power reduced private consumption in 2023 H1. - Industrial production and exports remained sluggish due to weak external demand. - Higher borrowing costs weighed on investment. - A reduction in inventories provided a drag on growth. - Output gap estimates: declined from about 2 percent in 2022 to 0.4 percent in 2023, easing overheating pressures. ### Labor market and wages - Labor market remained tight, reflecting hoarding and structural labor shortages. - Unemployment: 3.6 percent as of 2023Q4. - Participation rate: 75.9 percent (highest in the euro area). - Job vacancy rate: among the highest in the euro area overall and in nearly all sectors (Figure 2). - Real wage levels remain below the pre-inflationary period in level terms despite recent improvements in real wage growth. - Labor cost per unit of output and labor productivity broadly kept up with euro area averages. - Corporate profits remained robust, contributing to inflationary pressures. - Contribution of wage growth to the GDP deflator increased in 2023. ### Inflation - Adjusted HICP inflation rate: 2.2 percent y/y in December 2023 (adjusted to account for a structural break in June 2023). - Published HICP inflation in December 2023: 1.0 percent (note adjustment rationale). - Core inflation (HICP excluding energy, food, alcohol, and tobacco) remained above target but declined substantially from a peak of 8.2 (May 2023) to lower levels by December 2023. - Inflation decomposition in adjusted terms: diminishing contribution of food, persistent core inflation, and negative contribution of energy components. - In adjusted terms, HICP inflation was below the euro area average in December 2023. ### Public sector accounts and fiscal - Post-pandemic fiscal balance strengthened despite measures to mitigate high energy prices. - 2022 fiscal balance: broadly balanced (after a deficit of 2.3 percent of GDP in 2021). - Fiscal balance through 2023Q3: small surplus of 0.1 percent of GDP (4-quarter cumulative fiscal balance as percent of 4-quarter cumulative GDP). - Factors improving fiscal balance through 2023Q3: lower costs of the energy package, higher tax revenue, and investment under-execution. - Public debt: declined to 45.9 percent of GDP in 2023Q3, from 50.1 percent in 2022. ### Credit developments and financial sector - Tightening financial conditions weighed on lending: - Credit growth to households: declined from 8.7 percent y/y in June 2022 to 2.2 percent in December 2023. - Corporate credit growth: contracted from 9.1 percent y/y in October 2022 to 2.1 percent y/y in December 2023. - Banking sector: well-capitalized and liquid; bank profitability has risen. - Corporate bankruptcies: remained below pre-pandemic levels, though some pickup since mid-2022. - Loan provisioning and NPL ratios: remain in check. - Housing market: cooled with a 6 percent peak-to-trough decline in prices through June 2023 before recovery. - Life insurers' solvency: remained stable. - Occupational pension fund funding ratios: continue to benefit from rising interest rates. - Elevated financial risks include household and corporate debt, real estate, nonbank financial institutions, and climate change. ### External position - Preliminary estimates: external position stronger than implied by fundamentals and desirable policy settings in 2023. - Current account: - Projected to have rebounded to 10.2 percent of GDP in 2023, from 9.3 percent in 2022. - Staff estimates an underlying, cyclically-adjusted current account surplus of 10.4 percent of GDP in 2023. - Preliminary staff-assessed current account gap: 3.6 percent of GDP. - REER movements: ULC-based REER appreciated by 0.9 percent from its 2022 average in 2023. - Using EBA estimated elasticities, the REER is assessed as undervalued by about 4.6–6.2 percent in 2023 (Annex I). - Authorities’ view: broadly shared staff’s assessment of a strengthened current account in 2023, citing elevated primary income receipts from robust profitability of Dutch multinationals and a higher trade surplus; risks to international competitiveness from rising wages judged contained, while higher energy costs pose challenges for energy-intensive industries. ### Outlook and risks - Staff projections (Text Table 1): - Real GDP growth: 0.1 in 2023; projected to increase to 0.6 and 1.3 percent in 2024 and 2025, respectively. - Growth drivers: improved household purchasing power and stronger external demand. - Headwinds: higher interest rates will continue to weigh on business and residential investment. - Output gap: expected to close in 2024 amid continuing signs of an overheated labor market. - Medium-term growth: expected at about 1.6 percent, underpinned by public investment and reforms (including those in the RRP), though ageing will have offsetting effects. - Comparative projections excerpt (Text Table 1 includes staff, DNB, CPB, European Commission, Consensus Forecasts for 2023–2025 for GDP growth, inflation, and core inflation as published in the source). *Source: 1nldea2024001 - 1. Economic Growth* ### 11. Inflation is expected to further moderate. Headline inflation (annual average) is projected ### 11. Inflation is expected to further moderate. Headline inflation (annual average) is projected ### Inflation outlook - Headline inflation (annual average) is projected to decline from 4.1 percent in 2023 to 2.7 percent in 2024 and 2.1 percent in 2025. - Core inflation is projected to gradually moderate from its peak in 2023 (7.3 percent), underpinned by the gradual easing of wage pressures and closure of the output gap as the supply capacity of the economy expands. - Headline and core inflation are expected to fall to the ECB inflation target in mid and late 2025, respectively. - Core inflation defined as HICP headline inflation excluding energy and unprocessed food. ### External position and current account - The current account balance is expected to decline to 8.7 percent of GDP by 2029, from a projected 9.1 percent of GDP in 2024. - Population ageing is anticipated to contribute to a weakening of the external position by reducing domestic savings. - Sizable expenditure programs initiated by the outgoing administration would reduce the trade surplus if continued. ### Risks and uncertainty - Amid high uncertainty, downside risks dominate. Main risks include: - Rising geopolitical tensions and deeper geo-economic fragmentation, potentially increasing energy prices and prompting further monetary tightening. - Further weakening of external demand, adversely affecting the Dutch economy. - Core inflation becoming entrenched if higher wages lead to second-round effects. - A severe correction in the housing market could raise financial stability concerns through a real-financial feedback loop. - Vulnerability to climate change, calling for continued enhancement of climate mitigation policies. - Over the medium term, insufficient progress on structural reforms to address labor supply shortages could weigh on potential growth and delay the green transition due to insufficient technical workers. - References: See chapter 2 of the IMF Regional Economic Outlook for Europe (October 2023). ### Authorities’ views on outlook and risks - The authorities broadly shared staff’s assessment of the outlook and risks. - DNB was slightly more pessimistic in its December 2023 projections: DNB projected growth at 0.3 percent in 2024 (0.5 percent with carry-over from 2023Q4), while staff project 0.6 percent. - Authorities noted concerns about materialization of external risks (economic slowdown in Germany, China; geopolitics) that could result in slower growth and possibly higher inflation. - On domestic risks, authorities agreed risks of a wage-price spiral remain contained. - Given the tight labor market, authorities considered signs of overheating would remain, along with a positive gradually narrowing output gap. ### Policy discussions — overall policy mix - The policy mix should balance upside inflation risks with downside risks to growth. - Given the higher cost of underestimating core inflation persistence, a risk-based approach calls for a non-expansionary fiscal stance. - Recommendations: - Close monitoring of the housing market and other financial risks, including ensuring access to loan-level data. - Further adjustments to macroprudential borrower-based measures for housing. - Structural policies focused on investment in energy security and green technologies, enhancing labor supply, and advancing digitalization. ### A. Fiscal policy — recent outturns and 2024 stance - 2023 fiscal measures: initially estimated at 2.9 percent of GDP to cushion high energy prices, of which 0.8 percent comprised a gas and electricity price cap for small consumers and 0.4 percent of GDP reflected offsetting revenue measures. - Those measures would have brought the deficit to 2.8 percent of GDP; however, the 2023 deficit is now estimated at 1.1 percent of GDP, reflecting reduced costs of energy support measures, better revenue performance, and under-execution of investment spending. - The 2024 budget is moderately expansionary: - The cyclically adjusted fiscal deficit is projected to increase by 0.3 p.p. to 1.7 percent of GDP in 2024, mostly reflecting higher spending on social transfers, defense, and public investment. - The budget includes a permanent structural package amounting to 0.5 percent of GDP to bolster the purchasing power of vulnerable households, with costs offset by raising taxes on higher-income individuals, corporate tax changes and a hike in the bank levy. - The energy package is largely phased out in 2024, except for a temporary emergency fund for energy costs extended to mid-2024, and extension of reduced excise duties on petrol and diesel through end-2024 (0.1 percent of GDP). - The increased employment tax credit for low-wage workers is well-targeted and focused on the supply-side. ### A. Fiscal policy — near-term guidance and fiscal space - Near-term fiscal policy should balance upside inflation risks with downside risks to growth: - A risk-based approach warrants a non-expansionary near-term fiscal stance. - Keeping the 2024 cyclically adjusted deficit broadly unchanged would require an adjustment of about 0.3 p.p. of GDP. - Phasing-out untargeted energy measures and streamlining and reducing implicit fossil fuel subsidies are recommended measures to achieve the desired stance. - Given high uncertainty, fiscal policy should be agile and flexible: - Automatic stabilizers should provide a first line of response to adverse scenarios. - A negative demand shock could call for a smaller fiscal adjustment than staff’s baseline advice. - A severe housing market correction triggering a recession could necessitate discretionary fiscal support. - A negative supply shock leading to stagflation could call for a larger fiscal adjustment. - Fiscal space and medium-term pressures: - At 47.2 percent, the 2023 public debt/GDP ratio is low relative to peers, and debt is sustainable. - Projected spending increases by 2028: healthcare from 9.5 to 10.5 percent of GDP; old age pensions from 4.6 to 5.2 percent of GDP; defense from 1.4 to 2 percent of GDP. - Staff estimate the required adjustment to stabilize debt at about 0.3 percentage points per year on average over 2024–28 (text table 2). - This is broadly consistent with the 17th Budget Space Study Group recommendation of an adjustment of €17 billion to stabilize debt at its 2028 level while keeping the deficit well below 3 percent of GDP. - The required adjustment should be of high quality: - It should not be achieved by lower overall investment spending. - It should protect or increase investment spending on climate, labor markets, housing, and education. - Address structural factors behind investment underspending to ensure timely implementation of investment plans. ### A. Fiscal policy — potential structural reforms (selected) - Contain spending pressures on healthcare, pensions, and climate: - On pensions, linking the retirement age one-on-one to longer life expectancy is an important instrument. - On healthcare, consider a combination of measures (efficiency gains, reducing the basic policy package or increasing out of pocket payments) to generate savings while mitigating risks and supporting solidarity. - A health spending review published in December 2023 provides feasible options to slow growth in healthcare costs, though more ambitious measures may be needed. - On climate, tilting the balance away from fossil fuel subsidies towards pricing/carbon taxes could help achieve climate goals efficiently while supporting fiscal sustainability. - Streamline tax expenditures: - Focus on inefficient and ineffective ones, such as abolishing reduced VAT rates and reduced profit taxes for agriculture and improving the tax treatments of owner-occupied housing. - Note: Exemptions are high at 15 percent of GDP, although the figure declines to 8 percent excluding the top three items (general tax credit, the earned income tax credit, and the tax treatment of pension savings). ### Fiscal projections (text table 2 — precise figures preserved) - Primary balance under current policies: -1.3, -1.4, -1.8, -1.9, -2.2 (for 2024–2028, respectively). - 2028 Debt stabilizing primary balance: -0.8. - Required deficit reduction: 1.3. - Implied annual average adjustment: 0.3, 0.3, 0.3, 0.3, 0.3. - Cumulative adjustment: 0.3, 0.5, 0.8, 1.1, 1.3. - Target primary balance: -1.0, -0.9, -1.0, -0.8, -0.8. - Sources: The Netherlands’ Bureau for Economic Policy Analysis (CPB), Ministry of Finance, and IMF Staff Calculations. ### B. Financial sector policies — vulnerabilities identified by the 2023 FSAP - The FSAP found the financial sector generally resilient to an adverse scenario, though systemic risk remains elevated. - Main vulnerabilities: - Household and corporate debt: - Household debt burden declining since 2010 but debt levels and servicing remain high compared to peers. - Considerable household assets exist but are mainly tied up in pension savings. - Corporate debt has declined (percent of GDP) but debt-to-surplus ratios of firms are elevated relative to other EU countries. - Under prolonged high-interest rates, elevated debt burdens could pose credit risks to banks. - Real estate: - Financial sector vulnerable to a steep contraction in real estate prices; residential (RRE) and commercial real estate (CRE) valuations appear elevated. - Exposure of Dutch banks to RRE and CRE collateralized loans is among the highest in the euro area. - NBFIs, including insurers and investment funds, have expanded RRE lending. CRE investments significant among insurers and occupational pension funds. - Mitigants include large share of fixed-rate mortgages, falling prevalence of interest-only loans, full legal recourse of lenders, strong debt-servicing commitment, a public mortgage-guarantee scheme, and some tightening of macroprudential policies. - Younger and lower-income borrowers more vulnerable; housing affordability concerns call for increases in supply and supply-side measures to speed building. - NBFIs: - Occupational pension funds and insurers face market, liquidity, and inflation risk. - Rapidly-rising interest rates have increased concerns regarding potential margin calls on derivatives. - FSAP shows resilience of pension funds to liquidity risks in adverse scenarios but repo market conditions should be monitored. - Pension funds’ transition from defined-benefit to defined-contribution by 2028 improves longer-term sustainability but requires careful management. - Claims inflation poses risks for health and non-life insurers. - Climate risk: - Sea-level rise and more frequent extreme rainfall heighten exposure to physical climate risk. - FSAP found banks and insurers largely resilient to a wide range of flood events so far. - Greening of the economy, including nitrogen reduction, can pose risks for affected industries and the financial sector in absence of clarity on the transition path. ### B. Financial sector policies — recent macroprudential actions and recommendations - DNB actions: - In May 2023 the countercyclical capital buffer rate was raised by 1 percentage point to its 2 percent neutral level, effective in May 2024, with reductions in other buffers for the largest banks by 0.25–0.75 CET 1 percentage points to reflect European Banking Union progress. - Minimum risk weight floors for residential mortgages will remain in place at least until December 1, 2024. - Text Table 3 — selected measures (precise items preserved): - Capital conservation buffer: 2.5 percent. - Counter-cyclical capital buffer: 2.0 percent (May 2023 announced, May 2024 effective). - G-SII buffer: 1 percent (ING). - O-SII buffer: 0.25–2.0 percent (May 2023 announced, May 2024 effective) with specific reductions for ABN Amro, BNG, ING, Rabobank, Volksbank. - Risk weight floors on IRB mortgage exposures: 12 and 45 percent since 2022 until at least December 2024 (12 percent risk weight for up to 55 percent of collateral value, 45 percent risk weight beyond). - Borrower-based measures: Maximum LTV for residential mortgages 100 percent since 2018; interest-only mortgages tax deductibility limits since 2013; 30 year amortisation requirement for tax deductibility of mortgage payments; interest-only mortgages borrowing limit maximum 50 percent of property value. - FSAP recommendations to strengthen framework: - Macroprudential policy: - Calibrate borrower-based measures to minimize financial stability risks and enhance consumer protection. - Gradually reduce the LTV limit to 90 percent and phase out mortgage interest deductibility, considering elevated housing prices. - Ensure a clear legal basis to access granular transaction/loan-level data, including RRE and CRE loans, on a regular basis for timely risk monitoring and analysis. - Supervision: - Adapt supervisory approaches to the rapidly-changing market environment and strive for consistent supervisory outcomes across sectors through deployment of technologies and analytical tools. - Review legislative framework to ensure supervisory authorities have sufficient budgetary autonomy, delegated powers, and intervention tools. - Further clarify in law the requirement of independent board members of supervised institutions. - Monitor and proactively manage potential risks of the pension system transition. - Climate risk oversight: - Further and more systematically integrate climate risks in supervision, backed by stronger data, scenario analysis, and disclosure. - Establish an interagency body or facilitate coordination on climate issues with implications for financial stability. - Assess the impact of clearer climate transition policy paths—including nitrogen—on the financial sector. - Crisis management and resolution framework: - Ensure operational readiness of resolution plans; identify and operationalize national sources for liquidity in resolution (such as emergency liquidity assistance); develop and regularly test a national financial crisis management plan. - Financial integrity: - Carry out a more comprehensive analysis of risks from misuse of legal entities and conduit structures. - Further enhance DNB’s risk-based AML/CFT supervision of banking and trust-office sectors. - Improve availability and accuracy of beneficial ownership information. *Source: IMF staff report text provided.* ### 26. The authorities welcomed the integration of the FSAP into the bilateral surveillance. ### 1nldea2024001 - 26. The authorities welcomed the integration of the FSAP into the bilateral surveillance. ### Financial sector: FSAP integration, real estate, macroprudential, crisis management - Authorities welcomed the integration of the FSAP into the bilateral surveillance. - Residential real estate risks: - Mitigants: large share of long-term fixed mortgages; decreasing prevalence of interest-only mortgages; appropriate macroprudential capital-based measures; recent robust income growth. - Commercial real estate (CRE) risks: - Considered limited given relatively low bank exposure to CRE and low risk of liquidity mismatches for property funds. - Monitoring remains warranted given recent developments in domestic and foreign CRE markets. - Macroprudential policy: - Current institutional settings for calibration of borrower-based tools considered adequate. - Calibration objectives include consumer protection, financial stability, and access to home ownership. - Nonbank financial institutions (NBFIs) liquidity: - A well-functioning money market for NBFIs—especially pension funds—could help ensure access to liquidity in times of stress. - Pensions: - Strong support for transition to a new pension system and importance of starting implementation of the defined contribution system. - Climate and nature-related risks: - Efforts to integrate these risks into supervisory practices will continue by strengthening policy coordination across agencies. - Crisis management and resolution: - Authorities welcomed recommendations to focus on testing resolution capacities and to prioritize operationalization. - Noted the directly applicable Single Resolution Mechanism Regulation does not provide for sharing of more non-confidential details of resolution plans with less significant institutions (LSIs). - Authorities suggested it would be more appropriate to focus on the provision of liquidity after resolution. ### Climate policy and energy security: targets, progress, uncertainties - Emissions reduction targets and projections: - PBL estimates based on planned climate policies: greenhouse gas emissions, including nitrous oxide, could be between 46–57 percent lower in 2030 than in 1990. - To achieve the goal of at least 55 percent reduction in 2030 with enough certainty, the Netherlands aims at 60 percent greenhouse gas reduction in 2030. - Political risk: - A prolonged government formation could delay or weaken the ambitious agenda, as measures require a political mandate. - Renewable energy and infrastructure progress: - The Netherlands is #1 globally in rooftop solar panels per capita. - Hosts about 24 percent of all the charging electric stations in Europe. - Number of new dwellings with heat pumps and without gas connection is growing rapidly. - National target to increase green gas by 20 percent by 2030. - Challenges: electricity-grid congestion, high volatility of demand and supply, long waitlist for electricity connections affecting clean-energy transition and growth. ### Climate instruments and fiscal measures (findings and policy advice) - Implicit fossil fuel subsidies: - Recent government report suggests implicit fuel subsidies are sizeable at 4–5 percent of GDP. - €6 billion in subsidies removed via the 2024 Budget (Annex VI). - Pricing/carbon taxation and related reforms: - Power and industry emissions priced by the EU trading system; domestic subsidy scheme for low-carbon technologies exists. - Suggested pricing reforms to enhance environmental effectiveness and maintain robust revenues in mobility and agricultural sectors, including: - shifting from fuel taxation to taxation per kilometer, supported by existing feebates in vehicle tax system; - increasing the tax on trucks and long-distance flight tickets; - introducing a meat products tax. - Standards and norms: - Consideration of a target to completely shift to electric vehicles by 2050 by allowing only zero-emission corporate vehicle sales within the mobility sector. - Efforts to reduce the number of livestock are underway. - Feebates and subsidy removal: - Feebates provide sliding fees for higher-emission products/activities and rebates for below-average emissions intensity. - Netherlands has integrated elements of a feebate into its vehicle tax system (Annex VI Figure 2). - Feebates could be extended to buildings and agriculture; removing implicit subsidies helps equalize abatement costs and generates fiscal savings. - Clean technology subsidies are less efficient as they lack penalties for emissions-intensive activities and create fiscal costs. - Agricultural emissions and meat tax: - Emissions fees are effective but require substantial capacity for farmers to assess and self-report emissions and may need revenue recycling within the sector or a feebate approach. - A meat consumption tax administered at the processor level is practical administratively and avoids competitiveness and leakage concerns, but: - It does not lower emissions intensity of domestic production. - Much of the reduced consumption may come from fewer imports rather than less domestic production. ### Climate adaptation and private-sector participation - Netherlands is a leader in climate change adaptation, using a proactive and comprehensive approach. - 2023 National Implementation Program for Climate Adaptation details ongoing efforts and strategies for acceleration; National Adaptation Strategy is being updated. - Private-sector participation: - Greater private-sector participation, e.g., promoting private flood insurance for residential properties, would help ensure a more efficient response. - Business readiness: - 2022 EIB Investment Survey: 53 percent of firms see themselves as affected by climate change (EU average 57 percent); 28 percent of Dutch firms have developed or invested in resilience measures (EU average 33 percent). ### Authorities’ views on climate and related policies - Agreed with staff recommendations to use all fiscal instruments and strike a balance among subsidies/fiscal support, carbon pricing, and standards/norms while addressing distributional concerns and ensuring policy predictability. - On fossil fuel subsidies: - Highlighted steps to enhance transparency by publishing an inventory of subsidies and to streamline some subsidies as part of the 2024 budget. - Independent report provides guidance on remaining subsidies to phase out. - Noted substantial share of subsidies due to regional and international agreements (e.g., maritime and aviation fuel) requiring joint work with international partners. - On adaptation: - Noted creation of an inter-agency working group in cooperation with the financial sector to promote private participation and fund private adaptation investment. ### Labor markets: duality, self-employed, shortages, and policy directions - Addressing labor-market duality and self-employed (SE) protection: - Authorities introduced and accelerated phase-out of the SE person’s tax deduction to level playing field between employees and freelance SE. - About 6 percent of SE (without employees) have higher risk of poverty. - Authorities discuss mandatory disability insurance, possibility of collective bargaining, and pension arrangements for SE. - Aim to clarify definitions/conditions for employment and reduce work uncertainty by restricting zero-hour contracts. - Authorities aim to improve employer flexibility in times of stress, e.g., allowing firms more flexibility in reducing hours in a tail risk event. - Labor and skill shortages: - Labor market is very tight with labor shortages in all sectors and among the highest job vacancy rates in the EA. - Old-age dependency ratio projected to increase from 31 to 50 percent during 2021–60. - Using Dutch Statistics Office data, ratio of persons aged 65 and above to those aged 20–64 projected to increase from 34.1 in 2022 to 46.2 in 2060. - Policy directions to address shortages: - Incentivize part-time workers to increase hours worked; focus on intensive margin (hours per employed worker). - Improve access to child and elderly care in a fiscally sustainable manner. - Streamline tax-benefit system over the medium-term to reduce complexity. - Promote training and labor mobility toward priority sectors (green transition, digitalization, health): - Reorient active labor market policies and lifelong learning programs toward priority sector skill shortages. - Adopt technology (including AI) and optimize migration: - Use technology, robotics, and automation to reduce vacancies. - Streamline and accelerate recognition and validation of qualifications acquired abroad for shortage skills. ### Digitalization and productivity - Netherlands ranks among top-performers in Europe on internet access and digitalization. - Shortages of IT professionals reported even before the pandemic; SMEs need faster adoption of digital technologies. - RRP allocations: - 26 percent of the financing over 2023–26 allocated to accelerate the digital transition by investing in quantum technology, digital upskilling, and improving rail connectivity. - Policy directions: - Continue support for research and development (R&D) and investment in education to revive business investment and enhance learning. - Authorities tracking ICT staff shortages at the regional level, improving STEM enrollment (including among women), and discussing AI use with social partners. ### Voluntary assessment and governance - Voluntary Assessment of Transnational Aspects of Corruption: - Netherlands continues to develop measures and good practices to combat foreign bribery of public officials but has areas requiring improvement (Annex VIII). - Authorities broadly agreed with staff recommendations on labor market, digitalization, and AML/CFT strengthening; reiterated commitment to further strengthen the AML/CFT framework. *Source: IMF staff report chapter as provided in the content unit.* ### 39. While growth has slowed, the Dutch economy continues to show important resilience. ### While growth has slowed, the Dutch economy continues to show important resilience. ### Growth outlook and risks - After 2 years of strong recovery, growth decelerated in 2023, reflecting the energy shock, tighter financial conditions, and weaker external demand. - Growth is projected to increase gradually in 2024 and 2025, driven by improved household purchasing power from lower inflation and stronger external demand. - Inflation should continue to moderate. - Downside risks dominate amid high uncertainty, including: - a possible housing market correction, - a sharper slowdown in trading partner growth, - geopolitical tensions, - deeper geo-economic fragmentation. - The external position in 2023 is assessed to have been stronger than the level implied by fundamentals and desirable policies. ### 2024 budget and near-term fiscal stance - The 2024 budget is moderately expansionary. - Higher spending components include social transfers, defense, and public investment. - Social-support measures are generally well-targeted, but the extension of reduced excise duties is not—the phase-out this year is therefore welcome. - Efforts to reduce implicit fuel subsidies are ongoing and welcome. - Near-term guidance: - Given the higher cost of underestimating core inflation persistence, adopting a non-expansionary fiscal stance is warranted. - While revenue overperformance and some underspending may in the end deliver the desired stance, proactively identifying and implementing deficit-reducing measures would send a stronger signal. - A good way to achieve this is through unwinding untargeted energy measures and rationalizing fossil fuel subsidies. - Given high uncertainty, fiscal policy should be agile and flexible if risks materialize. ### Medium-term fiscal position and public debt - The current public debt/GDP ratio is low, and debt is sustainable. - Given rising pressures from medium-to-long term fiscal challenges, adjustment will be needed to stabilize debt and retain strong buffers. - Staff support the authorities’ objective to stabilize medium-term debt at its 2028 level. - Required adjustment characteristics: - Be of high quality. - Not be achieved by lower overall investment spending. - Protect or ideally increase investment spending on key medium-term challenges—climate, labor markets, housing, and education. - Address structural constraints to investment implementation to reduce policy uncertainty. ### Structural reforms to support fiscal sustainability - Pensions: - Linking the retirement age to longer life expectancy is an important instrument. - Healthcare: - Consider a combination of efficiency gains, adjustments of the basic policy package, and higher co-payments that could generate savings while mitigating risks and supporting solidarity. - Climate and tax policy: - Tilting the balance away from fossil-fuel subsidies towards higher carbon pricing would help achieve climate goals efficiently while supporting fiscal sustainability and allowing for more targeted social spending. - Streamlining tax expenditures would also help safeguard sustainability. - Decisive actions in these areas will ensure policy continuity and predictability. ### Financial sector resilience and risks - The financial sector is generally resilient to adverse scenarios, although risks are elevated and warrant continued monitoring. - Main risks stem from: - high household and corporate debt, - real estate, - NBFIs, - climate change. - 2023 FSAP recommendations include: - further adjustments to borrower-based measures; - adapting supervisory approaches to a rapidly changing market environment; - equipping supervisory authorities with necessary resources, access to technologies, analytical tools, and granular data; - ensuring operational readiness of resolution plans and crisis preparedness and management. ### Climate goals and energy policy - Ambitious climate goals appear achievable. - Measures to invest in clean energy and enhance energy security are commendable. - Staff welcomes the authorities’ commitment to enhance climate mitigation and transition policies and policies for climate change adaptation. ### Labor market, digitalization, and broader structural reforms - Additional structural reforms would help enhance economic and social resilience. - Labor market recommendations: - Further progress in reducing labor market duality would increase labor participation and productivity. - Address labor and skill shortages by incentivizing part-time workers to increase hours worked, strengthening the framework for self-employed workers, promoting training and labor mobility towards priority sectors (green transition, digitalization, health), and measures to speed up adopting of new technology (including AI), while optimizing international labor, where needed. - Digitalization: - Investment in digitalization will help attenuate labor shortages. *Source: 1nldea2024001 - 39. While growth has slowed, the Dutch economy continues to show important resilience.* ### 47. It is proposed that the next Article IV consultation take place on the standard 12-month ### 1nldea2024001 - 47. It is proposed that the next Article IV consultation take place on the standard 12-month cycle. ### Economic Activity - Following strong growth in 2022, activity slowed in the first three quarters of 2023, with the slowdown seen across most sectors. - Domestic demand has been slowing recently, and goods exports are declining. - Industrial production and retail trade have also slowed. - Consumer confidence reached an all-time low amid declining real disposable incomes. - Investment growth slowed in 2023 with lower construction growth. - Contributions to GDP growth (percent, quarterly, q-o-q growth): graphical series shown for Consumption, Investment, Change in inventories, Net exports, GDP growth (no single numeric summary in text). - Contributions to GDP growth by sector (percent, q-o-q growth): Mining and quarrying; Manufacturing; Construction; Services; Other (graphical). - Domestic and Foreign Demand (2 quarters average, percent change): Domestic demand declining relative to Exports of goods (RHS) (graphical). - Industrial Production and Retail Trade Volume (Index, 2015=100) shown across 2016–2023 (graphical). - Consumption Indicators: Consumer confidence, % balance; Private consumption (RHS); Real disposable income, 3qma (RHS) (graphical). - Contributions to Investment Growth (Year-over-year growth rate): Construction; Equipment; Other (graphical). ### Labor Market - After some decline during the pandemic, employment and labor force participation were at an all-time high in 2022. - Employment continued to increase in 2022, driven by part-time and full-time employment. - The labor market is tight, with low unemployment and high vacancies. - Labor costs have increased, driven by wage growth. - Real wages increased in line with nominal wage growth and reflecting (adjusted) inflation deceleration. - Population, Labor Force and Employment (Millions of people) series shown for 2007–2023 (graphical). - Labor Market Tightening Indicators (percent, quarterly) include Unemployment rate and Job vacancy rate (RHS) (graphical). - Labor Costs (Y-o-y percent change): Compensation of employees; Wages and salaries (graphical). - Hourly Wage Growth (In percent, year-on-year, monthly): Real wage 2/ and Nominal wage — note: 1/ Hourly wage including special payments. 2/ Real wage growth is defined as nominal wage growth deflated by the HICP inflation rate adjusted for the structural break. - Adjusted HICP Inflation (In percentage points, contribution to y/y growth): Energy; Core 2/; Food 3/; HICP inflation — with note on HICP series adjusted for methodological change in June 2023. - Contributions to Total Employment Growth, 15-64 (Percent): Full-Time; Part-Time; Total (graphical, Dec-2023 marker). ### Fiscal Developments - The fiscal balance recovered in 2022–23, despite the COVID and energy packages in place. - Public debt fell to an estimated 47.2 percent of GDP in 2023, below pre-pandemic level. - The end of pandemic programs, higher revenues, and underspending helped correct the deficit in 2022–23. - The deficit is expected to deteriorate in 2024 and over the medium term. - Cyclically adjusted balance is projected to deteriorate, while there is a need to promote spending aligned with the climate policy agenda. - Overall Balance (Percent of GDP) series 2010–2023* shown with components: Energy-related measures; COVID measures; Interest expenditure; Primary balance (exc COVID and energy); Overall balance. Note: * IMF staff projections. - Gross Public Debt (Percent of GDP) series 2008–2023* with Maastricht target; Note: * IMF staff projections. - General Government Revenue and Expenditure (Percent of GDP, 4Q accumulated) series shown Sep-12 to Sep-23. - General Government Balance: Authorities Projections (Percent of GDP) for 2023–2026: Budget 2023 (Sep22); Stability Programme 2023 (Apr23); Budget 2024 (Sep23) (graphical). - Cyclically Adjusted Balance (Percent of GDP): EA 20 and Netherlands comparison, 2017–2024 (est./proj.) (graphical). - Projected Climate Expenditure (As percentage of GDP) 2021–2028: Electricity; Industry; Built environment; Mobility; Agriculture; Cross sector; Total expenditure on climate policy (values plotted 0 to 0.8 percent of GDP). ### Financial Sector Developments - Real house prices have seen among the sharpest increases in the euro area in recent years, affecting affordability of housing and yielding elevated price-to-rent ratios in relation to peers. - Financial assets of households far surpass debts, but a large share is concentrated in less liquid instruments. - Debt-to-income ratios of recent mortgage borrowers have become stretched, particularly among younger cohorts. - A slowdown in commercial real estate markets is an additional element of risk, heightening banking sector vulnerabilities from large real estate exposures. - Real House Price Index (Index, 2015 = 100) shows Netherlands above EA range and EA area across 2014Q2–2023Q2. - Housing Market Indicators, Q2 2023 (Index, 2015 = 100): Price-to-income ratio and Price-to-rent ratio shown for multiple countries including NL. - Household Debt and Financial Assets (EUR billion) series Sep-15 to Sep-23: Assets: other; Assets: insurance and pension funds; Assets: equity and investment funds; Assets: currency and deposits; Debt (graphical). - New Mortgages with a Debt-to-Income Ratio over 450 Percent (Percent): Households aged <36 and ≥36 (graphical). Note: data for 2019Q1-2020Q2 missing due to transition issues. - Commercial Real Estate Prices and Growth Rate (Index 2015=100; growth %): series 2015–2023 (graphical). - Euro area banks: real estate exposure, 2023Q3 (Percent of GDP) shows Residential real estate and Commercial real estate for NL and peers. ### External Sector Developments - The current account surplus declined in 2022, mainly reflecting a return of the primary income balance into deficit. - Trade values and volumes have ebbed, reflecting weaker demand and lower energy prices. - As cost pressures have reduced corporate profitability and savings, investment has started to weaken. - Reflecting elevated inflation, household savings declined below its pre-pandemic levels. - The net IIP declined, mainly driven by portfolio investment while foreign direct and other investment improved. - CPI-based REER continued to increase, while the ULC-based REER has remained on a declining trend. - Current Account (Percent of GDP) series 2003–2022: Goods; Services; Primary income; Secondary income (graphical). - Trade Developments (Index 2015 = 100, WDA) show Export Value; Import Value; Export Volume; Import Volume through Q3-2023. - NFCs: Saving and Investment (Percent of GDP) series 2003–2022: Investment; Saving; Saving-investment balance. - Household: Saving and Investment (Percent of GDP) series 2003–2022: Gross saving; Other investment; Residential investment; Saving-investment balance. - External Assets and Liabilities (Percent of GDP) series 2003–2022 by FDI; Portfolio Equity; Portfolio Debt; Other Investment; Financial Derivatives Net (RHS). - Real Effective Exchange Rate (Index, 2010=100) series REER (CPI based) and REER (ULC based) 2003M10–2023M10. ### Medium-Term Macroeconomic Framework (Table 2 highlights, Growth Rates, in percent, unless otherwise indicated) - Real GDP: 2019: 2.0; 2020: -3.9; 2021: 6.2; 2022: 4.3; 2023 Est.: 0.1; 2024 Proj.: 0.6; 2025 Proj.: 1.3; 2026 Proj.: 1.9; 2027 Proj.: 1.9; 2028 Proj.: 1.8; 2029 Proj.: 1.6. - Domestic demand: 2019: 3.0; 2020: -4.2; 2021: 4.6; 2022: 3.7; 2023: 0.8; 2024: 1.2; 2025: 1.7; 2026: 2.0; 2027: 1.9; 2028: 1.9; 2029: 1.8. - Private consumption: 2019: 0.9; 2020: -6.4; 2021: 4.3; 2022: 6.5; 2023: 0.4; 2024: 0.5; 2025: 1.3; 2026: 2.3; 2027: 2.3; 2028: 2.2; 2029: 1.9. - Gross fixed investment (total): 2019: 6.2; 2020: -2.6; 2021: 2.9; 2022: 1.8; 2023: 1.5; 2024: -1.1; 2025: 1.5; 2026: 1.8; 2027: 1.8; 2028: 1.8; 2029: 1.8. - Exports goods and services: 2019: 2.0; 2020: -4.3; 2021: 8.1; 2022: 4.5; 2023: -1.3; 2024: 0.2; 2025: 2.3; 2026: 3.4; 2027: 3.4; 2028: 3.2; 2029: 3.2. - Imports goods and services: 2019: 3.3; 2020: -4.7; 2021: 6.4; 2022: 3.8; 2023: -0.8; 2024: 0.8; 2025: 3.0; 2026: 3.7; 2027: 3.6; 2028: 3.6; 2029: 3.6. - Output gap: 2019: 1.5; 2020: -4.2; 2021: -0.2; 2022: 2.0; 2023: 0.4; 2024: -0.4; 2025: -0.6; 2026: -0.2; 2027: 0.1; 2028: 0.0; 2029: 0.0. - Potential output growth: 2019: 1.8; 2020: 1.8; 2021: 2.0; 2022: 2.0; 2023: 1.7; 2024: 1.5; 2025: 1.5; 2026: 1.5; 2027: 1.6; 2028: 1.8; 2029: 1.6. - Consumer price index (headline, period avg.): 2019: 2.7; 2020: 1.1; 2021: 2.8; 2022: 11.6; 2023: 4.1; 2024: 2.7; 2025: 2.1; 2026: 2.0; 2027: 2.0; 2028: 2.0; 2029: 2.0. - Employment: 2019: 2.0; 2020: 0.0; 2021: 1.5; 2022: 3.2; 2023: 2.0; 2024: -0.1; 2025: -0.2; 2026: -0.3; 2027: -0.3; 2028: -0.3; 2029: -0.4. - Unemployment rate (percent) 2/: 2019: 4.4; 2020: 4.9; 2021: 4.2; 2022: 3.5; 2023: 3.6; 2024: 3.9; 2025: 4.2; 2026: 4.5; 2027: 4.7; 2028: 4.8; 2029: 5.0. - Current account balance (percent of GDP): 2019: 6.9; 2020: 5.1; 2021: 12.2; 2022: 19.3; 2023: 10.2; 2024: 9.1; 2025: 8.8; 2026: 8.7; 2027: 8.7; 2028: 8.7; 2029: 8.7. - Revenue (percent of GDP): 2019: 43.9; 2020: 44.1; 2021: 43.8; 2022: 43.4; 2023: 43.0; 2024: 43.0; 2025: 43.2; 2026: 43.3; 2027: 43.3; 2028: 43.4; 2029: 43.4. - Expenditure (percent of GDP): 2019: 42.1; 2020: 47.8; 2021: 46.1; 2022: 43.5; 2023: 44.1; 2024: 45.0; 2025: 45.3; 2026: 45.9; 2027: 46.2; 2028: 46.6; 2029: 46.7. - General government balance (percent of GDP): 2019: 1.8; 2020: -3.7; 2021: -2.2; 2022: -0.1; 2023: -1.1; 2024: -2.0; 2025: -2.2; 2026: -2.7; 2027: -2.8; 2028: -3.3; 2029: -3.3. - Structural balance (percent of potential GDP) 3/: 2019: 0.6; 2020: 2.1; 2021: 1.5; 2022: 0.6; 2023: -0.7; 2024: -1.7; 2025: -1.8; 2026: -2.5; 2027: -2.9; 2028: -3.3; 2029: -3.3. - General government debt (percent of GDP): 2019: 48.5; 2020: 54.7; 2021: 51.6; 2022: 50.1; 2023: 47.2; 2024: 47.7; 2025: 48.2; 2026: 48.9; 2027: 49.8; 2028: 51.1; 2029: 52.6. - Notes: 1/ Value implied by investment and current account data. 2/ ILO definition. 3/ Structural balance excludes one-offs such as pandemic support and the price-cap measures. ### General Government Statement of Operations (Selected figures from Tables 3a–3b) - Revenue (percent of GDP): 2019: 43.9; 2020: 44.1; 2021: 43.8; 2022: 43.4; 2023: 43.0; 2024–2029: 43.0–43.4 (see Table 3a). - Taxes (percent of GDP): 2019: 25.4; 2020: 25.8; 2021: 25.8; 2022: 25.4; 2023: 25.4; 2024–2029: 25.2–25.4. - Social contributions (percent of GDP): 2019: 13.9; 2020: 14.1; 2021: 13.4; 2022: 13.1; 2023: 13.3; 2024–2029: 13.5–13.6. - Expenditure (percent of GDP): 2019: 42.1; 2020: 47.8; 2021: 46.1; 2022: 43.5; 2023: 44.1; 2024: 45.0; 2025: 45.3; 2026: 45.9; 2027: 46.2; 2028: 46.6; 2029: 46.7. - Net Lending/Borrowing (percent of GDP): 2019: 1.8; 2020: -3.7; 2021: -2.2; 2022: -0.1; 2023: -1.1; 2024: -2.0; 2025: -2.2; 2026: -2.7; 2027: -2.8; 2028: -3.3; 2029: -3.3. - Primary balance (percent of GDP): 2019: 2.4; 2020: -3.2; 2021: -1.9; 2022: 0.3; 2023: -0.5; 2024: -1.3; 2025: -1.4; 2026: -1.8; 2027: -1.9; 2028: -2.2; 2029: -2.2. - Nominal GDP (billions of euros): 2019: 813.1; 2020: 796.5; 2021: 870.6; 2022: 958.5; 2023: 1,032.8; 2024: 1,059.5; 2025: 1,097.0; 2026: 1,140.7; 2027: 1,186.1; 2028: 1,232.0; 2029: 1,277.9. - Net Lending/Borrowing (billions of euros): 2019: 14.6; 2020: -29.6; 2021: -19.5; 2022: -0.9; 2023: -11.4; 2024: -20.7; 2025: -23.7; 2026: -30.5; 2027: -33.7; 2028: -40.3; 2029: -42.5. - Gross Debt (billions of euros): 2019: 394.7; 2020: 435.5; 2021: 449.0; 2022: 480.1; 2023: 487.2; 2024: 505.6; 2025: 528.8; 2026: 557.9; 2027: 590.3; 2028: 629.5; 2029: 672.0. ### Monetary and Financial Indicators - Monetary Survey highlights (selected, end-of-period, Billions of Euros unless otherwise indicated): - Net Foreign Assets: 2016: 207.8; 2017: 183.4; 2018: 218.3; 2019: 267.1; 2020: 284.2; 2021: 283.9; 2022: 331.7; 2023: 350.9. - Claims on private sector: 2016: 811.6; 2017: 820.4; 2018: 816.4; 2019: 818.5; 2020: 819.3; 2021: 837.0; 2022: 882.7; 2023: 884.7. - Households claims: 2016: 499.7; 2017: 514.7; 2018: 510.9; 2019: 521.4; 2020: 535.0; 2021: 548.4; 2022: 582.1; 2023: 595.2. - Broad Money (billions): 2016: 772.2; 2017: 789.5; 2018: 789.6; 2019: 827.6; 2020: 908.8; 2021: 982.5; 2022: 1,041.5; 2023: 1,039.3. - Velocity (GDP/Broad Money): 2016: 0.9; 2017: 0.9; 2018: 1.0; 2019: 1.0; 2020: 0.9; 2021: 0.9; 2022: 0.9; 2023: 1.0. - Financial Soundness Indicators (selected, 2016–2022): - Regulatory capital to risk-weighted assets: 2016: 22.4; 2017: 22.0; 2018: 22.3; 2019: 22.9; 2020: 22.8; 2021: 22.4; 2022: 21.0. - Tier 1 capital to risk-weighted assets: 2016: 17.7; 2017: 18.4; 2018: 18.8; 2019: 18.9; 2020: 19.3; 2021: 19.3; 2022: 18.0. - Nonperforming loans to total gross loans: 2016: 2.5; 2017: 2.3; 2018: 2.0; 2019: 1.8; 2020: 1.9; 2021: 1.7; 2022: 1.6. - Return on assets: 2016: 0.6; 2017: 0.7; 2018: 0.7; 2019: 0.6; 2020: 0.3; 2021: 0.7; 2022: 0.6. - Return on equity: 2016: 10.1; 2017: 12.8; 2018: 11.7; 2019: 7.6; 2020: 3.3; 2021: 8.8; 2022: 8.0. - Liquidity coverage ratio (selected years): 2019: 138.6; 2020: 169.1; 2021: 163.3; 2022: 153.6. - Net stable funding ratio (selected years): 2019: 168.6; 2020: 150.2; 2021: 135.6; 2022: 133.6. - Residential real estate loans to total gross loans: 2016: 24.4; 2017: 27.3; 2018: 24.4; 2019: 37.5; 2020: 35.8; 2021: 43.2; 2022: 44.1. *Sources: CBS; DNB; Haver Analytics; CPB; Dutch Ministry of Finance; Eurostat; OECD; IMF WEO Database; IMF staff calculations, estimates, and projections.* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### Overall Assessment - On preliminary estimates, the external position in 2023 was stronger than the level implied by medium-term fundamentals and desirable policies. - The Netherlands’ status as a base for multinational corporations and as a trading hub and financial center makes the external assessment challenging. - After a projected rebound in 2023, the external current account (CA) surplus is expected to contract over the medium term as population aging and a progressively higher fiscal deficit in the baseline forecast reduce domestic saving. ### Potential Policy Responses - To bring the external balance to a level in line with medium-term fundamentals and desirable policies, fostering investment in physical and human capital, also by facilitating access to finance, particularly for small and medium-sized enterprises, should take priority. - Continue the previous government’s structural investment and reform plans to: - safeguard energy security; - allay housing market shortages; - reinforce the education system; - advance the climate transition; - further promote the digitalization of the economy. ### Foreign Asset and Liability Position and Trajectory - Background: - NIIP reached 68.2 percent of GDP in the third quarter of 2023, compared with 75.2 percent in 2022. - Positive NIIP impacts from current account surpluses recorded over 2023Q1-Q3 were more than offset by denominator effects from strongly increasing nominal GDP and negative valuation effects that particularly affected the net stock of portfolio investment and financial derivatives. - FDI remains the largest component of the IIP, accounting for more than half of external assets and liabilities, reflecting The Netherlands’ role as the seat for multinational corporations (MNCs) and its importance as a financial center. - Debt liabilities composition: - long-term debt securities: 45 percent (of which 68 percent are denominated in euro and 23 percent are denominated in US dollars); - currency and deposits: 31 percent (of which 59 percent are denominated in euro); - long-term loans: 7 percent. - Assessment: - The Netherlands’ safe haven status and its sizable foreign assets limit risks from its large foreign liabilities. - 2023Q3 (% GDP) snapshot: - NIIP: 68.2 - Gross Assets: 988.3 - Debt Assets: 239.8 - Gross Liab.: 920.1 - Debt Liab.: 253.1 ### Current Account - Background: - Refinements by Statistics Netherlands applied over 2020–22 resulted in an upward shift of the CA surplus from 4.4 percent to 9.3 percent of GDP in 2022, primarily reflecting: - higher trade balance (+1.5 percentage points) after addressing data limitations during the pandemic; - improvement of the primary income balance (+3.2 percentage points) due to revisions to the profits of MNCs listed on the stock market. - In 2023, the CA surplus is estimated to have rebounded to 10.2 percent of GDP (10.3 percent of GDP cyclically adjusted). - Support measures cushioning the energy price shock weighed on public net savings in 2023 but were counterbalanced by recovering private net savings from a strong labor market, accelerating wage growth, and weakening residential investment. - The Netherlands’ role as a trading hub and financial center contributes to a structurally strong headline external position. MNCs record profits at Dutch HQs while channeling much investment abroad as FDI, keeping nonfinancial corporate saving high. - Measurement biases of portfolio equity retained earnings in official statistics may contribute to an overstatement of net accumulation of wealth attributed to Dutch residents; foreign ownership of publicly listed firms has been above 80 percent in recent years. - In 2024, the CA is projected to decline to 9.1 percent of GDP. - Assessment and model results: - The EBA CA model estimates a CA norm of 4.2 percent of GDP. - Based on a projected cyclically-adjusted CA surplus of 10.3 percent of GDP in 2023, the EBA CA gap is preliminarily assessed at 6.1 percent of GDP. - 3.8 percentage points of the CA gap are attributable to policy gaps, primarily reflecting a relatively tighter fiscal stance and a negative credit gap that remains wider than those abroad. - The portfolio retained earnings bias is preliminarily assessed to be –2.5 percent of GDP based on granular DNB data that attribute aggregate net savings by firms to different segments of the corporate sector. - Taking these factors into consideration, and against a norm in the range of 3.7 to 4.7 percent of GDP, the IMF staff preliminarily assesses the CA gap to be in the range of 3.1 to 4.1 percent of GDP, with a mid-point of 3.6 percent of GDP. - 2023 (% GDP) summary: - CA: 10.2 - Cycl. Adj. CA: 10.3 - EBA Norm: 4.2 - EBA Gap: 6.1 - Staff Adj.: –2.5 - Staff Gap: 3.6 ### Real Exchange Rate - Background: - In 2023, the CPI-based REER had appreciated by 0.8 percent compared with its 2022 average as inflation in the Netherlands outpaced price developments in key trading partners. - The ULC-based REER appreciated by 0.9 percent, suggesting labor cost increases slightly ahead of competitors. - Assessment: - Assuming a semi-elasticity of 0.67, the preliminary IMF staff CA gap of 3.6 percent of GDP implies a REER undervaluation of about 5.4 percent. - EBA REER model estimates for 2023 range from an overvaluation of 16.7 percent (level model) to 27.3 percent (index model), largely reflecting unexplained residuals. - Consistent with the preliminary staff CA gap, the IMF staff assesses the REER as undervalued by about 4.6 to 6.2 percent, with a midpoint of 5.4 percent. ### Capital and Financial Accounts: Flows and Policy Measures - Background: - A considerable share of gross foreign assets and liabilities are attributable to special-purpose entities—financial vehicles with marginal operational footprints in The Netherlands—that contribute to substantial yet hard-to-interpret capital flow volatility. - A notable part of capital outflows represents the channeling of corporate profits by multinationals abroad as FDI. - Assessment: - The strong external position limits vulnerabilities to capital outflows. - The financial account deficit is primarily the flip side of a CA recording sustained—and structural—surpluses. ### FX Intervention and Reserves Level - Background: - The euro has the status of a global reserve currency. - Assessment: - Reserves held by euro area economies are typically low relative to standard metrics, but the currency floats freely. *IMF staff analysis as presented in Annex I. External Sector Assessment.* ### Annex III. Figure 2. The Netherlands: Public Debt Structure Indicators ### Annex III. Figure 2. The Netherlands: Public Debt Structure Indicators ### Debt Composition and Key Characteristics - Commentary: Public debt is entirely in domestic currency and marketable. The relatively long average maturity of the debt portfolio (8 1/2 years) and debt primarily on fixed rates are important buffers in the higher interest rate environment. - Residual maturity: 8.5 years - Debt by currency (percent of GDP): categories shown in figure — Foreign currency, Local currency, Local-linked (no numeric breakdown in text). - Debt by holder (percent of GDP): categories shown in figure — External private creditors, External official creditors, Domestic other creditors, Domestic commercial banks, Domestic central bank (no numeric breakdown in text). - Debt by governing law, 2022 (percent): categories shown in figure — Domestic law, Foreign law ex. multilateral, Multilateral (no numeric breakdown in text). - Debt by instruments (percent of GDP): categories shown in figure — Marketable debt, Nonmarketable debt (no numeric breakdown in text). - Debt by maturity (percent of GDP): categories shown in figure — ≤ 1 year, 1-5 years, > 5 years (no numeric breakdown in text). ### Projection Indicators (from figures) - Projection timeline displayed: 2013, 2015, 2017, 2019, 2021, 2023, 2025, 2027, 2029, 2031 (figures show projected series across these years; no explicit numeric series provided in this figure text). *Source: IMF staff estimates and figures contained in the source file.* --- ### Annex III. Figure 3. The Netherlands: Debt Coverage and Disclosures ### Coverage and Subsectors Included - Debt coverage in the DSA: 1/CGGGNFPSCPSOther (notation shown in figure). - 1a. If central government, are non-central government entities insignificant? n.a. - Subsectors captured in the baseline (Inclusion): - Budgetary central government: Yes - Extra budgetary funds (EBFs): Yes - Social security funds (SSFs): Yes - State governments: Yes - Local governments: Yes - Public nonfinancial corporations: No - Central bank: No - Other public financial corporations: No - Commentary: The debt coverage remains unchanged from the last Article IV -- i.e., it covers general government debt, with most debt issued by the federal (central) government. ### Instrument, Accounting and Consolidation Notes (as shown) - Notations present for reporting on intra-government debt holdings and accounting principles (color code and table structure shown in figure; no numeric breakdown in text). - Explanatory notes included for abbreviations and valuation terms (1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector; and notes 2/ through 7/ describing arrears proxy, IPSGSs, accrual basis, nominal value, face value, market value). *Source: IMF staff annotations and figures contained in the source file.* --- ### Annex III. Figure 4. The Netherlands: Baseline Scenario (Percent of GDP unless indicated otherwise) ### Public Debt and Flows (selected series and values) - Actual public debt: - 2022: 50.1 - 2023: 47.2 - 2024: 47.7 - 2025: 48.2 - 2026: 48.9 - 2027: 49.8 - 2028: 51.1 - 2029: 52.6 - 2030: 54.1 - 2031: 55.6 - 2032: 57.1 - Change in public debt: - 2022: -1.5 - 2023: -2.9 - 2024: 0.6 - 2025: 0.5 - 2026: 0.7 - 2027: 0.9 - 2028: 1.3 - 2029: 1.5 - 2030: 1.5 - 2031: 1.5 - 2032: 1.5 - Contribution of identified flows (mirrors Change in public debt): -4.8 (2022), -2.8 (2023), 0.5 (2024), 0.5 (2025), 0.7 (2026), 0.9 (2027), 1.3 (2028), 1.5 (2029), 1.5 (2030), 1.5 (2031), 1.5 (2032) - Primary deficit (percent of GDP): - 2022: -0.3 - 2023: 0.5 - 2024: 1.3 - 2025: 1.4 - 2026: 1.8 - 2027: 1.9 - 2028: 2.2 - 2029: 2.2 - 2030: 2.2 - 2031: 2.2 - 2032: 2.2 - Noninterest revenues (percent of GDP): - 2022: 43.3 - 2023: 42.9 - 2024–2032: 42.9 (2024), 43.1 (2025), 43.2 (2026), 43.2 (2027–2032) - Noninterest expenditures (percent of GDP): - 2022: 43.0 - 2023: 43.4 - 2024: 44.2 - 2025: 44.5 - 2026: 45.0 - 2027: 45.1 - 2028: 45.4 - 2029: 45.5 - 2030: 45.5 - 2031: 45.5 - 2032: 45.5 - Automatic debt dynamics: - 2022: -4.2 - 2023: -3.1 - 2024: -0.7 - 2025: -0.9 - 2026: -1.0 - 2027: -0.9 - 2028: -0.7 - 2029: -0.6 - 2030: -0.6 - 2031: -0.6 - 2032: -0.6 - Real interest rate and relative inflation: - 2022: -2.1 - 2023: -3.1 - 2024: -0.4 - 2025: -0.2 - 2026: -0.1 - 2027: 0.0 - 2028: 0.1 - 2029: 0.2 - 2030: 0.2 - 2031: 0.3 - 2032: 0.3 - Real growth rate entries include values such as 4.3 (2022), 0.1 (2023), 0.6 (2024), 1.3 (2025), 1.9 (2026–2027), and subsequent years around 1.6 (2031–2032) in Memo line (see Memo for full series). - Other identified flows: -0.3 (2022), -0.2 (2023), -0.1 (2024 onwards) - Contingent liabilities: 0.0 across projection period - (minus) Interest Revenues: -0.1 across projection period - Other transactions: -0.2 (2022), -0.1 (2023), 0.0 thereafter - Contribution of residual: 3.3 (2022), -0.1 (2023), 0.0 thereafter ### Financing Needs and Memo Items - Gross financing needs: - 2022: 5.6 - 2023: 7.7 - 2024: 10.3 - 2025: 9.5 - 2026: 10.7 - 2027: 10.6 - 2028: 10.7 - 2029: 10.5 - 2030: 10.3 - 2031: 10.1 - 2032: 9.8 - Of which: debt service: - 2022: 6.1 - 2023: 7.3 - 2024: 9.1 - 2025: 8.1 - 2026: 9.0 - 2027: 8.9 - 2028: 8.7 - 2029: 8.4 - 2030: 8.2 - 2031: 8.0 - 2032: 7.7 - Local currency debt service: follows debt service values above (local currency: 6.1, 5.9, 8.4, 8.1, 9.0, 8.9, 8.7, 8.4, 8.2, 8.0, 7.7) - Foreign currency debt service: 0.0 (2022), 1.4 (2023), 0.6 (2024), 0.0 thereafter ### Memo: Growth, Inflation, Interest - Real GDP growth (percent): - 2022: 4.3 - 2023: 0.1 - 2024: 0.6 - 2025: 1.3 - 2026: 1.9 - 2027: 1.9 - 2028: 1.8 - 2029: 1.6 - 2030: 1.6 - 2031: 1.6 - 2032: 1.6 - Inflation (GDP deflator; percent): - 2022: 5.5 - 2023: 7.7 - 2024: 1.9 - 2025: 2.2 - 2026: 2.0 - 2027: 2.0 - 2028: 2.1 - 2029: 2.1 - 2030: 2.1 - 2031: 2.1 - 2032: 2.1 - Nominal GDP growth (percent): - 2022: 10.1 - 2023: 7.8 - 2024: 2.6 - 2025: 3.5 - 2026: 4.0 - 2027: 4.0 - 2028: 3.9 - 2029: 3.7 - 2030: 3.7 - 2031: 3.7 - 2032: 3.7 - Effective interest rate (percent): - 2022: 1.2 - 2023: 0.9 - 2024: 1.1 - 2025: 1.7 - 2026: 1.8 - 2027: 2.1 - 2028: 2.4 - 2029: 2.5 - 2030: 2.5 - 2031: 2.6 - 2032: 2.7 ### Commentary - Public debt is relatively low and it is expected to continue falling this year, on the back of the expected recovery, and as energy-relief measures are being phasing out. However, debt will start to increase again over the medium and long term, reflecting fiscal pressures from challenges such as healthcare, ageing, climate change. *Source: IMF staff projections and figures contained in the source file.* --- ### Annex III. Figure 5. The Netherlands: Medium-Term Risk Assessment ### Key Indices and Signals - Debt fanchart module: - Fanchart width: 29.3 0.4 (percent of GDP) (notation shown) - Probability of debt non-stabilization (percent): 98.8 0.8 (notation shown) - Terminal debt-to-GDP x6.6 0.1 institutions index (notation shown) - Debt fanchart index (DFI): 1.4 - Risk signal: Moderate (per figure) - Gross financing needs (GFN) module: - Average baseline GFN: 11.0 3.8 (percent of GDP) (notation shown) - Initial Banks' claims on the gen. govt (pct bank assets): 2.1 0.7 - Change in banks' claims in stress (pct banks' assets): 0.6 0.2 - GFN financeability index (GFI): 4.6 - Risk signal: Low (per figure) - Medium-term index: - Debt fanchart index: 1.4 - GFN financeability index: 4.6 - Medium-term index: Value normalized (figure shows aggregate; final assessment stated below) - Final assessment: - Risk signal: (figure indicates low/medium inputs, overall) Final assessment: Prob. of missed crisis, 2023-2028, if stress not predicted: 9.1 pct. - Prob. of false alarms, 2023-2028, if stress predicted: 54.5 pct. ### Commentary - Medium-term tools point to low level of risks, even though the debt fan fanchart index shows that under current policies, there is a risk that public debt would not stabilize over the medium term. However, the GFN financeability index is low, given the low level of the public debt/GDP ratio, and its favorable debt structure. *Source: IMF staff estimates and projections.* --- ### Annex III. Figure 6. The Netherlands: Realism of Baseline Assumptions ### Forecast Track Record and Realism Indicators - Commentary: Past forecast errors do not reveal any systematic biases and the projected fiscal adjustment and debt reduction are well within norms. - Comparator group: Advanced Economies, Non-Commodity Exporter, Surveillance - Key elements shown in figure: - Public debt to GDP, Primary deficit, r - g, Exchange rate depreciation (forecast track; comparators percentile shading shown but no numeric percentiles listed in text). - 3-Year Debt Reduction: Distribution and percentile rank information with a Max. 3-year reduction above 75th percentile (5.9 ppts of GDP) and percentile rank 63.5. - 3-Year Adjustment in Cyclically-Adjusted Primary Balance: Max. 3-year adjustment above 75th percentile (2 ppts of GDP) percentile rank 44. - Fiscal adjustment scenarios with multipliers: Multiplier=0.5, 1, 1.5 (figures shown for possible growth paths; no explicit numeric outcomes in text). - Laubach (2009) rule referenced for implied spread behavior (descriptive note). - Elements of historical output gap revisions and bond issuance/marginal interest rates illustrated in figures (no numeric series in text). *Source: IMF Staff figures and methodological notes included in the source file.* --- ### Annex III. Figure 7. The Netherlands: Long-Term Risk Assessment: Large Amortization ### Risk Indicators and Projections - Overall Risk Indication: Overall risk from large amortization remains low. - Commentary: Under the baseline, the risks are related to the fact that without additional policies, debt will be increasing over the long term, reflecting fiscal pressures from challenges such as healthcare, ageing, and climate change, though the overall index is low given the low initial debt level and good historical track record, as well as favorable debt structure. - Scenarios and series shown in figure: - Medium-term extrapolation with debt stabilizing primary balance, Long run projection, Baseline with t+5, Baseline with t+5 and DSPB, Historical 10-year average (figures plotted; no numeric series in text). - Variables tracked: GFN-to-GDP ratio, Amortization-to-GDP ratio, Total public debt-to-GDP ratio (figures show trajectories to 2051; no numeric series in text). *Source: IMF staff projections and figures contained in the source file.* --- ### Annex IV. Past IMF Policy Recommendations (selected highlights from IMF 2021 and 2022 Article IV) ### Fiscal Policy Recommendations and Implementation Notes - Recommendation: Start the policy shift to targeted and forward-looking interventions to ease the road to normalization. - Implementation: Remaining COVID-support programs ended in early 2022; further reduction on expenditure projected to 2023. Some pandemic-related measures maintained, representing 0.5 percent of GDP in 2023. - Recommendation: Use substantial fiscal space to promote growth-enhancing interventions (support to R&D and education). - Implementation: Resilience and Recovery Plan includes €180 million in education, including National Education Lab AI (NOLAI); programs implementation announced for 2022Q4. - Recommendation: Incentivize emissions reductions and increase public support to innovation and greener technologies. - Implementation: Acceleration of climate and energy transition through measures included in 2023 budget; reform of energy tax, tightening CO2 levy, increase reduction target for CO2 tax from 1.3 to 18.3 million tons in 2030; extension of National Isolation Program and alternative energy sources; measures for structural nitrogen package and transition fund. - Recommendation: Adopt a non-expansionary or mildly contractionary stance in 2023 considering high inflation and tight labor market. - Implementation: Fiscal stance for 2023 was mildly expansionary. Implemented. Deficit was smaller in line with lower energy prices. Adopt flexible fiscal policy if risks materialize. ### Structural Reforms and Financial Sector - Recommendation: Push forward with second-pillar pension reform to improve transparency and flexibility. - Implementation: June 2020 agreement; pension reform legislation approved in 2022, took effect January 2023, transition period until January 1, 2028. - Recommendation: Ensure energy security; tackle labor market duality (status: In progress). - Recommendation: Tighten macro-prudential policies and expedite reforms to increase housing supply. - Implementation notes: Mortgage debt as percent of GDP decreased from around 106 percent in 2012 to 93 percent in 2020; LTV limits tightened; restrictions on non-amortizing mortgages; minimum risk weights for mortgages expected start in 2022; housing supply policy agenda (‘woondeals’) and new resources in 2022 budget for social housing. - Recommendation: Revive SMEs dynamism and business investment; increase support to R&D and establish a credit bureau. - Implementation: Funds launched (Deeptech Fund & Dutch Future Fund); Dutch Alternative Credit Instrument (DACI) launched; study on credit register sent to Parliament; National Growth Fund launched in 2020. - Recommendation: Avoid pro-cyclical macroprudential stance. - Implementation: Implemented. *Source: IMF Article IV recommendations and implementation notes included in the source file.* --- ### Annex V. 2023 FSAP Recommendations (Selected items, Addressee, Timing*, Priority**) ### Cross-Cutting (selected) - 1: Establish an interagency body or expand mandate to discuss climate-related policy implications, broaden cooperation and data sharing. - Addressees: MoF, AFM and other relevant ministries - Timing: ST - Priority: H - 2: Adapt supervisory approaches to a rapidly changing market environment; deploy technologies and analytical tools. - Addressees: DNB, AFM - Timing: ST/MT - Priority: H - 3: Review legislative framework for supervisory authorities’ budgetary autonomy, delegated powers, and intervention tools. - Addressees: MoF, AFM, DNB - Timing: ST - Priority: H - 4: Ensure authorities have legal basis to access granular transaction/loan-level data regularly, including residential and commercial real estate loans. - Addressees: MoF, DNB, AFM - Timing: I - Priority: H - 5: Further clarify requirement of independent supervisory board members in law. - Addressee: MoF, Ministry of Social Affairs and Employment (MoSA) - Timing: MT - Priority: H ### Systemic Risk Analysis and Climate Risk (selected) - 6: Tap alternative datasets for market risk analysis. - Addressee: DNB - Timing: ST - Priority: M - 7: Develop system-wide stress testing methodologies to assess contagion across banks and NBFIs. - Addressee: DNB - Timing: MT - Priority: M - 8: Monitor pension funds’ repo transactions; amend supervisory reporting and perform liquidity stress tests incorporating repo market drying-up. - Addressee: DNB - Timing: I - Priority: M - 9: Establish medium-term plan to develop LSI/insurance climate risk supervision, bridge data gaps. - Addressee: DNB - Timing: ST - Priority: H - 10: Conduct physical risk analysis using forward-looking medium and long-term flood scenarios aligned with IPCC Sixth Assessment Report. - Addressees: DNB, Ministry of Infrastructure and Water Management - Timing: ST - Priority: M - 11: Develop approach to assess impact of policies to reduce nitrogen depositions on the financial sector once transition path is clearer. - Addressee: DNB - Timing: ST - Priority: H - 12: Deepen collaboration among DNB supervisors and DNB stress testers to integrate climate stress testing insights. - Addressee: DNB - Timing: ST - Priority: H ### Macroprudential and Regulatory Recommendations (selected) - 13: Elevate the Financial Stability Committee (FSC) to a permanent advisory body with semi-hard powers, or vest DNB with hard powers over borrower-based tools calibration. - Addressees: MoF, DNB - Timing: ST - Priority: H - 14: Gradually reduce maximum limit of the LTV ratio to 90 percent by one percentage point per year. - Addressees: MoF, DNB, FSC - Timing: ST - Priority: H - 15: Monitor and address fragilities from interest-only (IO) mortgages; increase incentives for borrowers to lower exposure. - Addressees: AFM, DNB, NIBUD, MoF - Timing: I - Priority: M - 16: Gradually remove the mortgage interest deductibility. - Addressee: MoF - Timing: ST - Priority: H - 17: Require mortgage credit providers and clients to periodically update client financial situation. - Addressees: DNB, AFM, MoF - Timing: MT - Priority: H - 18: Expand number of on-site inspections for insurers in lowest impact class as backstop. - Addressee: DNB - Timing: ST - Priority: H - 19: Closely monitor and proactively manage risks of the pension system transition for authorities (resources and legal risks). - Addressees: MoSA, DNB, AFM - Timing: C - Priority: H ### Securities, Financial Integrity, and Crisis Management (selected) - 20: Ensure key trading venues prevent/manage operational outages; continue risk-based supervisory tools. - Addressee: AFM - Timing: I - Priority: H - 21: Monitor liquidity mismatch in real estate and corporate bond funds, including fund credit lines and liquidity management tools. - Addressees: AFM, DNB - Timing: ST - Priority: M - 22: Produce comprehensive risk assessment on cross-border financial crime risks and misuse of legal vehicles. - Addressees: MoF, FIU, FEC - Timing: ST - Priority: H - 23: Ensure completeness of beneficial ownership registries; resolve legacy issues with pre-existing legal persons and liaise with tax authorities for foreign trusts. - Addressee: MoF, CoC - Timing: ST - Priority: M - 24: Ensure AML/CFT supervision intensity and scope informed by remediation cases of three largest banks; align risk-based procedures with main risks including tax risks from conduit structures. - Addressee: DNB - Timing: I - Priority: H - 25: Operationalize preferred and fallback resolution strategies for SIs and LSIs; finalize handbooks; share non-confidential detail; regularly test resolution capabilities. - Addressees: DNB, MoF, AFM, DGF - Timing: I - Priority: H - 26: Identify and operationalize national sources for provision of liquidity in resolution; rely on ELA framework and set up cross-border cooperation arrangements. - Addressee: DNB - Timing: I - Priority: H - 27: Develop and regularly test comprehensive financial crisis management plan setting roles/responsibilities and inter-authority decision-making body. - Addressees: DNB, DGF - Timing: I - Priority: H *Timing key: C = Continuous; I = Immediate (within one year); ST = Short Term (within 1-3 years); MT = Medium Term (within 3-5 years). *Priority key: H = High; M = Medium; L = Low.* *Source: FSAP recommendations and implementation matrix contained in the source file.* *Italic: Extracted and summarized from Annex III–V figures and tables in the source PDF.* ### Annex VI. Climate Mitigation Policy ### Annex VI. Climate Mitigation Policy ### Fossil fuel subsidy estimates and methodologies - The 2024 Budget finds subsidies of €32 to €39 billion in 2023 (in addition to €6 billion of subsidies being phased-out) using an inventory approach (revenue foregone from individual policies that provide reduced rates or refunds for fossil fuel use). - CPB and PBL (2024) estimate subsidies at €13.7 billion in 2021 using the external cost price-gap approach. - The IMF (Black et al 2023) estimates subsidies at €13.5 billion in 2021 and €27.9 billion in 2022 using a broader external cost price-gap approach. - Differences across studies are largely driven by variation in methodology: - CPB/PBL measure of external cost includes only climate damages valued at €130 per ton. - IMF’s measure incorporates climate damages (valued at $100 per ton of CO2 emissions in 2022 for this Annex), local air pollution, congestion, road fatalities, and road damage. - The IMF study excludes international aviation and maritime fuels used internationally because associated emissions fall outside national boundaries and their taxation is governed by international agreements. - The inventory and price-gap approaches are complementary: the inventory approach identifies specific policies to reform, while the price-gap approach evaluates policies’ economic effectiveness. ### Fossil fuel pricing gaps and aggregate subsidy magnitudes - Prices for some fossil fuels in the Netherlands do not fully reflect supply and environmental costs; gasoline and non-aviation kerosene are in line with efficient levels, while LPG, natural gas, coal, electricity, and especially diesel fall short. - Implicit subsidies in 2022: €20.5 billion. - Explicit subsidies in 2022: €7.4 billion. - Explicit subsidies increased by €3.1 billion in 2022 due to the energy price cap that prevented full pass-through to consumers from the surge in international energy prices. - Total implicit and explicit subsidies were 2.8 percent of GDP in 2022 (1.6 percent in 2021). - The magnitude of subsidies in the Netherlands is below the world and European averages of 7.1 and 3.3 percent of GDP, respectively. - The EU ETS covers large industrial and power generation installations and captures global warming damages at its current price of around €60 per ton. ### Illustrative methodology and diesel example (2022) - Retail diesel price: $1.59 per liter in 2022. - Supply cost for diesel: $0.91 per liter in 2022. - Diesel consumption in 2022: 7.6 billion liters (observed value published by the IEA). - CO2 emissions factor for diesel: 0.003 tons per liter. - Climate damages for diesel (using $100 per ton): $0.24 per liter. - Local air pollution damages from diesel in the Netherlands: $0.51 per liter. - Broader transportation externalities for road diesel: - Congestion: $0.58 per liter. - Accidents: $0.09 per liter. - Road damage: $0.03 per liter. - Forgone consumption tax (VAT) component for diesel: $0.01 per liter. - Efficient price for diesel (sum of supply cost, environmental costs, and forgone consumption tax): $2.37 per liter. - Retail price shortfall (price gap) for diesel in 2022: $0.78 per liter ($2.37 minus $1.59). - Multiplying the price gap by diesel consumption (7.64 billion liters reported in summary) yields an implicit diesel fuel subsidy of $6 billion in 2022. - The 2022 diesel price exceeded the supply cost, so there is no explicit diesel subsidy. ### Sectoral pricing gaps and policy priorities - Diesel taxes in the Netherlands: €0.52 per liter, which fall short of the efficient level of €1.43 per liter. - Efficient diesel tax composition: - Climate: €0.24 per liter - Local air pollution: €0.48 per liter - Congestion: €0.55 per liter - Accidents: €0.08 per liter - Road damage: €0.03 per liter - Other priorities identified: - Ensuring efficient carbon pricing for agriculture. - Paving the way for transition to km-based taxation in transport. - Ensuring buildings use clean heating and are energy efficient. - Promoting pricing measures on international aviation and maritime fuels through participation at their respective international governing bodies. ### Policy advice and instruments - Overall guidance: - Comprehensive mitigation strategies should strike a balance between carbon pricing and reinforcing sectoral instruments. - Carbon pricing is the most efficient instrument: provides across-the-board incentives to reduce energy use and shift to cleaner energy sources while mobilizing revenue. - Acceptability constraints on carbon pricing (impact on energy prices) create a complementary role for sectoral instruments. - Feebates and tradable performance standards: - Feebates: sliding scale of fees on above-average emissions-intensity products/activities and rebates for below-average ones. - The Netherlands effectively integrates an aggressive feebate into its vehicle tax system, inducing shifts to cleaner vehicles without a large new tax burden on the average motorist. - Feebates could be applied to buildings, industry, and agriculture. - Tradable performance standards: regulatory analogue of feebates where fluid credit trading markets can be created among producers. - Clean technology subsidies are less efficient because they do not penalize emissions-intensive products/activities and involve fiscal cost. - Vehicle kilometers travelled (VKT) taxation: - Nationwide VKT taxes could provide a robust revenue source and more efficiently manage road traffic congestion; VKT taxes are unaffected by progressive decarbonization of the vehicle fleet. - VKT charges applied nationwide at a uniform rate of around €0.09 in 2030 would be required to raise the same revenue (as a percent of GDP) as currently raised by road fuel taxes. - Differentiating VKT charges by location and time of day can exploit behavioral responses to reduce congestion. - Digital metering technologies (e.g., GPS) have largely addressed technical implementation difficulties; transition could be promoted through subsidizing/taxing new vehicles with/without monitoring capacity, with capacity ultimately becoming mandatory. - Agriculture: emissions fees versus meat tax: - Emissions fees are the most effective instrument to reduce agricultural emissions intensity and encourage shifts within livestock production. - Capacity needs are significant: farmers would need to self-report emissions subject to third-party verification (as in schemes proposed in New Zealand and considered in Denmark and Ireland). - Competitiveness and emissions leakage concerns may require recycling revenues into the agricultural sector or adopting a revenue-neutral feebate system. - A meat consumption tax administered at the processor level is a practical interim alternative: addresses competitiveness and leakage concerns, with incidence largely borne by consumers rather than domestic producers; reduction in domestic consumption could largely come from reduced meat imports rather than reduced domestic production; scope exists to link meat taxes to suppliers’ broader sustainability practices (e.g., habitat restoration). ### Nitrogen challenge and policy balance - Nitrogen depositions: settling of nitrogen compounds from the atmosphere on land and water surfaces; main sources include agriculture, industry, and traffic. - The Netherlands faces substantial exceedance of critical deposition loads in Natura 2000 areas: out of 161 designated Natura 2000 areas, nitrogen deposition exceeds acceptable levels in 118 of them. - Regulatory history and targets: - 2015: Dutch Nitrogen Approach Program (PAS) introduced permit requirements to prevent significant harm to Natura 2000 sites; later ruled non-compliant with EU regulations by the Council of State. - 2022: Nitrogen Reduction and Nature Improvement Program and Nitrogen Reduction and Nature Improvement Act aim that in 50 percent of the area with high nitrogen deposition within nitrogen sensitive and Natura 2000 areas, the internationally adopted critical deposition load will no longer be exceeded by 2030 (74 percent by 2035). - Policy considerations: - Ambitious climate plans and housing supply objectives require adjusting/replacing nitrogen norms with adequate pricing so polluters pay for nitrogen depositions while avoiding rigid controls on urban development. - Permit trading within targeted areas (allowing construction companies to pay for emissions reductions at farms) is one option. - Charging construction companies for their nitrogen emissions with higher fees in priority areas with the largest discrepancies between depositions and acceptable levels is another option. - Certainty over future policies is important to reduce investment risk and to encourage energy efficiency and low-carbon investment. *Source: Annex VI. Climate Mitigation Policy.* ### 3. Health care spending in the Netherlands has been above the Eurozone and AEs, but ### 3. Health care spending in the Netherlands has been above the Eurozone and AEs, but close to its neighboring countries with spending on long term care among the highest in the Eurozone and AEs ### Health spending levels and composition - Public health care spending was about 10 percent of GDP in 2020 of which almost 65 percent curative care, one third long term care and 3 percent is social support care. - In the last decade public health spending: 7.8 percent of GDP in the Netherlands, 7.9 percent of GDP in Belgium, 7.4 percent of GDP in Germany and 9.2 percent of GDP in France (years 2011–21, 2021 is the year with the latest data available). - Total (public and private) health care spending in the Netherlands is above the average of the Eurozone and AEs but close to neighboring countries. - The Netherlands spends the most on long-term care (similar to Norway): - Long-term care: 3 percent of GDP (in level) and almost 30 percent of total health spending (share). - The share of publicly financed long-term care in total spending is the largest while out of pocket spending is the lowest among peers. - Netherlands spends less on inpatient curative care and medical goods compared to the Eurozone and AEs; Netherlands has the lowest inpatient use in the EU due to strong gatekeeping by primary care doctors. - Spending on pharmaceuticals and medical devices is contained by volume and price policies and a conservative prescribing approach. ### Health outcomes and efficiency - Mortality rates from preventable and treatable causes in the Netherlands are among the lowest in the EU: - Preventable cause mortality: 129 deaths per 100 000 population compared to 160. - Treatable cause mortality: 65 deaths per 100 000 population compared to 92. - Source: OECD 2021. - Health-adjusted life expectancy: 71.4 years in the Netherlands vs. 70.6 years in the Eurozone, 70.9 years in AEs, 70.6 years in Belgium, 70.9 years in Germany, and 72.1 years in France. - Half of the increased life expectancy since the 1950’s is attributed to health-care spending in cardiovascular diseases, infectious diseases, and cancer (Meerding 2007). - Frequently cited inefficiency drivers: incorrect diagnosis, supply-induced demand, perverse financial incentives, outdated guidelines, non-adherence to guidelines (CPB, 2022). - Enhancing efficiency is challenging due to the above factors (CPB, 2022). - Unmet needs for health care were among the lowest in the EU in 2019 after Spain and Malta (OECD 2021). - Note: unmet care increased during the first year of the pandemic from 1 percent to 15 percent when many non-urgent services were postponed; EU average unmet care was 21 percent. ### Long-term fiscal pressures: pensions, health care, climate - The Dutch Budget Space Study Group report ("The Adjustment with a View to the Future") notes long-term spending pressures from pensions, health care and climate-related spending. - Total spending pressures in the Netherlands (excluding climate spending pressures) is about 10 percent of GDP. - Spending related to climate is forecasted to be around 1 ½ percent of GDP annually starting in 2050 (high uncertainty). - Forecasted increase in pensions and health care (2021 Ageing report and CPB 2022): a total increase of 10¼ percentage point of GDP from 2019 to 2070, composed of: - 3¼ in healthcare, - 4¾ in long term health care, - 2¼ in pensions. - Comparator countries: forecasted total increases from 2019 to 2070 are 5¾ percentage point of GDP in Belgium, 2¾ in Germany, 2 in France, and 3 in Italy. - Forecasted total health care spending increases are much lower in comparator countries: Belgium and Germany lower by 1¾ percentage points of GDP; France and Italy about 4½ percentage points of GDP lower. - Public pension spending in the Netherlands is projected to increase by 2¼ percentage points of GDP, similar to Belgium (3 percent) and Germany (2 percent); France and Italy will face a decrease in public pension spending. ### Pension projections and drivers - Old-age dependency ratio projected to increase from around 32.9 percent in 2019 to about 55.2 percent by 2070. - Contributing factors: large cohort of 65+ (baby boomers), increase in life expectancy at 65, decline in fertility rate. - Public pensions expected to increase from 6.8 percent of GDP in 2019 to 9.1 percent of GDP in 2070. - Spending on occupational pensions projected to reach 6.6 percent of GDP in 2070 (The 2021 Ageing Report). - Occupational pensions are funded through employer/employee contributions with strict funding requirements; therefore no fiscal consequence or implicit fiscal risk associated with occupational pensions. ### Health spending projections - Central Planning Bureau projects public health care spending to increase from 10 percent of GDP in 2020 to 18 percent of GDP in 2060. - Total health spending (public and private) projected to increase from 15 percent of GDP in 2020 to 26 percent of GDP in 2060. - Increase mainly driven by long-term care: share of long-term care in total public health care spending rises from about one-third in 2020 to almost 45 percent in 2060. - Drivers of increase: aging, the Baumol effect, availability of new technologies and treatments. - Labor market implication: percentage of the labor market working in health care projected to increase from 16 percent in 2019 to about 37 percent in 2060 (WRR, 2021). ### Climate-related fiscal costs and uncertainty - Three channels of climate fiscal pressure: physical climate damage, adaptation measures, mitigation measures. - CPB estimates of government climate costs: - Physical climate damage without adaptation: 2.0–3.5 billion euros per year in 2050; 8.1–9.6 billion euros per year in 2100. - Physical climate damage with adaptation: 0.9–1.6 billion euros per year in 2050; 1.1–1.9 billion euros per year in 2100. - Mitigating costs: 7.2 billion euros in 2030 and 18.4–32.7 billion euros per year in 2050. - Adaptation costs estimated at 2.7 billion euros per year. - Effective adaptation can reduce costs in 2050 by more than 50 percent and in 2100 by more than 80 percent. - Example: adaptation measures related to sea level rise can reduce 2100 costs from €6 billion to €0.2 billion per year. - Estimates cannot be simply summed due to complex interactions. ### Authorities’ measures and reviews - 2019 pension agreement adjusted previously planned retirement age increases: - Original plan: increase to 66 years and 8 months in 2020 and to 67 years and 3 months in 2022 and link to life expectancy afterwards. - 2019 agreement: increase retirement age gradually to 67 years in 2024; from 2025 increase retirement age by 8 months for each year of higher life expectancy (to keep working life to pension ratio roughly constant). - Study Group on Fiscal Space suggests linking retirement age 1:1 with increases in life expectancy and considers reducing benefit amounts as possible measures. - Spending review on elderly care concluded that without additional measures public elderly care is unlikely to be financed without tax increases, spending cuts, and/or increases in out-of-pocket payments. - Two alternative lower spending paths in the review would lead to respectively €4 bn and €13 bn lower spending compared to unchanged policies. - Savings measures include efficiency gains, reducing collectively financed elderly care, or increasing out-of-pocket payments. - Annex VII Table 2 (Savings in 2029, in mln Euro’s): - Improving Efficiency: At least between 45 to 70 - Reducing collective financed elderly care: At least 1505 - Increasing out of pocket payments: At least between 545–915 - One-percent efficiency gain leads to €240 million of savings; efficiency gains in the use of labor lead to €180 million of savings. - Spending review on “Macro Containment of Health Care Costs” published with policy options to contain health care costs. - Spending review on climate to achieve a 60 percent reduction in emissions in 2030 assessed sector-specific measures; current policy mix focused on subsidies and voluntary adjustments; delaying measures will require more substantial future efforts. - Previous Coalition agreement reserved €35 billion in the “Climate Fund”. - The Netherlands’ long institutional history of water management: - Delta Commission established after the 1953 Water Ramp. - “Water Law” revised every 50 years (last revision in 2017). - Delta Fund funded from contributions from the Ministry of Infrastructure and Nature; estimated €27.4 billion euro available until 2050. - Additional costs on top of current budgeted amounts estimated at €2.7 billion per year starting from 2023. ### Key recommendations - Pensions: - Explore measures to link increases in the retirement age 1:1 to higher life expectancy in the future. - Explore reducing benefit amounts under the AOW as proposed by the Study Group on Fiscal Space; note AOW is considered a “social minimum” and those without occupational pensions may be eligible for additional social assistance. - Context: In 2020, 24 percent of all employees were not saving under the occupational or additional private retirement schemes (DNB, 2020). - Health care: - Consider a combination of measures from the spending review on “Macro Containment of Health Care Costs”: efficiency gains, reducing the basic policy package, and/or increasing out-of-pocket payments to generate sufficient savings while mitigating risk and supporting solidarity. - Climate: - Make firm policy choices without delay to meet climate objectives; balance fossil fuel subsidies, pricing, and norms to achieve climate goals efficiently while supporting fiscal sustainability. - Emphasize that delaying measures now will increase costs later; measures for 2030 are intermediate steps to achieve “climate neutrality” by 2050 as included in the Climate Law. *Source: 1nldea2024001 — IMF.* ### References ### References ### Bibliographic citations - Abaluck, J., L. Agha, C. Kabrhel, A. Raja en A. Venkathesh, 2016, The determinants of productivity in medical testing: intensity and allocation of care, American Economic Review, vol. 106, nr. 12, page 3730–3764 - Centraal Plan Bureau, Zorguitgaven, ons een zorg?, October 2022 - De Nederlansche Bank, 2020, Werkenden zonder pensioenopbouw - DNB and PBL, 2020, Indebted to Nature: Exploring Biodiversity Risks for the Dutch Financial Sector - Douven, R., M. Remmerswaal en R. Zoutenbier, 2019, Do altruistic mental health care providers have better treatment outcomes?, Journal of Human Resources, vol. 54, nr. 2, pag. 310–341 - OECD, The 2021 Ageing Report: Economic and Budgetary Projections for the EU Member States (2019-2070) - OECD, State of Health in the EU The Netherlands Country Health Profile 2021 - Ministry of Finance Netherlands, 2023, Miljoenennota 2024 - Government of the Netherlands, Interdepartementaal Beleidsonderzoek (IBO), 2023. Niets doen is geen optie. - Government of the Netherlands, Interdepartementaal Beleidsonderzoek (IBO) 2023. Scherpe doelen, scherpe keuzes: IBO aanvullend normerend en beprijzend nationaal klimaatbeleid voor 2030 en 2050. - Meerding WJ, Polder JJ, de Hollander AEM, Mackenbach JP. Hoe gezond zijn de zorguitgaven? De kosten en opbrengsten van gezondheidszorg bij infectieziekten, kankers, en hart- en vaatziekten - Zorg voor euro's - 6. Bilthoven: Rijksinstituut voor Volksgezondheid en Milieu, 2007. - StudieGroep BegrotingsRuimte, 2023, Bijsturen met het oog op de toekomst. 17e Studiegroep Begrotingsruimte - Wetenschappelijke Raad voor het Regeringsbeleid, 2023, Rechtvaardigheid in klimaatbeleid. Over de verdeling van klimaatkosten ### Annex VIII — Transitional Aspects of Corruption: key findings and recommendations - Finding 1: Foreign bribery risks are relatively high given the size and export-driven nature of the Dutch economy. Of the 500 largest multinational enterprises (MNE) globally, 10 are headquartered in the Netherlands, with several operating in high-risk sectors and jurisdictions. - Finding 1 (continued): The Netherlands is also one of the major sources of FDI to the rest of the world. - OECD Phase 4 evaluation: acknowledged progress in detecting and investigating foreign bribery—raising awareness, creating dedicated law enforcement teams, and providing training to the Whistleblowers Authority’s officials—but a continued low number of concluded cases is a concern. - Policy recommendations (Annex VIII): - Continue mitigation efforts and implement OECD recommendations, including: - allocating adequate resources for enforcement, - revising sanctions, - increasing enforcement against natural persons, - issuing guidelines for self-reporting procedures, - reforming non-trial resolutions. - Finding 2: AML/CFT safeguards implementation is uneven across obliged entities. Implementation is more advanced for banks and trust offices supervised by the DNB than for non-financial entities (lawyers, accountants, and domiciliary providers). - Actions taken: pursued registration requirements for domiciliary providers as part of a new AML/CFT package. - Remaining concerns: - Deficiencies in customer due diligence processes in banking remain. - Exposure to complex cross-border structures, such as conduit structures, makes identification of foreign beneficial owners (BOs) challenging. - Policy recommendations (Annex VIII, continued): - Publish guidance by DNB on AML/CFT, including good practices in scrutiny of PEPs and identification of BOs by obliged entities (expected to be published in 2024). - Ensure BO registries are complete. - Pursue close inter-agency cooperation, including between the registrar and tax authorities, to identify BOs of legal arrangements such as foreign trusts. - Continue efforts to improve the level of sentencing for money laundering generated by foreign proceeds of corruption. - Notable statistic (Annex footnote): As of 2021, the Netherlands hosts an estimated 8,700 conduit companies, with a balance sheet total of €4.5 trillion (517 percent of GDP). The number of such entities could be underestimated due to reporting gaps. ### Fund relations — key administrative and financial data - Mission: January 29–February 9, 2024. - Staff team: Messrs. B. Akitoby (head), N. Budina, and A. Myrvoda (all EUR) and J. Mok (MCM). Country interlocutors included De Nederlandsche Bank President Klaas Knot, Finance Minister Steven van Weyenberg, State Secretary Marnix van Rij, and other officials. - Fund relations context: - The mission for the 2022 Article IV consultation was held on November 28–December 9, 2022. - The Article IV consultation was concluded by the Executive Board on February 27, 2023. - Article IV consultations with the Netherlands are on the standard 12-month consultation cycle. - Membership Status: Joined December 27, 1945; Article VIII. - General Resources Account (SDR Million; Percent of Quota): - Quota 8,736.50 100.00 - Fund holdings of currency 6,399.02 73.24 - Reserve Tranche Position 2,339.04 26.77 - Lending to the Fund 9.30 - SDR Department (SDR Million; Percent of Allocation): - Net cumulative allocation 13,210.17 100.00 - Holdings 14,144.23 107.07 - Outstanding Purchases and Loans: None - Latest Financial Arrangements: - Stand-By: Sep 12, 1957 – Mar 12, 1958; Amount Approved (SDR Million) 68.75; Amount Drawn (SDR Million) 0.00 - Projected Obligations to Fund (SDR million; based on existing use of resources and present holdings of SDRs): - 2024: Principal Charges/Interest 0.17; Total 0.17 - 2025: Principal Charges/Interest 0.17; Total 0.17 - 2026: Principal Charges/Interest 0.17; Total 0.17 - 2027: Principal Charges/Interest 0.17; Total 0.17 - 2028: Principal Charges/Interest 0.17; Total 0.17 ### Financial Sector Assessment and statistics - FSAP Participation: - The Netherlands: 2023 Financial System Stability Assessment. - FSAP missions were held during June and November 2023. Findings were discussed with the authorities in November and in the Article IV consultation in February 2024. - Data adequacy and dissemination: - General: Netherlands’ economic and financial sector databases are generally comprehensive and high quality. Data provision is adequate for surveillance. - Government Finance Statistics: compiled in line with ESA 2010 methodology from 1995 onwards; submits data in GFSM 2014 format via Eurostat. - External Sector Statistics: DNB compiles the balance of payments in close cooperation with the CBS; statistics follow BPM6 and ECB/Eurostat legal requirements. - Monetary and Financial Statistics: ECB reporting framework used for reporting monetary statistics to STA via a “gateway” arrangement with the ECB; IFS coverage includes central bank and other depository corporations using Euro Area and national residency criteria. - Financial Sector Surveillance: disseminates quarterly data on financial soundness indicators (FSIs), including 11 core indicators and 8 encouraged indicators for deposit takers, and two encouraged FSIs for the real estate sector. - Data Standards and Quality: - Adherent to the IMF’s Special Data Dissemination Standard (SDDS) Plus since January 27, 2015. - The January 2008 data ROSC is available. ### Table of Common Indicators — selected entries (As of March 19, 2024) - Exchange Rates: Date of Latest Observation — Current; Date Received — Current; Frequency D; Frequency of Reporting D; Frequency of Publication D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 12/23; Date Received 01/24; Frequency M; Frequency of Reporting M; Frequency of Publication M. - Reserve/Base Money: Date of Latest Observation 12/23; Date Received 01/24; Frequency M; Frequency of Reporting M; Frequency of Publication M. - Broad Money: Date of Latest Observation 12/23; Date Received 01/24; Frequency M; Frequency of Reporting M; Frequency of Publication M. - Central Bank Balance Sheet: Date of Latest Observation 12/23; Date Received 01/24; Frequency M; Frequency of Reporting M; Frequency of Publication M. - Consolidated Balance Sheet of the Banking System: Date of Latest Observation 12/23; Date Received 01/24; Frequency M; Frequency of Reporting M; Frequency of Publication M. - Interest Rates: Date of Latest Observation — Current; Date Received — Current; Frequency D; Frequency of Reporting D; Frequency of Publication D. - Consumer Price Index: Date of Latest Observation 02/24; Date Received 03/24; Frequency M; Frequency of Reporting M; Frequency of Publication M; Data Quality—Methodological Soundness: O, O, LO, O; Data Quality—Accuracy and Reliability: O, O, O, O, O. - GDP/GNP: Date of Latest Observation Q4/23; Date Received 2/24; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q; Data Quality—Methodological Soundness: O, O, O, O; Data Quality—Accuracy and Reliability: LO, O, O, O, O. - Notes on data-quality assessments: "O" = fully observed; "LO" = largely observed; assessments reflect the data ROSC published January 10, 2008. *Source: 1nldea2024001 - References (IMF staff report materials).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1nldea2024001.pdf_