## 1. Tax Reforms Initiatives

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### Context and Near-Term Economic Developments
- Switzerland demonstrates resilience underpinned by robust institutions and strong fundamentals; recent external challenges include elevated global policy uncertainty and trade tensions.
- U.S. tariffs on Swiss imports increased to 39 percent (excluding, inter alia, pharmaceuticals and gold), contributing to safe-haven inflows and sustained franc appreciation.
- Key near-term developments (as reported):
  - GDP growth in 2024: 1 percent (adjusted for sporting events), from 1.2 percent in 2023.
  - Unemployment: rose to 2.4 percent in 2024; increased to 2.9 percent as of July 2025.
  - Employment growth: slowed to 0.7 percent.
  - Nominal wages (2024): increased 1.3 percent (y/y).
  - Headline inflation (2024): 1.1 percent (down from 2.1 percent); imported inflation 1.5 percent; energy prices fell 6 percent.
  - Domestic inflation (2024): 1.9 percent.
  - General government surplus (2024): 0.6 percent of GDP; cyclically adjusted primary surplus: 0.7 percent.
  - General government debt (2024): 37.6 percent of GDP.
  - Franc appreciation (2024): 2 percent vs. euro and dollar; 3.6 percent in nominal effective terms; FX interventions limited to 0.1 percent of GDP.
  - Credit growth (2024): 2.1 percent; mortgages 2.5 percent.
  - 2024 current account surplus: 5.1 percent of GDP.
- Early 2025 developments:
  - Real GDP rose 0.8 percent (q/q) in 2025:Q1.
  - Output gap around -0.3 percent of potential GDP.
  - Headline inflation through July 2025: 0.2 percent (y/y); core inflation 0.8 percent (y/y).
  - SNB policy rate cut to zero in June 2025; cumulative easing 175 bps since March 2024.
  - Franc appreciation end-July 2025 vs. end-December 2024: 11 percent vis-a-vis the USD, and 0.2 percent vis-a-vis the Euro.
  - Real estate prices as of 2025:Q2: owner-occupied houses up 4.4 percent (y/y); single-family homes up 5.4 percent (y/y); residential investment property through 2025:Q1 up 2.6 percent (y/y).
  - Current account 2025:Q1 surplus: CHF 19 billion (compared to CHF 10 billion in 2024:Q1).

### Outlook and Risks
- Baseline assumptions:
  - Persistent external headwinds, accommodative monetary policy, and policy-constrained fiscal space.
  - U.S. tariffs on Switzerland assumed at 39 percent (excluding, inter alia, pharmaceuticals and gold); on the EU at 15 percent (excluding, inter alia, gold).
  - Monetary policy: policy rate at zero.
  - Fiscal baseline: expenditure pressures tightly managed within the debt-brake rule.
- Projections:
  - 2025 (short term):
    - Growth: 1.2 percent (adjusted for sporting events).
    - Average inflation: 0.1 percent.
    - Nominal wage growth: 1.3 percent.
  - 2026–2030 (medium term):
    - Growth: 1 percent in 2026; 1.4 percent in 2027; convergence toward potential growth by 2028.
    - Inflation: 0.6 percent in 2026; 0.7 percent in 2027.
- Risks (selected):
  - Downside scenario: weaker global demand, tighter financial conditions, increased uncertainty, stronger safe-haven flows could reduce Swiss real GDP by around 0.5–0.6 percentage points over three years and lower inflation by up to 0.7 percentage points via franc appreciation.
  - U.S. Section 232 investigation could raise pharmaceutical import tariffs and potentially shave an additional 0.3 percent from real GDP over 2025–27.
  - U.S. Executive Order #14297 could cut revenues of some Swiss pharmaceutical firms and weaken innovation.
  - Upside: discussions with the U.S. potentially lowering tariff rates (e.g., similar to the EU’s) could raise real GDP by an estimated 0.5 percent over three years.

### Authorities’ Views
- Broad agreement with staff on outlook, risks, and external position.
- Authorities expect near-term growth moderation, low short-term inflation that slowly rises within the price stability range, and further unemployment increases.
- Authorities consider the current account surplus warranted by fundamentals and note measurement issues affecting BOP/IIP statistics; ongoing initiatives aim to enhance tracking of MNE contributions to external statistics.

### Fiscal Policy: Medium-Term Expenditure Pressures and Plans
- Fiscal stance and projections:
  - General government overall fiscal surplus projected to decline to 0.3 percent of GDP in 2025 from 0.6 percent of GDP in 2024.
  - Federal government deficit projected to remain broadly unchanged at 0.2 percent of GDP in 2025.
- Authorities’ planned measures:
  - Implement permanent expenditure cuts by 2027–28 and phase out extraordinary spending by 2027.
  - Gradually reduce the amortization account to zero (amortization account balance was 3.2 percent of GDP at end-2024).
  - Staff assessment of Federal Council plans:
    - Implement “Relief Package 2027” with permanent expenditure reductions of 0.3–0.4 percent of GDP starting in 2027.
    - Phase out extraordinary expenditures by 2027.
  - Objective to bring amortization account balance to zero by 2035, or if needed, by 2039.
  - SNB profit distributions expected to resume in 2025 and will help.
  - Social security: defray new 13th monthly pension payments (0.5 percent of GDP per year from late 2026) via VAT rate hikes; recapitalization of social security funds may be needed.

### Tax Reform Initiatives (Box 1) — Status and Revenue Impacts
- Structure and objectives:
  - Switzerland’s decentralized tax system emphasizes competitiveness and fiscal discipline; ongoing reforms aim to improve economic efficiency, enhance equity, and level the playing field.
- Key reform items, statuses, and reported revenue impacts:
  - Individual taxation:
    - Objective: Replace joint taxation of married couples.
    - Status: Adopted by Parliament; a referendum is likely.
    - Revenue impact: Around CHF 600 million revenue loss depending on implementation.
  - Taxation of imputed rental value:
    - Objective: Abolish imputed rental value taxation; tighten mortgage interest deductibility; allow cantons to tax secondary homes.
    - Status: Adopted by Parliament; subject to mandatory national referendum due to constitutional amendment.
    - Revenue impact: Depends on the mortgage rate: revenue shortfalls in low-interest rate and revenue gains in high-interest rate scenario.
  - Automatic compensation of bracket creep:
    - Objective: Automatic adjustment of income tax brackets to compensate for income growth.
    - Status: Deliberations on the draft bill expected in October 2025.
    - Revenue impact: Expected to reduce automatic revenue gains from bracket creep.
  - Special VAT for accommodation:
    - Objective: Extend the special VAT rate of 3.8 percent for accommodation services beyond 2027.
    - Status: Federal Council opposed the extension; public consultation planned by end-2025.
    - Revenue impact: Uncertain.
  - Withholding tax reform for TBTF instruments:
    - Objective: Extend the withholding tax exemption for interest on TBTF instruments.
    - Status: Federal Council submitted a dispatch to Parliament in June 2025.
    - Revenue impact: Uncertain.
  - Extension of loss offsetting:
    - Objective: Extend corporate loss carryforward period from seven to ten years.
    - Status: Plenary debate in the National Council completed.
    - Revenue impact: Modest; precise estimates unavailable.
  - Revised VAT ordinance and net tax rate ordinance:
    - Objective: Simplify net tax rate reporting and clarify recent VAT Act changes to curb tax planning.
    - Status: Entered into force on 1 January 2025.
    - Revenue impact: Expected to be positive; precise estimates unavailable.

### Staff Guidance on Fiscal Policy and Tax Reforms
- Debt-brake rule and fiscal flexibility:
  - Rigid debt-brake provisions limit fiscal flexibility; plans should be adjusted if shocks materialize to avoid overtightening.
  - Recommendation: Allow automatic stabilizers to operate in mild downturns; invoke extraordinary provisions of the debt-brake in more severe cases for targeted, time-bound, non-distortionary support.
  - Reduce amortization account to restore room for future shocks, but avoid unwarrantedly tight policies.
  - Continue efforts to avoid conservative revenue forecasts and spending below budgeted levels.
- Tax and spending stance:
  - Staff acknowledges preference for low taxation and spending cuts but notes expenditures are lean and tax collections low relative to peers.
  - Scope exists to broaden the tax base and improve administrative efficiency.
  - Further spending cuts risk affecting important services; a medium-term plan needed for spending reprioritization and revenue measures, including assessing intergovernmental responsibilities.
  - Ongoing tax reform efforts are welcome but should ensure at least revenue neutrality.

### Monetary Policy: SNB Actions, Tools, and Communication
- Recent actions and projections:
  - SNB progressively lowered policy rate since March 2024; cuts mostly in 25 bps steps with a 50-bps cut in December 2024.
  - Policy rate lowered to zero in June 2025; SNB projected average headline inflation of 0.2 percent in 2025 and 0.5 percent in 2026.
  - Market participants anticipate a move into negative territory by year-end.
- Trade-offs and instruments:
  - Additional cuts into negative territory may be needed if sharp franc pressures lead to broader disinflation or de-anchoring of expectations; effective lower bound likely around -75 to -100 bps, possibly lower.
  - FX interventions (FXIs) may be needed to manage safe-haven surges but require careful consideration given SNB’s large balance sheet (100 percent of GDP).
  - Quantitative easing not effective in baseline due to limited government bonds and compressed term-premia.
- SNB balance sheet and distributions:
  - SNB reported profits of approximately CHF 80 billion in 2024.
  - SNB reported a loss of CHF 15.3 billion in 2025:H1 due to foreign currency valuation changes.
  - SNB expected to resume profit distribution to cantons and the federal government in 2025.
  - Next review of SNB dividend policy scheduled for 2026.
- Communication:
  - SNB’s conditional inflation forecast assumes constant policy rate over a three-year horizon and serves as a key communication tool.
  - Quarterly Bulletin published four working days after policy announcements; "SNB Economic Notes" launched in September 2024.

### Financial Sector Resilience, Vulnerabilities, and FSAP Recommendations
- System-wide metrics and risks:
  - Aggregate regulatory Tier 1 bank capital: near 19 percent.
  - Liquidity buffers: around 180 percent.
  - Mortgages account for 86 percent of bank domestic lending.
  - Evidence of residential price overvaluation: 2025 FSAP suggests 20–30 percent overvaluation; SNB FSR estimates overvaluation for apartments of 15–40 percent.
  - Investment property market vulnerabilities pronounced; commercial real estate risks more moderate.
  - Bank profitability declined with lower policy rates; unrealized losses from securities at amortized cost remain low.
- Macroprudential and prudential recommendations:
  - Introduce a time-varying sectoral capital instrument; use CCyB as a broad-based positive cycle-neutral buffer.
  - Implement a debt service-to-income (DSTI) cap for risky mortgage lending.
  - Establish a formal Systemic Risk Council comprising SNB, FINMA, and Federal Department of Finance (FDF) representatives.
  - Complementary housing taxation reforms to remove mortgage interest deduction and increase housing affordability.
- Non-bank financial intermediation (NBFI) and data gaps:
  - Insurance sector: 60 percent of GDP.
  - Pension funds sector: 150 percent of GDP; data gaps and lack of uniform reporting.
  - Investment funds: 160 percent of GDP; largely open-ended and introduce liquidity risks.
  - Data gaps: asset management sector, trading venues, insurance sector; initiatives to improve monitoring welcomed.
- Crisis management and TBTF reforms (Too-Big-to-Fail Reform Package, announced June 6):
  - Three pillars:
    - Strengthening Prevention: senior managers’ regime; enhanced corporate governance with claw-back provisions; strengthen capital quality requirements; require SIBs to fully deduct book value of foreign subsidiaries from parent-company CET1.
    - Expanding Crisis Toolkit: expanded FINMA early intervention powers and fines; strengthen recovery planning and resolution options; strengthen SIBs’ capital base; improve crisis organization and information-sharing.
    - Strengthen Liquidity: require banks to prepare collateral for accessing SNB liquidity; remove legal barriers to collateral transfer.
  - Resolution planning broadened to include Category 3 banks, insurance groups, and financial market infrastructures.
  - SNB's new Emergency Liquidity Facility and an Extended Liquidity Facility (ELF) to bolster emergency liquidity assistance.
  - Timing: ordinance amendments expected early 2027; legislative amendments by 2028–29.
- Enhanced FINMA legal powers and resources:
  - Expand early intervention powers; require forward-looking Pillar 2 add-ons; impose fines; set binding supervisory standards; conduct onsite inspections for all banks.
  - Increase resources for oversight of corporate governance, risk management, AML/CFT, cyber risk, and recovery.
  - Reduce reliance on external auditors; improve market monitoring and market-abuse detection.
- AML/CFT, cyber, crypto, and fintech:
  - Extend cyber resilience framework to all financial entities and external service providers.
  - Accelerate beneficial ownership registry rollout and expand legal framework to include gatekeepers.
  - Conduct comprehensive assessment of crypto exposures and implement Basel standards in a timely manner.
  - Continue assessing financial integrity risks from cross-border payments.

### External Sector Assessment and Data Issues
- External sector assessment (2024/2025):
  - Overall assessment: Switzerland’s external position in 2024 broadly in line with medium-term fundamentals and desirable policies; significant BOP methodological improvements affect CA balance.
  - NIIP and gross positions (end-2024, percent of GDP):
    - NIIP: 126
    - Gross Assets: 638
    - Reserve Assets: 99
    - Gross Liab.: 512
    - Debt Liab.: 26
  - Official reserve assets (including gold) at end-2024: CHF822 billion (USD934 billion, 99.8 percent of GDP).
  - CA (2024): 5.1 percent of GDP; cyclically-adjusted CA: 5.1 percent; EBA Norm: 6.7 percent; EBA Gap: -1.6; Staff Adj.: -4.6; Staff Gap: -6.2.
  - Staff view: holistic assessment and expected upward CA revisions imply CA gap likely significantly smaller than model suggests.
- Data issues and revisions:
  - New Current Account Survey implemented 2023Q1; benchmark revision scheduled end-September 2025 expected to revise 2024 CA upwards significantly.
  - Data adequacy: Median Rating AAABBAA; overall data adequate for surveillance.
  - Notable data gaps: monetary and financial statistics granularity in SRF format; mortgage exposures; NBFI; trading investment portfolios; Lombard loans; bilateral exposures beyond banks; public debt breakdown (arrears, guarantees, contingent liabilities).
  - Staff recommends improved granularity and enhanced collection/publication in priority areas.

### Annex III — Impact of Tariffs (selected findings)
- Timeline and effective rates:
  - April 2: U.S. announced tariffs of 31 percent on Swiss goods; effective tariff rate assessed at 17.7 percent after exemptions, inter alia, on gold and pharmaceuticals.
  - April 10: 10 percent tariff applied to key Swiss exports; effective rate 7.8 percent (pharmaceuticals and gold excluded).
  - August 1 (effective August 7): Tariffs raised to 39 percent excluding, inter alia, pharmaceuticals and gold; staff assess effective tariff rate increased to 21.2 percent.
- Trade exposure:
  - Goods exports to the U.S., excluding precious metals: 6 percent of GDP and 15 percent of total exports.
  - Exports to the EU: 18 percent of GDP and 42 percent of exports (Germany: 5 and 12 percent, respectively).
  - China: 2 and 5 percent, respectively.
- Top Swiss exports to the United States (Billions of Francs):
  - Total Exports: 64.63
  - Pharmaceuticals: 31.23
  - Jewellery, Precious stones, Metals: 13.47
  - Watches and Clocks: 4.38
  - Optical and Medical instruments: 3.83
  - Machinery: 3.14
  - Electrical machinery: 1.63
  - Organic Chemicals: 1.74
- Scenario impacts:
  - Switzerland-only downside (pharmaceuticals included): extension of the 39 percent tariff to pharmaceuticals could reduce real GDP by 0.3 percent over the next three years.
  - Global downside (higher U.S. tariffs in key trading partners): could additionally reduce Swiss real GDP by around 0.5 – 0.6 percent over three years via indirect spillovers.
  - Upside: lower tariffs through discussions with the U.S. could increase real GDP by 0.5 percent over three years.

### Staff Appraisal and Policy Priorities (summary)
- Macroeconomic policy:
  - Moderately expansionary fiscal stance for 2025 is appropriate given remaining slack.
  - Ongoing tax reform efforts should ensure at least revenue neutrality; medium-term plans should focus on spending reprioritization and revenue measures to address aging, climate, and defense pressures.
  - Automatic stabilizers should operate in mild downturns; extraordinary provisions of the debt-brake should be activated in more severe shocks.
- Monetary policy:
  - Recent SNB easing warranted given price softness and currency appreciation; further easing should be weighed against effective lower bound and financial stability concerns.
  - SNB’s monetary policy framework could benefit from a review of communication tools and risk scenarios.
- Financial stability:
  - Financial system remains resilient but vulnerabilities persist, notably real estate exposures and NBFI data gaps.
  - Priority actions: strengthen FINMA’s powers and resources; expand macroprudential tools (including DSTI cap and sectoral capital instruments); establish a formal Systemic Risk Council; enhance crisis preparedness and resolution frameworks; proceed swiftly with TBTF reforms and expand supervisory capacity.

*Source: 1. Tax Reforms Initiatives — chapter from the Switzerland IMF staff report (excerpts provided).*

### 1. Tax Reforms Initiatives  ________________________________________________________________________ 13

### 1. Tax Reforms Initiatives

### Context: Sustaining Resilience Amid Rising Pressures
- Switzerland demonstrates economic resilience underpinned by robust institutions and strong fundamentals, ranking among the world’s most complex and innovative economies.
- Recent external challenges include elevated global policy uncertainty and trade tensions, reflected in the increase of U.S. tariffs on Swiss imports to 39 percent (excluding, inter alia, pharmaceuticals and gold).
- Persistent safe-haven inflows have contributed to sustained franc appreciation.
- Domestic priority: financial sector reforms to preserve Switzerland’s standing as a leading global financial center.
- Key priorities to sustain resilience:
  - Avoid deflationary risks.
  - Address rising fiscal pressures.
  - Advance financial sector reforms in line with FSAP recommendations.
  - Enhance labor productivity through structural measures.
  - Engage with the U.S., the EU and other partners to preserve market access and a rules-based environment and bolster external resilience.
- Progress requires broad-based political support.

### Economic Developments Since 2024 Article IV
- 2024: economic activity moderated; monetary easing helped cushion slowdown.
  - GDP growth declined to 1 percent (adjusted for sporting events), from 1.2 percent in 2023.
  - Unemployment rose to 2.4 percent; employment growth slowed to 0.7 percent.
  - Nominal wages increased 1.3 percent (y/y), yielding modest real wage gains.
  - Headline inflation dropped to 1.1 percent from 2.1 percent; imported inflation down to 1.5 percent; energy prices fell 6 percent.
  - Domestic inflation eased to 1.9 percent as rent pressures moderated.
  - General government surplus rose to 0.6 percent of GDP; cyclically adjusted primary surplus reached 0.7 percent; General government debt declined to 37.6 percent of GDP.
  - Despite policy rate cuts, the franc appreciated 2 percent against the euro and dollar, and 3.6 percent in nominal effective terms; FX interventions were limited (0.1 percent of GDP).
  - Credit grew 2.1 percent, driven by mortgages (2.5 percent). Residential real estate prices rose; commercial real estate remained stable with signs of recovery.
  - 2024 external position: current account surplus held at 5.1 percent of GDP; export gains in chemicals and pharma offset lower merchanting; services deficit widened; primary income deficit narrowed.
- Early 2025: temporary rebound but underlying momentum tepid.
  - Real GDP rose by 0.8 percent (q/q) in 2025:Q1, driven by a surge in net exports from front-loaded foreign demand ahead of expected U.S. tariff increases.
  - Output gap assessed around -0.3 percent of potential GDP.
  - Unemployment increased to 2.9 percent as of July 2025.
  - Real wages likely remained positive given disinflationary environment.
  - Disinflation deepened: headline inflation slowed to 0.2 percent (y/y) through July; core inflation at 0.8 percent (y/y).
  - Half of CPI items posted negative annual inflation rates.
  - SNB’s short-term inflation expectations declined to 0.8 percent in 2025:Q2 (from 1 percent in 2025:Q1); medium-term expectations fell to 1.1 percent (from 1.2 percent in 2025:Q1).
  - Fiscal policy eased modestly in 2025:Q1; general government surplus slightly narrowed relative to 2024:Q1 due to higher social benefits transfers.
  - SNB cut the policy rate to zero in June 2025; cumulative easing 175 bps since March 2024.
  - Franc appreciated 11 percent vis-a-vis the USD, and 0.2 percent vis-a-vis the Euro (end-July 2025 vs. end-December 2024).
  - Real estate prices as of 2025:Q2: owner-occupied houses up 4.4 percent (y/y); single-family homes up 5.4 percent (y/y); residential investment property through 2025:Q1 up 2.6 percent (y/y). Commercial real estate showed mild recovery.
  - Current account in 2025:Q1 posted a surplus of CHF 19 billion (compared to CHF 10 billion in 2024:Q1), driven by safe-haven-related increases in (non-monetary) gold trading and an export surge due to tariff anticipation; service balance broadly unchanged.
  - BOP data undergoing significant revisions following a new current account survey in 2023.

### Outlook and Risks: A Gradual Recovery Amid Heightened Uncertainty
- Baseline assumptions:
  - Persistent external headwinds, accommodative monetary policy, and policy-constrained fiscal space.
  - In line with the July 2025 IMF WEO update: weak trading-partner growth and elevated geopolitical uncertainty.
  - Commodity prices expected to increase slightly in the short-to-medium term yet anticipated to recede toward 2030.
  - U.S. tariffs on Switzerland assumed at 39 percent (excluding, inter alia, pharmaceuticals and gold); on the EU at 15 percent (excluding, inter alia, gold).
  - Monetary policy remains accommodative with policy rate at zero.
  - Fiscal baseline assumes expenditure pressures tightly managed within the debt-brake rule.
- Projections:
  - Short term (2025):
    - Growth projected at 1.2 percent (adjusted for sporting events).
    - Average inflation projected at 0.1 percent.
    - Nominal wage growth expected at 1.3 percent.
  - Medium term (2026–2030):
    - Growth projected to soften to 1 percent in 2026, rebound to 1.4 percent in 2027, and converge toward potential growth by 2028.
    - Inflation projected to rise slowly to 0.6 percent in 2026 and 0.7 percent in 2027.
- Risks:
  - Broadly balanced but include: rising geopolitical tensions, volatile energy prices, uncertainty over trade policies.
  - Downside scenario: weaker global demand, tighter financial conditions, increased uncertainty, stronger safe-haven flows could reduce Swiss real GDP by around 0.5–0.6 percentage points over three years and lower inflation by up to 0.7 percentage points via franc appreciation.
  - Ongoing U.S. Section 232 investigation could raise pharmaceutical import tariffs, potentially shaving an additional 0.3 percent from real GDP over 2025–27.
  - U.S. Executive Order #14297 could cut revenues of some Swiss pharmaceutical firms and weaken innovation.
  - Persistent trade barriers and fragmentation could impair long-term potential by disrupting multinational supply chains and weakening Switzerland’s export-oriented, productivity-driven growth model.
  - Upside: discussions with the U.S. potentially lowering tariff rates (e.g., similar to the EU’s) could raise real GDP by an estimated 0.5 percent over three years; Germany’s fiscal easing and rising domestic pension payments could support demand and ease currency pressures.

### Authorities’ Views
- Authorities broadly shared staff’s assessment of the outlook, risks, and external position.
- Expect growth to moderate in the near term due to global trade policy uncertainty, normalization of exports after front-running, and subdued foreign demand.
- Expect inflation to be low in the short term but to slowly rise and remain within the price stability range over the medium term.
- Expect unemployment to further increase due to below-potential growth.
- Remain committed to discussions with the U.S. on tariffs.
- Consider current account surplus warranted by fundamentals: level of development, demographics, fiscal policy, and pension system.
- Highlight measurement issues and ongoing initiatives to enhance tracking of contributions from large and complex multinational enterprises (MNEs) to BOP/IIP statistics to improve external sector data quality.

### Policy Discussions
- Focus areas: managing rising structural fiscal pressures (demographics, defense, climate change targets) within Switzerland’s debt-brake rule; SNB rate cuts, disinflation risks, and SNB’s monetary and communication framework and instruments; FSAP findings and recommendations to strengthen crisis management and supervision; structural issues including deepening international integration, productivity constraints, labor shortages, and energy security.

### Fiscal Policy: Addressing Medium-Term Expenditure Pressures
- 2025 fiscal stance:
  - General government's overall fiscal surplus projected to decline to 0.3 percent of GDP in 2025 from 0.6 percent of GDP in 2024, largely reflecting a reduction in the surplus of social security funds.
  - Federal government deficit projected to remain broadly unchanged vis-a-vis 2024 at 0.2 percent of GDP, as higher defense and social welfare spending is offset by budget consolidation measures.
- Authorities’ plans to manage spending pressures:
  - Implement permanent expenditure cuts by 2027–28 and phase out extraordinary spending by 2027.
  - Gradually reduce the amortization account to zero.
  - Amortization account balance was 3.2 percent of GDP at end-2024 due to extraordinary COVID-19 and refugee-related expenditures.
  - Staff assessment of Federal Council plans:
    - (i) Implement “Relief Package 2027” with permanent expenditure reductions of 0.3–0.4 percent of GDP starting in 2027.
    - (ii) Phase out extraordinary expenditures by 2027.
  - Objective to bring amortization account balance to zero by 2035, or if needed, by 2039.
  - SNB profit distributions expected to resume in 2025 and will help.
  - On social security: authorities intend to defray new 13th monthly pension payments (0.5 percent of GDP per year from late 2026) mandated by a public referendum via VAT rate hikes.
  - Recapitalization of social security funds may be needed due to pressures on disability insurance.

*Source: 1. Tax Reforms Initiatives — chapter from the Switzerland IMF staff report (excerpts provided).*

### 11. Ongoing tax reform efforts aim at improving efficiency, removing distortions and

### 11. Ongoing tax reform efforts aim at improving efficiency, removing distortions and 

### Tax reform initiatives (Box 1)
- Switzerland features a highly decentralized tax system with federal, cantonal, and municipal authorities levying taxes; system emphasizes competitiveness and fiscal discipline and maintains relatively low overall tax burdens.
- Ongoing reforms aim to improve economic efficiency, enhance equity, and level the playing field; reforms are at varying stages with mixed revenue implications.

- Key reform items and reported status/impacts:
  - Individual taxation
    - Objective: Replace joint taxation of married couples to eliminate unequal treatment based on marital status.
    - Status: Adopted by Parliament, but a referendum is likely to be called.
    - Revenue impact: Around CHF 600 million revenue loss depending on implementation.
  - Taxation of imputed rental value
    - Objective: Abolish imputed rental value taxation, while tightening mortgage interest deductibility and allowing cantons to tax secondary homes.
    - Status: Adopted by Parliament but subject to a mandatory national referendum due to constitutional amendment.
    - Revenue impact: Depends on the mortgage rate: revenue shortfalls in low-interest rate and revenue gains in high-interest rate scenario.
  - Automatic compensation of bracket creep
    - Objective: Automatic adjustment of income tax brackets to compensate for income growth.
    - Status: Deliberations on the draft bill expected in October 2025.
    - Revenue impact: Expected to reduce automatic revenue gains from bracket creep.
  - Special VAT for accommodation
    - Objective: Extend the special VAT rate of 3.8 percent for accommodation services beyond 2027.
    - Status: Federal Council opposed the extension; public consultation planned by end-2025.
    - Revenue impact: Depending on the outcome, revenue impact remains uncertain.
  - Withholding tax reform for TBTF instruments
    - Objective: Extend the withholding tax exemption for interest on TBTF instruments.
    - Status: Federal Council submitted a dispatch to Parliament in June 2025.
    - Revenue impact: Revenue impact is uncertain.
  - Extension of loss offsetting
    - Objective: Extend the loss carryforward period for companies from seven to ten years.
    - Status: Plenary debate in the National Council completed.
    - Revenue impact: Modest impact; precise estimates unavailable due to limited data.
  - Revised VAT ordinance and net tax rate ordinance
    - Objective: Simplify net tax rate reporting and clarify recent VAT Act changes to curb tax planning.
    - Status: Has entered into force on 1 January 2025.
    - Revenue impact: The revenue impact is expected to be positive; precise estimates unavailable.

### Medium-to-long-term fiscal pressures and projections
- Demographics, climate goals, and defense needs create medium-to-long-term fiscal pressures and trade-offs.
- Authorities’ 2024 Fiscal Sustainability Report projections:
  - Demographic-related spending reaching 19.8 percent of GDP by 2060, up 2.6 ppts from 2021.
  - Federal government and federal social security funds (AHV/IV) account for 1.3 ppts of the increase.
  - Cantonal spending rises by just under 1 point.
  - Municipal spending adds the remaining 0.3 ppts.
- Climate mitigation costs to meet net-zero targets could raise public debt by:
  - 3–4 ppts of GDP by 2040, and
  - 8–11 ppts of GDP by 2060,
  - depending on policy design, with the federal government bearing most of the cost.
- Defense spending projection:
  - Rise from 0.7 to 1 percent of GDP by 2032, primarily affecting the federal budget.
- Despite these pressures, Switzerland is assessed as at a low risk of sovereign stress and debt is sustainable (Annex VI).

### Debt-brake rule, fiscal flexibility, and recommended fiscal stance
- The rigid provisions of the debt-brake rule limit fiscal flexibility; plans should be adjusted if shocks materialize to avoid overtightening.
- Fiscal policy guidance:
  - Automatic stabilizers should operate in mild downturns.
  - In more severe cases, invoke extraordinary provisions of the debt-brake rule to allow targeted, time-bound, and non-distortionary discretionary support to households and firms to mitigate recession and deflation risk.
  - Targeted and temporary support may be needed if U.S. tariffs remain at current levels on a permanent basis and other shocks materialize.
  - Reducing the amortization account will help restore room to respond to future shocks, but priority should be given to avoid unwarrantedly tight fiscal policies.
  - Continue efforts to avoid conservative revenue forecasts and spending below budgeted levels.
- Staff view on tax and spending:
  - Preference acknowledged for low taxation and spending cuts over tax increases, but expenditures are lean and tax collections low relative to peers.
  - Scope exists to broaden the tax base and improve administrative efficiency.
  - Further spending cuts risk affecting important services and programs despite substantial fiscal space.
  - Medium-term plan needed for spending reprioritization and revenue measures, including assessing intergovernmental responsibilities.

### Authorities’ views on fiscal policy and reforms
- Authorities broadly concurred with staff’s assessment of difficult medium-term tradeoffs.
- Agreed on significant expenditure pressures including defense and social insurance contributions.
- Continue efforts to improve pension-system sustainability, secure financing of the 13th monthly pension payment, and stabilize AHV finances for 2030–40.
- Expectation to bring the amortization account to zero as planned, with the possibility to extend the amortization period if needed.
- Emphasized low public appetite for tax increases and prefer expenditure reprioritization.
- Noted debt-brake rule has popular support and performed well; major changes would require a constitutional amendment.

### Monetary policy: mitigating deflationary pressures
- SNB policy actions and outlook:
  - SNB progressively lowered its policy rate since March 2024 in response to sustained disinflation.
  - Policy rates were reduced in 25 bps steps, except for a 50-bps cut in December 2024.
  - In June 2025, with headline inflation for May at −0.1 percent (y/y), the SNB lowered the policy rate to zero.
  - As of June 2025, SNB projected average headline inflation of 0.2 percent in 2025 and 0.5 percent in 2026.
  - Market participants anticipate a move of the policy rate into negative territory by year-end.
  - Historically, SNB conditional forecasts are reasonably accurate at the one-year horizon but have tended to overestimate inflation at two- and three-year horizons.
- Trade-offs and tools:
  - Additional policy rate cuts into negative territory may be needed if sharp franc pressures lead to broader disinflation or de-anchoring of inflation expectations.
  - Effective lower bound likely around -75 to -100 bps, possibly lower.
  - FX interventions (FXIs) may be needed to manage surges of safe-haven flows, but require careful consideration given SNB’s large balance sheet (100 percent of GDP).
  - Quantitative easing is not an effective policy tool in the baseline due to limited availability of government bonds and compressed term-premia.
- SNB balance sheet and distributions:
  - SNB reported profits of approximately CHF 80 billion in 2024.
  - SNB reported a loss of CHF 15.3 billion in 2025:H1 due to foreign currency valuation changes.
  - SNB expected to resume profit distribution to cantons and the federal government in 2025.
  - Next review of SNB dividend policy scheduled for 2026.

### Financial sector: resilience and vulnerabilities
- System-wide buffers and performance:
  - Aggregate regulatory Tier 1 bank capital is near 19 percent.
  - Liquidity buffers are around 180 percent.
  - Asset quality remains strong despite a recent increase in non-performing loans from a low level related to construction, hospitality, and retail sectors.
  - Bank profitability has declined with lower policy rates.
  - Risks of unrealized losses from security holdings at amortized cost remain low.
- Real estate and mortgage vulnerabilities:
  - Mortgages account for 86 percent of bank domestic lending.
  - Evidence points to price overvaluation: 2025 FSAP suggests 20–30 percent overvaluation; SNB FSR estimates overvaluation for apartments of 15–40 percent.
  - Vulnerabilities pronounced in the investment property market; risks more moderate in commercial real estate.
  - Lower interest rates and affordability initiatives may put upward pressure on house prices and encourage risk-taking by banks and a search-for-yield by insurers and pension funds.
- Macroprudential recommendations:
  - Introduce a time-varying sectoral capital instrument, using the CCyB as a broad-based positive cycle-neutral buffer.
  - Sectoral countercyclical capital buffer (CCyB) for residential mortgage loans reached the maximum of 2.5 percent in 2022.
  - Implement a debt service-to-income (DSTI) cap for risky mortgage lending.
  - Establish a formal Systemic Risk Council comprising SNB, FINMA, and Federal Department of Finance (FDF) representatives.
  - Complementary housing taxation reforms to remove mortgage interest deduction and increase housing affordability.
- Non-bank financial intermediation (NBFI) data and risks:
  - Insurance sector is 60 percent of GDP and well-supervised.
  - Pension funds sector is 150 percent of GDP; data gaps and lack of uniform reporting impede market-wide analyses.
  - Investment funds are 160 percent of GDP; largely open-ended and introduce liquidity risks.
  - Data gaps for asset management sector, trading venues, and insurance sector persist; recent initiatives to improve monitoring are welcome.
- Crisis management and TBTF reforms:
  - Limits exposed by the 2023 Credit Suisse crisis; UBS became the world’s largest G-SIB relative to host country economy after acquisition.
  - Federal Council proposed reforms to strengthen the TBTF framework, enhance bank governance, strengthen prevention, early intervention, and crisis preparedness, and expand FINMA powers.
  - Proposals broadly in line with FSAP recommendations; timely legislative consideration and action needed.

*Source: IMF staff report excerpt.*

### 26. The 2025 FSAP stressed that enhanced legal powers and resources for FINMA are

### 26. The 2025 FSAP stressed that enhanced legal powers and resources for FINMA are

### Enhanced FINMA legal powers and resources
- FINMA’s legal powers should be expanded to include a full suite of early intervention powers, immediately enforceable, including the ability to:
  - preemptively restrict bank business activities;
  - require capital conservation measures;
  - address governance failures; and
  - rectify deficiencies in risk management.
- FINMA should be able to:
  - conduct onsite inspections for all banks;
  - require forward-looking Pillar 2 capital add-ons;
  - impose fines; and
  - set binding supervisory standards.
- Reduce reliance on external auditors and improve market monitoring and mechanisms for preventing and detecting market abuse to enhance securities supervision.
- Additional resources are needed to strengthen direct oversight of:
  - corporate governance;
  - risk management;
  - AML/CFT;
  - cyber risk; and
  - recovery.
- FINMA needs to be proactive and direct in its engagement with supervised firms across sectors (banks, insurance, securities).

### Financial safety net, crisis preparedness, and TBTF reforms
- Resolution planning should be broadened to include Category 3 banks (which include some large and complex market participants), insurance groups, and financial market infrastructures.
- FINMA, SNB, and FDF should develop coordinated crisis response plans.
- The cap on deposit insurance contributions should be lifted, aligning it with international best practices.
- SNB's new Emergency Liquidity Facility will establish a flexible framework for emergency liquidity assistance for all banks, significantly reinforcing the safety net.
- Introduce a public liquidity backstop for SIBs, extendable to systemic non-SIBs, to provide additional room for maneuver in a crisis.
- Too-Big-to-Fail Reform Package (announced June 6) centers on three pillars:
  - Strengthening Prevention: introduce a senior managers’ regime; enhance corporate governance with claw-back provisions; strengthen capital quality requirements; require SIBs to fully deduct the book value of foreign subsidiaries from parent-company CET1 capital.
  - Expanding Crisis Toolkit: provide FINMA with expanded early intervention powers and authority to impose administrative fines; strengthen recovery planning requirements with enhanced feasibility assessments; expand resolution options; strengthen SIBs’ capital base; improve crisis organization and information-sharing among agencies.
  - Strengthen Liquidity: require banks to prepare collateral for accessing SNB liquidity, with quantitative minimum requirements for SIB; remove legal barriers to collateral transfer.
- Timing: Amendments to ordinance are expected to enter into force in early 2027, while legislative amendments will enter into force by 2028–29.

### AML/CFT, cyber, crypto, and fintech risks
- Heightened vigilance is essential on cyber, AML/CFT, crypto, and fintech risks to safeguard resilience and integrity.
- Weaknesses identified in AML/CFT supervision of banks include limited legal powers to impose fines, resource constraints, and overreliance on external auditors (¶26).
- Recommendations:
  - Extend the cyber resilience framework to all financial entities and external service providers.
  - Accelerate the registry of beneficial ownership rollout and expand the legal framework to include gatekeepers such as lawyers, accountants, trust, and company service providers.
  - Conduct a comprehensive assessment of increasing crypto exposures and implement Basel standards in a timely manner.
  - Continue assessing and mitigating financial integrity risks from cross-border payments and their potential impact on financial stability.
  - Increase oversight and collaboration with foreign authorities for complex financial market infrastructure, particularly in risk management and recovery and resolution.

### Authorities’ views and recent developments
- Authorities consider the financial system to be resilient while recognizing the need to strengthen the regulatory and supervisory framework.
- They assess that systemic risk has decreased since last year, due to good progress on the CS-UBS merger, including de-risking of legacy assets, though real estate-related vulnerabilities remain elevated and could further rise in a low-interest rate environment.
- Authorities view the TBTF reform package as a key step in strengthening financial stability by introducing stricter capital requirements for systemically relevant banks, improving bank governance, crisis preparedness, early intervention, and strengthening FINMA’s powers.
- FINMA has intensified supervision through additional resources and supervisory benchmarks, in coordination with international peers.
- The authorities currently see no urgency to adapt the macroprudential toolkit considering the latest developments on the mortgage and real estate markets, but note that the CCyB is at its legal maximum and any potential adaptation or implementation of (new) measures would entail a certain lead time.
- The authorities noted that establishing the Extended Liquidity Facility (ELF) will bolster banks’ capacity to manage unforeseen liquidity shocks.
- Continued vigilance on AML/CFT and cyber risks remains a priority.

### Staff appraisal: macro and financial outlook, policy priorities
- Growth and productivity:
  - Switzerland continues to exhibit strong economic competitiveness and resilience supported by robust institutions, prudent macroeconomic management, and a skilled labor force.
  - Growth is projected to remain below potential in the near term and to gradually recover towards potential; risks are broadly balanced.
- Inflation and monetary policy:
  - Inflation has fallen sharply; disinflationary risks warrant close monitoring.
  - Recent monetary policy easing was warranted given broad-based price softness and currency appreciation.
  - Further easing should be carefully weighed given diminishing returns near the effective lower bound and financial stability concerns.
  - The SNB’s monetary policy framework could benefit from a review, including of communication tools and risk scenarios.
- Fiscal policy:
  - The moderately expansionary fiscal stance for 2025 is appropriate given remaining economic slack.
  - Ongoing tax reform efforts are welcome but should ensure at least revenue neutrality.
  - Reducing the amortization account through the phase-out of extraordinary spending and permanent expenditure cuts will help rebuild fiscal space under the debt-brake rule.
  - Automatic stabilizers should operate freely during mild downturns; extraordinary provisions of the debt-brake should be activated in more severe shocks.
  - Over the medium term, aging-related spending, climate commitments, and higher defense needs will intensify fiscal pressures; there is scope to broaden the tax base.
- Financial stability:
  - The financial system remains resilient, but risks persist; the 2025 FSAP found that banks and insurers can withstand severe shocks, although vulnerabilities from real estate exposures remain elevated.
  - The current low-interest rate environment puts renewed pressure on bank profitability and may lead to an increase in the search for yield and systemic risks.
  - The Credit Suisse episode underscored the need to strengthen supervision, crisis management, and resolution.
  - Recommended policy actions: strengthen FINMA’s powers; expand macroprudential tools (including introduction of a debt-service-to-income cap, additional capital instruments, establishment of a formal Systemic Risk Council); enhance crisis preparedness; proceed swiftly with implementation and enhance supervisory capacity; FINMA should be more proactive and direct; closely monitor growing systemic relevance of real estate exposures and act timely.

*SWITZERLAND — INTERNATIONAL MONETARY FUND*

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

### 1cheea2025001-source-pdf - 45. It is recommended that the next consultation takes place on the regular 12-month cycle.

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

### Macroeconomic performance and outlook
- Private consumption was the main contributor to GDP growth in 2024.
- The current account surplus remained broadly constant in 2024.
- Employment growth is softening while unemployment is slowly rising from a low level.
- The exchange rate appreciated in nominal and real terms.

### High-frequency and leading indicators (2025 developments)
- Economic activity has remained soft in 2025:H1 (Weekly Economic Activity SECO Index shows y/y percent change declines through mid-2025).
- Retail Sales (3mma) Growth picked up by Jul-25 (annual growth, percent y/y).
- KOF Economic Barometer indicates slow growth (Index; 2009–2018 LT average = 100).
- Swiss Economic Confidence Indicator (SECO) shows weak confidence through Jul-25.
- Purchasing Managers’ Index: Manufacturing recovered somewhat by Jul-25; Services receded after a period of expansion by Jul-25.

### External accounts and NIIP
- The current account remained in surplus in recent years; goods exports supported the surplus, notably chemical & precision instruments’ exports.
- Primary income balance is driven negative by labor income.
- Secondary income declined further.
- Net International Investment Position (NIIP) by currency (quarterly) shows positions balanced across USD and euro; NIIP by sector indicates SNB and non-banks contribute to a positive NIIP.
- Memorandum item (Table 2): Net IIP (in percent of GDP) by year: 112.9, 92.3, 114.9, 107.3, 92.7, 98.9, 126.0, 118.5, 111.8, 112.3, 112.6, 114.1, 115.4.

### Inflation, exchange rate, and monetary conditions
- Inflation declined to around zero in mid-2025; CPI inflation and core inflation are within the SNB’s price stability range (Price Stability Range shown).
- Inflation in Switzerland remains well-below the Euro Area average (comparison through 2025M7).
- Franc appreciation (NEER and CPI-based REER) is contributing to lower inflation.
- Medium-term inflation expectations remain within the SNB’s definition of price stability (6 - 12 Months and 3 - 5 Years horizons displayed).
- Unit labor cost growth has moderated.
- Real interest rates have remained broadly constant with declining inflation.

### Monetary policy and SNB balance sheet
- The SNB policy rate was lowered to zero percent (Money Market Rates series; SNB policy rate = zero percent as of 2025M6).
- FX reserves increased mainly due to valuation gains (Balance Sheet Items of the SNB).
- SNB balance sheet (Table 3, selected items, in millions of Swiss francs unless otherwise indicated):
  - Total assets: 817,069 (2018), 860,956 (2019), 999,028 (2020), 1,056,776 (2021), 881,377 (2022), 794,644 (2023), 854,078 (2024).
  - Foreign currency reserves: 763,728 (2018), 794,015 (2019), 910,001 (2020), 966,202 (2021), 800,566 (2022), 677,396 (2023), 754,159 (2024).
  - Gold: 42,237 (2018), 49,111 (2019), 55,747 (2020), 55,691 (2021), 56,099 (2022), 57,818 (2023), 79,048 (2024).
- Decline in mortgage and investment loan rates slowed down in 2025 but continued for bank deposit rates.

### Financial sector and credit
- Long-term yield differentials widened with respect to other advanced economies (10-Year Government Bond Yields series).
- Shorter maturity yields have turned negative for some tenors (Government Bond Yields series).
- Banks’ net interest margins have decreased (Interest Margin to Gross Income).
- Credit growth remained robust for mortgages (Credit Growth; other and mortgage series show mortgage-driven strength through 2025).
- Banks’ capital and liquidity positions remained broadly stable (Regulatory Capital and Liquidity Coverage Ratio indicators).
- NPLs increased slightly from a low level (NPLs to Total Gross Loans shown).

### Housing market and household balance sheets
- Residential real estate transaction prices have picked up by 2025 (Residential Property Transaction Prices, Index 2010 Q1=100).
- House prices in Switzerland have increased less than in peers (House Prices in Advanced Economies, Index 2007 Q1=100).
- Price-to-income ratio is historically high (Residential Property Price-to-Income Ratio, long-term average = 100).
- Commercial real estate asking prices also picked up (Index, 2010 Q1=100).
- Mortgage and credit to GDP ratios remained broadly stable; household debt remains elevated but offset by large assets (Credit Aggregates and Households Assets and Liabilities, percent of GDP).

### Fiscal and macro projections (select highlights)
- Table 1 and Table 4 provide staff projections for 2018–30:
  - General Government gross debt (percent of GDP, Table 1/Table 4): 39.8, 39.7, 43.2, 40.9, 37.2, 38.7, 37.5, 36.9, 36.1, 35.3, 34.3, 33.6, 32.7 (series across 2018–2030).
  - General Government balance (percent of GDP): 1.3, 1.3, -3.0, -0.3, 1.2, 0.1, 0.6, 0.3, 0.1, 0.2, 0.2, 0.1, 0.1 (2018–2030).
  - Nominal GDP (billions of Swiss francs, Table 1): 709.8 (2018), 717.3 (2019), 696.1 (2020), 744.5 (2021), 791.1 (2022), 804.0 (2023), 825.6 (2024), 834.5 (2025), 850.2 (2026), 865.6 (2027), 887.2 (2028), 903.9 (2029), 926.3 (2030).

*International Monetary Fund*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall Assessment
- Switzerland’s external position in 2024 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- Ongoing BOP methodological improvements are significantly affecting the CA balance, urging caution against basing the assessment on the EBA CA model.
- According to the Swiss National Bank (SNB), in the case of the current account balance, according to the information available as of June 2025, there will be a significant upward revision for 2024 as several revision effects point in the same direction.
- Large uncertainties surrounding the measurement of the CA call for relying on other considerations, including the large positive NIIP.
- The assessment is based on a holistic view of Switzerland’s external sector, with the change in assessment from last year motivated by:
  - strength of Switzerland’s external buffers (surplus on net foreign investment position and sizable and increasing foreign reserves),
  - large fiscal buffers,
  - overall economic developments.
- The assessment remains subject to high uncertainty due to complex measurement issues related to large multinational enterprises and data lags.

### Potential Policy Responses
- Support the ongoing economic recovery and address low inflation.
- Use substantial fiscal policy space to support growth if downside risks materialize.
- Develop a comprehensive medium-term plan to address increasing structural fiscal needs on aging, climate, and defense.
- Monetary policy should continue to pursue price stability and avoid the risk of inflation settling at very low or negative rates.
- Maintain commitment to free trade and cooperation, as shown by:
  - abolition of industrial tariffs in 2024,
  - efforts to expand trade relations.
- Continue to build resilience through trade diversification and international cooperation.

### Foreign Asset and Liability Position and Trajectory
- Background:
  - Switzerland is a major financial center with a large, positive NIIP of 126 percent of GDP and large gross foreign asset and liability positions of 638 and 512 percent of GDP, respectively, at end-2024.
  - The NIIP has fluctuated by around 100 percent of GDP over the past five years, due to valuation effects and CA surpluses.
  - Compared with 2023, the NIIP increased in 2024 by almost 30 percentage points of GDP.
  - On both the assets and liabilities side, the increase in stocks was due to exchange rate-related and price-related valuation gains.
  - Projections of the NIIP in 2025 and beyond are complicated by the large gross positions and compositional differences among assets and liabilities.
- Assessment:
  - Switzerland’s large gross liability position and the volatility of financial flows and investment returns present some risk, but this is mitigated by the large gross asset position and the CHF denomination of about two-thirds of external liabilities.
- 2024 (% GDP) figures:
  - NIIP: 126
  - Gross Assets: 638
  - Reserve Assets: 99
  - Gross Liab.: 512
  - Debt Liab.: 26

### Current Account
- Background:
  - Switzerland’s CA surpluses averaged 6.2 percent of GDP during 2013–2023.
  - The preliminary CA surplus in 2024 is estimated at 5.1 percent of GDP, roughly unchanged from 2023, which was revised down by 2.4 percentage points from last year’s External Sector Report.
  - Within components:
    - balance of trade in goods remained unchanged year-on-year as increased exports of chemical and pharmaceutical products were offset by a lower surplus in merchanting,
    - the deficit in services increased year-on-year,
    - the primary income deficit decreased.
  - From the saving-investment perspective:
    - savings increased by 0.8 percent of GDP, driven by a decline in public consumption,
    - investment increased by 0.9 percent of GDP.
  - The CA surplus is expected to remain broadly stable over the medium term.
- Assessment:
  - The EBA CA norm of 6.7 percent of GDP is slightly above previous year’s norm.
  - Based on a cyclically-adjusted CA surplus of 5.1 percent, the overall EBA-estimated CA gap equaled -1.6 percent of GDP in 2024.
  - Domestic policy gaps account for 1.3 percentage points (pp) and include domestic credit (0.5 pp) and fiscal underspending (+0.5 pp); policy gaps in the rest of the world contribute +0.2 pp.
  - Adjustments for Switzerland-specific factors not treated appropriately in the income account—namely valuation losses on fixed-income securities arising from inflation (-3.4 pp) and retained earnings on portfolio equity investment (-1.2 pp)—lead to a gap of -6.2 percent of GDP (±0.8 percentage points).
  - However, based on a holistic assessment of Switzerland’s current account and the expected upward CA revisions, the CA gap is likely significantly smaller than what is suggested by the application of the model.
- 2024 (% GDP) figures:
  - CA: 5.1
  - Cycl. Adj. CA: 5.1
  - EBA Norm: 6.7
  - EBA Gap: -1.6
  - Staff Adj.: -4.6
  - Staff Gap: -6.2

### Real Exchange Rate
- Background:
  - Relative to 2023, the average NEER appreciated by 3.1 percent, while the CPI-based REER appreciated by 1.4 percent in 2024.
  - The NEER has appreciated by 33.2 percent since 2013, while the CPI-based REERs has appreciated by 5.2   percent.
  - As of end-April 2025, the NEER has appreciated by 1 percent compared to 2024 average and the CPI-based REER has depreciated by 1 percent.
- Assessment:
  - The staff CA gap implies REER overvaluation of 11.5 percent in 2024 (applying an elasticity of 0.54).
  - The EBA REER index and level models suggest that the REER in 2024 was overvalued by 16.9 and 22.5 percent, respectively.
  - The fit of these models does not capture trends specific to Switzerland, in particular, a secular improvement in productivity, especially in knowledge-based sectors.
  - Consistent with the CA gap, the REER gap in 2024 is estimated to be in the range of 10.2 percent and 13 percent with a midpoint of 11.5 percent (overvalued).

### Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Net financial outflows totaled 6.1 percent of GDP in 2024, including private outflows of 3.3 percent of GDP and an increase in SNB reserve assets of 2.8 percent of GDP.
  - During 2011–2023, net private inflows averaged 0.9 percent of GDP, while the average annual increase in SNB reserves was 6.5 percent of GDP.
- Assessment:
  - Financial flows are large and volatile, reflecting Switzerland’s financial center and safe-haven status.
  - This results in sizable net private financial flows during periods of uncertainty, adding to appreciation pressures.

### FX Intervention and Reserves Level
- Background:
  - Official reserve assets (including gold) amounted to CHF822 billion (USD934 billion, 99.8 percent of GDP) at end-2024, up CHF99 billion (USD128 billion) from end-2022.
  - The SNB purchased CHF1.2 billion (0.1 percent of GDP) of FX (net) through FXIs in 2024, compared to large FXIs selling that occurred in 2022–2023 and to return inflation within the price stability range.
- Assessment:
  - Reserves are large relative to GDP, but more moderate in comparison with short-term foreign liabilities.
  - Considering the reserve currency status of the franc, the adequacy of FX reserves is not a pressing concern for Switzerland.
  - While the SNB made a large profit in 2024 (CHF 80.7 billion, USD89.50 billion), the financial losses incurred by the SNB in 2022 and 2023 indicate the volatility of its income and the risks associated with its large balance sheet.
  - Foreign exchange interventions can be considered in cases of disorderly market conditions or to prevent inflation expectations de-anchoring that could result from large and persistent exchange rate movements.

*Source: Annex I. External Sector Assessment*

### Annex III. Impact of Tariffs

### Annex III. Impact of Tariffs

### Changes in U.S. tariffs on Swiss goods (timeline and effective rates)
- April 2: The U.S. announced tariffs of 31 percent on Swiss goods, with an effective tariff rate of 17.7 percent after exemptions, inter alia, on gold and pharmaceuticals.
- April 10: A 10 percent tariff was applied to key Swiss exports, including machinery, watches, and agricultural products (including coffee capsules, energy drinks, cheese, and chocolate). Pharmaceutical and gold exports were excluded. The effective tariff rate stood at 7.8 percent.
- August 1 (effective August 7): Tariffs on Swiss goods were raised to 39 percent, excluding, inter alia, pharmaceutical and gold. Staff assess the effective tariff rate to have increased to 21.2 percent, higher than in other advanced economies. Sector-specific tariffs applied to steel and aluminum, car and car parts, semi-finished copper products and copper-intensive derivatives and downstream products remain in effect.

### Switzerland’s trade exposure and top exports to the United States
- Trade partner composition:
  - Goods exports to the U.S., excluding precious metals, account for 6 percent of GDP and 15 percent of total exports.
  - Exports to the EU represent 18 percent of GDP and 42 percent of exports (Germany: 5 and 12 percent, respectively).
  - China: 2 and 5 percent, respectively.
- Top Swiss export categories to the United States (Billions of Francs):
  - 64.63 — Total Exports
  - 31.23 — Pharmaceuticals
  - 13.47 — Jewellery, Precious stones, Metals
  - 4.38 — Watches and Clocks
  - 3.83 — Optical and Medical instruments
  - 3.14 — Machinery
  - 1.63 — Electrical machinery
  - 1.74 — Organic Chemicals
- Other significant Swiss exports to the U.S. noted: precious stones and metals, watches, machinery, optical and medical instruments, electrical machinery, organic chemicals, aircraft, coffee, works of art, chemical products, other non-alcoholic beverages (excluding fruit or vegetable juices), and cheese.
- Comparative effective tariff context (select advanced economies, percent): Switzerland 21.2; European Union 14.6; United Kingdom 8.8; Canada 6.6. (Values preserved as presented.)

### Staff analysis: macroeconomic impact scenarios and spillovers
- Overview: Staff analysis suggests that changes in tariffs and their spillovers, including those associated with changes in uncertainty, could significantly impact Swiss GDP.
- Downside scenarios:
  - Switzerland-only downside: Extension of the 39 percent tariff rate to pharmaceuticals could reduce real GDP by 0.3 percent over the next three years.
  - Global downside: Higher U.S. tariffs in key trading partners (e.g., Euro Area and China) could, via indirect spillovers through weaker global demand, tighter financial conditions, increased uncertainty and increased safe haven flows, additionally reduce Swiss real GDP by around 0.5 – 0.6 percent over three years.
- Upside scenario:
  - Continued discussions with the U.S. leading to lower tariffs and higher external demand could increase real GDP by 0.5 percent over three years.

### Key analytical points and context
- Effective tariff rates moved from 17.7 percent (after exemptions, April 2) to 7.8 percent (April 10 policy on key exports excluding pharmaceuticals and gold) and were assessed at 21.2 percent (effective after August 7 increase to 39 percent excluding pharmaceuticals and gold).
- The U.S. is an important market for pharmaceuticals in particular, which are the top Swiss export to the U.S.
- Staff emphasize both direct tariff impacts and indirect channels (weaker global demand, tighter financial conditions, uncertainty, safe-haven flows) as mechanisms for GDP effects.

*International Monetary Fund — Annex III. Impact of Tariffs*

### 12.      Communication around policy instruments. At quarterly monetary policy assessments,

### 12.      Communication around policy instruments.

### SNB disclosure practices and timing
- At quarterly monetary policy assessments, the SNB announces its policy decisions in a press release, followed by a news conference where Governing Board members explain the decisions.
- Announcements are later detailed in a Quarterly Bulletin, with further analyses of economic and monetary developments.
- The Quarterly Bulletin is published four working days after the announcement of the policy decision.
- In September 2024, the SNB launched "SNB Economic Notes"—short non-technical contributions on economic and financial subjects related to the SNB’s mandate—intended to promote transparency and information around SNB-related themes.

### Conditional inflation forecast and forward guidance
- A key component of the SNB's interest rate communication is its conditional inflation forecast, which:
  - assumes that the SNB policy rate will remain constant over a three-year forecast period;
  - serves as both a policy indicator and communication tool by showing how prices are expected to move under the baseline assumptions and an unchanged policy rate.
- The SNB does not explicitly engage in systematic forward guidance but uses its inflation forecast as a signal of its policy intentions.
- The conditional inflation forecast was an explicit focus of the 2022 strategy review; the SNB concluded that the forecast supports appropriately efficient communication and policy transmission.

### Foreign exchange interventions (FXIs) and disclosure
- FXIs have been used to achieve price stability complementing interest rate policies.
- The SNB has used FXIs symmetrically:
  - purchasing FX between 2009 and 2021 to counteract deflation risk;
  - selling FX post-pandemic when inflation surged to tighten monetary policy.
- Communication and data publication:
  - Data on FXIs are published on a quarterly basis with a lag of three months.
  - The SNB publishes detailed balance sheet data on a monthly basis after one month.

### Communication instruments, sentiment measures, and empirical findings
- The SNB's communication strategy has been effective in anchoring inflation expectations around the mid-point of the 0–2 percent price stability range.
- The SNB's quarterly publication of its conditional inflation forecast serves as an important tool for managing market expectations; changes in the forecast enable markets to draw conclusions about potential future monetary policy adjustments.
- A measure of forward-looking policy sentiment based on sentence-level analysis of SNB monetary policy statements (Silva and others, 2025) yields:
  - The sentiment index shows the SNB’s communication is internally consistent, with the sentiment index correlating with changes to the end-point of the conditional inflation forecasts.
  - The correlation is 16 percent between 2012–19, compared to 60 percent between 2005–11 and 82 percent between 2020–24.
- Changes in tone help predict future policy rate changes (Gonzalez and Tadle, 2022).

### Recent policy actions and relevant statistics
- The SNB continued its easing cycle started in March 2024, with cumulative cuts of 175 basis points through June 2025 while revising downward its conditional inflation forecasts.
- The SNB recorded substantial profits of approximately CHF 80 billion.
- FXIs were minimal in 2024, with the SNB purchasing only CHF 1.2 billion in the FX market.
- Interest payments averaged 0.6 percent of GDP in 2005–23, falling to 0.3 percent in 2023, well below the OECD average of 3 percent.
- Ten-year bond yields ranged from 0–1 percent, reflecting low inflation and Switzerland’s safe-haven status.

*Source: IMF staff summary of "12. Communication around policy instruments."*

### Annex VI  II. Data Issues

### Annex VI  II. Data Issues

### Overall data adequacy assessment
- Median Rating: AAABBAA
- Overall conclusion: The data provided to the Fund are adequate for surveillance.
- Questionnaire-based assessment: The overall questionnaire assessment and individual sector heatmap are based on a standardized questionnaire and scoring system (see IMF Review of the Framework for Data Adequacy Assessment for Surveillance, January 2024, Appendix I).
- Staff use of alternative data: Staff does not use any data and/or estimates in the staff report in lieu of official statistics.

### Detailed sectoral findings and ratings
- National Accounts: Coverage AABAB; Consistency AB; Frequency and Timeliness AAABB; Data Adequacy Assessment Rating A.
- Prices: Coverage BABB; Consistency A; Frequency and Timeliness A; Data Adequacy Assessment Rating A.
- Government Finance Statistics: Coverage BB; Consistency A; Frequency and Timeliness B; Granularity (operations top cell / public debt bottom cell) A.
- External Sector Statistics: Coverage B; Consistency A; Frequency and Timeliness C; Data Adequacy Assessment Rating B.
- Monetary and Financial Statistics: Coverage B; Consistency A; Frequency and Timeliness D; Granularity (Monetary and Financial Statistics top cell / Financial Soundness indicators bottom cell) A.
- Inter-sectoral Consistency: Median cell indicates overall inter-sectoral consistency across datasets.

### Data quality characteristics and notable data gaps
- Publication and accessibility:
  - Switzerland publishes timely economic statistics and posts most of the data and underlying documentation on the internet.
- Gaps in standards and granularity:
  - Monetary and financial statistics are not fully published in standard reporting format (SRF) following the Monetary and Financial Statistics Manual and Compilation Guide (MFSMCG).
  - Depository Corporations Survey and Central Bank Survey are published in the National Summary Data Page but the data are not very granular.
  - Publication of financial soundness indicators is incomplete; indicators for other financial corporations should be enhanced.
- Specific data collection gaps affecting risk analysis:
  - Mortgage exposures
  - NBFI (non-bank financial intermediation)
  - Trading investment portfolios
  - Lombard loans
  - Bilateral exposures (beyond banks)
- Public debt statistics gaps:
  - Public debt breakdown is not sufficiently granular.
  - Gaps on arrears, guarantees, and other contingent liabilities.
- External sector measurement issues:
  - Complexity of Multinational Enterprises (MNEs) operations introduces significant measurement challenges.
  - Current Account data undergoing revisions, the magnitude of which hampers model-based external sector assessment.

### Recent changes, revisions, and expected updates
- Introduction of new Current Account Survey:
  - Implemented in 2023Q1 to address operations of MNEs.
  - Introduced adjustments that reallocated items within current account components, resulting in breaks for certain historical series.
- Expected revisions:
  - The 2025Q1 data release and the subsequent September 2025 update are expected to address these breaks in data, resulting in possibly an upward revision of the 2024 current account surplus.
  - As part of a benchmark revision scheduled for end-September 2025, Switzerland’s CA balance for 2024 will be revised upwards significantly.
- Implication for surveillance:
  - Revisions and measurement uncertainty mean an assessment based solely on the EBA CA model would have been inappropriate.

### Corrective actions and capacity development priorities
- Authorities’ planned improvements:
  - Plan to introduce a loan-by-loan dataset to capture linkages across the financial sector.
  - Ongoing projects aimed at more fundamental improvements to balance of payments / international investment position statistics.
- Priority areas for enhanced data collection and publication:
  - More granular monetary and financial statistics in SRF format.
  - Enhanced financial soundness indicators coverage for other financial corporations.
  - Detailed public debt breakdown including arrears, guarantees, and contingent liabilities.
  - Improved data on mortgage exposures, NBFI, trading investment portfolios, Lombard loans, and bilateral exposures beyond banks.

### Rationale underpinning staff assessment
- Strengths:
  - Timeliness and public availability of most economic statistics.
  - Adequate overall data for surveillance purposes.
- Limitations:
  - Insufficient granularity in several monetary, financial, and public debt datasets.
  - Significant measurement uncertainty in external sector statistics due to MNEs and methodological changes, which affects model-based external assessments.

*Source: Annex VI II. Data Issues — Switzerland (staff report informational annex, as of July 2025).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1cheea2025001-source-pdf.pdf_