## 1. France’s Medium-Term Fiscal Structural Plan

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### Context and recent economic developments
- Real GDP growth:
  - Real GDP grew by 1.1 percent in 2024, supported by the Paris Olympics (estimated contribution around 0.2 percentage points in 2024Q3).
  - Statistical rebasing in May 2024 increased real GDP growth by an additional 0.2 percentage points due to higher carryover.
  - Real GDP grew by 0.1 percent (q/q) in 2025Q1, driven by a strong positive contribution from inventories.
- Activity and demand signals:
  - Industrial production contracted by 1.4 percent in April (m/m), primarily driven by the energy sector.
  - Composite PMI remains in contractionary territory with inadequate demand, sourcing issues, and weak employment prospects.
- Inflation and labor market:
  - Headline inflation: 0.6 percent (y-o-y) in May (from 2.6 percent one year ago); energy prices were - 8.0 percent y-o-y and services inflation was 2.1 percent (y-o-y) in May.
  - Labor force participation: 74.6 percent in 2024.
  - Unemployment rate: 7.4 percent in 2024 and stable in 2025Q1; rise in unemployment more pronounced in 15–24 age group (notably women), while unemployment among 50–64 continued to decline.
  - Labor productivity: improved by about 0.2 percent over the last two years; ICT sector labor productivity rose nearly 6 percent in 2024; manufacturing and construction experienced negative cumulative growth over the last three years.

### Fiscal and financial developments (key figures)
- 2024 fiscal outturns and debt:
  - Headline fiscal deficit: 5.8 percent of GDP in 2024.
  - Structural primary balance: 0.4 percentage points looser than in 2023 and 1.4 percentage points above the original budget target.
  - Overruns: local governments 0.3 percent of GDP; social security 0.5 percent of GDP.
  - Authorities approved central government savings in Feb and Apr 2024 totaling nearly 0.5 percent of GDP.
  - General government debt: 113.1 percent of GDP in 2024.
- External and market indicators:
  - Current account balance: 0.4 percent of GDP in 2024 (up from a deficit of 1 percent in 2023).
  - Staff CA gap (2024): between -0.1 and 0.7 percent of GDP, midpoint 0.3 percent of GDP; overall policy gap also 0.3 percent of GDP.
  - 10-year OAT-Bund spreads: peaked at 88 basis points in December, rose again in early April, recently stabilized around 70 basis points.
  - Credit rating: Moody's downgraded France to Aa3 last December; market response muted and demand for French sovereign debt remains strong.

### Outlook and risks (staff projections)
- Growth and inflation:
  - Real GDP growth: 0.6 percent in 2025 and 1 percent in 2026.
  - Average headline inflation: 1.1 percent in 2025 and 1.5 in 2026.
  - Core inflation: expected to converge below 2 percent amid modest improvements in real wages.
  - Medium-term growth: converge to around 1.2 percent, before decelerating towards long-term potential of 1 percent.
- Downside risks (key):
  - Deepening geoeconomic fragmentation, rising trade tensions, market volatility, lack of political consensus and social tensions delaying fiscal consolidation and reforms.
- Upside scenarios (key):
  - Easing trade tensions, renewed structural reform momentum, deeper EU coordination, stronger household consumption if saving rates fall faster, stronger business investment and exports (including defense, digital, green technologies).

### Authorities’ views (alignment)
- Authorities broadly shared staff’s outlook and balance of risks; government RAA projects real GDP growth of 0.7 percent and 1.2 percent for 2025 and 2026 respectively.
- Authorities concurred with staff’s external position assessment and medium-to-long-term potential growth estimates.

### 2025 budget and Medium-Term Fiscal Structural Plan (MTFSP)
- 2025 budget targets:
  - Fiscal deficit target: reduction to 5.4 percent of GDP in 2025.
  - Structural fiscal adjustment targeted: 0.7 percent of GDP in 2025.
  - Achievement primarily through temporary revenue measures and proactive freezing/canceling of budget credits.
- MTFSP details and timing:
  - MTFSP submitted Oct 2024 and approved by the Economic Council Jan 2025.
  - Authorities requested extension of adjustment period from 4 to 7 years.
  - France placed under Excessive Deficit Procedure (EDP) in Jan 2025 for exceeding 3 percent of GDP in 2023; authorities aim to bring deficit below 3 percent of GDP by 2029.
  - Planned structural fiscal effort under MTFSP: 3.9 percent of GDP, of which 3.1 percent of GDP remains unidentified and subject to budget approval.
  - Illustrative sensitivity: if revenue underperforms by same elasticity as in 2024, fiscal deficit would worsen by additional 0.3 percent of GDP in 2025.
- Legislative context:
  - Following a no-confidence vote and fall of PM Barnier’s government in Dec 2024, Parliament approved special law to allow rollover of 2024 budget; new 2025 budget approved in February.

### Debt and fiscal scenarios (staff baseline and risks)
- Staff current-policy baseline (legislated and clearly specified measures only):
  - Deficit projected to decline to 5.4 percent of GDP in 2025 (in line with budget target).
  - Public debt projected reaching 116.5 percent of GDP in 2025; projected increase over medium term (see DSA figures).
  - Unless significant additional measures are approved, deficit would remain around 6 percent of GDP in the medium-term, keeping debt on an upward trend until 2030.
- Risk assessment:
  - Short-term risk of sovereign debt distress: low.
  - Medium-term risk: moderate overall risk of debt stress under staff’s current policy baseline; debt dynamics highly sensitive to real interest rate and growth path.
- Spending pressures included in baseline: pensions, defense, health, and green spending.
  - Defense spending projection: increase to 2 percent of GDP in 2030, from 1.6 percent of GDP in 2024.

### Staff recommended adjustment path and implications
- Recommended path:
  - Frontloaded structural fiscal effort of 1.1 percent of GDP in 2026.
  - Followed by average of about 0.9 percent of GDP per year over the medium term.
- Under recommended path:
  - Debt-stabilizing primary balance reached in 2027.
  - France could exit the EDP by end-2029.
- Rationale: markedly reduce medium-term debt sustainability risks and create room to absorb rising spending demands.

### Spending rationalization and efficiency (staff recommendations)
- Priority actions:
  - Rationalize spending and enhance efficiency across central, social security, and local government levels.
  - Multi-annual spending reviews advanced; identified savings estimated at €8 billion over 2025–27 integrated in draft budgets.
  - 2025 new review cycle on: judicial fees, local government transfers, emergency housing benefits and subsidies.
- Recommendations to improve local government spending:
  - Assign exclusive competencies, implement clearer co-financing guidelines, expand multi-year budgetary frameworks and multi-level financing contracts, strengthen monitoring to limit fiscal slippages.

### Tax policy guidance
- Given high tax-to-GDP ratio, focus on:
  - Reducing inefficient tax expenditures and tackling tax avoidance while improving equity.
- Recent progress:
  - Tax expenditure reduced from 4.2 to 3.3 percent of GDP during 2018–23.
  - Nearly 14 percent of existing tax expenditure schemes remain unassessed (Court of Auditors).
- Recommendations:
  - Continue monitoring and evaluating tax expenditure schemes.
  - Consider revenue-neutral schemes and higher carbon pricing to complement green spending.

### Social protection, pensions, and labor market measures
- Targeting and efficiency:
  - Better target social benefits while ensuring a balanced pension system; introduce co-payments for non-critical social security services (tiered by need/income).
  - Simplify and harmonize pension schemes; enhance transferability of accrued pension benefits; review eligibility and duration of unemployment benefits; better target active labor market initiatives.
- Recent pension reforms:
  - 2023 reform: increased minimum legal retirement age from 62 to 64 years in 2030; raised necessary contribution period for full pension to 43 years in 2027; boosted minimum contributory pension level.
- Pension system indicators:
  - Pension system shifted to a deficit of 0.2 percent of GDP in 2024 (from a 0.1 surplus in 2023).
  - COR baseline: deficit projected at 0.4 percent of GDP in 2030 and 0.8 percent of GDP by 2070.
  - Pension beneficiaries grew by 12.2 percent from 2010 to 2022; pension spending ratio: 14.7 percent of GDP in 2022.

### Macrostructural policies: productivity, innovation and AI potential
- Productivity shortfall:
  - Aggregate growth: 0.9 percent (France), on par with European average but lower than 2.6 percent (US).
  - Tech-sector listed firms: productivity stagnated at 0.1 percent annualized vs 1.5 percent in the US.
- R&D and innovation:
  - France R&D investment: 2 percent of GDP (below peers and the 3 percent Lisbon target).
  - R&D in ICT lower than US and some EU peers; R&D spending skewed to mid-tech sectors and concentrated among a few firms.
  - CIR effectiveness concerns: current beneficiaries primarily older cohort firms.
- AI potential (staff estimates, IMF WP/25/67):
  - AI adoption could cumulatively increase France’s TFP growth by approximately 1.2 percent over five years; uncertainty range from less than 0.5 to around 3 percent under alternative scenarios.
  - Widespread AI adoption could boost TFP growth and generate local spillovers but may exacerbate inequality absent reskilling and vocational training.
- Financing and business dynamism:
  - Venture capital and initiatives like Tibi and France 2030 can support entry and scale-up of innovative firms.
  - France more dynamic in business formation but smaller footprint of high-growth firms; gazelles under 10 percent representation in high-tech.
- Policy priorities:
  - Strengthen access to finance for intangible-intensive young firms; rationalize state aid and R&D tax expenditures; deepen single market; ease entry barriers and reduce administrative burdens; upgrade education and vocational training.

### Financial sector resilience and FSAP findings
- Key banking indicators (end-2024):
  - Average regulatory capital ratio: 19.8 percent.
  - Liquidity Coverage Ratio (LCR): 145 percent.
  - Net Stable Funding Ratio (NSFR): 116 percent.
- Housing and corporate sector:
  - Housing NPLs: 2 percent as of end-2024.
  - NFC debt: around 75 percent of GDP (net consolidated basis); about one quarter of firms show inadequate debt service capacity.
  - Bank stress tests: banks resilient under severe scenarios; no banks breached minimum capital requirements though some dipped into additional buffers.
- Macroprudential and NBFI:
  - Countercyclical buffer (CCyB) available; guidance on neutral level should be improved.
  - NBFIs account for about one-third of financial sector assets; investment funds show sufficient liquidity under stress tests.
- Supervisory recommendations:
  - Improve data quality and timeliness on interconnectedness, derivatives and repo markets.
  - Ensure supervisory authorities have adequate resources.
  - Strengthen HCSF framework, formalize inter-agency coordination, prioritize operational readiness for resolution, strengthen deposit insurance fund resources and introduce public backstop.
- Cybersecurity, climate, AML/CFT:
  - DORA implementation increases operational demands; climate risks require integration into governance and risk management; FATF found France largely effective in 2022 with ongoing enhancements.

### Housing market and corporate risks (selected)
- Housing:
  - Housing loan issuance declined sharply in 2023–24; average DSTI and LTV for new loans edged up.
  - Recommendation: update borrower-based limits and broaden coverage to home renovation and other consumer loans to avoid leakages.
- Corporate:
  - Bankruptcies peaked end-2024 back to pre-pandemic levels (SMEs in construction and retail); corporate profits remain healthy and NPL ratio just above 2 percent.

### External sector assessment (selected figures and outlook)
- 2024 CA outcome: 0.4 percent of GDP (from -1 percent in 2023) driven by stronger services exports related to Olympics.
- NIIP and external positions (2024):
  - NIIP: −20.3 percent of GDP.
  - Gross assets: 372.5 percent of GDP.
  - Gross liabilities: 392.9 percent of GDP.
  - Debt assets: 191.7 percent of GDP; Debt liabilities: 231.7 percent of GDP.
  - External debt about 259 percent of GDP in Q3 2024 (52 percent by banks; 22 percent by public sector).
  - Average TARGET2 balance in 2024: about € -147.9 billion.
- Medium-term CA projection: about -0.1 percent of GDP by 2030.
- REER:
  - ULC-based REER appreciated by 0.7 percent in 2024; CPI-based REER depreciated by -0.1 percent in 2024.
  - As of March 2025: ULC-based REER 2.4 percent above 2024 average; CPI-based REER 1.3 below 2024 average.
  - Staff REER assessment: broadly in line with fundamentals; midpoint -1.0 percent with uncertainty ± 1.4 percent.

### Risk Assessment Matrix (major risks and staff responses)
- Major global risks with high relative likelihood: Trade policy and investment shocks; Sovereign debt distress; Deepening geoeconomic fragmentation; Cyberthreats.
- Major domestic risks with high relative likelihood: Political fragmentation (impact Medium/High); Social discontent (Medium).
- General policy responses: diversify supply chains; advance fiscal consolidation and structural reforms; deploy macroprudential policies; strengthen contingency planning and targeted support for vulnerable households/firms.

### Sovereign risk and Debt Sustainability Analysis (DSA) — baseline projections (selected exact figures)
- Staff baseline (legislated measures only):
  - Fiscal deficit: 5.4 percent of GDP in 2025; around 6 percent of GDP over medium term.
  - Public debt (percent of GDP):
    - 2024: 113.1
    - 2025: 116.5
    - 2026: 119.1
    - 2027: 121.5
    - 2028: 123.7
    - 2029: 125.9
    - 2030: 128.1
    - 2031: 130.1
    - 2032: 131.9
    - 2033: 133.6
    - 2034: 135.1
  - Projection note: under baseline, public debt increases reflecting projected negative primary balance.
- DSA assessment:
  - Final assessment: Overall risks moderate; short-term risk low; medium- and long-term risks increased due to higher debt and refinancing needs.
  - Debt level projection cited: "The debt level would reach 133.6 percent of GDP in 2033, against 122 percent of GDP estimated in the 2024 Article IV consultations."
  - Probabilities (medium-term, 2025-2030): Prob. of missed crisis if stress not predicted: 18.2 pct; Prob. of false alarms if stress predicted: 21.6 pct.
- Staff recommended scenario:
  - Frontloaded consolidation and MTFSP-specified measures would materially reduce mechanical medium-term risk signals; under recommended path debt-stabilizing primary balance by 2027 and possible exit from EDP by end-2029.

### Staff appraisal and policy priorities (summary)
- Immediate priorities:
  - Strengthen public finances with a well-designed and credible package to halt rise in public debt and create fiscal space for rising spending demands.
  - Rationalize current spending across all government levels, build on spending reviews, and enhance forecasting and transparency (March 2025 Action plan; strengthen High Council for Public Finances).
- Structural reforms:
  - Boost private investment, productivity, employment, entrepreneurship, access to finance, and remove entry and administrative barriers.
  - Target R&D and innovation policy to better support high-growth, intangible-intensive firms; mobilize venture capital and public support under France 2030 and IPCEI.
- Financial oversight:
  - Continue adapting supervisory practices, improve data on interconnectedness, derivatives and repo markets, ensure supervisory resourcing, and implement FSAP recommendations.
- Contingency planning:
  - Maintain contingency plans and prioritize spending to meet pressing needs without compromising public finances; allow automatic stabilizers and targeted time-bound support if growth falls short.

_Italic: Source: IMF staff report chapter "1. France’s Medium-Term Fiscal Structural Plan." PDF: 1fraea2025001-source-pdf._

### 1. France’s Medium-Term Fiscal Structural Plan  _________________________________________________ 12

### 1. France’s Medium-Term Fiscal Structural Plan

### Context and recent economic developments
- Real GDP grew by 1.1 percent in 2024, supported by the Paris Olympics, which is estimated to have contributed around 0.2 percentage points in 2024Q3.
- Statistical rebasing of the national accounts in May 2024 increased real GDP growth by an additional 0.2 percentage points due to higher carryover.
- Real GDP grew by 0.1 percent (q/q) in 2025Q1, driven by a strong positive contribution from inventories.
- Industrial production contracted by 1.4 percent in April (month-on-month), primarily driven by the energy sector.
- Composite PMI remains in contractionary territory, with surveys signalling inadequate demand, sourcing issues, and weak employment prospects.
- Headline inflation fell to 0.6 percent (y-o-y) in May from 2.6 percent one year ago; energy prices were - 8.0 percent y-o-y and services inflation was 2.1 percent (y-o-y) in May.
- Labor force participation was 74.6 percent in 2024. The unemployment rate was 7.4 percent in 2024 and stable in 2025Q1; the rise in unemployment was more pronounced in the 15–24 age group, notably women, while unemployment among the 50–64 age group continued to decline.
- Labor productivity improved by about 0.2 percent over the last two years; ICT sector labor productivity rose nearly 6 percent in 2024, while manufacturing and construction experienced negative cumulative growth over the last three years.

### Fiscal and financial developments
- The 2024 headline deficit outturn was 5.8 percent of GDP.
- The fiscal stance in 2024 was expansionary: structural primary balance was 0.4 percentage points looser than in 2023 and 1.4 percentage points above the original budget target.
- Overruns contributing to slippages: local governments 0.3 percent of GDP, social security 0.5 percent of GDP.
- Authorities approved additional central government savings in February and April 2024 amounting to nearly 0.5 percent of GDP.
- General government debt reached 113.1 percent of GDP in 2024.
- The current account balance was 0.4 percent of GDP in 2024, up from a deficit of 1 percent in 2023.
- Staff assesses the current account (CA) gap in 2024 to be between -0.1 and 0.7 percent of GDP, with a midpoint of 0.3 percent of GDP; the overall policy gap is also 0.3 percent of GDP.
- Market volatility: 10-year OAT-Bund spreads peaked at 88 basis points in December, rose again in early April, and recently stabilized around 70 basis points.
- Moody's downgraded France’s credit rating to Aa3 last December; market response was muted and demand for French sovereign debt remains strong.

### Outlook and risks
- Staff projections: Real GDP growth of 0.6 percent in 2025 and 1 percent in 2026.
- Average headline inflation is projected at   1.1   percent in 2025 and 1.5   in  2026, driven by base effects, lower energy prices, and weak domestic demand; core inflation is expected to converge below 2 percent amid modest improvements in real wages.
- Medium-term: growth projected to converge to around 1.2 percent, before decelerating towards its long-term potential of 1 percent.
- Key downside risks: deepening geoeconomic fragmentation, rising trade tensions, market volatility, lack of political consensus and social tensions delaying fiscal consolidation and reforms.
- Upside scenarios: easing trade tensions, renewed structural reform momentum, deeper EU coordination, stronger household consumption if saving rates fall faster, and stronger business investment and exports (including demand for defense, digital, and green technologies).

### Authorities’ views
- Authorities broadly shared staff’s views on the outlook and balance of risks, noting the economy’s resilience amid uncertainty.
- Government 2025 Annual Progress Report (RAA) projects real GDP growth of 0.7 percent and 1.2 percent for 2025 and 2026, respectively, citing improved purchasing power and stronger private consumption.
- Authorities concurred with staff’s assessment of the external position and were broadly aligned on medium-to-long-term potential growth estimates.

### Policy discussions and recommendations
- Fiscal policy priority: identify a well-designed and credible package of measures to support necessary fiscal adjustment over the medium term, halt the swift rise in public debt, and place public debt on a downward trajectory while creating room to absorb rising spending demands.
- Structural reforms: advance reforms to boost private investment, productivity, and employment; doing so would facilitate fiscal consolidation and sustain growth amid a challenging global environment.
- Financial sector: maintain strong supervisory practices and continue adapting to an increasingly complex financial landscape.
- European integration: deepen efforts to advance the European single market to support the French economy and strengthen shock resilience.

*Source: IMF staff report chapter "1. France’s Medium-Term Fiscal Structural Plan."*

### 13.       The 2025 budget targets a welcome reduction in the fiscal deficit to 5.4 percent of

### 13.       The 2025 budget targets a welcome reduction in the fiscal deficit to 5.4 percent of GDP, although this is primarily achieved through temporary revenue measures.

### Fiscal outlook and 2025 budget
- 2025 budget target: reduction in the fiscal deficit to 5.4 percent of GDP.
- Structural fiscal adjustment targeted in 2025 budget: 0.7 percent of GDP.
- The 2025 deficit target is achieved primarily through temporary revenue measures and proactive freezing and canceling of budget credits to meet priority spending demands.
- Following a no-confidence vote and the fall of PM Barnier’s government in December 2024, Parliament approved a special law to allow for a rollover of the 2024 budget; the new 2025 budget was approved in February.

### Medium-Term Fiscal Structural Plan (MTFSP) and risks (Box 1)
- MTFSP submitted in October 2024 and approved by the Economic Council in January 2025.
- Authorities requested an extension of the adjustment period from 4 to 7 years.
- France was placed under the Excessive Deficit Procedure (EDP) in January 2025 for exceeding the Maastricht limit of 3 percent of GDP in 2023.
- Authorities aim to bring the deficit below 3 percent of GDP by 2029.
- Part of the initial frontloading was shifted to 2026 due to delayed approval of the 2025 budget (April 2025 Annual Progress Report, RAA).
- Planned structural fiscal effort under the MTFSP: 3.9 percent of GDP.
  - Of that, 3.1 percent of GDP remains unidentified and is subject to budget approval.
- Illustrative sensitivity: if revenue underperforms by the same elasticity level as in 2024, the fiscal deficit would worsen by an additional 0.3 percent of GDP in 2025.

### Debt and fiscal scenarios
- Under staff’s current policy baseline (incorporating only legislated and clearly specified measures):
  - Deficit projected to decline to 5.4 percent of GDP in 2025 (in line with the budget target).
  - Public debt reaching 116.5 percent of GDP.
- Unless significant additional measures are approved, the deficit would remain around 6 percent of GDP in the medium-term, keeping debt on an upward trend until 2030.
- Staff’s assessment of risk:
  - Short-term risk of sovereign debt distress: low.
  - Medium-term risk: moderate overall risk of debt stress under staff’s current policy baseline scenario, with debt dynamics highly sensitive to the real interest rate and growth path.
- Staff’s baseline includes structural spending pressures from pensions, defense, health, and green spending.
  - Defense spending projection: increase to 2 percent of GDP in 2030, from 1.6 percent of GDP in 2024.

### Staff recommended adjustment path and implications
- Recommended frontloaded structural fiscal effort: 1.1 percent of GDP in 2026.
- Followed by an average of about 0.9 percent of GDP per year over the medium term.
- Under the recommended path:
  - Debt-stabilizing primary balance reached in 2027.
  - France could exit the EDP by end-2029.
- Rationale: these measures would markedly reduce medium-term debt sustainability risks and create room to absorb rising spending demands.

### Spending rationalization and efficiency (staff recommendations)
- Focus on rationalizing spending and enhancing efficiency across central, social security, and local government levels.
- Identified and ongoing actions:
  - Multi-annual spending reviews have been advanced; identified savings estimated at €8 billion over 2025–27 are integrated in draft budgets.
  - In 2025 a new review cycle launched on: judicial fees, local government transfers, emergency housing benefits and subsidies.
- Suggested reforms and priorities:
  - Re-focus spending and strengthen efficiency across all government levels to streamline spending, address inefficiencies, and reduce red tape.
  - Enhance fiscal oversight and efficiency of local government spending by assigning exclusive competencies, implementing clearer co-financing guidelines, expanding multi-year budgetary frameworks and multi-level financing contracts, and strengthening monitoring to limit fiscal slippages.

### Social protection, pensions, and labor market measures
- Better targeting social benefits while ensuring a balanced pension system:
  - France’s social security system is generous compared to peers but does not consistently deliver better services and outcomes.
  - Suggested measures include enhancing efficiency in health and education, introducing co-payments for non-critical social security services (potentially tiered by need and income), simplifying and harmonizing pension schemes, enhancing transferability of accrued pension benefits, and reviewing eligibility and duration of unemployment benefits while better targeting active labor market initiatives.
- The 2023 pension reform:
  - Increased the minimum legal retirement age from 62 to 64 years in 2030.
  - Raised the necessary contribution period for a full pension to 43 years in 2027.
  - Boosted the minimum contributory pension level.

### Tax policy guidance
- Given France’s already high tax-to-GDP ratio, any new tax measures should focus on reducing inefficient tax expenditures and tackling tax avoidance while improving equity.
- Recent progress:
  - Tax expenditure reduced from 4.2 to 3.3 percent of GDP during 2018–23.
  - Nearly 14 percent of existing tax expenditure schemes remain unassessed according to the Court of Auditors.
- Recommendations:
  - Continue monitoring and evaluating tax expenditure schemes to address inefficiencies and generate savings.
  - Consider revenue-neutral schemes and higher carbon pricing to complement green spending efforts.

### Contingency planning, spending prioritization, and public finance governance
- In face of high global uncertainty, contingency plans and spending prioritization are needed to meet pressing needs without compromising public finances.
- Staff view:
  - France has some fiscal space that could be deployed if downside risks materialize, in line with EU fiscal rules.
  - Authorities’ plans to absorb new defense spending needs within existing consolidation plans by reprioritizing resources are warranted.
  - If growth falls significantly short, authorities could allow automatic stabilizers to operate and consider targeted, time-bound support for the most vulnerable, while maintaining fiscal consolidation efforts.
- Governance and forecasting improvements:
  - March 2025 Action plan aims to enhance monitoring of tax revenue and budget execution, foster greater transparency, and reinforce the role of the High Council for Public Finances.
  - Ongoing upgrades to modelling techniques and ex-post reviews recommended to improve public finances forecasting.

### Authorities’ views
- Authorities are determined to correct public finances and place debt on a downward path under the 2025–29 MTFSP.
- Commitment to achieving the 2025 deficit target via action plan measures (strengthen budget controls, enhance macroeconomic forecasting, improve transparency, continue spending reviews).
- Reaffirmation of the objective to reduce the fiscal deficit below 3 percent of GDP by end-2029.
- Authorities concur with staff on the need to rationalize current spending across all government levels and to accommodate new spending demands (including defense) by reprioritizing resources within consolidation plans.
- 2026 budget preparation discussions are underway to foster dialogue and secure broad political support.

### Macrostructural policies: supporting jobs and productivity growth
- Raising productivity growth is critical given the per capita income gap with the US now exceeding 20 percent, driven primarily by lower productivity and employment in France.
- Recent trends and factors:
  - France’s labor productivity has fallen significantly in the recent post-pandemic era, including relative to peers.
  - Temporary factors include labor hoarding and higher survival of unproductive firms due to crisis-related support measures; these effects are expected to gradually decrease as job-retention schemes and crisis-related effects are unwound.
  - Persistent structural factors include reintegration of lower-skilled workers and adaptation to green and digital transitions amid geoeconomic fragmentation.
- Potential gains from structural reforms:
  - Macro-structural reforms aimed at fostering entrepreneurship and innovation and supporting employment and human capital can raise potential output.
  - An increase in potential GDP growth of 0.3 percentage points could help reduce public debt by nearly 10 percent of GDP over the long term.
- Fostering entrepreneurship and innovation:
  - Cumulative productivity growth among leading tech firms in France has averaged 2.5 times that of non-tech firms, above the average of European peers.
  - Tech-intensive sectors account for 68 percent of the productivity growth differential with the US, partly due to lower investment in innovation.
  - France is more dynamic than peers in business formation but has a smaller footprint of high-growth firms and a disproportionate share of small and micro firms with weak "up-or-out" dynamics.
  - France’s comparative advantage in low-carbon technologies and potential to become a European hub for Artificial Intelligence can foster technological development and support growth; greater digitalization and AI adoption would also benefit non-tech sectors.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1fraea2025001-source-pdf.pdf*

### Box 2. Potential Medium-Term Productivity Effects of Artificial Intelligence in France

### Box 2. Potential Medium-Term Productivity Effects of Artificial Intelligence in France

### AI and medium-term productivity impacts
- AI can boost productivity through new industries, accelerated R&D, novel research ideas, and local spillovers from AI development.
- Short- and medium-term gains can come from adopting existing AI tools; France currently has a relatively low level of AI adoption and authorities are establishing AI-focused hubs with supercomputer access to support startups, SMEs, and researchers.
- Staff estimates (IMF WP/25/67) suggest:
  - AI adoption could cumulatively increase France’s TFP growth by approximately 1.2 percent over five years based on sectoral structure, current AI capabilities, and predicted adoption rates reflecting costs and benefits for firms.
  - This estimate is slightly above the EU average but subject to considerable uncertainty, ranging from less than 0.5 to around 3 percent under alternative scenarios for AI capabilities.
- AI adoption could exacerbate inequality, but recent evidence is mixed (e.g., IMF WP/25/68). Facilitating reskilling and enhancing vocational training can support workers in AI-exposed jobs (¶26).

### R&D, innovation, and financing constraints
- France’s R&D investment is at 2 percent of GDP, below peers and the 3 percent Lisbon target.
- R&D expenditure in the ICT sector is lower than in the United States and some EU peers despite France's relatively large ICT sector.
- R&D spending is skewed toward mid-tech sectors and concentrated among a small subset of firms; mid-tech sectors tend to have lower technology-intensity, slower growth, and limited innovation opportunities.
- The CIR (Crédit d'Impôt Recherche) is most effective when used by financially constrained innovative firms, typically from younger cohorts, but current beneficiaries are primarily a small number of firms from older cohorts—suggesting the CIR may currently function as a substitute for reductions in corporate tax rates (Aghion and others, 2022).
- Ongoing efforts to review and rationalize state aid and R&D tax expenditures by focusing on the most impactful schemes and better targeting eligibility criteria for tax credits—without distorting firm size—are welcome.

- Enhancing access to finance:
  - Venture capital can support entry and scale-up of intangible-intensive young high-growth firms facing higher borrowing costs.
  - Initiatives like Tibi have mobilized institutional investors for this purpose but require more engagement and scalability.
  - Public support through France 2030 can facilitate innovation, including as part of the green transition.
  - Coordinated support under Important Projects of Common European Interest (IPCEI) can better align industrial policies with EU objectives.
  - A well-functioning Savings and Investment Union can increase availability of capital for early-stage, risky assets and improve cross-border allocation (IMF WP/25/113).

### Industrial policy coordination and state aid
- Non-crisis state aid remains significant in France at 0.9 percent of GDP (latest 2022 official data).
- France accounts for 20 percent of state aid expenditure in Europe (70 percent of total, together with Germany, Italy and Spain).
- Structural modeling (IMF WP/24/249) shows unilateral production subsidies may reduce welfare (by roughly 0.5 percent in France) and entail important fiscal costs; unilateral industrial policies can create production inefficiencies, negative spillovers, and risks of fragmentation within the single market.
- Recommendation: coordinate industrial policies at the EU level, target interventions where externalities or market failures exist, ensure time-bound measures with rigorous cost-benefit assessments, and avoid favoring domestic producers over imports.

### Business dynamism, entry barriers, and entrepreneurship
- France performs relatively well on product market regulation but faces administrative entry barriers, especially in some professions and services sub-sectors.
- Policies to ease entry barriers and reduce regulatory burden (including the Simplification Bill) are critical—streamline authorization and reporting requirements, particularly for SMEs.
- Deepening the single market via removal of intra-EU trade barriers and greater harmonization can help firms achieve economies of scale and incentivize innovation.

### Employment, human capital, and reskilling
- France’s working-age population is expected to remain flat or decline under most scenarios over the next decade despite relatively high fertility and positive net migration.
- Employment rates have increased but remain low in some population segments compared to peers.
- Education attainment has deteriorated recently, particularly in reading and math (CAE, 2024), and does not align with high spending, especially on secondary education.
- Policy actions and programs noted:
  - Strengthen education: greater emphasis on math, improved teacher training, increased school autonomy, upgraded teaching methods, and reductions in class size.
  - Plan d’Investissement dans les Compétences and France Travail initiatives to address skill mismatches and enhance vocational training to support lower-skilled workers and reskill workers at risk of skill obsolescence (¶26).

- Key policy interventions to support employment and human capital (¶27):
  - Promote longer, less fragmented careers through social benefit reforms to enhance work incentives and increase employment rates among younger and older individuals; implement health-promotion and prevention policies and facilitate transition of older workers to age-friendlier jobs.
  - Narrow gender gaps: reform parental leave to offer shorter but better-paid options for both parents; improve daycare; reduce biases in education and career choices; promote equal pay through greater remuneration transparency.
  - Better integrate migrants: address employment rate gaps between foreign- and domestic-born populations via improved job matching, language training, and expanded professional training.

### Recent macro-financial and banking-sector indicators
- Credit recovery remains sluggish amid high uncertainty; monetary policy easing improved financial conditions by 2025Q1, but financial pressures reemerged in April due to rising trade tensions and market volatility.
- Non-financial corporate (NFC) contribution to total credit growth was sluggish at around 1 percent (y-o-y), well below pre-pandemic levels.
- French banks experienced compression in net interest margins; funding costs increased due to reliance on wholesale funding, rising term deposits, and higher interest rates on regulated national savings accounts.
- Banks offset pressures with fee-based income and reductions in operating costs but still face a cost-to-income ratio gap with EA peers; credit losses remain low due to prudent lending.
- Key regulatory and liquidity metrics (end-2024):
  - Average regulatory capital ratio: 19.8 percent.
  - Liquidity Coverage Ratio (LCR): 145 percent.
  - Net Stable Funding Ratio (NSFR): 116 percent.

_Italic: Sources: Eurostat and IMF WP/25/67._

### 31.      Sound borrower-based measures continue to mitigate housing market risks, as

### Sound borrower-based measures continue to mitigate housing market risks, as property prices stabilize

### Housing market and borrower-based measures
- Housing loan issuance declined sharply in 2023–24 in the context of rising rates.
- Average debt service-to-income (DSTI) and loan-to-value (LTV) ratios for new housing loans edged up.
- Housing NPLs remain low at 2 percent as of end-2024, aided by:
  - prevalence of fixed-rate loans;
  - effective borrower-based measures (DSTI and maturity limits);
  - mortgage insurance and historically high recovery rates.
- Commercial real estate (CRE) price declines and somewhat higher vacancy rates had a limited impact on banks given small direct exposures (about 5 percent of total loans).
- Recommendation: Conservative borrower-based limits should be updated to reflect evolving risks, including by broadening coverage to home renovation and other consumer loans to avoid leakages (2025 FSAP).

### Corporate sector risks
- Nonfinancial corporation (NFC) debt is elevated at around 75 percent of GDP on a net consolidated basis.
- About one quarter of firms show inadequate debt service capacity.
- Bankruptcies peaked at the end of 2024 back to around pre-pandemic levels, notably among SMEs in construction and retail, partly due to catching up after the expiration of crisis support measures, but have recently stabilized.
- Corporate profits are healthy and the overall NPL ratio remains low at just above 2 percent, with provisions coverage aligned with the euro area average.
- The sectoral systemic risk buffer (SyRB) has effectively reduced large exposures and was recently lifted by the HCSF as no longer binding.
- Recommendation: Authorities should continue to monitor NFC developments and introduce new measures as necessary.

### Financial stability, stress tests, and buffers
- French banks showed resilience under severe geopolitical and recessionary stress test scenarios (2025 FSAP and Euro Area FSAP), with no banks breaching minimum capital requirements, though some dipped into additional regulatory buffers.
- High fees from bancassurance products provide a strong source of revenue for French banks even in adverse scenarios.
- Net interest income appears relatively stable under macro-financial stress, despite vulnerabilities linked to highly indebted enterprises (corroborated by corporate stress tests).
- The existing countercyclical buffer (CCyB) provides an important additional buffer.
- Recommendation: Authorities should continue to improve guidance regarding the neutral level of the CCyB and proactively adjust rates as warranted.
- Liquidity buffers remain high; cash flow stress tests show most banks can withstand significant liquidity outflows under several adverse scenarios.
- Continued monitoring of the links between banks and NBFI is warranted (¶35).

### Sovereign–financial sector nexus
- Non-bank institutions are the primary holders of French government debt, resulting in relatively low banking sector sovereign debt holdings, which are close to the eurozone average of 6 percent of assets.
- Banks with larger exposures primarily hold French sovereign bonds and loans to maturity; the share of mark-to-market securities is larger for non-French sovereign exposures.
- Increases in sovereign yields tend to impact the cost of banks’ wholesale funding—particularly for significant institutions (SIs) given their loan-to-deposit ratio of 104 percent—and could offset benefits of future monetary policy easing.
- BdF and 2025 FSAP estimates indicate the impact on bank capital would likely be limited.

### Nonbank financial institutions (NBFI) links and market liquidity
- NBFIs account for about one-third of financial sector assets, primarily held by insurance companies and investment funds.
- The 2025 France and euro area FSAP stress test indicates investment funds possess sufficient liquidity to withstand large redemption shocks.
- French banks' liquidity buffers can absorb potential market shocks from associated fixed-income sell-offs.
- Liquidity management tools (swing pricing and redemption gates) have been widely adopted.
- Recommendation: Further strengthen oversight through greater monitoring and data sharing on funds’ liability structures and closer collaboration among NBFI supervisors in France and at the EU level.
- The authorities’ upcoming system-wide stress test will assess resilience to additional severe scenarios.

### FSAP recommendations and supervisory capacity
- Enhance risk analysis by improving data quality and timeliness on interconnectedness of financial institutions, and on derivatives and repo markets.
- Ensure supervisory authorities have adequate resources to meet future capacity needs.
- Other key recommendations:
  - (i) Strengthen the HCSF’s framework to ensure effectiveness and enhance communication;
  - (ii) Formalize inter-agency coordination, notably on financial crisis preparedness and management;
  - (iii) Prioritize operational readiness for combining resolution tools and cross-border bail-in procedures;
  - (iv) Strengthen resources of the deposit insurance fund and introduce a public backstop.

### Cybersecurity, climate, and AML/CFT
- Cyber risk framework:
  - Found effective due to EU regulatory framework and strong national laws.
  - EU Digital Operational Resilience Act (DORA) mandates formalized risk management and enhanced incident-response coordination.
  - Challenges: resource constraints, increased staffing needs with DORA implementation, and fragmented supervisory structure.
- Climate risks:
  - ECB, BdF, and IMF staff assessments (IMF WP/24/144) highlight risks from extreme weather events and the need for a timely, orderly climate transition.
  - Recommendation: Financial institutions should proactively integrate climate risks into governance, strategy, and risk management.
- AML/CFT:
  - FATF found France largely effective in 2022; effectiveness is high or substantial in most areas and moderate in preventive measures and supervision.
  - France published a new national money laundering and terrorism financing risk assessment in 2023 with new chapters on digital assets.
  - Legal changes addressed due diligence of politically exposed persons and beneficial ownership weaknesses; AMF continues to formalize its risk-based approach.
  - Recommendation: Continue strengthening risk-based AML/CFT supervision and ensure full understanding of beneficial ownership transparency obligations; continue monitoring ML/TF risks from the virtual asset sector.

### Authorities’ views
- Authorities broadly shared staff’s views on financial system resilience and the need to adapt policy tools to a rapidly evolving environment.
- They highlighted stabilizing effects of fixed-rate mortgages and prudent borrower-based exposure limits, and expected monetary policy easing to enhance banks’ net interest margins.
- Authorities acknowledged SME exposure to macroeconomic shocks but noted resilience to rate rises and that the rise in insolvencies partly reflects a catch-up after pandemic support expiration.
- They plan to use the upcoming system-wide stress test to assess resilience to additional severe scenarios and supported most FSAP recommendations, including greater data sharing and supervisory coordination.
- On macroprudential policy, authorities deemed borrower-based measures sufficiently broad and did not see the need for further guidance on the neutral CCyB level, while seeing merit in improving public communication and governance and reassessing the CCyB framework within a broader review of regulatory buffers.

### Staff appraisal and policy priorities
- Real GDP grew by 1.1 percent in 2024, bolstered by the summer Olympics in Paris.
- Disinflation is progressing and the labor market remains robust.
- Urgent need to strengthen public finances and pursue structural reforms given high and rising public debt and significant headwinds.
- Fiscal policy:
  - Authorities’ fiscal adjustment plans under the MTFSP are appropriate and should be supported by a well-designed and credible package of measures.
  - Significant additional fiscal efforts are crucial to bring the deficit below 3 percent of GDP by 2029 and place debt on a downward path.
  - Given France’s already high tax-to-GDP ratio, prioritize rationalizing current spending, building on recent reforms and spending reviews, with concerted action across government levels.
  - Contingency plans are needed amid high global uncertainty to meet priority needs without compromising public finances.
- Structural policies:
  - Raise weak productivity growth by supporting innovation and access to capital, reviewing and rationalizing state aid and R&D tax expenditures, enhancing access to finance for credit-constrained firms, and easing entry barriers and regulatory burdens.
  - Promote employment and job quality—further social benefit reforms, raise labor force participation of women, integrate migrants, promote workforce skills and healthy aging.
- Financial oversight:
  - Continue adapting oversight and macroprudential toolkit in line with FSAP recommendations.
  - Enhance risk analysis by improving data quality and timeliness on interconnectedness and on derivatives and repo markets, and ensure supervisory authorities have adequate resources.
  - Authorities’ proactive efforts to integrate cyber and climate risks into financial institutions’ strategy, governance, and risk management are welcome.
- It is proposed that the next Article IV consultation takes place on the standard 12-month cycle.

*Source: IMF staff report (2025 FSAP and Article IV excerpts).*

### Annex I.  Authorities’ Response to Past Fund Policy Advice

### Annex I.  Authorities’ Response to Past Fund Policy Advice

### IMF 2024 Article IV Recommendations — Authorities’ Response: Fiscal Policy
- Staff recommendation: Identify additional fiscal measures of around 0.4 percent of GDP in 2024, relative to staff’s baseline.
  - Authorities’ response: There was large fiscal slippage in 2024, despite central government efforts to control spending.
- Staff recommendation: Implement a fiscal structural primary effort of nearly 3 percent of GDP over 2025–27 to bring the deficit below 3 percent of GDP by 2027.
  - Authorities’ response: The authorities have submitted their MTFSP which foresees bringing the deficit to below 3 percent of GDP by 2029, in compliance with the EU rules.
- Staff recommendation: Fiscal consolidation should continue to focus on targeted measures to lower current spending, while preserving room for growth-friendly investment.
  - Authorities’ response: The 2025 budget introduced new spending measures to advance fiscal consolidation efforts, while allocating resources to key areas.

### IMF 2024 Article IV Recommendations — Authorities’ Response: Structural Policy
- Staff recommendation: Promote longer and less fragmented careers through further unemployment benefit reforms.
  - Authorities’ response: The November 2024 agreement with social partners and the 2025 budget refined the unemployment benefits and apprenticeship reforms.
- Staff recommendation: Undertake education and training reforms to prepare the labor force for the green and digital transitions.
  - Authorities’ response: The Choc des savoirs Acte II program identifies further measures to strengthen primary and secondary education.
- Staff recommendation: Further reduce regulatory burden and barriers to entry and review existing R&D tax expenditure.
  - Authorities’ response: The 2025 budget included measures to better target eligibility criteria for the R&D tax credit.
- Staff recommendation: Complement spending efforts to support the green transition with other revenue-neutral schemes and higher carbon pricing.
  - Authorities’ response: The 2025 budget allocated additional resources to green investments and includes adjustments to the bonus/malus on vehicles purchases and aviation taxes.

### IMF 2024 Article IV Recommendations — Authorities’ Response: Financial Sector Policies
- Staff recommendation: Continue to ensure that the HCSF enjoys operational independence and has sufficient legal powers.
  - Authorities’ response: A legislative proposal to modify the HCSF's composition and exempt banks from adhering to its measures failed to pass.
- Staff recommendation: Continue to monitor risks in real investment funds and encourage use of liquidity management tools.
  - Authorities’ response: The AMF requires investment funds to have a minimum number of liquidity management tools in place.
- Staff recommendation: Continue to integrate climate transition risks into banks’ governance, strategy, and risk management processes.
  - Authorities’ response: The authorities continued to operationalize environmental risk supervision.

*Source: Annex I. Authorities’ Response to Past Fund Policy Advice (excerpt).*

---

### Annex II. External Sector Assessment

### Overall Assessment and Projections
- Overall assessment: On a preliminary basis, the external position in 2024 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- 2024 CA outcome: The CA balance increased to a surplus of 0.4 percent of GDP in 2024, driven by stronger services exports due to the Paris summer Olympics.
- Medium-term projection: The CA balance is projected at -0.1 percent of GDP by 2030, as private consumption and investment improve.
- Potential policy responses:
  - Sustained fiscal consolidation over the medium term to help maintain the external position in line with fundamentals.
  - Structural reforms to support productivity and attract higher private investment for the green and digital transitions.
  - Industrial policies should be cautious, targeted to market failures, coordinated at the EU level, and avoid favoring domestic producers over imports.

### Foreign Asset and Liability Position and Trajectory
- Background facts:
  - NIIP stood at -20.3 percent of GDP in 2024, within the 2014–19 range (between -19 percent and -28 percent of GDP).
  - NIIP improved by 7.8 percent of GDP since 2023, largely driven by an increase in portfolio investment.
  - Gross assets: 373 percent of GDP in 2024; non-FDI- and non-portfolio-related assets accounted for about 50 percent.
  - Gross liabilities: 393 percent of GDP in 2024; external debt about 259 percent of GDP (52 percent by banks and 22 percent by the public sector) in Q3 2024.
  - About three-quarters of France’s external debt liabilities are denominated in domestic currency.
  - The average TARGET2 balance in 2024 was about € -147.9 billion.
- Assessment:
  - The NIIP is negative, but its size and projected stable trajectory do not raise sustainability concerns.
  - Vulnerabilities stem from large public external debt (57.7 percent of GDP in Q3 2024), banks’ gross financing needs (stock of banks’ external short-term debt securities was 4 percent of GDP in Q3 2024), and financial derivatives (liabilities) at about 63.9 percent of GDP.
- Key 2024 figures (% GDP):
  - NIIP: −20.3
  - Gross Assets: 372.5
  - Debt Assets: 191.7
  - Gross Liab.: 392.9
  - Debt Liab.: 231.7

### Current Account
- Background:
  - CA balance increased to 0.4 percent of GDP in 2024 (from a deficit of 1 percent in 2023), driven by unwinding of the terms-of-trade shock and stronger services exports partly due to the Paris summer Olympics.
  - Gross national savings increased in 2024, driven by higher private savings.
  - Private investment has been contracting since 2023.
  - CA surplus expected to decrease to about 0.2 percent of GDP in 2025 due to dissipation of one-off factors.
  - Medium term: CA projected at about -0.1 percent of GDP by 2030 as domestic demand strengthens.
- Assessment:
  - 2024 cyclically adjusted CA balance: 0.3 percent of GDP; EBA-estimated norm: 0.1 percent.
  - IMF staff assesses the CA gap in 2024 is between -0.1 and 0.7 percent of GDP (compared with -1.3 and -0.5 percent of GDP in 2023), with a midpoint of 0.3 percent of GDP.
  - Main contributor to overall positive policy gap of 0.3 percent of GDP is a positive credit gap of 0.6 percent; the health expenditure gap is closed; the fiscal policy gap is -0.3 percent.
- Key 2024 figures (% GDP):
  - CA: 0.4
  - Cycl. Adj. CA: 0.3
  - EBA Norm: 0.1
  - EBA Gap: 0.3
  - Staff Adj.: 0.0
  - Staff Gap: 0.3

### Real Exchange Rate (REER)
- Background:
  - ULC-based REER appreciated by 0.7 percent in 2024; CPI-based REER depreciated by -0.1 percent in 2024.
  - As of March 2025: ULC-based REER was 2.4 percent above the 2024 average; CPI-based REER was 1.3 below the 2024 average.
- Assessment:
  - The CA gap implies a REER gap of -1.0 percent in 2024 (applying an estimated semi-elasticity of 0.28).
  - EBA REER level model does not point to a REER gap; EBA REER index model points to a REER gap of −7.8 percent, largely reflecting unexplained residuals.
  - Staff assesses the REER to be broadly in line with fundamentals and desirable policies with a midpoint of -1.0 percent and a range of uncertainty of ± 1.4 percent.

### Capital and Financial Accounts: Flows and Policy Measures
- Background: After a temporary dip in 2023, inward and outward FDI recovered in 2024. The financial account is open.
- Assessment: France remains exposed to financial market risks due to large refinancing needs of the sovereign and banking sectors.

### FX Intervention and Reserves Level
- Background: The euro has the status of a global reserve currency.
- Assessment: Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.

*Source: Annex II. External Sector Assessment (excerpt).*

---

### Annex III. Risk Assessment Matrix

- Note: The relative likelihoods are IMF staff subjective assessments (“low” <10 percent, “medium” 10–30 percent, “high” ≥30 percent).

Major global risks, likelihood, impact, and policy responses:
- Trade policy and investment shocks
  - Relative Likelihood: High
  - Impact if Realized: Medium
  - Policy Response: Further diversify supply chains; undertake structural reforms to boost competitiveness; deepen the European single market and foster capital market integration; maintain level playing field and limit state intervention to market failures.
- Sovereign debt distress
  - Relative Likelihood: High
  - Impact if Realized: Medium
  - Policy Response: Advance fiscal consolidation under the authorities’ medium-term fiscal structural plan; support fiscal adjustment with structural reforms.
- Tighter financial conditions and systemic instability
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
  - Policy Response: Deploy macroprudential policies including cyclical and systemic buffers; monitor liquidity risks in NBFIs; fiscal policy should allow automatic stabilizers to operate.
- Regional conflicts
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
  - Policy Response: Accelerate green transition and diversify energy mix; provide targeted fiscal support to vulnerable households and firms; advance structural reforms.
- Commodity price volatility
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
  - Policy Response: Accelerate green transition and diversify energy mix; provide targeted fiscal support; advance structural reform agenda.
- Deepening geoeconomic fragmentation
  - Relative Likelihood: High
  - Impact if Realized: Medium
  - Policy Response: Further diversify supply chains; undertake structural reforms; deepen European single market; maintain level playing field and limit state intervention.
- Cyberthreats
  - Relative Likelihood: High
  - Impact if Realized: Medium/High
  - Policy Response: Advance crisis preparedness to cyberattacks; strengthen coordination at European/international level; strengthen operational resilience of the financial system.
- Climate change
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
  - Policy Response: Provide targeted fiscal support; undertake public investment for climate preparedness and adaptation.

Major domestic risks, likelihood, impact, and policy responses:
- Political fragmentation
  - Relative Likelihood: High
  - Impact if Realized: Medium/High
  - Policy Response: Promote broad-based political and social support to advance fiscal plans per EU fiscal rules and progress on structural priorities; provide targeted support to the most vulnerable.
- Social discontent
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
  - Policy Response: Provide targeted fiscal support to vulnerable households and firms; advance structural reform agenda to boost jobs and productivity.

*Source: Annex III. Risk Assessment Matrix (excerpt).*

---

### Annex IV. Sovereign Risk and Debt Sustainability Analysis

### Key findings and baseline projections
- Authorities’ MTFSP aim: Bring fiscal deficit below 3 percent of GDP by 2029, but a credible and well-designed package of measures still needs specification.
- Staff baseline (based only on legislated measures):
  - Deficit projected to decline to 5.4 percent of GDP in 2025 and remain around 6 percent of GDP in the medium-term—about 2 percentage points above its debt-stabilizing primary level.
  - As a result, public debt would reach 134 percent of GDP by 2033, about 13 percentage points higher than estimated at the time of the 2024 Article IV Consultation.
- Main fiscal risks: High sensitivity of the debt ratio to future real interest rates and growth; rising spending pressures from priority areas.
- Risk-mitigating factors: France’s fiscal consolidation commitments under new EU fiscal rules; liquid debt market with diversified investor base and stabilizing role of the ECB.

### Background developments
- Headline fiscal deficit: 5.8 percent of GDP in 2024, compared to an initial target of 4.4 percent of GDP.
- Debt ratio: increased to 113.1 percent, from 98 percent in 2019.
- Sovereign bond yields: increased by about 15 basis points since the European elections in June 2024; 10-year OAT yield increased in March (driven by German Bund yields) then declined back.
- Credit ratings: Fitch and S&P reaffirmed AA- with negative outlook; Moody's downgraded France to Aa3 in December.

### Baseline scenario details
- Baseline incorporates only legislated measures, including the 2025 budget and sufficiently specified sectoral and medium-term programming laws.
- Projection abstracts from MTFSP commitments to bring overall deficit below 3 percent of GDP by 2029.
- Under staff’s baseline:
  - Fiscal deficit: 5.4 percent of GDP in 2025; around 6 percent of GDP over the medium term.
  - Debt ratio: increase from 116.5 percent of GDP in 2025 to 135 percent of GDP by 2034.
  - Projected primary deficit: about 2 percentage point above its debt-stabilizing level.
  - Differential between effective real rate and real GDP growth: initially negative, then progressively increases and turns marginally positive over next 10 years.
  - Interest rate burden: increases by 1½ percentage points of GDP over the same horizon.

### Realism of medium-term projections
- Staff notes some optimism in past projections: realized primary deficit and r-g differentials were significantly larger than projected.
- In the last five years, a large primary deficit from pandemic and energy crisis response was main driver of rising debt; low interest spending mitigated.
- Looking ahead: persistent deficits and higher interest payments would be key drivers of debt accumulation.
- Projected fiscal efforts are within norms of past consolidation episodes in France and other advanced economies.

### Risks and mitigating factors
- High sensitivity of debt ratio to future real interest rates and real growth implies risk that unfavorable shocks and additional spending pressures (defense, digital, green transitions) may steepen debt trajectory.
- Mitigating elements:
  - Baseline is conservative as it excludes planned consolidations under the MTFSP not yet specified.
  - Fiscal trajectory under MTFSP (targeted below 3 percent by 2029) would significantly reduce the mechanical signal of medium-term risks.
  - France’s sovereign debt benefits from a large investor base, liquid market, and stabilizing ECB role.

*Source: Annex IV. Sovereign Risk and Debt Sustainability Analysis (excerpt).*

### Annex IV. Figure 1. France: Risk of Sovereign Stress

### Annex IV. Figure 1. France: Risk of Sovereign Stress

### Overall assessment
- Final assessment: Overall risks are moderate.
- Short-term risk: short-term risk of sovereign debt distress remains low, supported by a liquid debt market with a diversified investor base and the stabilizing role of the ECB.
- Medium- and long-term risks: have increased due to higher debt levels and refinancing needs following consecutive fiscal slippages, pointing to a moderate overall risk of debt distress under staff’s current policy baseline scenario.
- Mitigating elements:
  - The baseline projection for France's primary deficit is conservative and excludes planned consolidations that are not yet based on sufficiently specified measures.
  - The fiscal trajectory under the MTFSP, targeted at below 3 percent by 2029, would reduce significantly the levels of the mechanical signal of medium-term risks.

### DSA summary and key risk metrics
- DSA Summary Assessment: France is at a moderate risk of sovereign stress.
- Debt sensitivity drivers: medium-term sovereign risks stem from high debt levels and debt dynamics highly sensitive to future paths of interest rates and growth.
- Debt level projection cited: "The debt level would reach 133.6 percent of GDP in 2033, against 122 percent of GDP estimated in the 2024 Article IV consultations."
- Mechanical signal change: "The mechanical signal has slightly increased since the last Article IV consultation (July 2024) with risks remaining moderate."
- Probabilities (medium-term assessment):
  - Prob. of missed crisis, 2025-2030, if stress not predicted: 18.2 pct.
  - Prob. of false alarms, 2025-2030, if stress predicted: 21.6 pct.

### Medium-term risk modules and indices (mechanical signals)
- Debt fanchart module:
  - Debt fanchart width: 31.4 0.5 (percent of GDP)
  - Probability of debt non-stabilization (percent): 94.7 0.8
  - Terminal debt-to-GDP x37.3 0.8
  - Debt fanchart index (DFI): 2.1
  - Risk signal: Moderate
- Gross Financing Needs (GFN) module:
  - Average baseline GFN (percent of GDP): 25.1 8.6
  - Initial Banks' claims on the gen. govt (pct bank assets): 4.0 1.3
  - Chg. In banks' claims in stress (pct banks' assets): 4.8 1.6
  - GFN financeability index (GFI): 11.5
  - Risk signal: Moderate
- Medium-term index:
  - Medium-term index: 0.34 (mechanical signal)
  - Signal interpretation: 0.34 (moderate); the overall mechanical signal deteriorates from last year’s value 0.29.

### Baseline scenario — projected public debt and flows (selected exact figures)
- Public debt (percent of GDP):
  - 2024: 113.1
  - 2025: 116.5
  - 2026: 119.1
  - 2027: 121.5
  - 2028: 123.7
  - 2029: 125.9
  - 2030: 128.1
  - 2031: 130.1
  - 2032: 131.9
  - 2033: 133.6
  - 2034: 135.1
- Change in public debt (percent of GDP): 3.5 3.3 2.7 2.4 2.2 2.2 2.2 2.0 1.8 1.7 1.5
- Contribution of identified flows (percent of GDP): 3.4 3.4 2.7 2.4 2.2 2.2 2.2 2.1 1.9 1.8 1.6
- Primary deficit (percent of GDP): 3.8 3.4 3.4 3.5 3.2 3.0 2.8 2.2 1.9 1.6 1.2
- Noninterest revenues (percent of GDP): 51.3 51.8 51.5 51.3 51.4 51.3 51.3 51.3 51.3 51.3 51.4
- Noninterest expenditures (percent of GDP): 54.8 54.8 54.6 54.5 54.2 54.0 53.8 53.2 52.9 52.6 52.3
- Automatic debt dynamics (contribution, percent of GDP): -1.4 0.0 -0.6 -0.9 -0.9 -0.7 -0.4 0.0 0.2 0.3 0.4
- Real interest rate and relative inflation (percent): -0.2 0.7 0.5 0.4 0.7 0.8 1.1 1.5 1.7 1.8 1.9
- Real GDP growth (percent): 1.1 0.6 1.0 1.2 1.3 1.2 1.2 1.2 1.2 1.2 1.2
- Gross financing needs (percent of GDP): 22.3 22.3 24.4 25.3 24.1 26.0 28.7 27.8 28.7 25.9 27.2
- Of which: debt service (percent of GDP): 18.6 19.1 21.1 22.0 21.1 23.1 26.0 25.7 26.9 24.4 26.1
- Effective interest rate (percent, memo): 1.9 2.0 2.1 2.3 2.5 2.6 2.9 3.1 3.3 3.4 3.4
- Inflation (GDP deflator; percent, memo): 2.1 1.3 1.6 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
- Note from text: "The ratio of public debt to GDP gradually increases over time, reflecting a projected primary balance that continues to remain negative, based on a current policy baseline scenario."

### Long-term assessment and scenarios
- Long-term risks: assessed to be moderate.
- Large Amortization module: presents four illustrative policy scenarios ("historical", "Baseline", "Baseline and DSPB", "Custom").
  - Custom scenario calibration: after 2029, the deficit remains at around 2.2 percent of GDP (corresponding to a primary balance of 0.7 percent of GDP) and uses staff's potential longer GDP growth projection of 1 percent.
  - Under the three standard scenarios, mechanical signals breach GFN thresholds, pointing to presence of long-term risks in the absence of new fiscal measures.
  - Under the customized scenario, gross financing needs and debt ratios return to a downward long-run trajectory under conservative assumptions.
- Long-term projection summary (selected values reported in table):
  - Real GDP growth (projection): 1.2% (2030), 1.2% (2031 to 2035 average), 1.0% (Custom)
  - Primary Balance-to-GDP ratio: -2.8% (2030), -1.6% (2031–2035 average), 0.7% (Custom)
  - Real depreciation: -1.9% (2030), -2.0% (2031–2035 average), -2.0% (Custom)
  - Inflation (GDP deflator): 1.9% (all columns)
- Terminal debt-to-GDP has increased to 37.3 (from 30.7 last year) due to increased debt levels following the fiscal slippage in 2024 (as noted in medium-term module).

### Realism of baseline assumptions and forecast track record
- Staff realism analysis: indicates some optimism in past projections for the drivers of debt, with realized values for the primary deficit and the r-g differentials significantly larger than initially projected over the medium term.
- Over the last five years: a large primary deficit from the fiscal response to the pandemic and the energy crisis was the main driver of rising debt levels; low interest spending was a mitigating factor.
- Projected fiscal efforts are within norms of past fiscal consolidation episodes in France and other advanced economies.

### Demographics, pension system pressures, and labor-market implications (Annex V highlights)
- Demographic trajectory:
  - Old-age dependency ratio: expected to rise from nearly 40 percent in 2022 to over 57 percent by 2050.
  - Working-age population: projected to remain flat or decline under most scenarios over the next decade.
- Pension system structure and trends:
  - Number of retirement plans: 42 retirement plans with various mandatory, supplementary, and private regimes.
  - Pension beneficiaries: grew by 12.2 percent from 2010 to 2022.
  - Pension spending ratio: 14.7 percent of GDP in 2022 (second highest in the EU in 2022, behind Italy).
  - Real pension spending growth: grew by 17.7 percent from 2010 to 2022.
  - Contribution rates: approximately 28 percent of average earnings in France (Italy: 33 percent; EU average: 21.4 percent; Germany: 18.8 percent).
- Labor market challenges affecting pensions:
  - Employment rate for seniors aged 55–64: 61.7 percent in 2023 (EU: around 67 percent; Germany: over 76 percent).
  - Average labor market exit ages (2022): 60.7 years for men and 62.2 years for women (Germany: 63.7 and 63.4).
  - Average expected years after labor market exit (2022): 26.1 for women and 23.3 for men in France.

### Policy implications and indicators highlighted by staff
- Key mitigation: implementing specified fiscal consolidations (e.g., MTFSP targeting below 3 percent by 2029) would significantly reduce mechanical medium-term risk signals.
- Sensitivities: debt dynamics remain highly sensitive to future paths of interest rates and growth; rollover risks from non-fundamental shocks are mitigated by a deep and liquid debt market.
- Long-term reform priorities implied by the analysis:
  - Strengthen specified fiscal consolidation measures to lower the primary deficit.
  - Address demographic and pension pressures through policies that raise labor force participation (notably among seniors) and reform pension spending trajectories.
  - Monitor and contain potential additional long-term spending pressures from security spending, demographic, digital, and green transitions.

*Source: Fund staff.*

### 5. Past pension reforms, targeting parametric changes and convergence between special

### 5. Past pension reforms, targeting parametric changes and convergence between special and basic plans, generated significant savings.

### Historical reforms and quantified savings
- France's pension system was established in 1945 and initially benefited from rapid economic growth and a population boom.
- The 1970s crises exposed financial weaknesses and led to a series of parametric reforms aimed at aligning special and basic plans and enhancing fiscal sustainability.
- Key parametric changes:
  - 1983 reform: reduced the retirement age for a full pension from 65 to 60 for pensioners with a period of pension contributions fixed at 37.5 years.
  - Contribution period progressively extended to 43 years in 1993, 2003 and 2014 with different timelines for the private sector and the public sector.
  - Retirement age increased to 62 years old in 2010.
  - 2023 reform raised the retirement age to 64 years old by 2030.
  - Indexation shifted from wage growth to inflation; reference wages and inequalities across schemes were adjusted.
- Fiscal impact and projected savings:
  - INSEE (2014) projection: without the reforms, pension expenditures could have reached 17.6 percent of GDP by 2020 (more than 2 percent of GDP above actual pension spending).
  - Indexation shift saved 1.8 percent of GDP in 2020.
  - Extending contribution periods and raising the retirement age delivered significant long-term financial benefits.

### Remaining divergences across pension regimes
- Persistent differences contributing to complexity and reduced public understanding (Court of Auditors, 2021):
  - Reference salary for pension payment:
    - General regime: best 25-years average earnings.
    - Public sector workers: salary for the last six months.
  - Definition of contribution base:
    - General regime: the entire salary.
    - Public sector workers: salary excluding benefits.
  - Duration/validation of pension contributions:
    - General regime: one quarter validated for an hourly salary of 150 SMIC.
    - Public sector workers: working-time based.
  - Complementary pensions:
    - Present only in the private sector; indexation defined by social partners every year.
  - Solidarity measures linked to children:
    - Public sector workers: increase in insurance duration of at most one year per child.
    - General regime: two years per child.
- Legal vagueness on hardship of working conditions creates loopholes in pension benefits and early retirement cases.

### Pension system balance: current status and projections
- Recent budgetary balance:
  - Pension system shifted to a deficit of 0.2 percent of GDP in 2024 (from a 0.1 surplus in 2023) because of pension indexations.
- COR (June 2024 report) baseline projections:
  - Deficit projected at 0.4 percent of GDP in 2030.
  - Deficit projected at 0.8 percent of GDP by 2070.
- Alternative scenarios:
  - Deficit could worsen to between 1.3 and 1.9 percent of GDP by 2070 under some alternative scenarios.
- Drivers of deterioration: aging population, low labor market exit age, projected decline in central government transfers.

- COR projection assumptions (table as presented):
  - Fertility rate: Percent 1.8 / 1.6 (Baseline / Alternative Scenarios)
  - Productivity: Percent 1.0 / 0.7
  - Net inflow of migrants: Thousands 70.0 / 20.0
  - Life expectancy at 65: Years Women: 26.7; Men: 24.8 / Women: 29.7; Men: 27.7
  - Unemployment rate: Percent 5.0 / 7.0
  - Source: Conseil d'Orientation des Retraites (COR), June 2024 Report.

### Longer working lives, healthy aging, and macro impacts
- 2023 reform effect:
  - Raising retirement age from 62 to 64 projected to boost labor force participation by 600,000 people by 2070 (INSEE, 2023).
- Old-age social protection spending trends:
  - Costs rose from 10.9 percent of GDP in 2000–2010 to 12.8 percent of GDP in 2011–22.
  - Spending on accommodation and care services rose from 0.1 percent of GDP in 2000 to 0.4 percent in 2022.
- IMF (2025) evidence on healthy cognitive aging (global sample):
  - Improvement in average cognitive health for older-age individuals over a decade is associated with:
    - Rises in labor earnings and labor productivity by about 30 percent.
    - Increase in likelihood of participating in the labor force by about 20 percentage points.
- France’s health spending is high compared to regional peers, suggesting opportunities for efficiency improvements to manage costs while supporting longer working lives.

### Strategic reforms and policy recommendations
- Principal objectives:
  - Harmonize and simplify pension schemes to enhance equity, transparency, and public understanding.
  - Ensure transferability of accrued pension benefits and move towards greater convergence between special and basic plans.
  - Support longer working lives with policies for healthy aging and improved provision of old-age social protection (healthcare, social assistance, elderly support programs).
- Specific policy levers and expected macro benefits:
  - Further simplification and harmonization of rules across regimes to reduce complexity and inefficiency.
  - Promote a national consensus to implement reforms that enhance sustainability and fairness.
  - Tap the silver economy by encouraging older individuals to remain active in the labor market and by scaling social services that enable longer working lives.
  - Pursue efficiency improvements in health and social spending.
  - IMF’s World Economic Outlook (2025) cross-country analysis: a comprehensive package of policies could boost annual economic growth in France by almost 0.3 percentage points over 2025–2100.

*Source: IMF staff synthesis of the chapter "5. Past pension reforms, targeting parametric changes and convergence between special and basic plans, generated significant savings."*

### 0.9 percent, on par with the European average, but significantly lower than the 2.6 percent growth in

### France: Productivity, Innovation, and Business Dynamism

### Productivity and R&D in Tech and Listed Firms
- Aggregate growth comparison:
  - France growth: 0.9 percent, on par with the European average, but significantly lower than the 2.6 percent growth in the US.
- Tech-sector productivity:
  - Productivity for French listed firms in the tech sector stagnated at an annualized rate of 0.1 percent, compared to 1.5 percent in the US.
- R&D intensity and innovation gap:
  - R&D expenditures for French tech firms averaged 3.6 percent of sales, like other European firms.
  - US tech firms had R&D spending of 12 percent of sales in 2023.
  - Given higher sales growth for US tech firms, the absolute R&D spending gap between France and the US is even more pronounced, contributing to a widening innovation gap.
- Frontier firms and measurement:
  - Productivity estimates are based on a non-parametric approach proposed by Gandhi and others (2020).
  - Europe in comparisons includes Belgium, Germany, Great Britain, Ireland, Italy, Netherlands, Spain, and Switzerland.
  - Frontier firms are publicly listed, typically larger firms; definitions for ‘gazelles’ and ‘laggards’ are preserved from the source.

### Financing, R&D Volatility, and Marginal Propensities to Invest
- Financing structure:
  - French firms are less dependent on equity than US firms.
  - Debt financing exposes firms to bank-related financial stress, which in past crises led distressed firms to reduce intangible asset investments.
- Cyclicality and sensitivity of R&D:
  - R&D investment in France is cyclical and sensitive to temporary liquidity shocks.
  - Firms facing significant financial frictions show higher marginal propensity to invest (MPI) during such periods.
- MPI and responsiveness to temporary sales shocks:
  - A temporary 1 percent increase in sales leads to:
    - 0.22 percent increase in investment for French listed firms.
    - 0.06 percent increase in investment for US firms.
- Historical crisis impact:
  - Firms with similar characteristics experienced a more significant reduction in R&D spending during 2008 and 2009 in France compared to the United States due to tightened financial constraints.
- Net equity issuance and volatility measures:
  - Volatility and net equity issuance comparisons across Europe, France, and the United States are documented for 2005–23 and 2006–23 periods in the source figures.

### Business Dynamism, Gazelles, and Financing Constraints
- Entry and growth dynamics:
  - Entry rates in France are similar to those in other European countries and the US.
  - The average entry rate of higher-quality firms (excluding microenterprises with fewer than ten employees) has nearly halved over the past decade.
  - Post-crisis catch up observed in the exit of less productive firms, but "up-or-out" dynamics remain relatively weak.
  - The growth distribution of firms in France is narrower across all age groups compared to the US and European peers.
  - Higher-growth firms in France scale up more slowly; lower-growth firms contract at a modest rate.
- Gazelles (high-growth startups):
  - High-performing startups show stronger sales growth compared to larger non-gazelle firms, but their representation in high-tech sectors remains below 10 percent.
  - Gazelles exhibit high marginal productivity of capital relative to larger firms throughout their lifecycle, indicating binding financing constraints that limit capital intensity and growth.
  - Constraints lead to higher borrowing costs for gazelles, especially those with larger proportions of intangible assets that cannot be used as collateral.
  - Firm-level analysis shows access to venture capital significantly enhances intangible assets and productivity following VC investment.

### Technology Diffusion from Frontier to Median Firms
- Widening technology gaps:
  - In 2005, the average technology gap with frontier firms was relatively similar in manufacturing and ICT sectors; by 2021 the gap widened, especially in ICT.
  - By 2021:
    - The median firm in manufacturing was about 49 percent as productive as a frontier firm.
    - The median firm in ICT was about 39 percent as productive as a frontier firm.
  - Firms at the 25th percentile are growing at a rate consistent with the median, implying slowed spillovers from highly productive firms to the broader distribution.

### Potential and Policy Directions
- Growth potential and bottlenecks:
  - French firms have significant potential for growth if access to equity financing and risk capital is improved.
  - Bottlenecks identified include a fragmented market and a limited supply of skilled labor; resolving these could significantly improve business dynamism and productivity.
- Policy priorities highlighted in the source:
  - Attracting and retaining talent and addressing skill mismatches to foster formation and scaling of young high-growth firms.
  - Improving access to risk capital and deepening the European single market.
  - Enhancing education and training systems.
  - Streamlining administrative barriers to facilitate growth and innovation among firms.

### Data and Surveillance Notes
- France adheres to the Special Data Dissemination Standard (SDDS) Plus since February 2015 and publishes data on its National Summary Data Page.
- Staff assessment:
  - The data provided to the Fund are adequate for surveillance.
  - The data are comprehensive, generally of high quality, and provided in a comprehensive manner; France is subject to Eurostat and ECB statistical requirements and has adopted the European System of Accounts 2010.
  - Critical need noted to close data gaps and establish metrics for monitoring broader system risks stemming from indirect exposures via NBFIs.

*Source: IMF chapter content (figures, notes, and text as provided in the supplied source PDF).*

### Annex VIII. Table 3. France: Table of Common Indicators Required for Surveillance

### Annex VIII. Table 3. France: Table of Common Indicators Required for Surveillance

### Data Provision and Statistical Metadata
- As of June 9, 2025: table title "Table of Common Indicators Required for Surveillance".
- Data dissemination framework: Entries reflect information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e-GDDS participants, available from the IMF Dissemination Standards Bulletin Board. For nonparticipants or where a National Data Summary Page is not available, entries are shown as "..." .
- Frequency and timeliness codes (as defined in the table):
  - “D” daily; “W” weekly or with a lag of no more than one week after the reference date; “M” monthly or with lag of no more than one month after the reference date; “Q” quarterly or with lag of no more than one quarter after the reference date; “A” annual; "SA" semiannual; "I" irregular; "NA" not available or not applicable; and "NLT" not later than.
- Items listed in the table include: Exchange Rates; International Reserve Assets and Reserve Liabilities of the Monetary Authorities; Reserve/Base Money; Broad Money; Central Bank Balance Sheet (including currency and maturity composition); Consolidated Balance Sheet of the Banking System; Interest Rates (both market-based and officially determined); Consumer Price Index; Revenue, Expenditure, Balance and Composition of Financing ‒ General Government and Central Government (foreign, domestic bank, and domestic nonbank financing); International Investment Position; Stocks of Central Government and Central Government-Guaranteed Debt; External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP; Gross External Debt.

### IMF Membership, Quota and SDR Information (as of May 31, 2025)
- Membership Status: Joined December 27, 1945; Article VIII.
- Quota and holdings:
  - Quota: 20,155.10 (SDR Million) — 100.00 percent of quota.
  - Fund Holding of Currency (total holdings): 14,740.13 (SDR Million) — 73.13 percent of quota.
  - Reserve Tranche Position: 5,415.14 (SDR Million) — 26.87 percent of quota.
- Lending to the Fund:
  - New Arrangements to Borrow: 18,958.32 (SDR Million).
- SDR Department:
  - Net Cumulative Allocation: 29,451.96 (SDR Million) — 100.00 percent of allocation.
  - Holdings: 27,370.19 (SDR Million) — 92.93 percent of allocation.
- Outstanding Purchases and Loans: None.

### Latest Financial Arrangements (historic)
- Stand-By arrangements:
  - Sep 19, 1969 — Sep 18, 1970 — Amount Approved 985.00 (SDR Million) — Amount Drawn 985.00 (SDR Million).
  - Jan 31, 1958 — Jan 30, 1959 — Amount Approved 131.25 (SDR Million) — Amount Drawn 131.25 (SDR Million).
  - Oct 17, 1956 — Oct 16, 1957 — Amount Approved 262.50 (SDR Million) — Amount Drawn 262.5 (SDR Million).

### Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs)
- Charges/Interest:
  - 2025: 31.37
  - 2026: 62.18
  - 2027: 62.18
  - 2028: 62.21
  - 2029: 62.15
  - 2030: 62.18
- Total:
  - 2025: 31.37
  - 2026: 62.18
  - 2027: 62.18
  - 2028: 62.21
  - 2029: 62.15
  - 2030: 62.18

### Exchange Rate Arrangements and Surveillance
- Exchange rate arrangement:
  - The currency of France is the euro.
  - The exchange rate arrangement of the euro area is free floating.
  - France participates in a currency union (EMU) with other members of the EU and has no separate legal tender.
  - The euro floats freely and independently against other currencies.
- Article VIII obligations:
  - France has accepted the obligations under Article VIII, Sections 2, 3, and 4 of the IMF’s Articles of Agreement.
  - France maintains an exchange system free of multiple currency practices and restrictions on the making of payments and transfers for current international transactions, except for exchange restrictions notified pursuant to Executive Board Decision No. 144-(52/51).

### Article IV Consultation, FSAP and AML/CFT
- Article IV:
  - Last Article IV consultation concluded on June 27, 2024.
  - France is on the standard 12-month consultation cycle.
- FSAP participation:
  - Financial System Stability Assessment (FSSA) for the last mandatory FSA discussed by the Board on July 22, 2019.
- AML/CFT:
  - France’s AML/CFT regime was found to be largely effective by the Financial Action Task Force (FATF) in 2022 and has since been further enhanced.

### Statement by French Executive Director and Authorities (July 7, 2025) — Key Economic Outlook Findings
- Growth and drivers:
  - Growth reached 1.2 % in 2024 (in volume terms, without adjustment for working day), according to Insee.
  - 2024 Article IV forecast was 0.9 % in volume terms (without adjustment for working day).
  - 2023 growth was 1.4 %.
  - Output growth in 2024 was driven by household consumption, dynamic exports and public demand.
- Short-term outlook:
  - 2025 growth is expected to moderate to 0.7 %.
  - 2026 growth is expected to rebound to 1.2 %.
  - Staff projections: 0.6 % for 2025 and 1.0 % for 2026.
  - As of the first quarter of 2025, France's carry-over growth stands at 0.3 %.
  - Unemployment rate in 2025Q1: 7.4 %.
  - Inflation expectations remain well anchored at around 2 %.
- Demand composition and risks:
  - Private consumption expected to drive growth given the decrease in inflation and associated increase in real disposable income.
  - Savings rate is at a high level, expected to slightly decline but remain significantly above historical trends.
  - Business investment expected to be held back by uncertainty but supported by more favorable financing conditions compared with 2024.
  - Increase in tariffs would slow trade and weigh on exports; France expected to be less directly affected by tightening trade policies than many European partners due to lower exposure to US demand.

### Fiscal Diagnostic and Strategy — Key Targets, Measures and Institutions
- Fiscal stance and targets:
  - France committed to implementing its Medium-term Fiscal Structural Plan (MTFSP) for 2025-2029 to progressively bring the deficit below 3 % of GDP by 2029.
  - Target for 2025 deficit under the MTFSP: 5.4 % of GDP.
- 2025 consolidation measures:
  - EUR 50 billion in savings included in the 2025 budget and Social Security Financing Acts — equivalent to 1.7 % GDP.
  - Measures include expenditure cuts by the State and its agencies, improved control over social spending, a reduction in tax exemptions, and targeted and temporary tax increases.
  - Local governments also contributed to the consolidation effort.
  - EUR 4.3 billion from ongoing multi-annual spending reviews were integrated in the 2025 budget.
  - Identified expenditure pressures imply that achieving the 5.4 % of GDP deficit target for 2025 remains achievable but conditional on another EUR 5 billion consolidation effort.
  - An additional EUR 5 billion consolidation effort was committed by the authorities during the committee’s first meeting on April 15.
- 2026 plans:
  - Government has publicly committed to an additional EUR 40 billion (1.4 % of GDP) of fiscal effort in 2026, relative to the spontaneous trajectory of expenditure and revenue.
  - An upcoming announcement around mid-July will detail key fiscal orientations.
- Governance, transparency and monitoring:
  - Action plan published in March 2025 to enhance public finance execution ("Plan d'action pour améliorer le pilotage des finances publiques").
  - "Cercle des prévisionnistes" committee established to strengthen macroeconomic forecast transparency and accuracy; first met on May 20, 2025.
  - "Alert Committee" to monitor fiscal execution established in April 2025; second meeting held on June 26, 2025; committee will meet again in September.
- European Commission assessment:
  - On June 4, the European Commission positively assessed the fiscal efforts outlined in the Government’s first Annual Progress Report (APR) and held in abeyance the excessive deficit procedure for France following adoption of a first package of effective measures.

### Staff and Authorities Alignment
- Authorities broadly concur with staff’s views on the economic outlook and the need to strengthen public finances and pursue reforms to enhance productivity.
- Authorities have begun engagement with Parliament, public communication, and dialogue with civil society and social partners to build political support and social buy-in for fiscal consolidation and reform efforts.
- Staff’s baseline scenario for the debt trajectory is a no policy change scenario and does not account for all planned consolidations under the MTFSP; staff’s recommended trajectory is broadly aligned with the MTFSP objective of putting the debt-to-GDP ratio on a downward trend and bringing the deficit back under 3 %.

*Source: Annex VIII. Table 3. France: Table of Common Indicators Required for Surveillance (As of June 9, 2025) and FRANCE STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX (prepared by European Department; data and statements as provided).*

### 2029. We concur with staff that short-term risk of sovereign debt distress remains low and that France’s

### 1fraea2025001-source-pdf - 2029. We concur with staff that short-term risk of sovereign debt distress remains low and that France’s

### Sovereign debt risk and market
- Short-term risk of sovereign debt distress remains low.
- France’s sovereign debt benefits from a deep and liquid market.

### Financial sector resilience and key indicators
- The French financial sector has proven resilient to a series of shocks.
- Banks:
  - Average regulatory capital ratio of 19.8 % as of end-2024.
  - Liquidity Coverage Ratio of 145 %.
  - Net Stable Funding Ratio of 116 %.
  - Fixed-rate mortgages and prudent borrower-based exposure limits have a stabilizing effect.
  - Recent decline in short-term rates will support banks’ net interest margins.
- Insurance sector:
  - Solvency well above regulatory requirements.
  - Solvency capital requirement coverage ratio reaching 238 % as of end-2024.
- Asset management sector:
  - Proved resilient and is ahead of the curve in terms of liquidity management tools adoption.
- Real estate:
  - Residential real estate market is starting to recover, helped by the gradual easing of borrowing costs.
  - Commercial real estate market is stabilizing but remains vulnerable to potential deterioration in the macroeconomic environment.
- Households:
  - Relatively high household indebtedness, but household default risk remains low due to conservative origination practices and macroprudential borrower-based measures introduced in 2019.

### FSAP findings, authorities’ view, and planned exercises
- Authorities appreciated the FSAP engagement, cooperative discussions, and in-depth assessment of systemic risks.
- Authorities have taken several actions since the 2019 FSAP to mitigate financial stability risks, following many staff recommendations.
- Authorities agree with FSAP stress test findings that the banking system is broadly resilient to severe but plausible macro-financial shocks, from both solvency and liquidity perspectives.
- Authorities and staff note growing interconnections between banks and non-bank financial intermediaries increase market complexity and warrant close monitoring.
- A pilot system-wide stress test exercise involving banks, insurers and asset managers is being finalized to be conducted in the second half of 2025 by Banque de France, Autorité de Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers.
- Financial intermediaries have limited direct exposure to US assets but remain exposed to a deterioration of the macroeconomic environment.

### Policy frameworks, governance, and authorities’ stance
- Authorities committed to further strengthening resilience through greater data sharing and enhanced supervisory coordination domestically and at the EU level.
- Macroprudential framework:
  - Authorities see merit in improving public communication and governance.
  - High Council for Financial Stability (HCSF) is regarded as well-functioning.
  - HCSF’s tailored approach enables a nuanced response to financial risks.
  - Authorities have proactively rebuilt releasable capital buffer (CCyB) since the COVID crisis.
  - Any evolution in overall buffer strategy would be considered in a holistic approach aimed at simplification.
- Crisis management and deposit insurance:
  - Authorities consider current FGDR target level for the deposit insurance fund to be adequate, stemming from EU legislation and based on a European Commission risk methodology.
- Governance:
  - Presence of a representative from the Ministry of Finance on supervisory boards is considered helpful and not a source of undue influence; authorities believe current governance can be maintained.

### Structural reform strategy — five pillars and priorities
- Authorities share staff’s view on advancing structural reforms to boost productivity and facilitate fiscal consolidation; they are fully committed.
- Broad priorities: policies promoting attractiveness and competitiveness at national and European levels; simplification; investing in green technologies; supporting innovation, upskilling and reindustrialization; investing in French and European defense capacity.

- Defense:
  - France adopted a multi-year military programming law for 2024-2030.
  - Plans to allocate 413 billion euros to defense over the coming years, a 40% increase compared to the previous law (2019-2025).
  - Authorities stand ready to mobilize private financing and implement reforms to create fiscal space to support defense spending.

- Pillar 1 — Public finances and expenditure efficiency:
  - Government determined to restore financial balance of the pension system by 2030.
  - Continue efforts to enhance efficiency of public spending.
  - Health system reforms (health accounts for 20 % of public spending) to improve efficiency, promote preventive care (including addressing medical desert), and streamline treatment pathways.
  - Rationalization of state aid ongoing following expenditure reviews.
  - Parliamentary assessment of government operators and agencies to review missions and potential overlaps to enable further rationalization and structural savings.
  - Strengthen human and technological resources to combat tax, social and custom evasion.

- Pillar 2 — Labor market and skills:
  - Labor market reforms since 2017 remain a top priority to promote employment, reinforce work incentives and skills, especially for those furthest removed from the job market.
  - Progressive implementation of recent reforms on unemployment benefits and pension system contributes to this goal.
  - Reform of the national employment agency (France Travail).
  - Investments in education and skills: improving proficiency in mathematics and French and encouraging girls to pursue scientific studies.

- Pillar 3 — Simplification and business environment:
  - Continued priority on simplification nationally and at the EU level to improve business environment and competitiveness.
  - Draft law on business simplification under discussion in Parliament to reduce regulatory burden and red tape for businesses, especially SMEs.
  - At the EU level, France supports Commission simplification initiatives to reduce excessive regulatory pressures while upholding sustainable finance and appropriate regulation.

- Pillar 4 — Reindustrialization and innovation financing:
  - Need to strengthen innovation financing and redirect resources to innovation-intensive firms, particularly in AI and green technologies, and improve targeting of R&D policies.
  - EU savings amounting to EUR 35,000 billion cited as an important source to finance innovation and industry in Europe.
  - To encourage investments, France and partners launched a pan-European label (“Finance Europe”) on June 5, 2025, for savings products invested for at least 70 percent in the European Economic Area.
  - Support for the Tibi initiative to promote institutional investor investments in innovative companies scaling up industrial and commercial operations.
  - Strong support for advancing the EU Savings and Investment Union to improve financing conditions and capital allocation.
  - Commitments to reduce energy costs and accelerate business digitalization and use of high-value technologies (AI, quantum computing, deep tech).
  - IMF staff estimate that widespread AI adoption could boost total factor productivity growth by 1.2 % over five years.
  - France actively positioning itself as an AI hub.

- Pillar 5 — Decarbonization and climate financing:
  - Government fully engaged in decarbonization with the goal of achieving carbon neutrality in 2050.
  - Authorities published a multi-year strategy on the financing of the climate transition, to be updated in autumn 2025.
  - Strategy complements state’s green budgeting (disclosed annually since 2020) by adding a mid-term perspective and private financing mobilization perspectives.
  - Agreement with staff that France’s comparative advantage in low-carbon technologies offers strong opportunities for technological development and growth.

### Authorities’ overall stance
- Authorities broadly agree with staff policy advice, especially on fiscal consolidation and structural reforms, and with the FSAP analysis.
- They have already begun work to strengthen public finances and enhance productivity and are committed to pursuing these efforts.

*Source: 1fraea2025001-source-pdf*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1fraea2025001-source-pdf.pdf_