## IMF Concludes 2002 Article IV Consultation with Austria

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### Background
- Real GDP growth is projected to average 1 percent in 2002, supported by a recovery in investor confidence and strong competitiveness.
- After decelerating sharply in 2001, economic growth in Austria is projected to strengthen gradually during 2002, parallel to the expected improvement in the global economic climate.
- Unemployment rate remains about 4 percent, described as one of the lowest in Europe.
- Headline inflation: after rising to above 2 percent in 2001, subsided to 1.6 percent in May.
- Fiscal policy:
  - After years of policy drift, fiscal policy had targeted balancing the general government budget by 2002.
  - The government’s 2001-02 adjustment program combined a tax package, savings on expenditures at the federal level, and savings by the subnational levels of government.
  - General government balance was reached in 2001, one year ahead of schedule, due to cautious budgeting on the revenue side, larger-than-expected effects from the tax measures of the adjustment program, and strict expenditure discipline.
  - The government intends to stick to its fiscal adjustment plan in 2002.
- Financial sector:
  - Benefited from globalization, particularly expansion in central and eastern Europe.
  - Supervisory and prudential frameworks adapted, notably with creation of a unified and independent supervisory agency.
  - The agency (responsibility for banks, insurance companies, capital markets and pension funds) began operations on April 1, 2002.
- Structural reforms:
  - First phase of the authorities’ privatization program concluded.
  - Liberalization of the electricity and gas markets to be completed ahead of EU deadlines.
  - An independent competition authority established.
  - Legislation introduced to streamline regulatory and administrative requirements for businesses.

### Executive Board Assessment
- Overall appraisal:
  - Directors commended Austria’s solid growth performance and low unemployment and inflation.
  - Conditions are in place for a gradual strengthening of activity in the second half of 2002, due largely to the authorities’ sound macroeconomic and structural policies.
  - Directors recommended continued focus on medium- and long-term objectives to sustain performance and address population aging and globalization.
- Fiscal policy:
  - Commended progress toward a greater medium-term orientation.
  - Setting general government balance as the medium-term fiscal objective and implementing adjustment measures were important steps.
  - Directors endorsed planned continuing fiscal retrenchment in 2002, noting economic outlook and supportive monetary conditions.
  - Welcomed intention to implement permanent expenditure reduction measures to replace last year’s one-off revenue measures.
  - Stressed importance of safeguarding credibility of fiscal strategy; any relaxation of the fiscal stance in coming years would be undesirable.
  - Some Directors noted fiscal surpluses would be appropriate when economic activity is strong.
  - Emphasized that lower levels of government must contribute to adjustment within Austria’s “internal stability pact,” and that public sector wage restraint is critical.
- Tax policy:
  - Endorsed strategic goal of substantially reducing the tax ratio over the medium term, but cautioned against jeopardizing fiscal prudence.
  - Urged combining tax relief with reductions of public expenditure to avoid endangering general government balance.
  - Recommended a more detailed and comprehensive medium-term fiscal policy framework—including medium-term expenditure targets—to ensure consistency, illustrate tradeoffs, and increase transparency; welcomed authorities’ intention to adopt this approach.
- Population aging and pensions:
  - Urged authorities to address severe consequences of population aging, a serious threat to sustainability of public finances.
  - Noted public awareness of the threat remains limited and preparations have been slow.
  - Pension reforms aimed at extending working life and containing benefits are needed urgently.
  - Several Directors saw a case for more ambitious fiscal consolidation in the long-run context and warned against complacency.
- Financial sector supervision:
  - Commended institutional and legislative changes strengthening supervisory and prudential framework, in particular creation of the Financial Market Authority (FMA).
  - Recommended close cooperation between FMA and the Austrian National Bank to avoid gaps and duplication.
  - Urged continued vigilance given growing cross-border linkages, and closer cooperation with supervisors in other countries—particularly in Central and Eastern Europe.
  - Noted Austria is complying fully with all recommendations of the Financial Action Task Force.
  - Welcomed authorities’ commitment to participate in a Financial Sector Assessment Program at an early juncture.
- Structural reforms and labor market:
  - Encouraged reinforcement of privatization, deregulation, regulatory reform, and greater labor market flexibility to strengthen competition and raise growth potential amid globalization and EU enlargement.
- Official development assistance:
  - Welcomed plans to raise official development assistance to at least 0.33 percent of GNP by 2006, and encouraged increasing it further toward the international benchmark of 0.7 percent of GNP.

### Selected Economic Indicators
- Table header: 1998          1999          2000          2001          2002 1
- Real economy (change in percent)
  - GDP
    - 3.52.83.0             1.01.0
  - Domestic demand
    - 2.72.82.5             0.20.7
  - CPI (year average)
    - 0.80.52.0             2.31.8
  - Unemployment rate (in percent)
    - 4.53.93.7             3.64.3
  - Gross national saving (percent of GDP)
    - 23.622.120.8           21.620.7
  - Gross domestic investment (percent of GDP)
    - 26.125.324.9           23.822.9
- Public finance (percent of GDP)
  - Central government balance
    - -3.2-2.6-1.8            -0.7-1.2
  - General government balance
    - -2.5-2.4-1.7            -0.1-0.5
  - General government debt
    - 71.369.563.2           61.760.2
- Money and credit
  - (end of year, percent change)
  - Domestic credit
    - 5.14.97.5             3.8...
  - M3
    - 3.0 4.7 2.6 7.3 ...
- Interest rates (in percent)
  - Money market rate
    - 2  3
      3.53.04.4             4.33.4
  - Government bond yield
    - 3
      4.74.75.6             5.15.1
- Balance of payments (percent of GDP)
  - Trade balance
    - -1.7-1.7-1.5            -0.6-0.7
  - Current account
    - -2.5-3.2-2.5            -2.2-2.2
- Fund position (as of May 31, 2002)
  - Holdings of currency (in percent of quota)
    - 65.9
  - Holdings of SDRs (in percent of allocation)
    - 78.8
  - Quota (in millions of SDRs)
    - 1,872.3
- Exchange rate
  - Exchange rate regime
    - Member of  euro area
  - Euros per U.S. dollar (June 27, 2002)
    - ......1.08           1.121.01
  - Nominal effective rate (1990=100)
    - 103.1         102.1         99.9         100.2         100.4
  - Real effective rate (1990=100)
    - 5
      8280.378.8           78.578.7

*Public Information Notice (PIN) No. 02/89, August 14, 2002.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02184.pdf_