Selected Issues Papers

IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries.

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July 11, 2023

Household Vulnerabilities, Financial Stability, and the Role of Policies in Portugal

Description: Since the pandemic, developments in the real estate market in Portugal suggest that housing vulnerabilities have increased. Rising living costs and interest rates are stretching household finances which could cause an increase in defaults or force households to cut back on consumption. Simulation results suggest that, under adverse conditions, almost half of all households could be financially stretched with a disproportionate effect on lower income households. In addition, one third of consumers may need to adjust spending although the estimated reduction in aggregate consumption is limited. The impact on the banking system is manageable but a sharp house price correction could have a material impact on capital buffers. Policy support aimed at tacking the cost of living crisis could help mitigate some of these risks.

July 11, 2023

Labor Market and Digitalization in Portugal

Description: This paper analyzes Portugal's labor market and digitalization trends during COVID-19. Portugal had a milder impact on its labor market than previous recessions, with smaller employment declines and less unemployment. However, labor force participation sharply dropped, especially among low-skilled and young workers. Contact-intensive and non-digital jobs and young and low-skilled workers were disproportionately affected. Conversely, digital employment in Portugal grew while non-digital employment decreased. Regression analysis for Europe and the US suggests a temporary rise in digital employment during the pandemic. Policy emphasis on digitalization investments and skills development is crucial for a resilient labor market in Portugal, considering future shocks.

July 10, 2023

Inflation in Portugal: Recent Trends, Drivers, and Risks

Description: This paper examines recent trends, main drivers, and risks to near-term inflation in Portugal. Before the energy crisis, inflation in Portugal was low, often below the Euro Area average, but it accelerated quickly in the second half of 2022. Our estimated Phillips curve regression suggests that, similarly to other Euro Area countries, inflation in Portugal has been largely driven by food and external prices pressures. Inflation is projected to gradually decrease, reflecting receding energy prices and anchored inflation expectations. However, uncertainty remains high and inflation could remain elevated, especially if the inflationary process became backward looking or wage-inflation spirals are induced by pressures from energy prices.

July 7, 2023

Causes and Implications of Elevated Inflation in Cyprus

Description: Inflation has risen sharply in Cyprus, initially driven by imported prices, but increasingly broadening to domestic prices. A Phillips Curve estimate attributes the high inflation largely to energy prices, external price pressures, and inflation expectations at the end of 2022. Historically high pass-through of inflation shocks to wages—amplified by a tight labor market—may make inflation persistent. This calls for policies to stem inflationary pressures while protecting vulnerable households.

July 7, 2023

Residential Property Price Developments and (Mis)alignments in Cyprus

Description: Residential house prices in Cyprus show no signs of overvaluation in international comparison, and various indicators confirm that prices are aligned with economic fundamentals. However, still-high household debt poses a risk. Regional disparities raise some concerns about affordability, notably in Limassol, calling for supply-side measures to increase housing supply.

June 26, 2023

Public Procurement in South Africa: Issues and Reform Options

Description: The 2015 Supply Chain Management Review lays out a sound agenda for procurement reform. The ongoing work on a new procurement bill and regulations are an important opportunity to spearhead procurement reform and step-up implementation. Several important reform aspects worth prioritizing are the simplification and standardization of aprocurement procedures, the standardization of transparency requirements through the adoption of the Open Contracting Data Standards, transitioning to a new e-procurement system that is linked to the government’s integrated financial management information system (IFMIS) and other systems, making preferential procurement more cost effective and goal oriented, and strengthening staff capacity to carry out procurement. Opportunities to centralize procurement should be further explored to leverage and develop limited capacity.

June 26, 2023

South Africa Carbon Pricing and Climate Mitigation Policy

Description: Meeting South Africa’s ambitious climate objectives will require a comprehensive strategy that includes a more effective use of carbon pricing policy, reducing inefficient government subsidies that have delayed the green transition, well-targeted support to affected industries and households, and other green financial and sectoral measures. Implemented well, the mitigation policy package would promote low-carbon investments, raise government revenues, and support economic growth.

June 19, 2023

Inflation Dynamics in the West African Economic and Monetary Union: WAEMU

Description: This paper analyzes recent inflation developments in the WAEMU. As in all inflation spikes in the past two decades, food is the main driver of inflation. The contribution from energy prices is also increasing, while inflation contagion effects are still limited to a few sectors. The share of professionals that believe that inflation will continue above the target within the one-year horizon is at high levels compared to 2021. Based on projections from two models, the chapter also evaluates the appropriate monetary policy responses to the recent inflationary pressures. The results suggest that inflation is expected to converge to its target range within 24 months given the reduction of exogenous shocks weighing-in on food and energy prices, the exhaustion of base effects as well as a reduction in supply and demand imbalances. However, numerous external and internal factors affect inflation prospects and should be carefully monitored, given the pronounced uncertainty surrounding geopolitical and economic developments, and further monetary policy tighten would be necessary unless downside risks to forecasts for baseline inflation and external buffers improve.

June 13, 2023

The Link Between Social Grant and Employment in South Africa

Description: The literature has analyzed the link between social grants, means-tested and unconditional on employment, and employment in South Africa. The country’s social grant expenditure is relatively large amid persistently high unemployment. This study uses a large panel household survey spanning a decade to find that old-age and disability grant recipients are less in employment as intended by the social program, consistent with the literature. The study adds to the literature by showing that, among “indirect recipients,” younger members typically have lower employment prospects than other indirect recipients. There could be various explanation for this finding, including that the youth are more discouraged from seeking jobs, face larger constraints in the labor market, or have less job opportunities.

June 5, 2023

Food Insecurity and Climate Shocks in Madagascar: Republic of Madagascar

Description: Food insecurity dramatically increased in Madagascar over the last 10 years, hampering human development. Using most recent data and surveys conducted by UN Agencies and local authorities, this paper analyzes the root causes of food insecurity in Madagascar related to demographic vulnerabilities, multidimensional poverty, lack of education, as well as structural weaknesses in the food value chain and the lack of basic infrastructure, such as irrigation and transportation, that hamper agricultural activity development. Moreover, Madagascar is exposed to a large variety of climate shocks that climate change will likely exacerbate. This paper formulates country specific macroeconomic and operational policy recommendations in collaboration with the World Food Program to reduce food insecurity, which include i) measures to improve the emergency response and preparedness, ii) policies to address structural food insecurity, by improving the food chain and addressing challenges posed by climate shocks, and iii) measures to improve Green PFM and climate related public investment management to invest in long-term resilience and mobilize external financing.

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