## Economies in the Financial Spotlight in 2021 _IMF Blog, May 6, 2021_ ## Source details **Canonical URL:** [Economies in the Financial Spotlight in 2021](https://www.imf.org/en/blogs/articles/2021/05/06/economies-in-the-financial-spotlight-in-2021) ## Other formats - [Markdown version](/en/blogs/articles/2021/05/06/economies-in-the-financial-spotlight-in-2021/index.md) - [Structured JSON version](/en/blogs/articles/2021/05/06/economies-in-the-financial-spotlight-in-2021/index.json) - [Bundle manifest](/en/blogs/articles/2021/05/06/economies-in-the-financial-spotlight-in-2021/bundle-manifest.json) ## Bibliographic details - Published: May 6, 2021 --- ### Global overview of FSAP and 2021 program - The Financial Sector Assessment Program (FSAP) assesses financial vulnerabilities and strengthens financial systems; assessments for advanced economies are done by the IMF alone, while those for other economies are typically carried out jointly with the World Bank. - The IMF considers country-specific features and tailors analysis to each member participating in the program. - The IMF’s Executive Board will soon conduct a periodic review of the FSAP. - In 2021, the IMF plans to assess the stability of six financial systems. - Two assessments cover economies with large financial systems: United Kingdom, Hong Kong SAR. - The remaining four focus on emerging market and frontier economies: Chile, Philippines, South Africa, Georgia. - For economies with large, systemically important financial systems it is mandatory to undergo financial stability assessments every five years; for others, assessments are carried out at the request of their governments. ### Chile — assessment focus and vulnerabilities - Chile features very large and deep local markets compared to other economies of similar size and level of development. - The assessment will focus on the resiliency of the financial system, which exhibits a high level of interconnectedness between banks, mutual funds, pension funds, and insurance companies. - Emphasis areas: - Resiliency in light of shocks experienced in the fourth quarter of 2019 and during the pandemic. - Effectiveness of banking, insurance, and financial market supervision following the reorganization and consolidation of the regulatory structure. - Macroprudential policy coordination and the closing of regulatory gaps. - COVID-related forbearance measures. ### Hong Kong SAR — assessment focus and vulnerabilities - Hong Kong SAR is a small, open economy and a major international financial center with extensive linkages to mainland China. - Key vulnerabilities and themes: - Cross-sectoral and cross-border linkages. - Stretched real estate valuations. - Exposure to shifts in global market and domestic risk sentiment. - Assessment scope: - Review of regulatory and supervisory frameworks for fintech developments. - Regular risk and regulatory assessments of banking, securities and insurance markets. - Review of crisis management arrangements and macroprudential frameworks. - Detailed assessment of payments and financial market infrastructures. ### Georgia — assessment focus and vulnerabilities - Georgia is a small, open economy with a moderately-sized financial sector comprised almost entirely of banks. - Features and risks: - Banking system is relatively concentrated and highly dollarized in both deposits and lending. - High credit risks from unhedged borrowers of banks’ loans in foreign currency in case of currency depreciation. - Assessment focus: - Banks’ solvency and liquidity risks. - Banking supervisory oversight. - Macroprudential policy, especially regarding risks from financial dollarization. - Financial safety nets, including bank resolution and deposit insurance. - World Bank role: - Examine financial sector competition. - Assess oversight of markets and payments systems. - Provide guidance for development of capital markets and access to finance for small and medium enterprises. ### Philippines — assessment findings and scope (concluded March 2021) - The Philippines' assessment was just concluded in March 2021. - Context and features: - The country is now recovering from the impact of COVID-19. - Banks dominate the financial system and entered the pandemic with solid capital and liquidity buffers. - Banks are closely interconnected with nonfinancial corporations where market analysts forecast significant earning shocks, especially in retail, tourism, transportation, and construction industries. - The economy is vulnerable to physical risks from climate change owing to its geographical position. - Risk assessment examined: - Bank resilience against COVID-19 shocks and physical risks (typhoon). - Interconnectedness with nonfinancial corporations. - Bank oversight, macroprudential policy, and safety-net arrangements. - World Bank role: - Investigated oversight and developmental issues of insurers, payment systems, capital markets, and credit reporting. - Examined climate change and environment risks supervision and deepening markets for green growth. ### South Africa — assessment focus and vulnerabilities - South Africa is home to Africa’s largest financial sector, with large cross-border banking groups and a well-developed investment fund and insurance sector. - Assessment context: - Difficult environment of subdued growth and large fiscal deficits. - Fiscal pressures exacerbated by a weak financial position of state-owned enterprises and the ongoing health and economic impact of COVID. - Assessment focus: - Importance of capital flows to the financial sector will underpin the “capital-flows-at-risk” analysis. - Assessment of systemic liquidity management and macroprudential policy. - Examination of banking, insurance, and securities markets. - Pension and cyber risk supervision; crisis management and resolution; fintech; financial inclusion; climate risk; and capital markets development. ### United Kingdom — assessment focus and vulnerabilities - The United Kingdom is one of the world’s most complex and open financial systems, hosting several globally systemic entities and a large domestic financial sector. - Assessment context and risks: - The 2021 FSAP will take place during a challenging macrofinancial period. - UK institutions have proven resilient to the pandemic’s sharp economic contraction, but there could be scars that challenge profitability prospects of the financial system. - The United Kingdom’s exit from the European Union will lead to structural changes. - New developments deserve attention: growing share of market-based finance, adoption of new technologies, and the increasing importance of climate change and cyber risks. - Assessment scope: - Examine risks in these areas and assess the adequacy of the oversight framework to safeguard financial stability. *Source: IMF blog post “Economies in the Financial Spotlight in 2021,” May 6, 2021.* --- ## References - [global financial system](https://www.imf.org/en/Publications/GFSR/Issues/2021/04/06/global-financial-stability-report-april-2021) - [Financial Sector Assessment Program](https://www.imf.org/external/np/fsap/fssa.aspx) - [Countries in the IMF Financial Spotlight in 2020](https://blogs.imf.org/2020/01/30/countries-in-the-imf-financial-spotlight-in-2020/) - [Countries in the IMF Financial Spotlight in 2019](https://blogs.imf.org/2019/01/16/countries-in-the-imf-financial-spotlight-in-2019/) - [Countries in the IMF Financial Spotlight in 2018](https://blogs.imf.org/2018/01/31/countries-in-the-imf-financial-spotlight-in-2018/) - [Countries in the IMF Financial Spotlight in 2017](https://blogs.imf.org/2017/01/05/countries-in-the-imf-financial-spotlight-in-2017/) _Source: https://www.imf.org/en/blogs/articles/2021/05/06/economies-in-the-financial-spotlight-in-2021_