{
  "title": "France: Staff Concluding Statement of the 2019 Article IV Mission",
  "publication": "IMF News, June 3, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/06/03/france-staff-concluding-statement-of-the-2019-article-iv-mission",
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  "summary": "France’s growth has slowed but remains resilient and job rich, in part reflecting important labor-market and tax reforms implemented in recent years.",
  "publishDate": "2019-06-03",
  "sections": [
    {
      "heading": "Key messages and overview",
      "content": "- France’s growth has slowed but remains resilient and job rich, in part reflecting important labor-market and tax reforms implemented in recent years.\n- Structural challenges persist: high public and private debt, still high structural unemployment, sluggish productivity growth, and inequality of opportunity.\n- Building on the government’s agenda, reforms must continue to address long-term challenges and bolster resilience to shocks; social consensus around reform priorities is essential."
    },
    {
      "heading": "Context and macro outlook",
      "content": "- Recent reforms: important labor-market and tax reforms legislated to support investment, jobs, and growth.\n- Labor market outcomes:\n  - Employment rate reached a ten-year high.\n  - Permanent work contracts increased.\n  - Unemployment rate declined to 8.7 percent at end-March 2019.\n- Growth projections and risks:\n  - Growth is expected to reach 1.3 percent this year and stabilize at around 1.5 percent in the medium term.\n  - Risks have increased: trade tensions, an uncertain Brexit outcome, possible renewed tensions inside the Euro Area, weaker-than-expected growth in Europe, and erosion of public support for reforms in France.\n- Fiscal and social context:\n  - Fiscal deficit declined to 2.5 percent of GDP last year.\n  - Public spending relative to GDP is the highest in Europe.\n  - Public debt has risen from around 20 to close to 100 percent of GDP.\n  - Private debt has also risen in recent years.\n  - Persistent concerns: elevated structural unemployment—especially for the youth, low-skilled, and non-EU immigrants—unequal educational and training opportunities, and inequality of opportunity."
    },
    {
      "heading": "Safeguarding fiscal sustainability and public-sector efficiency",
      "content": "- Current fiscal assessment:\n  - While low interest rates reduce immediate risk, the elevated debt level provides little comfort for the medium and long term.\n  - France’s public debt trend: increasing since the 1980s from around 20 to close to 100 percent of GDP today.\n- Required consolidation:\n  - An ambitious structural consolidation effort is needed to place debt on a firm downward path.\n  - A structural primary fiscal effort of some ½ percent of GDP per year during 2020-23 could reduce debt by close to 10 percent and bring the structural fiscal balance to its medium-term objective by 2023.\n  - For next year’s budget, consolidation measures should both offset the April relaxation measures and materially reduce the deficit.\n- Spending-side priorities to reconcile priorities with debt reduction:\n  - Rationalize public spending and increase efficiency to finance planned tax reductions and targeted investment (skills, environment, digitalization, innovation).\n  - 2018 spending containment is noted as a welcome step.\n- Specific reform measures to underpin consolidation and efficiency:\n  - Civil-service reform: streamline and improve flexibility and efficiency; target an ambitious decline in the workforce through attrition, especially at the local government level, to generate medium-term savings.\n  - Pension reform: unify existing pension systems under one scheme with common rules; consider accelerating the planned increase in the effective retirement age and linking it to life expectancy to safeguard long-term sustainability, improve intergenerational equity, boost labor-force participation, and generate fiscal savings.\n  - Unemployment-benefit reform: revise rules to calculate and cumulate benefits and reduce the maximum benefit level to generate fiscal savings, improve fairness, and incentivize work.\n  - Additional reform areas where spending is high relative to peers:\n    - Further rationalize tax expenditures and subsidies in selected areas (transport, housing).\n    - Streamline health costs (medical products, hospitals, outpatient centers) while protecting public health services and R&D spending.\n    - Improve allocation of educational spending among different levels (from secondary to primary and tertiary).\n    - Better target social benefits and streamline administrative costs (family, housing).\n    - Merge small municipalities and eliminate overlaps between local and central government functions to generate efficiency gains."
    },
    {
      "heading": "Supporting inclusive growth: employment and productivity",
      "content": "- Problem statement:\n  - High structural unemployment and inequality of opportunity weigh on living standards and create societal disparities across regions and vulnerable groups.\n- Policy focus:\n  - Full implementation of recent and planned labor-market reforms is crucial.\n  - Recent legislation: labor-code, apprenticeship, and professional-training reforms to increase labor market flexibility and opportunities for vulnerable groups.\n  - Implementation priorities: facilitate decision-making on extensions of branch agreements, finalize the electronic training app, and regulate training centers.\n  - Monitor reform effects and be ready to adjust if outcomes fall short.\n- Product and service market liberalization:\n  - Implementation of recent railway reform, the PACTE law, and upcoming measures to liberalize personal transport (auto schools, parts) and online sales of medicines will spur competition, entrepreneurship, and innovation.\n  - Further efforts to foster competition in regulated professions (accountants, lawyers, architects), sales (pharmacies), and retail distribution (authorization and registration requirements) would support lower prices and higher productivity.\n  - The combination of labor and product market reforms can create virtuous synergies to boost living standards."
    },
    {
      "heading": "Bolstering the financial system’s resilience",
      "content": "- FSAP findings and progress:\n  - Important progress made: unification of supervision and resolution under the European framework, establishment of the High Council for Financial Stability, implementation of the Banking Resolution and Restructuring Directive and Solvency II.\n  - Banks have improved capital positions and asset quality; banks and insurers’ balance sheets are presently resilient to simulated stress scenarios.\n- Three policy priorities identified:\n  - Further integration of conglomerate-level monitoring and oversight:\n    - France’s key banks are systemic, globally active, and interlinked with insurance and asset management institutions via financial-conglomerate structures.\n    - Common guidance, reporting, and stress testing at the conglomerate level can help ensure risks are identified and addressed.\n  - Preemptive management of cyclical risks:\n    - To address rising private debt, particularly by corporates, authorities have reduced the large exposure limit to indebted corporates and increased the countercyclical capital buffer (CCyB).\n    - Authorities should evaluate the effectiveness of these measures, continue to monitor risks closely, and be ready to further use macro and micro-prudential policies if needed (including a systemic risk buffer, other capital measures calibrated to corporate exposure, or adjusting the CCyB).\n    - Further reducing the tax bias favoring debt rather than equity financing could help limit leverage.\n  - Maintaining adequate liquidity management and buffers:\n    - Aggregate bank liquidity buffers appear adequate, but authorities could consider additional liquidity buffers in all currencies to minimize risks from potential disruptions in wholesale funding during severe shocks.\n    - Bancassurance liquidity-risk management requirements could be strengthened.\n    - Common supervisory guidance on liquidity-risk management within financial conglomerates is desirable, including for asset-management operations."
    },
    {
      "heading": "Conclusions",
      "content": "- Continued reform momentum is needed across fiscal policy, labor markets, product and service markets, and the financial sector to address structural challenges and bolster resilience.\n- Social consensus on reform priorities is essential to ensure success and to benefit all citizens and future generations.\n- The mission thanks the authorities for their constructive policy dialogue and kind hospitality.\n\nFrance: Staff Concluding Statement of the 2019 Article IV Mission — IMF Communications Department, June 3, 2019.\n\n---\n\n\n References\n\n- France and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/06/03/france-staff-concluding-statement-of-the-2019-article-iv-mission"
    }
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    "Published: June 3, 2019",
    "France’s growth has slowed but remains resilient and job rich, in part reflecting important labor-market and tax reforms implemented in recent years.",
    "Structural challenges persist: high public and private debt, still high structural unemployment, sluggish productivity growth, and inequality of opportunity.",
    "Building on the government’s agenda, reforms must continue to address long-term challenges and bolster resilience to shocks; social consensus around reform priorities is essential.",
    "Recent reforms: important labor-market and tax reforms legislated to support investment, jobs, and growth.",
    "Labor market outcomes:",
    "Growth projections and risks:",
    "Fiscal and social context:",
    "Current fiscal assessment:",
    "Required consolidation:",
    "Spending-side priorities to reconcile priorities with debt reduction:",
    "Specific reform measures to underpin consolidation and efficiency:",
    "Problem statement:",
    "Policy focus:",
    "Product and service market liberalization:",
    "FSAP findings and progress:",
    "Three policy priorities identified:",
    "Continued reform momentum is needed across fiscal policy, labor markets, product and service markets, and the financial sector to address structural challenges and bolster resilience.",
    "Social consensus on reform priorities is essential to ensure success and to benefit all citizens and future generations.",
    "The mission thanks the authorities for their constructive policy dialogue and kind hospitality.",
    "[France and the IMF](http://www.imf.org/external/country/FRA/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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