{
  "title": "Luxembourg: Staff Concluding Statement of the 2020 Article IV Mission",
  "publication": "IMF News, February 14, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission",
  "canonical": "https://www.imf.org/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission",
  "overlayPath": "/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission/index.md",
  "summary": "IMF mission led by Mr. Emil Stavrev visited Luxembourg during February 3-14 to conduct the 2020 Article IV consultation.",
  "publishDate": "2020-02-14",
  "sections": [
    {
      "heading": "Context and recent performance",
      "content": "- IMF mission led by Mr. Emil Stavrev visited Luxembourg during February 3-14 to conduct the 2020 Article IV consultation.\n- Growth performance:\n  - 2018 growth: 3.1 percent.\n  - 2019 estimated growth: 2.6 percent.\n- Labor market: solid employment gains and a significant decline in unemployment, though the labor market is cooling off somewhat.\n- Data and statistics: frequent and substantial GDP revisions noted; recent addition to national accounts staff at STATEC welcomed, but substantially more resources recommended.\n- Fiscal position: gross public debt remains low and structural fiscal balance well above the Medium-Term Objective (MTO).\n- Tax transparency: strong commitment to international anti-tax avoidance and transparency initiatives has bolstered reputation."
    },
    {
      "heading": "Outlook and downside risks",
      "content": "- Medium-term GDP growth: projected to remain strong, underpinned by robust domestic demand and net export of services.\n- External risks:\n  - Rising protectionism.\n  - A sharp increase in risk premia could raise financial volatility and hit financial sector profitability.\n  - Changes in global corporate taxation could pose non-negligible fiscal revenue risks by reallocating taxing rights to jurisdictions where MNEs’ customers are located.\n- Domestic risks:\n  - Continued high growth of real estate prices could reduce housing affordability and exacerbate household indebtedness."
    },
    {
      "heading": "Fiscal policy assessment and recommendations",
      "content": "- 2020 fiscal stance:\n  - Government adopted an expansionary budget for 2020 with permanent spending increases on wages and plans to step up public investment.\n  - Government envisages an ambitious tax reform package including: (i) generalizing individual taxation to enhance labor market participation; (ii) reforming environmental taxation; (iii) modernizing housing taxation.\n- Revenue risks:\n  - Corporate income tax revenues have increased partly due to temporary factors.\n  - Transposition of EU Anti-Tax Avoidance Directive II into national law and other international initiatives could strengthen the tax base but may also be changing MNE behavior.\n  - Fundamental international taxation changes under discussion could lead to a non-negligible tax revenue loss.\n- Policy recommendations:\n  - Maintain a prudent fiscal policy and preserve comfortable buffers given fiscal risks from global tax reforms.\n  - Target an overall structural surplus of around 1 percent of GDP.\n  - Explore options to diversify revenues, including:\n    - Increase low transport taxes, for example by introducing one-off car registration fees.\n    - Remove preferential VAT treatment of heating energy while protecting the most vulnerable.\n    - Modernize outdated property valuation.\n  - Improve public investment efficiency by strengthening the budgetary framework (such as introducing a spending review mechanism) and governance arrangements (notably conducting independent and systematic ex-post project evaluations).\n  - Carefully consider potentially large fiscal risks from intended domestic tax reforms."
    },
    {
      "heading": "Financial sector resilience: findings and recommendations",
      "content": "- Overall assessment:\n  - Financial sector has coped well with low-for-long interest rates.\n  - Banks’ profitability overall comfortable but with wide variation across segments; commission-based activities faring better.\n  - Investment funds posted a strong performance though search for yield has continued.\n  - Life insurance sector performed well, reflecting a prudent business model and increased activity partly due to Brexit.\n- Vulnerabilities:\n  - Structural profitability issues in some banking segments (high reliance on capital market developments; relatively low cost-efficiency).\n  - Build-up of balance-sheet vulnerabilities: larger liquidity mismatches in the fund sector; greater reinvestment risk for life-insurance companies due to search-for-yield.\n- Stress test results (top-down by supervisory authorities):\n  - (i) Banks have generally sufficient capital and liquidity buffers to withstand severe macro/liquidity shocks.\n  - (ii) Bond funds could meet large redemptions under stressed market conditions within a reasonable timeframe.\n  - (iii) Insurance companies would generally remain solvent in the face of severe shocks.\n- Follow-up and specific recommendations:\n  - Continue to follow up on 2017 FSAP recommendations to further strengthen financial sector resilience.\n  - Banks:\n    - Completion of resolution planning for most less systemic institutions (LSIs) is welcome.\n    - Continue efforts to strengthen supervision of banks’ large cross-border exposures and review waivers to large exposure limits for intra-group transactions.\n    - Maintain high engagement with supervisors of parent/group of Luxembourg’s LSIs located outside the euro area.\n  - Investment funds:\n    - CSSF’s active involvement in EU-level discussions (including ESMA liquidity stress test guidance) is welcome.\n    - Authorities involved in macroprudential policy should take lead roles internationally on: (i) guidance on liquidity management tools; and (ii) design of macroprudential toolkit for investment funds.\n    - Continue progress on a risk dashboard, close data gaps (asset liquidity and average maturity), strengthen liquidity stress testing capacity, build system-wide indicators for leverage and asset quality, and develop methodologies for system-wide liquidity stress testing.\n  - Macroprudential policy and governance:\n    - Adoption of the borrower-based limits law, publication of macro-financial risk analysis substance, and preparatory work for a national credit register are welcome.\n    - Authorities appropriately increased the counter-cyclical capital buffer, but activation of borrower-based limits is recommended to address growing household balance-sheet vulnerabilities.\n    - De-facto lead role of Banque Centrale du Luxembourg (BCL) in financial stability analysis and operational independence of the CSSF and the CAA should be enshrined in legislation.\n  - Money laundering and terrorist financing (ML/TF):\n    - 5th EU Anti-Money Laundering Directive expected to be fully transposed into national law this spring, including registries for ultimate beneficiary owners of trusts and fiduciaries as well as bank accounts.\n    - CSSF efforts to address ML/TF risks (implementation of 2019 EBA peer review recommendations, issuing circular on determining beneficial ownership, conducting sub-sectoral risk assessment) should continue.\n    - Vertical risk assessment targeting virtual assets and terrorism financing will be carried out this year following National Risk Assessment recommendations."
    },
    {
      "heading": "Boosting potential and making growth more inclusive: housing and labor market policies",
      "content": "- Housing market and supply-side constraints:\n  - Real house prices continued rising rapidly in 2019, weighing on affordability.\n  - Recommendations to expand housing supply:\n    - Modernize rigid urban zoning and planning and administrative rules.\n    - Amend the law on communal development to increase supply of buildable land.\n    - Adopt Pacte Logement 2.0 by end-2020; this is welcomed and would link municipal subsidies to amount of social housing built.\n    - Establish a national register for social housing.\n    - Gradually phase out sizeable tax incentives that support housing demand while sheltering vulnerable groups.\n- Labor market and inclusion:\n  - Structural unemployment remains relatively high despite strong job creation; vulnerable groups include women, older workers, and low-skilled workers.\n  - Recommendations to reduce structural unemployment:\n    - Address disincentives from the tax/benefit system to raise participation of vulnerable groups.\n    - Generalizing individual taxation would help make the tax system more gender-neutral by reducing the marginal tax rate applied to secondary earners’ income, often women.\n    - Further reduce generosity of the welfare system by phasing out early retirement benefits, combined with planned introduction of the Occupational Inclusion Assistance, to increase elderly labor market participation.\n    - Revenu d’Inclusion Sociale recently implemented and would alleviate some work disincentives, especially for low-skilled and older workers.\n    - Continue skill foresight exercises and explore future skill needs; build on initiatives such as the Digital Skills Bridge program."
    },
    {
      "heading": "Closing",
      "content": "- Luxembourg has space to fund envisaged public spending increases and the ambitious tax reform package, but preserving comfortable fiscal buffers and contingency planning is important given external and taxation-related risks.\n- Continued implementation of financial sector reforms and macroprudential measures is recommended to strengthen resilience.\n- Structural reforms in housing and labor markets are critical to improve affordability, reduce household vulnerabilities, and make growth more inclusive.\n- The mission thanks the authorities and other interlocutors for constructive discussions.\n\nInternational Monetary Fund — Staff Concluding Statement of the 2020 Article IV Mission (February 14, 2020)\n\n---\n\n\n References\n\n- Luxembourg and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission"
    }
  ],
  "bullets": [
    "[Markdown version](/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission/index.md)",
    "[Structured JSON version](/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission/index.json)",
    "[Bundle manifest](/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission/bundle-manifest.json)",
    "Published: February 14, 2020",
    "IMF mission led by Mr. Emil Stavrev visited Luxembourg during February 3-14 to conduct the 2020 Article IV consultation.",
    "Growth performance:",
    "Labor market: solid employment gains and a significant decline in unemployment, though the labor market is cooling off somewhat.",
    "Data and statistics: frequent and substantial GDP revisions noted; recent addition to national accounts staff at STATEC welcomed, but substantially more resources recommended.",
    "Fiscal position: gross public debt remains low and structural fiscal balance well above the Medium-Term Objective (MTO).",
    "Tax transparency: strong commitment to international anti-tax avoidance and transparency initiatives has bolstered reputation.",
    "Medium-term GDP growth: projected to remain strong, underpinned by robust domestic demand and net export of services.",
    "External risks:",
    "Domestic risks:",
    "2020 fiscal stance:",
    "Revenue risks:",
    "Policy recommendations:",
    "Overall assessment:",
    "Vulnerabilities:",
    "Stress test results (top-down by supervisory authorities):",
    "Follow-up and specific recommendations:",
    "Housing market and supply-side constraints:",
    "Labor market and inclusion:",
    "Luxembourg has space to fund envisaged public spending increases and the ambitious tax reform package, but preserving comfortable fiscal buffers and contingency planning is important given external and taxation-related risks.",
    "Continued implementation of financial sector reforms and macroprudential measures is recommended to strengthen resilience.",
    "Structural reforms in housing and labor markets are critical to improve affordability, reduce household vulnerabilities, and make growth more inclusive.",
    "The mission thanks the authorities and other interlocutors for constructive discussions.",
    "[Luxembourg and the IMF](http://www.imf.org/external/country/LUX/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/)",
    "[Article IV](http://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
  "alternates": {
    "markdown": "/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission/index.md",
    "json": "/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission/index.json",
    "bundleManifest": "/en/news/articles/2020/02/14/mcs021420-luxembourg-staff-concluding-statement-of-the-2020-article-iv-mission/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-25T23:27:14.759Z"
}