{
  "title": "Principality of Liechtenstein: Staff Concluding Statement for the 2025 Article IV Mission",
  "publication": "IMF News, January 20, 2025",
  "sourceUrl": "https://www.imf.org/en/news/articles/2025/01/20/concluding-statement-25-liechtenstein",
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  "summary": "Principality of Liechtenstein: Staff Concluding Statement for the 2025 Article IV Mission",
  "publishDate": "2025-01-20",
  "sections": [
    {
      "heading": "Context",
      "content": "- Liechtenstein became the IMF’s newest member in October 2024 and is participating in its first Article IV consultation.\n- High per capita income, fiscal framework with no deficits since 2013, virtually no public debt, and accumulation of large fiscal buffers.\n- Economy underpinned by specialized and export-oriented manufacturing and private banking and wealth management oriented financial services.\n- Close economic ties with Switzerland and the EU."
    },
    {
      "heading": "Recent economic developments and outlook",
      "content": "- Recent volatility and consecutive shocks:\n  - Output contracted in 2020 with COVID-19 and strongly rebounded in 2021.\n  - The economy contracted again in 2022-23 reflecting export disruptions and spillovers from Russia’s war in Ukraine.\n- Labor market:\n  - Unemployment lower than the EU average.\n  - Labor market remains tight due to skills shortages and labor hoarding.\n- Near-term outlook:\n  - The economy likely recorded growth of around 0.5 percent in 2024.\n  - Expected to continue to expand moderately in 2025, supported by a recovery in external demand and growth in the financial sector.\n  - Unemployment will slightly decline.\n- Medium-term outlook:\n  - Projected to reach potential growth of 2 percent—slightly below pre-pandemic average growth.\n  - Inflation expected to remain low and in line with Switzerland.\n- Risks (tilted to the downside):\n  - Potential global slowdown or accelerated geo-fragmentation, heightened uncertainty in major economies, sharp appreciation of the franc, and/or negative interest rates in Switzerland.\n  - Financial center risks from dependency on a foreign client base.\n  - Elevated household indebtedness presents vulnerabilities to large shocks.\n  - Large fiscal buffers provide room to address shocks.\n  - Businesses’ tendency to retain skilled workers during downturns helps stabilize employment and maintain tax revenue streams."
    },
    {
      "heading": "Fiscal policy: assessment and recommendations",
      "content": "- Current stance:\n  - Fiscal policy expected to remain conservative with continued surpluses and accumulation of buffers.\n  - 2025 budget envisages higher spending on investment, including a national hospital and a reserve allocation to the occupational pension scheme for state employees, offset by higher tax revenues (CIT and VAT).\n  - A surplus of 3 percent of GDP is expected—just below the 3.2 percent in 2024.\n- Policy advice:\n  - Fiscal policy should broaden its scope beyond building buffers and focus on stabilization given the absence of independent monetary policy.\n  - Automatic stabilizers (progressive personal income taxes and unemployment benefits) should be leveraged during downturns.\n  - With substantial buffers in place, authorities should emphasize the stabilization role of fiscal policy going forward.\n- Medium-term spending needs and vulnerabilities:\n  - Surpluses of over 3 percent of GDP are expected in the medium-term.\n  - No major tax reforms envisaged; investment in health and education to be accommodated within budget rules.\n  - Planning for necessary long-term investments is key; all large investment projects should be systematically identified, costed and prioritized, with financing sources and implementation modalities set later.\n- Specific pressures to assess and address:\n  - Demographics:\n    - Population 65 years and above expected to reach 28.6 percent by 2050.\n    - Pillar I pension projections indicate assets will fall from 9.8 to 3.1 years of annual expenditures by 2043, well below the statutory 5-year minimum.\n    - If reserves fall below the minimum threshold, the law suspends the inflation adjustment of the old-age, survivors' and disability insurance benefits.\n  - Climate:\n    - Exposure to extreme weather events (drought, flooding, landslides) and transitional risks to a greener economy; reaching ambitious climate targets will necessitate more spending on renewable energy.\n  - Growth-enhancing investment:\n    - Data point to declining growth over time; sustaining the growth model depends on continued supply of foreign, skilled workers and more productivity-supporting investments, including infrastructure and public services."
    },
    {
      "heading": "Financial sector policies and risks",
      "content": "- Regulatory and compliance framework:\n  - Strategy anchored by compliance with international standards: reform of fiduciary laws, adherence to automatic exchange of information in tax matters and the OECD's BEPS initiatives, and implementation of comprehensive AML/CFT measures.\n  - Financial supervision integrated with the European System of Financial Supervision; Financial Markets Authority (FMA) is the independent national supervisory authority.\n  - EU regulations are promptly transposed into Liechtenstein law.\n- Banking sector condition:\n  - Sector focused on private banking and wealth management and dominated by three banks.\n  - Balance sheets and assets under management (AUM) are large relative to GDP.\n  - Capital and liquidity buffers are well above regulatory requirements; non-performing loans are low.\n  - Profitability under pressure due to high costs of the private banking model, compliance, and digitalization investments.\n  - AUM activities are off-balance sheet and do not present direct financial risks but warrant monitoring for ML/TF risks and adherence to sanction regimes.\n- Macroprudential framework:\n  - Household indebtedness, primarily mortgages, remains high at 115 percent of GDP.\n  - Authorities use a comprehensive macroprudential toolkit: capital-, lender-, and borrower-based measures, including an amortization requirement for mortgages based on affordability standards.\n  - FMA improved data collection to better monitor mortgage-related risks; additional data on market prices would further support oversight.\n  - Authorities plan to implement CRR-III rules in 2025, including for mortgage exposures.\n- AML/CFT and sanctions compliance:\n  - Continued vigilance warranted given ML/TF risks tied to the financial center model.\n  - Even small breaches could jeopardize correspondent banking relationships.\n  - FMA initiated risk-based AML/CFT supervision in 2018; an update of the national ML/TF risk analysis (NRA) is scheduled for February 2025.\n  - In response to the 2022 MONEYVAL review, authorities increased onsite inspections, including for the fiduciary sector.\n  - Planned revision of the Professional Trustees Act would provide the FMA more insight and power to intervene.\n- Cybersecurity:\n  - National Cyber Security Unit created in 2022 to monitor threats, protect critical infrastructure, and coordinate information sharing.\n  - FMA established a new unit to supervise and audit cybersecurity at financial institutions and to oversee implementation of the EU Digital Operational Resilience Act (DORA), which became effective in January 2025.\n  - Continued intra-institutional coordination is key due to evolving cybersecurity risks."
    },
    {
      "heading": "Structural reforms and labor market",
      "content": "- Skills and labor supply:\n  - Continued reforms needed to address skills shortages; demand for skilled workers expected to persist and exceed resident supply.\n  - Share of cross-border commuters increased to 57 percent of employment from 25 percent in the 1980s.\n  - Infrastructure constraints, including in transport, could limit growth in commuters and should be addressed.\n  - Government priorities: job training and reintegration, expanded educational programs, and skills development through targeted incentives.\n- Increasing labor force participation:\n  - Female labor market participation has increased but remains below men's; sizeable gender wage gap exists, higher than in Switzerland or the EU average.\n  - Recommendations: offer flexible work options, extend parental leave for men, subsidize childcare, and explore measures to enhance labor supply of older workers (including flexibility in retirement age and work schedules).\n- Pensions:\n  - Pillar I assets account for 60 percent of GDP, with a replacement ratio of 35 percent.\n  - Occupational pension schemes complement Pillar I with 120 percent of GDP of assets, along with private savings (Pillar III).\n  - Aging will pressure the system; measures needed to ensure sustainability, including raising the retirement age and/or contributions.\n- Climate policy progress:\n  - Liechtenstein met its Kyoto target, achieving a 20 percent reduction in GHG emissions.\n  - Parliament adopted a long-term climate strategy aiming for climate neutrality by 2050 and an interim target to reduce greenhouse gas emissions by 55 percent by 2030 relative to 1990.\n  - Authorities intend to amend the Emission Trading Act in line with the EU’s directive.\n  - Estimating climate related expenditures in the forthcoming update of the climate adaptation strategy is important to advance the green transition."
    },
    {
      "heading": "Data gaps and statistical capacity",
      "content": "- Significant gaps in macroeconomic statistics due to small administration and limited resources.\n- Prioritized improvements:\n  - Improve timeliness of national accounts (currently available 23 months after the reference year).\n  - Establish balance of payment (BOP) statistics.\n- Steps taken:\n  - Additional resources allocated to the Office of Statistics.\n  - Leverage intra-institutional collaboration among the Office of Statistics, the FMA, the Fiscal Authority, and the Liechtenstein-Institute to facilitate data collection, compilation, and dissemination.\n\nInternational Monetary Fund — Staff Concluding Statement for the 2025 Article IV Mission, Principality of Liechtenstein\n\n---\n\n\n References\n\n- Principality of Liechtenstein and the IMF\n- Switzerland 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/2025/01/20/concluding-statement-25-liechtenstein"
    }
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    "Published: January 20, 2025",
    "Liechtenstein became the IMF’s newest member in October 2024 and is participating in its first Article IV consultation.",
    "High per capita income, fiscal framework with no deficits since 2013, virtually no public debt, and accumulation of large fiscal buffers.",
    "Economy underpinned by specialized and export-oriented manufacturing and private banking and wealth management oriented financial services.",
    "Close economic ties with Switzerland and the EU.",
    "Recent volatility and consecutive shocks:",
    "Labor market:",
    "Near-term outlook:",
    "Medium-term outlook:",
    "Risks (tilted to the downside):",
    "Current stance:",
    "Policy advice:",
    "Medium-term spending needs and vulnerabilities:",
    "Specific pressures to assess and address:",
    "Regulatory and compliance framework:",
    "Banking sector condition:",
    "Macroprudential framework:",
    "AML/CFT and sanctions compliance:",
    "Cybersecurity:",
    "Skills and labor supply:",
    "Increasing labor force participation:",
    "Pensions:",
    "Climate policy progress:",
    "Significant gaps in macroeconomic statistics due to small administration and limited resources.",
    "Prioritized improvements:",
    "Steps taken:",
    "[Principality of Liechtenstein and the IMF](https://www.imf.org/en/Countries/LIE)",
    "[Switzerland and the IMF](http://www.imf.org/external/country/CHE/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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