The IMF confirms the validity of Luxembourg’s fiscal policy and the resilience of its financial sector

Following its mission to Luxembourg in March 2022, the International Monetary Fund (IMF) has released a final report as part of the institution’s yearly Article 4 consultations. In this report, the IMF gives a generally positive view of the country’s economic and budgetary situation two years after it was marked by the COVID-19 pandemic, highlighting the risks posed by the war in Ukraine. ..

“We were pleased to welcome the IMF team to Luxembourg in March for the first face-to-face discussion in two years,” said Finance Minister Yuriko Bucks. Yuriko Bucks continues. “We are pleased with the positive conclusions contained in this new report on Luxembourg’s economic development during a pandemic.” The report specifically mentions the government’s decisive support for households and businesses through the health crisis.

The IMF also confirms the resilience of Luxembourg’s financial sector, which has contributed to the rapid recovery from the pandemic and continues to show solid capital and liquidity margins.

According to the IMF, thanks to stable fundamentals, Luxembourg’s economic growth is expected to continue to be positive in 2022 and 2023, albeit at a slow pace of about 2%. As in other countries, Russia’s war of aggression against Ukraine and the resulting inflationary pressures have begun to weigh on economic confidence. The IMF warns that these factors, coupled with potential labor shortages and persistent supply chain bottlenecks, could undermine the country’s growth outlook in the short term.

In this regard, Washington-based agencies have government support packages (Energiedësch, Solidaritéitspak) that include temporary measures to protect consumers’ purchasing power and support the most affected businesses. ) Is welcomed. In this regard, the IMF writes: “We welcome the authorities’ measures to support the households and businesses involved and promote the green transition, as well as the three-party decision to limit the automatic indexing of wages from 2022 to 2023 to once a year.” The IMF also recommends gradual normalization of fiscal policy after the effects of the war have disappeared.

In line with the government’s long-standing political priorities, the IMF further recommends that structural challenges such as housing, ecosystems and digital migration continue to be addressed.

Measures to increase the supply of social and affordable housing, as well as the government’s plans to tax unused land and vacant homes, are welcomed in the report. They should be integrated into a multidimensional approach. The IMF emphasizes Luxembourg’s leadership in sustainable finance with respect to the government’s highly ambitious climate program. Given that accelerated digitization and automation during the pandemic can have a negative impact on some workers, the IMF is also not only investing in digital education, but also the government’s re-skilling / skill-up. We also pay attention to its importance.

The so-called Article 4 consultation is an annual exercise to monitor the economic, fiscal and monetary policies of IMF member countries. The IMF Board adopted this year’s report on Luxembourg on May 27, 2022.

This report can be found on the IMF website. IMFSTAFF COUNTRY REPORTS LUXEMBOURG

Contact from the Ministry of Finance