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The Chilean economy has been hit by the pandemic while recovering from the social unrest in late 2019, requiring substantial adjustment of economic policies and the appropriate use of existing policy buffers. Following a sharp decline in mid-2020, economic activity started recovering in 2020H2 in the wake of ample policy stimulus. Inflation remains near the policy target, with inflation expectations anchored, and the current account balance has improved amid a sharp drop in imports and relatively resilient exports. Fiscal and monetary policies remain guided by the structural fiscal balance rule and the inflation-targeting framework, respectively. Beyond the pandemic-related risks, there is uncertainty stemming from a series of elections and the outcome of a New Constitution process—scheduled to finish in mid-2022—which are expected to shape the public discourse and influence the policy agenda.
After being hit very hard by the pandemic in 2020, both in terms of health and economic outcomes, Peru experienced an equally strong economic rebound in 2021. A new administration was inaugurated in July 2021 with a program focused on reducing inequality and improving social conditions, but limited support from Congress and lack of cohesion heightened political uncertainty. While real GDP surpassed its pre-pandemic level by 2021, labor force participation and total employment have not fully recovered yet. Poverty increased significantly in 2020 and, despite some improvement in 2021, remains higher than in 2019. On May 27, 2021, the IMF Executive Board completed the mid-term review of Peru’s continued qualification under the Flexible Credit Line (FCL) arrangement.
After over two decades of unprecedented economic expansion, Panama’s economy contracted sharply in 2020 amidst challenges from the COVID-19 pandemic. As conditions rapidly deteriorated, Panama requested financial support under the Rapid Financing Instrument (RFI) for 100 percent of quota equivalent to US$0.5 billion (SDR 0.4 billion) to address immediate balance of payments needs, which the IMF Executive Board approved on April 15, 2020. Subsequently, uncertainties magnified, and Panama requested a two-year arrangement under the Precautionary and Liquidity Line (PLL) for 500 percent of quota, equivalent to US$2.7 billion (SDR 1.9 billion), as insurance against extreme external shocks, which was approved by the IMF Executive Board on January 19, 2021.
The pandemic interrupted ten years of growth, but El Salvador is rebounding quickly. Robust external demand, resilient remittances, and a sound management of the pandemic—with the help of a disbursement under the Rapid Financing Instrument (RFI) (SDR287.2 million or US$389 million) approved in April 2020—are supporting a strong recovery. Persistent fiscal deficits and high debt service are leading to large and increasing gross fiscal financing needs.
The pandemic hit the Chilean economy while it was recovering from the 2019 social unrest. The authorities’ swift and strong economic policy efforts and Chile’s very strong institutional frameworks helped buffer the economic and social consequences. The ongoing economic recovery continues to be supported by ample policy stimulus, a rapid vaccination process, well-anchored inflation expectations, a resilient export base, and continued market confidence.
2021 Article IV Consultation--Press Release; Staff Report; and Statement by the Executive Director for Uruguay
Following the October 2020 election, the new administration moved to tackle the devastating human and economic effects of the COVID-19 pandemic. The economy shows signs of recovery from its 8.8 percent contraction in 2020. However, fiscal imbalances have increased and international reserves continue to fall. On February 12, Bolivia repurchased the 240.1 million SDR purchase under the Fund’s Rapid Financing Instrument (that was approved by the Fund’s Executive Board in April 2020).
A nascent recovery is underway in Thailand following the COVID-19 downturn. Ample policy buffers, underpinned by judicious management of public finances, allowed the authorities to implement a multipronged package of fiscal, monetary, and financial policies to mitigate the COVID-19 impact on households, businesses, and the financial system. This, together with rigorous containment measures, led to a successful flattening of the infection curve during most of 2020. Nevertheless, the pandemic has taken a large toll on the economy, potentially inducing long-term scarring and increasing inequality.
South Africa’s subpar economic performance over the last decade has weakened its macroeconomic fundamentals and social indicators. In response to formidable COVID-19-related challenges, government expenditure surged, and, amid declining revenue, the budget deficit widened significantly. The South African Reserve Bank (SARB) and the Prudential Authority (PA) preserved adequate liquidity conditions and financial-sector stability. The cyclical recovery from the deep contraction has been faster than expected but its strength is unlikely to be sustained. Benign global market conditions have supported asset performance, although term premia are elevated due to fiscal risks. Bank soundness indicators remain solid, but a deepening bank-sovereign nexus raises some concerns.
The Icelandic economy has been severely affected by the pandemic. Sharp tourism contraction and containment measures caused real GDP to plummet by 6.6 percent in 2020. A modest recovery will take hold in 2021. Recovery prospects in the tourism sector depend on control of the epidemic and progress in global and domestic vaccine distribution, spelling a challenging outlook with possibly deep medium-term scarring. Fiscal policy should continue to support the economy for now. Policy buffers accumulated over the last decade provided space for a large fiscal support and accommodated substantial automatic stabilizers. Additional stimulus is planned in 2021 to address still large slack in the economy, mitigate scarring, and provide confidence in the event of downside risks. Medium-term policies should ensure that public debt is firmly on a downward path, while limiting the drag on growth.