Switzerland Fared Well in Recession

March 24, 2010 Taxation in Switzerland

International Monetary Fund [oct 25]Switzerland has weathered the international financial and economic crisis well compared to other developed economies, due to the Swiss Governments appropriate expansionary policies, strong public finances, and financial regulatory regimes.

As part of its annual member-state review, the International Monetary Fund (IMF) has released a report evaluating and praising the actions taken during the financial crisis by the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) as appropriate, and regards the economic performance of the country as good with a positive future outlook.

Despite its relatively high dependence on the financial market, Switzerland experienced only a 1.5 percent contraction in GDP in 2009, and the IMF expects a 1.5 percent GDP increase in 2010. The muted decline of the economy has been attributed to, among other factors, the country’s strong public finances, partially due to the federal government’s fiscal surplus from a higher than expected withholding tax revenue. Estimates for 2010 tax revenue collections are generally positive but uncertain, with withholding rate collections expected to remain high but offset by the Swiss Government’s personal tax cuts, amounting to SFR 1.3 billion annually (approx. USD 1.22 billion).

According to the IMF, other factors contributing to the positive performance of Switzerland included the SNB’s timely decrease in interest rates, purchase of national private sector bonds denominated in the national currency, market liquidity measures, and steps to prevent the excessive appreciation of national currency. The IMF also praised the FINMA’s decision to work in tight integration with the SNB in imposing higher regulatory capital requirements for the country’s financial sector. In contrast to controversial banking issues witnessed worldwide, the FINMA has already issued remuneration guidelines for national banks, which will come into effect in 2010, along with developing liquidity benchmarks for the country’s two biggest banks.

In summation, the IMF applauded Switzerland’s efforts, though warned that with the ambiguity of future worldwide economic performance, any withdrawal of the Government’s fiscal stimulus measures should be gradual and prudential, so as not to upset the delicate balance of recovery.

Photo by JavierPsilocybin