1 CB EEA2022003

IMF Country Report No.
22/171
SWITZERLAND
2022 ARTICLE IV CONSULTATION—PRESS RELEASE;
June 2022 STAFF REPORT; AND STATEMENT BY THE EXECUTIVE
DIRECTOR FOR SWITZERLAND
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions
with members, usually every year. In the context of the 2022 Article IV consultation with
Switzerland, the following documents have been released and are included in this
package:
• A Press Release summarizing the views of the Executive Board as expressed during its
June 10, 2022 consideration of the staff report that concluded the Article IV
consultation with Switzerland.
• The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on June 10, 2022, following discussions that ended on April 6, 2022,
with the officials of Switzerland on economic developments and policies. Based on
information available at the time of these discussions, the staff report was completed
on May 25, 2022.
• An Informational Annex prepared by the IMF staff.
• A Statement by the Executive Director for Switzerland.
The documents listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.
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Washington, D.C.
© 2022 International Monetary Fund

PR22/199
IMF Executive Board Concludes 2022 Article IV Consultation

with Switzerland
FOR IMMEDIATE RELEASE
Washington, DC – June 20, 2022: The Executive Board of the International Monetary Fund
(IMF) concluded the Article IV consultation1 with Switzerland on June 10, 2022.
The Swiss economy recovered strongly in 2021 and early 2022, reflecting agile, supportive
policies and a global pickup. Growth was 3.7 percent last year, with output 1 percent higher
than 2019 and 2 percent below pre-Covid trends. Employment has surpassed pre-crisis levels.
The authorities continually adapted Covid-19 mitigation measures; pandemic support
remained strong and monetary policy accommodative. Bank profitability and capitalization
held up well, buoyed by Covid-19 support to firms and households, sustained lending, and fee
income, with NPLs at low levels. Strong exports (watches, instruments, pharmaceuticals) and
merchanting contributed to a higher current account surplus. The recovery was uneven,
however, notably in Covid-hit sectors (hospitality, transport), and inflation has picked up, albeit
less than in other advanced economies.
Growth is expected to slow in 2022—remaining above medium-term potential, but dampened

by spillovers from the war in Ukraine. Direct exposures to the war (exports, energy, financial
sector, investment) appear limited, but indirect effects—higher energy and commodity prices,
supply disruptions, complex financial exposures (commodity trade, wealth management), and
lower regional and global growth—could be substantial. Switzerland is hosting over 50,000
refugees from Ukraine. Fiscal and monetary policies remain supportive, and higher household
savings during Covid-19 should buoy consumption and growth. The war in Ukraine is also
likely to affect activity in 2023 with growth projected at 2¼ percent. Unemployment could rise
in 2022 as Covid-19 support is withdrawn, but should remain lower on average than in 2021.
Inflation is expected to average 2½ percent this year, before easing to 1.6 percent in 2023.
Risks are tilted to the downside with high uncertainty. The war in Ukraine is a major source of
uncertainty (scope, duration). Worsening of the war could lead to sharply higher commodity
prices, supply disruptions, and even-lower regional and global growth, with risks to financial
markets. Increased volatility could intensify flight to the franc and appreciation pressures.
Besides the war and inflation, other risks include adverse Covid-19 developments,
cyberthreats, and residential real-estate imbalances, where a sharp rate rise could trigger
1
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial information, and discusses with officials the country's economic developments
and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2
price corrections and impacts on households, banks, and activity. Medium-term challenges
include population aging and climate change. Lack of clarity on EU relations is a concern.
Executive Board Assessment2
Directors welcomed Switzerland´s robust recovery and the authorities’ strong, adaptive
response to the Covid-19 pandemic. Directors noted that while the recovery is expected to
continue, there are challenges linked to the war in Ukraine and to longer-term issues, such as
aging and climate change. They stressed that policies should remain agile in responding to
the impacts from the war and to foster a green-digital transformation.
Directors agreed that the current fiscal policy stance was appropriate. They emphasized the
importance of maintaining flexibility to respond to adverse developments. Noting that the fiscal
framework requires the offsetting of extraordinary spending via future surpluses, Directors
agreed that extending the offset period for Covid-19-related extraordinary spending was
appropriate, given the magnitude of outlays. They emphasized the need for a medium-term
fiscal plan to address rising spending pressures, related to aging, climate transition, energy
security, and defense. The plan would also help manage potential revenue losses from tax
reforms.
Directors underscored the importance of preparing for monetary policy normalization and
noted risks related to higher, more persistent inflation. They encouraged the central bank to
remain vigilant, review its tools, and adjust policy settings when needed. Directors recognized
that policy-rate changes would be the most effective tool, accompanied by foreign exchange
intervention to manage excessive volatility, if necessary, and also agreed that there is scope
for nominal appreciation to ease inflation pressures. They emphasized that effective
communication would help support a smooth transition from a long period of accommodation.
Directors welcomed the continued banking sector resilience and steps taken to strengthen
financial stability, including the reactivation of the countercyclical capital buffer for real estate.
Noting rising vulnerabilities related to residential real estate and the war, Directors
recommended continued close monitoring of risks and further progress on 2019 FSAP
recommendations, including early expansion of the macroprudential toolkit. They emphasized
the need to build on recent efforts to further strengthen the AML/CFT framework, enhance
fintech regulation and supervision, and promote climate reporting and green finance.
Directors welcomed the authorities’ efforts to advance emissions reduction and energy
security and progress on labor market and pension reforms. They encouraged continued
2
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:
http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
3
efforts to close skills gaps and improve the efficiency and performance of pension funds.
Directors expressed support for efforts to establish strong bilateral arrangements with the EU.
4
Switzerland: Selected Economic Indicators, 2020–23

Population (2021): 8.67 million
Quota (current; millions SDRs / % of total): 5,771.1 / 1.21%
Key export markets in 2021: Euro area (46%), US (18%)
2020 2021 2022 2023

Proj. Proj.
Output
Real GDP growth (%) -2.5 3.7 2.2 1.4
Unemployment
Unemployment (%) 3.1 3.0 2.6 2.7
Prices
Inflation (period average, %) -0.7 0.6 2.5 1.6
General government finances

Revenue (% GDP) 33.5 33.8 32.9 32.4
Expenditure (% GDP) 36.5 34.5 33.2 32.3
Fiscal balance (% GDP) -3.0 -0.7 -0.3 0.1
Public debt (% GDP) 42.6 41.4 40.1 38.9
Monetary and credit

Broad money (% change) 6.5 1.4 … …
Credit to the private sector (% change) 2.4 3.8 … …
3-month Treasury bill interest rate (%) -0.8 -0.8 … …
Balance of payments
Current account (% GDP) 2.8 9.3 6.3 7.0
Net FDI (% GDP) 16.8 -2.5 … …
Reserves (end-of-period, billions of US dollars) 1085 1111 … …
External debt (% GDP) 280 287 … …
Exchange rates
REER (% change) 3.9 -2.6 … …
Sources: IMF's Information Notice System; Swiss Institute for Business Cycle Research; Swiss National
Bank; and IMF staff estimates.
SWITZERLAND
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
May 25, 2022
KEY ISSUES
Context. Recovery was strong in 2021, but there are headwinds from the war in Ukraine.
2021 output was 1 percent higher than in 2019, but 2 percent below pre-Covid trends;
unemployment is back to pre-crisis levels. Inflation has picked up (2.5 percent in April),
but below other advanced economies. Strong exports/merchanting led to a higher
current account surplus. Although the energy mix (nuclear, hydro) has limited exposure
to Russia, exposures of commodity traders and indirect channels could be important.
Growth is likely to slow to 2¼ percent in 2022 (¾ ppt. drag from the war). Risks are to
the downside (war escalation, Covid developments, real estate). Covid outlays are lower
in 2022, but still large (1.2 percent of GDP). Outlays related to Ukraine are likely to be
accommodated as extraordinary. The Swiss National Bank is closely monitoring inflation,
seeing it returning to the 0–2 percent range this year. The authorities reactivated the
sectoral CCyB for residential real estate. They are pursuing pension and labor reforms,
climate initiatives, energy security, and renewed EU engagement.
Recommendations. Policies should remain agile and data-dependent, responding to

impacts of the war, while continuing exit from pandemic support and fostering green-
digital transformation. On fiscal policy, the current fiscal stance is appropriate, given the
improving pandemic situation, inflationary pressures, and uncertainty. Over the medium
term, small deficits could help meet priority needs and are feasible given ample space
and challenges (aging, climate, energy security, defense). But altering the fiscal
framework is not easy, and a medium-term plan would help clarify actions to address
needs and possible losses from tax reforms. Tax reforms should bolster revenues;
spending reviews should identify savings. On monetary policy, rate hikes by other
central banks should allow the SNB to regain policy space. The SNB should review
instruments and its approach to normalizing. Policy rate hikes are likely best, and
adjustments of FX operations could also support tightening. On the financial sector, the
authorities should closely monitor increasing risks (real estate, war) to financial stability.
Rising vulnerabilities and the time needed for policy response call for early expansion of
the macroprudential toolkit. The authorities should continue to prepare for cyber-
attacks, enhance crypto supervision, further strengthen fintech regulation, and advance
implementation of 2019 FSAP advice. Enhanced liquidity requirements for SIBs and a
proposed public liquidity backstop are welcome. On structural issues, pension reforms
should continue, along with measures to boost labor participation and skills, and efforts
to clarify and enhance climate policies, EU relations, and energy security.
SWITZERLAND
Approved By: Discussions took place during March 23–April 6, 2022, in Zürich and
Laura Papi (EUR) and Bern. The staff team comprised Mark A. Horton (chief), Svitlana
Daria Zakharova Maslova, Laura Valderrama, and Li Zeng and was assisted by
(SPR) Rachelle Vega and Gloria Li (all EUR). Marcel Peter and Ronald
Gindrat (OED) participated in the mission. The team met with
Federal Councilor Ueli Maurer, Swiss National Bank (SNB) Chairman
Thomas Jordan, Financial Markets Authority (FINMA) CEO Urban
Angehrn, other officials from the federal administration, the SNB,
FINMA and the Bern cantonal government, and representatives from
public utilities and enterprises, the private sector, and think tanks. A
press briefing was held at the end of the mission.
CONTENTS
CONTEXT_________________________________________________________________________________________ 4
RECENT DEVELOPMENTS _______________________________________________________________________ 4
OUTLOOK AND RISKS ___________________________________________________________________________ 7
POLICY DISCUSSIONS ___________________________________________________________________________ 8
STAFF APPRAISAL _____________________________________________________________________________ 18
FIGURES
1. COVID-19 Pandemic __________________________________________________________________________ 21
2. High Frequency and Leading Economic Indicators ____________________________________________ 22
3. Key Macroeconomic Indicators, 2000–21 ______________________________________________________ 23
4. Monetary Policy, 2000–21 _____________________________________________________________________ 24
5. Selected Inflation and Monetary Indicators, 2010–21__________________________________________ 25
6. Selected Financial Indicators, 2007–21 ________________________________________________________ 26
7. Indicators for Global Systemic Banks, 2006–20 ________________________________________________ 27
8. External Account, 2000–21 ____________________________________________________________________ 28
9. Housing Markets, 1996–21 ____________________________________________________________________ 29
TABLES
1. Selected Economic Indicators, 2017–27 _______________________________________________________ 30
2. Balance of Payments, 2017–27 ________________________________________________________________ 31
3. SNB Balance Sheet, 2012–21 __________________________________________________________________ 32
4. General Government Finances, 2018–27_______________________________________________________ 33
5. General Government Finances, 2011–21_______________________________________________________ 34
6. Bank Soundness Indicators, 2011–21 __________________________________________________________ 35
2 INTERNATIONAL MONETARY FUND

SWITZERLAND
ANNEXES
I. Status of Previous Article IV Recommendations ________________________________________________ 36
II. Implementation of FSAP (2019) Recommendations ___________________________________________ 37
III. Inflation in Switzerland: Why is it Rising, but by Less than in Other Advanced Economies? ___ 40
IV. External Sector Assessment ___________________________________________________________________ 43
V. Possible Implications of the War in Ukraine ___________________________________________________ 45
VI. Risk Assessment Matrix _______________________________________________________________________ 47
VII. Debt Sustainability Analysis __________________________________________________________________ 50
VIII. Mortgage Risk and Possible Responses _____________________________________________________ 52
IX. The Rise of Fintech and Regulatory Action____________________________________________________ 55
X. Anti-Bribery and Anti-Corruption Efforts ______________________________________________________ 58
INTERNATIONAL MONETARY FUND 3

SWITZERLAND
CONTEXT
1. The Swiss economy is diverse and competitive, but faces challenges. Strong
manufacturing and services industries, well-capitalized banks, high household wealth, abundant
liquidity, and ample fiscal space have contributed to resilience, along with robust policy frameworks
and timely policy response. The Swiss National Bank (SNB) has used negative policy rates and
foreign exchange intervention (FXIs) to mitigate downward price pressures, but with side effects
(mortgage lending, housing prices, profitability). As inflation increased globally in 2021–22, a
favorable energy mix and nominal appreciation kept inflation relatively low, although it has risen
above the 0–2 percent stability range. Challenges include spillovers from the war in Ukraine, aging,
climate change, and European Union relations.
2. Political developments in 2021 continue to reverberate. EU relations have been more

complex since termination of discussions on an institutional agreement in May 2021. Popular
rejection of a revised CO2 law in June complicated decarbonization efforts. Federal parliament
elections will take place in 2023.
3. Implementation of past advice has been good (Annex I). The authorities maintained
highly-supportive fiscal, monetary, and financial policies during Covid-19, passed first-pillar pension
reforms, and closely monitored real-estate risks, reactivating the sectoral buffer (CCyB) in
January 2022. They have improved fiscal management under the debt-brake rule (limiting
underspending, improving revenue forecasts). Calls to adjust the fiscal framework to permit higher
spending/deficits received less consideration, as modification would require constitutional change.
Progress on 2019 FSAP recommendations has been mixed (Annex II).
RECENT DEVELOPMENTS
4. The economy recovered strongly in 2021/early 2022 but faces headwinds from the war
in Ukraine. Covid-19 eased with wide vaccination (70 percent/43 percent boosted through April),
and restrictions were dropped. Growth was
Selected Economies: Real GDP Growth, 2021 versus 2019
3.7 percent in 2021, with output 1 percent higher (Percentage change)
4
than in 2019 but 2 percent below pre-Covid trends
and uneven across sectors. Hospitality saw positive 2
growth, but is below full recovery. Strong exports 0

(pharmaceuticals, watches) and merchanting
-2
contributed to a higher current account surplus
(9.3 percent of GDP in 2021 vs. 2.8 percent in -4
2020). High-frequency and confidence indicators -6

weakened with war in Ukraine. As of mid-May,
-8
nearly fifty-thousand refugees had come from ESP GBR FRA BEL NLD SWE NOR
Ukraine. Sources: World Economic Outlook.

SWITZERLAND
5. Inflation has picked up, breaching the 0–2 percent stability range. Headline inflation
averaged 0.6 percent in 2021 (2020: -0.7 percent), and was 2.5 percent in April, highest since 2008,
but below the euro area (7.5 percent) or U.S. (8.3 percent). Imported goods and services, especially
energy, were drivers (Annex III). Core inflation was 1.5 percent in April, up from -0.8 percent in
June 2020 (post-Covid-19 low).
6. The general government deficit narrowed from -3 percent of GDP in 2020 to

-0.7 percent last year. Covid-19 spending was broadly unchanged (~2 percent of GDP); the non-
Covid position moved from a ½ percent of GDP deficit to a ½ percent surplus, driven by strong
revenues (VAT, SNB dividends) and lower spending (welfare, research, security). Job-retention
support was lower; support to firms picked up. Public debt declined to 41½ percent of GDP.
Text Table. Switzerland: Covid-Related Expenditures Switzerland: Central Government Balance

(CHF billion, central government) (Percent of GDP)
2020 2021 2022 1
Measures Budget Actual Budget Actual Budget
Total expenditures 31.3 15.0 24.7 14.1 10.0
of which extraordinary 30.9 14.7 21.0 12.3 9.1
0
Contribution to unemployment insurance fund 20.2 10.8 6.0 4.3 2.9
2020 2021 2022
Compensation for loss of income 5.3 2.2 3.1 1.8 2.2
Losses on bridging loans 1.0 0.0 1.0 0.2 0.4
Hardship support 8.2 4.2 0.9 -1
Transportation 1.0 0.4 1.0 0.6 0.4
Culture and leisure 0.6 0.3 0.8 0.5 0.2
Health 2.6 0.9 4.1 2.0 2.8 Ordinary
-2
Other 0.5 0.5 0.5 0.4 0.1
Extraordinary
Memo item:
Extraordinary expernditures (percent of GDP) 4.4 2.1 2.8 1.7 1.2 Total
Sources: Swiss authorities and staff calculations. Data as of March 30, 2022.
-3
7. Labor indicators have largely recovered to pre-pandemic levels. Seasonally-adjusted

unemployment reached 2.2 percent in April, back to pre-crisis lows, from a peak of 3.5 percent in
May 2020. Employment has recovered to pre-crisis levels, although contact-intensive sectors remain
down. Fifty thousand—1 percent of the active labor force—were on short-time work support in
February (April 2020: 1.3 million). Despite the inflation pickup, wage pressures have been muted.
Switzerland: GDP Growth by Sector, 2020 Switzerland: GDP Growth by Sector, 2021
Total (100) -2.5 Total (100) 3.7

Manufacturing (19.0) -3.1 Manufacturing (20.4) 11.1
Real Estate (16.6) -2.4 Real Estate (16.3) 1.5
Trade (14.6) 1.6 Trade (14.0) 0.0
Finance (10.4) 5.5 Finance (10.2) 1.4
Public admin. (10.0) 2.3 Public admin. (9.8) 1.4
Health (7.8) -0.7 Health (7.8) 4.5
Transport (7.4) -11.0 Transport (7.4) 2.6
Utility (1.9) -1.6 Utility (1.8) 1.8
Hotel & food (1.0)-43.6 Hotel & food (1.0) 3.8
Other (10.8) -6.3 Other (10.8) 4.0
-50 -40 -30 -20 -10 0 10 -5 0 5 10 15
Note: In parentheses are the industries' percent shares in 2020 GDP. Note: In parentheses are the industries' percent shares in 2021 GDP.
Source: Haver Analytics. Source: Haver Analytics.

SWITZERLAND
8. Monetary policy has remained highly accommodative; FXIs were lower in 2021. The
SNB kept its policy rate at -0.75 percent. The SNB’s Covid-19 refinance facility, introduced in 2020 to
refinance Covid-linked loans, declined from CHF 11.2 billion at end-2020 to CHF 8.7 billion at end-
March. FX purchases were CHF110 billion in 2020 (15.6 percent of GDP) and CHF 21 billion in 2021
(2.8 percent); official reserves reached $1,110 billion at end-2021 (137 percent of GDP). 1 Although
the average nominal effective exchange rate (NEER) appreciated by 2.6 percent in Q1:2022
compared to 2020 (average), CPI- and PPI-based real EERs depreciated by 2.3 and 17.1 percent,
driven by inflation differentials.
Switzerland: Franc NEER and SNB FXIs Switzerland: Official Reserve Assets
Sight Deposits at SNB
FXIs, billion francs NEER, Dec 2000 = 100 (RHS)
1200
100 Spread of euro crisis 180
Collapse Official reserve assets, CHF billions
of Worry of Greece leaving Eurozone
80 170 1000
Lehman EURCHF floor introduced in Sep. 2011 Sight deposits at SNB, CHF billions
Brothers
60 160
800
40 Outbreak 150
Anticipation of ECB QE;
of Greece 600
20 debt
Exit from EURCHF floor 140
in Jan. 2015
crisis
0 130 400
-20 Outbreak 120
of Covid- 200
-40 19 110
-60 100 0
2007m2 2010m2 2013m2 2016m2 2019m2 2022m2 2001 2005 2009 2013 2017 2021
Sources: Haver Analytics; and IMF staff estimates. Sources: Haver Analytics.
9. The financial sector has proved Switzerland: Credit and Business Cycle
resilient, but risks have increased. Despite (Percent)
15
negative interest rates and pandemic challenges, credit to GDP gap
capitalization remained at 19 percent (Tier 1) and 10 mortgage credit to GDP gap
profitability increased, with ROA edging up to output_gap
5
0.5 percent in December 2021, buoyed by Covid-
19 support, cost cutting, increased passthrough 0
of negative interest rates, and sustained lending
(mortgages). 2 3 NPLs have remained low -5
(December: 0.66 percent). With further housing-

-10
price increases, the sectoral CCyB was reactivated 2000Q1 2004Q3 2009Q1 2013Q3 2018Q1 2021Q4
at the maximum 2.5 percent, effective Sources: Haver Analytics; and IMF staff calculations.
September 2022. 4 Note: Output gap is the SNB HP-filter-based series.
1 See Selected Issues Paper.

2While sector profitability rose, Credit Suisse posted a CHF 1.7 billion loss, with Archegos-related charges of
CHF 4.8 billion. CS’s CET1 ratio improved from 12.9 to 14.4 percent (new capital, de-risking).
3 Pass-through of negative rates to clients alleviated half of expenses from negative rates.
4 The CCyB (then 2.0 percent) was de-activated at the beginning of Covid-19.

SWITZERLAND
10. Switzerland’s 2021 external position is assessed as broadly in line with the level
implied by medium-term fundamentals and desirable policies. The increase of the current
account (CA) surplus reflected reversal of some Switzerland: Credit Growth by Type
Covid-related shocks (watches, precious metals), (Percent; year-on-year)
25
strong pharmaceutical exports, and a surge in the Total
20 HH_mortgages
merchanting surplus (higher commodity prices). 15 HH_other
With a CA norm of +6.7 percent and adjustors for 10
NFC_mortgages
Switzerland-relevant factors and Covid-related 5

transitory impacts, the CA gap is assessed to 0
be -0.9 percent of GDP, with the corresponding -5

-10
REER gap estimated in a range of +0.2 percent
-15
(overvalued) and +3.6 percent (overvalued), with a
2021-12
2009-08
2010-06
2011-04
2012-02
2012-12
2013-10
2014-08
2015-06
2016-04
2017-02
2017-12
2018-10
2019-08
2020-06
2021-04
midpoint of +1.9 percent (Annex IV). The CA
surplus is expected to moderate to 6.3 percent of Sources: SNB.
GDP in 2022, reflecting higher energy prices and weaker global demand.
Authorities’ Views
11. The authorities broadly concurred with the external assessment and they viewed the
franc as highly-valued. They consider that analytical approaches and models underlying the
external assessment could be improved. Despite efforts, measuring some items of the CA and
international investment position (IIP) remains challenging. They cautioned against direct
interpretation of depreciation of the PPI-based REER, noting that PPI differentials were largely driven
by energy products, rather than competitiveness gains. They noted that a significant share of the
higher 2021 goods-trade surplus (in particular, merchanting) was driven by global factors
(commodity prices) and not Swiss fundamentals/policies.
OUTLOOK AND RISKS

12. Growth is expected to slow to 2¼ percent in 2022—above medium-term potential
(1½ percent), but dampened by spillovers from war in Ukraine. The Swiss authorities have
adopted nearly all EU sanctions on Russia/Belarus (Annex V). Direct exposures to the war (exports,
energy, financial sector, investment) appear limited, but indirect effects, including from sanctions,
could be substantial (energy/commodity prices/supplies, financial exposures—commodity trade,
wealth management, and lower regional/global growth). Outward spillovers—besides effects on
Russia/Belarus and outward spillovers from combined Swiss-EU sanctions (covered in the April 2022
World Economic Outlook)—could occur via effects on prices or supplies of important Swiss goods
and services under sanction, with implications for third parties. Fiscal and monetary policies remain
supportive, and higher household savings during Covid-19 should buoy consumption/growth. The
war in Ukraine is likely to affect activity in 2023, with growth slowing further to 1½ percent. The
output gap is projected to be -0.6 percent in 2022, closing by 2024. Unemployment could rise in
2022 as Covid support is withdrawn, but should remain lower on average than in 2021. Driven by

SWITZERLAND
higher prices of imports and Covid-suppressed core components, inflation is expected to average
2½ percent in 2022 and 1.6 percent in 2023 (discussed in Annex III).
13. Risks are tilted to the downside, with high uncertainty. War in Ukraine is a major source
of uncertainty: scope, duration, spillovers. Escalation could lead to sharply higher commodity prices,
supply disruptions, and lower/negative regional/global growth, with risks to financial markets and
additional refugees. In these circumstances, timely, coordinated, and substantial actions would be
needed to mitigate impacts on vulnerable households and firms and ensure sufficient energy
supplies. This would possibly involve full operation of the debt-brake rule, possibly extraordinary
outlays, and FXIs to mitigate safe-haven pressures. Other risks include de-anchoring of inflation
expectations in the U.S. or other advanced economies; this could lead to tightening global financing
conditions, intensifying flight to the franc and appreciation pressures. Adverse Covid-19
developments and cyberthreats are other risks, along with real estate imbalances—sharp rate rises
could trigger price corrections and impacts on households, banks, and activity (Annex VI). Lack of
clarity on EU relations is a concern.
14. The authorities shared staff’s assessment and concerns on uncertainty and risks,
although they had more positive views on growth and inflation. In mid-March forecasts, the
Federal Expert Group projected growth of 3.0 and 1.7 percent in 2022 and 2023, based in part on
still-moderate expected war impacts at that time. Reflecting expectations of a lower energy price
spike, the SNB conditional forecasts for headline inflation are 2.1 percent in 2022 and
0.9 percent in 2023, although they acknowledge risks of higher/more-sustained inflation. The
authorities believe that recovery and sustained labor demand will lead to lower unemployment in
2022–23.
POLICY DISCUSSIONS
Discussions focused on transitioning from Covid-19 policies to green-digital transformation, while
accounting for challenges from war in Ukraine. There was agreement that Covid-19 support should be
reduced, while monitoring stresses, and that the required offsetting period for Covid-19 spending with
future surpluses should be extended to limit headwinds. A clear medium-term plan would help clarify
how spending needs—aging, climate, energy security, defense—and tax reforms, which may involve
revenue losses, would be managed under the debt-brake rule (structural balance over the cycle).
Modalities for monetary policy normalization should be assessed, as time for normalization may be
approaching. Financial-stability risks are rising (real estate, war), and priorities for financial-sector
policies remain to reduce real estate vulnerabilities and contain risks from the war and fintech. Pension
and labor reforms should continue to advance. Finally, efforts should also continue to refocus climate
policies, ensure energy security, and bring clarity to EU relations.
Fiscal Policy
15. The authorities are phasing out Covid-19 support and providing budgetary outlays in
response to the war in Ukraine. The overall deficit should narrow by a further ½ ppt. in 2022
to -0.3 percent of GDP, but with still-sizeable Covid support and no change in the underlying non-

SWITZERLAND
Covid surplus, this entails a broadly-supportive stance (see Annex VII, DSA). The authorities have
made provisions (0.2 percent of GDP) to support Ukrainian refugees, without offsets in other areas. 5
The Covid phase-down, underlying stance, and accommodation of Ukraine-related spending are
appropriate. Given uncertainties (pandemic, war) and ample space, the authorities should
accommodate further adverse spillovers on revenues and spending (automatic stabilizers), and if
needed, provide targeted, timebound, non-distortionary support to households (e.g., energy bills)
and firms. With lower inflation than elsewhere in Europe, there have been few calls for household
support for high energy bills; liquidity support to some electricity companies is under consideration.
16. The fiscal framework requires offsetting of extraordinary spending via future
surpluses; this could create headwinds. Offsetting should ordinarily take place over six years, but
this is viewed as too short, given the magnitude of outlays (≥ 3½ percent of GDP by end-2022). 6
The Federal Council (FC) has proposed extension of the period and earmarking of expected extra
SNB dividends. 7 Some have called for a write-off or wider netting (past surpluses, additional SNB
profits). In staff’s view, the FC proposal preserves the thrust of the framework (structural balance
over the cycle, emergency provisions), while limiting netting and additional effort/headwinds from
higher surpluses (table). 8 Further improvement of operations under the framework—enhancing
revenue forecasts, limiting underspending—would mitigate surplus bias. Finally, while adverse Covid
impacts appear limited, some effects are greater (railways, hospitals). Some public enterprises ran
large deficits and incurred sizable debt. The authorities should carefully consider the
pace/magnitude of cost-cutting/fee hikes at these firms to avoid undermining service provision.
Text Table. Switzerland: Options for Amortization of Central Government's Extraordinary Spending
(percent of GDP)
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Amortization balance -3.7 -3.4 … … … … … … … … … … … …
Current framework (amortization period=6 years)

Amortization balance … … -2.8 -2.2 -1.6 -1.0 -0.5 0.0 … … … … … …
Fiscal surplus … … 0.6 0.5 0.5 0.5 0.5 0.5 … … … … … …
SNB profit transfer … … 0.2 0.2 0.2 0.1 0.1 0.1 … … … … … …
Additional effort … … 0.4 0.4 0.4 0.4 0.4 0.3 … … … … … …
Public debt … 38.9 37.3 35.9 34.3 33.0 31.6 30.4 … … … … … …
Proposal (no past surpluses, amortization period=12 years)

Amortization balance … … -3.0 -2.7 -2.3 -2.0 -1.7 -1.4 -1.2 -0.9 -0.6 -0.4 -0.2 0.0
Fiscal surplus … … 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2
SNB profit transfer … … 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Additional effort … … 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0
Public debt … 38.9 37.5 36.4 35.1 34.0 32.8 31.8 30.6 29.7 28.6 27.8 26.7 26.0
Source: Swiss authorities, and IMF staff calculations.

Notes: Additional SNB profits (about 0.2 percent of GDP) are assumed to be used to reduce the amortization account balance in 2022 and 2023.
5The authorities have raised their forecast of refugee arrivals to 80,000–120,000. The FC will reimburse cantons up to
CHF 18,000/person plus CHF 3,000 for language courses.
6A pre-pandemic surplus/buffer of CHF 4.3 billion at end-2019 and extraordinary revenues (including SNB dividends
of CHF 1.3 billion in 2021–22) reduce offset requirements.
7 The dedicated amount would be federal dividends over CHF 0.6 billion, possibly up to CHF 1.3 billion (0.2 percent of
GDP), in line with a government-SNB agreement (link). SNB profits have been large in recent years, leading to calls
for additional dividends/earmarking. The agreement incorporates predictable, scalable dividends, with SNB retaining
the bulk of profits, given balance-sheet risks (ER, FX investments, interest rates).
8 More aggressive netting could lead to moral hazard (easing emergency declaration, offsets), undermining the
framework; earmarking/additional profits could fiscalize SNB operations.

SWITZERLAND
17. Looking ahead, fiscal policy is encountering key challenges. Outlays on aging, climate,
energy security, digital transformation, and defense are expected to increase. 9 Tax reforms focus on
implementation of global CIT reforms and capital-market deepening. Some—notably, partial
abolition of financial-withholding taxes and elimination of industrial tariffs—may lower revenues. 10
The debt-brake rule mandates budget balance over the cycle—higher expenditures/lower revenues
must be compensated elsewhere. Large legally-mandated expenditures and planned use of future
surpluses and SNB dividends to offset Covid-19 outlays limit room. While there is space to run
deficits, the framework is difficult to modify, requiring constitutional change. Accordingly, a
medium-term plan is needed to show how needs will be addressed, alongside possible revenue
losses. In staff’s view, tax reforms should bolster revenues to ensure that aging does not crowd out
other areas. Spending reviews would help identify savings. Joint federal-cantonal efforts are needed
on CIT reforms; compensatory measures to maintain business-location attractiveness should be
limited in scope.
18. The authorities agreed with the assessment and underscored uncertainties. They
stressed that the debt-brake rule has performed well during Covid-19, keeping underlying finances
on track, while facilitating extraordinary outlays. The proposal to lengthen the offset period should
limit drag and adjustments to the rule. They agreed that outlays related to the war in Ukraine should
be accommodated. The authorities agreed that a plan to explain how medium-term expenditure and
revenue pressures would be addressed would be helpful.
Monetary and Exchange Policy
19. The SNB appropriately maintained an accommodative stance in 2021-early 2022, with
fine-tuning. The stance reflected inflation returning to the 0–2 percent stability range from below,
but still-uncertain pandemic and recovery prospects. Fine-tuning was reflected in allowing Covid-
refinancing and U.S.-dollar facilities to diminish, while reducing FXIs, as safe-haven pressures eased,
low-inflation pressures subsided, and inflation differentials contributed to REER depreciation. Safe
haven pressures resumed with the outbreak of the war in Ukraine, along with small FX purchases in
March based on staff’s estimates.
20. Although inflation is expected to return below 2 percent in early 2023, there are risks
that it may remain elevated or increase. The current stance (-0.75 percent policy rate and FXIs as
needed) has been in place since 2015. 11 This has alleviated downward inflation pressures, but
9 November 2021 projections by the authorities suggest that aging could require adjustment of 0.8–1.1 percent of
GDP to stabilize debt ratios at 2019 levels by 2050. The National Council recently voted to increase defense spending
from 2023.
10Revenue losses may total CHF 0.7 billion (0.1 percent of GDP). A popular vote on the partial abolition of
withholding tax appears likely.
11 Use of FXIs for QE is linked to limited CHF-denominated assets.

SWITZERLAND
brought side-effects (balance-sheet expansion, profitability pressures, higher housing prices). 12

Policy space for rate cuts has been limited. The SNB should consider adjusting this mix, as factors
such as the impact from the war in Ukraine, still ongoing Covid battles in China, and rising inflation
expectations (both domestic and abroad) suggest increased risks of higher/more persistent inflation.
21. Whether policy should be normalized depends on several factors: domestic inflation and
growth prospects, actions by other central banks, market responses, and fiscal policy. In the event of
continued robust recovery and signs of sustained higher demand-side inflation, the SNB should
consider tightening, including to reclaim policy
Switzerland: Yield Curve of Government Bonds
space. 13 Fed/ECB rate hikes would present an
opportunity for action; market rates have risen in 1.5
Apr-22 Mar-22
recent months (chart). Inflation differentials are Jan-22 Oct-21
1
important in assessing developments and Apr-21
prospects; these suggest room for appreciation to 0.5
ease inflation pressures. Also, medium-term
%
0
inflation expectations appear well anchored, while
the war in Ukraine has dampened the growth -0.5
outlook and introduced uncertainties. While the
SNB should refrain from FXIs to curb appreciation -1
3M 6M 1Y 3Y 5Y 10Y 20Y 30Y
pressures in normal times, it may need FXIs if safe- Sources: Refinitiv; and Haver Analytics.
haven inflows surge, with more limited scope for
policy-rate normalization. Normalization by other major central banks could lead to higher financial
market volatility and fluctuations; this could impact SNB finances, given its large balance sheet and
exposures. 14
22. To prepare for possible normalization, the SNB should review its tools, their
effectiveness, sequencing, and challenges. The SNB has a range of tools for tightening: policy-
rate changes, FXIs, repos/bills, and communications. It may work with the FC and the Financial
Markets Authority (FINMA) on complementary macro/microprudential measures. The large stock of
liquidity/SNB sight deposits suggests challenges to generating significant tightening through sales
of FX/SNB bills. Large FX sales may also be complicated, unless they are linked to changes in global
interest rates or other exogenous changes in the desirability of the franc as a safe haven. Policy-rate
12Negative-interest-rate exemption thresholds were introduced to ease profitability pressures. Initial thresholds were
set at 20x November 2014 required reserves; the base was changed to a 36-month average of required reserves and
multipliers increased to 25x in 2019 and 30x in 2020. As the initial threshold was static, deposits subject to negative
rates increased, stabilizing at 47 percent. 2019–20 adjustments brought this to 28 percent. Threshold changes have
led to temporary divergence of overnight and policy rates, with follow-up SNB operations. Sight deposits at end-
2021 were CHF727 billion (~100 percent of GDP); CHF174 billion drew interest of -0.75 percent, the rest zero.
13Normalization might help address negative side effects of extra-accommodative policies (e.g., real estate prices),
complementing other prudential measures.
14SNB reported a CHF 32.8 billion loss in Q1:2022 (4.4 percent of GDP), driven by losses on interest-bearing paper,
equities, and ER changes. SNB total equity was CHF 171.4 billion (23 percent of GDP) at end-March, including
distribution reserves of CHF 90.9 billion. According to the profit-transfer agreement (footnote 8), net profits must be
recorded for distributions; in case of net losses, no distributions are made.

SWITZERLAND
changes are likely to be the most effective tool; they may need to be accompanied by FX purchases,
if hikes attract excessive inflows or if there is volatility. Considerations should be explained to the
markets and the public.
23. The authorities broadly agreed with staff’s assessment and recommendations. They
noted that the situation is complex, given uncertainties and risks, and emphasized that their
framework is robust and flexible to address challenges. SNB sees the inflation pickup as mostly
supply driven and temporary, although acknowledging risks (higher sustained demand-side
pressures). The SNB has been monitoring inflation prospects, including internationally, and stands
ready to act. Inflation differentials are large, allowing room for nominal appreciation to limit price
pressures. The authorities agreed that communications are important, especially as a potential
tightening of policy would take place after a long period of accommodation; however, they
observed that clear communication does not mean forward guidance. While acknowledging that
interest-rate hikes would help regain policy space, they viewed this, at most, as a secondary
consideration. Actions of other central banks and fiscal policy should be assessed, but not seen as
guideposts or triggers; they are important in how they affect price stability and economic
developments in Switzerland. Finally, the SNB noted that the size of its balance sheet is not a
constraint: adequate capital buffers and sensible profit distributions are key.
Macroprudential and Financial Policies
24. The authorities are rightly monitoring a range of risks. Credit growth has been strong,
and NPLs are low. While asset quality could deteriorate as Covid support is reduced, bank exposure
to the most-affected sectors is limited. Profitability has been resilient, even if compressed by
negative interest rates. Housing prices have risen relative to fundamentals (overvaluation estimates
are 5–30 percent for apartments), with search-for-yield and robust mortgage lending. A sharp
tightening of conditions could trigger sell-offs in the investment-led segment and increase
affordability concerns in general. Price corrections could lead to defaults and pressures on capital
buffers. Domestically-focused banks are vulnerable to interest-rate shocks, given duration gaps; the
largest banks are exposed to international clients via leveraged and Lombard loans, to counterparty
credit risk in derivative and trading activities, to market and basis risk (under volatile conditions), and
to business risk from lower asset management flows, including linked to the war in Ukraine. Risks
related to cryptoassets and cyberattacks have increased with the war, although incidents have
remained contained; sanctions have increased compliance and financial-integrity risks.
25. The authorities have progressed in implementing prudential and risk-based

supervision and are planning to provide funding-under-resolution, but more is needed. Capital
rules are being amended to implement the Basel III finalization package expected in 2024 (including
an output floor for IRB models and RE exposures). FINMA has established a cross-sectoral
governance barometer, advanced recovery-and-resolution planning for too-big-to-fail institutions,
set up dedicated onsite teams, and is providing licenses to individual asset managers. Parliament

SWITZERLAND
approved revisions of the AML Act. 15 The FC announced intentions to introduce a public liquidity-
backstop to bolster liquidity under resolution, linked to enhanced special liquidity requirements for
systemically-important banks (SIBs) from July. Looking forward, FINMA should have power to
require ex ante restrictions for banks, driven by supervisory risk-management and governance
assessments. 16 Also, while discussions on monitoring tools for asset managers (AMs) are ongoing,
FINMA should heighten monitoring of concentration risk, enhance data collection, and consider
administrative fines.
26. Banks are resilient, even under exceptional stress, but system-wide materialization of
real estate risks could have a significant macrofinancial stability impacts. Tighter rules since
2020 under Switzerland’s self-regulation approach have helped rein in high-risk investment-
property mortgages; recent reactivation of the sectoral CCyB at 2.5 percent will strengthen
resilience. But borrowers are still taking bigger loans, and affordability risks are increasing. 17 The
mortgage market is large at 150 percent of GDP, with AMs, pension funds, and insurers also
exposed (Annex VIII). Materialization of RE risks would be significant for the financial system and the
real economy given the size of the banking sector (500 percent of GDP). A house-price correction
could trigger adverse feedback loops of falling prices, loan defaults, and bank losses. If banks do not
have sufficient buffers, they could curtail credit. Consumption could be affected by higher debt-
servicing costs and lower household wealth, amplifying the initial shock. Staff stress tests show that
losses could reach CHF 27.6 billion over 3 years (15 percent of CET1 capital), with the aggregate
CET1 ratio declining by 230 basis points to 14 percent. The sectoral CCyB would absorb 25 percent
of losses, but some banks would breach capital buffers. 18 The need to support financial stability
through the cycle and enhance resilience warrant early consideration of expanding the legally-
mandated macroprudential toolkit. Limiting the number of mortgages at high LTV-DSTI ratios or
requiring more substantial mortgage repayment would reduce potential losses and enhance
stability. 19 Also, in light of growing concerns with high home prices and rents, supply-side actions
should be considered, together with adjustments to taxation (e.g., abolition of imputed-rent
taxation, phasing out mortgage-interest relief). These could include targeted subsidies, more social
housing, and addressing constraints (zoning flexibility, infrastructure investment).
27. The authorities should continue their conservative approach to fintech regulation and
accelerate FSAP implementation. Contagion, legal, and reputational risks in fintech and
cryptoassets are important, along with vulnerabilities to cyberattacks and money laundering
15 These include detailed provisions on beneficial-owner identity and obligations for updating client data.
16 In the wake of CS losses (Greensill, Archegos), FINMA has focused on enhanced supervisory intensity, derisking,
strengthened risk controls, and governance assessments. Enforcement proceedings are underway. The authorities are
reviewing “Suisse Secrets” leaks for improprieties.
17 Staff estimates that a quarter (half) of mortgage loans could become unaffordable if rates increase to 3 percent
(5 percent).
18The low level of diversification and geographical concentration of some domestically-focused banks could amplify
pressures in some cantons.

SWITZERLAND
(Annex IX). 20 Banks and AMs could experience direct losses from digital assets or legal or
reputational hits from client losses. Cyber/cryptoasset risks have increased with war in Ukraine,
along with risks of sanctions evasion, placing a premium on monitoring. 21 The authorities should
ensure robust margining by banks, AMs, and financial-market infrastructures (FMIs), continue
enhancing VASP supervision, advance resolution plans for systemic FMIs, proactively implement
global prudential standards for cryptoassets (BIS, 2021), 22 and conduct a thorough cost-benefit
analysis of transitioning to a tokenized financial ecosystem. They have conducted successful
experiments on digital-asset settlement on new platforms. Finally, the authorities should implement
outstanding 2019 FSAP advice, particularly on data/resource gaps, FINMA autonomy/supervision
intensity, macroprudential framework, fintech oversight, and FMIs. 23
28. The authorities share concerns over rising real estate risks and are monitoring these
and other areas. SNB/FINMA share the view that mortgage and real-estate market vulnerabilities
have been developing, constituting a risk for financial stability due to materiality of exposures. They
noted that sectoral CCyB reactivation in January will maintain and strengthen the sector’s resilience.
They noted that further tightening via self-regulation may be called for and agreed that rising
vulnerabilities warrant early consideration of expansion of the legally-mandated macroprudential
toolkit. The authorities flagged efforts to strengthen the regulatory framework, enhance supervisory
intensity, take remedial action to address risk control failures, advance resolution plans and liquidity
arrangements for systemic institutions, monitor AML/CFT risks in fintech, and continue efforts to
deepen their understanding of CBDC benefits/risks.
Climate Change and Energy
29. The authorities are advancing alternative climate approaches after last year’s
referendum defeat. They extended pre-vote measures/targets through 2024 (annual 1.5 percent
emissions reduction, CO2 tax exemptions for companies committed to emissions reduction,
requirement for fuel importers to offset emissions from transport), while initiating work on revised
2025–30 proposals and 2030–50 plans. The focus is on regulation, incentives, and investment (e.g.,
heating systems, charging infrastructure). No new/additional taxes or carbon-pricing mechanisms
are being contemplated, a departure from the previous proposal. 24 Fuel importers will bear an
20 Fintech is monitored via high-level round-tables, consultations, on-site supervision, and enforcement procedures
using risk-oriented and principle-based approaches.

21 FDF operates a national contact-point that publishes threat warnings and prevention guidelines and reports cyber
incidents. There are proposals to introduce cyberattack reporting obligations.

22 Banks may have direct exposures to cryptoassets with a risk weight of 800 percent and strict concentration rules.
23Progress has been made on recovery and resolution plans (RRPs) for SIBs and FMIs, but gaps remain. There are
plans to introduce RRPs for insurers, and possibly, non-SIBs. While there is a proposed framework to advance
funding-in-resolution for SIBs, there are no plans to overhaul deposit insurance.
24 The carbon levy on fossil heating fuels is among the highest globally (CHF 120/T). CO Law revisions would have
2
set a ceiling of CHF 210/T.

SWITZERLAND
increased offset burden via purchase of certificates for demonstrated emissions reductions, with
costs passed to consumers. Canton-level measures are being enhanced. 25
30. Sustainable finance is a growth opportunity. In 2024, the authorities will establish binding
large-company implementation of the Task Force on Climate-related Financial Disclosures (TFCD),
exceeding TCFD via a dual-materiality principle. 26 Last July, FINMA amended circulars on disclosures,
requiring large banks and insurers to describe climate risks, business impacts, risk-management
processes, and governance arrangements. SNB/FINMA are assessing transition risk of G-SIBs (UBS,
CS). The authorities will develop a green-bond issuance framework in 2022. Looking forward, they
should introduce a sustainable-finance taxonomy, strengthen guidance to prevent greenwashing,
adopt a standardized disclosure framework for in-scope firms, broaden mandatory disclosure to
additional firms, 27 and extend climate stress-tests to D-SIBs.
Selected Economies: Electricity Production, Switzerland: Electricity Generation and Net

2019 Exports, 2021
(Percent) (GWh)
8000
120 Hydro Nuclear Thermal Production Net exports
Wind Geothermal Solar
100 6000
80
4000
60
2000
40
20 0
Sep-21
Jan-21
Jul-21
Mar-21
Apr-21
Jun-21
Oct-21
May-21
Feb-21
Aug-21
Nov-21
0
-2000
CHE DEU FRA ITA
Source: Swiss Federal Office of Energy. Source: Swiss Federal Office of Energy.
31. Promoting green transition/energy security will require review of energy strategies,
collaboration with neighbors, and public support. War in Ukraine and supply risks have focused
attention on energy security. 28 Major energy-mix contributions from hydro and nuclear power and
timing for electricity-price adjustments have so far shielded consumers from price spikes.
Denuclearization will gradually change the mix, along with a shift to renewables under the
2050 Energy Strategy. Switzerland’s denuclearization is flexible—it provides for continued operation
of reactors, rather than mandated closure dates. Changes to EU cross-border electricity regulations
are a risk to winter imports; the changes will require EU neighbors to reserve 70 percent of cross-
border capacity for other EU members from 2025. Finally, complex/lengthy approval procedures and
NIMBY concerns may affect expansion of renewables. The authorities are rightly working to
strengthen resilience, including securing short-term supplies/storage, revisiting pooling,
25 E.g., in 2021, Zurich voters approved a 95-percent reduction of heating-system emissions (vs. 1990) by 2040.
26 Disclosures would include financial risk from climate-related activities and business-activity impacts on the
climate/environment (EU approach).

27Under current proposals, binding climate reporting will apply for large firms (> 500 employees) from 2023; SMEs
(< 250 employees) account for 99 percent of firms and 60 percent of turnover.

SWITZERLAND
transmission, and storage arrangements, creating hydropower reserves and improving reservoir
management, building reserve dual-fuel (gas-diesel) plants, speeding regulatory processes,
encouraging building refurbishment, and tightening electrical-device standards.
32. The authorities assign high priority to reducing emissions, supporting green transition,
and energy security. In view of the 2021 referendum result, they are developing short- and
medium-term climate measures acceptable to voters. They hope that the new framework for
government green bonds will set standards for other borrowers (cantons, private sector). They are
advancing work on disclosures and comparable transparency in support of a market-based
approach to sustainable finance. Finally, they share concerns on energy security and place high
importance on near- and medium-term measures to alleviate risks.
Labor Market, Pensions, Inclusion
33. Facilitating reallocation of workers from Covid-19-affected sectors is the near-term

focus. While Covid-19 support should continue where needed, prolonged assistance might delay
restructuring/mobility. Supporting reallocation/reemployment calls for well-targeted labor policies
(ALMPs), focused on upskilling for jobs with high future demand. Expanded training, counseling, and
mentorship will smooth transitions.
34. Increasing participation, closing skill gaps, and reducing inequality are additional
priorities. Promoting broader/longer participation is key, given the rapidly-aging population. There
is room to improve equality for women and lower-skilled workers. Lowering early-retirement
incentives, removing disincentives for hiring/retaining older workers, further improving childcare
support, and easing tax disincentives for dual-earner families would help. Solutions to skill gaps
involve raising participation of older workers, ALMPs targeting skill acquisition, and immigration
policies focused on skilled workers.
35. Some pension reforms have been implemented, but more will be needed for long-
term sustainability. Reforms in 2021/early-2022 considered gradual male-female retirement age
harmonization (passed), additional first-pillar VAT funding (passed), cuts in second-pillar annuity-
conversion rates, post-retirement-age employment incentives, and lower pension-system entry age,
wage thresholds, and coordination deduction to shore up pension fund (PF) finances and/or pension
adequacy for lower-income and multi-job workers. The reforms may be subject to referendum, and
even if they pass, financing gaps will reemerge around 2030. Further retirement age increases are
needed, linked to life expectancy, along with actions to extend 65+ employment through
training/upskilling and wage flexibility. Further second-pillar conversion-rate cuts and flexibility are
needed (beyond proposals to date). Measures to improve PF efficiency, governance, and investment
performance are also needed. 29
29 See IMF Country Report No. 2021/131 for further discussion.

SWITZERLAND
36. The authorities agreed that efforts to improve labor-market resilience, pension-system
sustainability, equality, and the business environment should continue. Switzerland performs
well in labor and business-environment areas, but they emphasized intentions to sustain
competitiveness and dynamism. They highlighted recent reforms, including tax adjustments and
additional childcare support to encourage participation and Pillar 1 and 2 pension reforms to
improve sustainability and equality. Consensus-building is often challenging, especially on pensions,
but critical, given prospects for referenda. Accordingly, some reforms advance gradually.
EU Relations
37. Swiss-EU relations are wide-ranging and complex, with the way forward unclear. Over
the past decade, the EU called for a common institutional framework for the agreements governing
Switzerland’s access to the EU internal market. However, Swiss stakeholder consultations on a 2018
draft text identified outstanding issues: application of the EU Citizens’ Rights Directive, preservation
of working conditions/wages, and state aid. Pushing ahead risked referendum defeat. Negotiations
resumed, but were terminated by the Swiss side in May 2021. 30 Since then, the EU has not agreed to
update agreements and indicated that it will not sign new accords (except where it has specific
interests). This is leading to progressive erosion of EU-market access as agreements are not updated
(e.g., medical-device mutual recognition) and lower involvement in EU programs (e.g., Horizon
research). It is difficult to assess impacts, given multiple factors, including possible Swiss mitigation
measures. But uncertainty is likely to affect investment and location decisions over time. It would be
beneficial to establish arrangements that give stability and predictability to relations. Compensatory
measures should be limited (targeted, timebound).
38. The authorities have restarted engagement with the EU. They stressed that Switzerland
and the EU share common interests and objectives in wide-ranging areas and place high value on
strong, stable, and mutually-beneficial relations. The authorities have developed a new “vertical”
approach that would embed institutional issues in individual bilateral agreements. They are also
working to identify and address existing regulatory differences with the EU.
Governance
39. The authorities place high priority on ensuring efficiency, transparency, and
accountability in Covid-19 response. In addition to providing information on support measures
and auditing use, the government (Federal Office for Public Health, Federal Chancellery, SECO) and
SNB have completed and are conducting crisis-management reviews. The Federal Audit Office and
Parliament have completed and are conducting evaluations on how the pandemic was handled,
including procurement (which should include publication of beneficial-ownership information).
30On May 15, 71.5 percent of voters approved additional material, financial and human resources to Frontex, the
European border protection agency, an important read-out of Swiss voters’ views of participation in EU mechanisms.

SWITZERLAND
40. Efforts to strengthen the AML/CFT framework continue. After a 2020 FATF report, three
packages were adopted in 2021 by parliament: (i) revision of the AML/CFT Act and other acts in
March; (ii) other measures to strengthen the fight against terrorism and organized crime in July; and
(iii) changes in the AML/CFT ordinance on crypto assets in August. Since a 2015 national assessment
report, the authorities have published sectoral risk assessments for non-profits, legal persons,
cryptoassets, crowdfunding, cash-usage, corruption, fraud, and phishing. An update of the national
report was issued last October. FINMA’s AML/CFT supervision (on-site and off-site) should be
reinforced, and further efforts are needed to strengthen the role of financial intermediaries, in line
with a risk-based approach.
41. While Switzerland is an active enforcer of the OECD Anti-Bribery Convention, further
efforts are needed. A 2020 OECD Working Group report noted a high number of discontinued
cases and a decrease in newly-investigated and ongoing cases in 2018–20. Progress has been made
in other areas, including resources for the Money-Laundering Reporting Office (MROS), revision of
the Law on Public Procurement, and efforts to raise awareness of bribery issues. The authorities
should further strengthen the framework, including on maximum fines, whistleblower protection,
conditions governing appeals, and extension of the AML law to lawyers, notaries, and fiduciaries
providing non-financial services (see Annex X).
42. The authorities stressed that they are committed to ensuring sound Covid-19-related
spending and further improving other governance areas, including AML/CFT. They highlighted
continuing efforts in two Covid crisis-management areas: ensuring appropriate use of support; and
drawing lessons for future crises. In addition to emphasizing on-going efforts, including in
international fora, the authorities stressed that strengthening governance, including AML/CFT,
continues to be a constant endeavor.
STAFF APPRAISAL
43. While recovery is expected to continue, new challenges have emerged, especially from
the war in Ukraine; uncertainty and risks are high. While direct links to Russia and Ukraine are
limited, indirect exposures may be substantial, including through commodity prices/supplies,
financial exposures (via commodity traders, wealth management), and lower regional/global growth.
Escalation of the war is a major risk and uncertainty. Adverse developments could reignite safe-
haven flows. Other important risks are Covid-19 and real-estate imbalances.
44. The authorities’ fiscal stance for 2022 is appropriate, although flexibility is needed,
given uncertainty/risks. The debt-brake framework delivered robust finances prior to Covid and
flexibility in response. The underlying position is expected to remain unchanged, appropriate under
the baseline. Still-sizable Covid outlays provide insurance, and accommodation of refugee support is
welcome. The authorities should monitor the situation closely and draw on ample space in response
to adverse developments. This could include targeted, timebound, non-distortionary support to

SWITZERLAND
households and firms, and operation of stabilizers. The proposed extension of the offset period for
extraordinary outlays is welcome; it creates neither headwinds nor departs significantly from
established arrangements. Finally, the pace/magnitude of cost-cutting/fee hikes at hard-hit
enterprises (e.g., railways) should be reviewed to avoid undermining service provision.
45. A medium-term plan is needed to address fiscal challenges like aging, climate
transition, energy security, and tax reforms. There is ample space to run deficits, but the
framework requires constitutional change to be modified. As such, new priorities will need to be
offset. Accordingly, articulation of a medium-term plan to facilitate increased priority spending and
manage possible revenue losses from tax reforms will be important. Tax changes should make the
system less distortive and bolster revenues. Spending reviews will help identify savings.
46. After a long stretch of accommodative monetary policy, the time to start
normalization may be approaching. While the inflation pickup is still relatively benign and may be
temporary, there are risks that inflation may rise further and be more persistent. The SNB should
closely monitor developments and prospects, including internationally. To prepare for possible
normalization, the SNB should review its tools, transmission channels, sequencing of steps, and
communications, and adjust when needed. Policy-rate changes are likely the most effective tool.
They may need to be accompanied by FX purchases, if there is excessive volatility. Considerations
should be explained to the public. Normalization also would help address side effects of extra-
accommodative monetary policy. The 2021 external position is assessed as broadly in line with
medium-term fundamentals and desirable policies.
47. The financial sector has remained resilient through Covid-19, with strong buffers; still,
wide-ranging risks call for continued attention and action. House prices have risen relative to
fundamentals, with search-for-yield and robust mortgage lending. Tighter self-regulation since 2020
and reactivation of the CCyB requirement are helpful, but rising vulnerabilities warrant further action,
including early consideration of expanding the legally-mandated macroprudential toolkit. Limits on
loans or tighter amortization requirements could be considered, based on an assessment of
effectiveness. Taxation adjustments and addressing supply constraints could help affordability.
Indirect exposures from the war in Ukraine (counter-party credit and collateral risk; risks from
commodity finance, derivatives, wealth-management flows, financial integrity, cyberattacks) should
be kept under close watch.
48. The authorities should continue efforts to strengthen supervision, resolution planning,
financial integrity, fintech regulation, climate reporting, and green finance. While remediation
efforts in high-profile cases are being taken, the authorities should strengthen ex ante evaluation of
governance and risk and move proactively. Enhanced liquidity requirements and a public backstop
for SIBs will help ensure resolvability. Switzerland’s position as a leading global financial center will
also be sustained by improved monitoring of concentration risks in asset management, ensuring
resolvability of systemic FMIs, strengthening fintech regulation (while fostering innovation),
proactively implementing global cryptoasset prudential standards, addressing novel regulatory and
risk issues from digital trading/settlement systems, and advances on green finance.

SWITZERLAND
49. Labor and pension reforms are advancing, but more is needed. The tight labor market is
facilitating post-Covid-19 reallocation, although some workers will need guidance and training.
Closing skills gaps and broader/longer participation of older workers and women will help fill
vacancies. Pension reforms, if approved, will close funding gaps through 2030. To ensure
sustainability thereafter, further retirement age increases will be needed, linked to life expectancy,
along with actions to extend 65+ employment, and further second-pillar conversion-rate cuts.
Measures to improve pension fund efficiency, governance, and performance would be helpful.
50. The authorities should advance green transition while enhancing energy security. The
extension of current CO2 law measures and targets for 2022–24, revising 2025–30 proposals, and
devising policies for 2030–50 are welcome. The authorities are also rightly working on energy
security with measures to secure short-term supplies, encourage demand reduction, boost hydro
capacity and reservoir management, build back-up stations and fuel reserves, and speed regulatory
processes for new projects.
51. It is recommended that the next consultation takes place on the regular 12-month
cycle.

SWITZERLAND
Figure 1. Switzerland: COVID-19 Pandemic

The Omicron wave has peaked… Vaccination has lagged Europe’s leaders
New Weekly Covid-19 Cases Total Covid-19 Vaccine Doses per Person
(7-day moving average cases per million people) (Including boosters)
4500 2.5
Europe ISR USA
4000
Germany CHE DEU
3500 2
Switzerland GBR
3000
1.5
2500
2000 1
1500
1000 0.5
500
0
0
May-22
Jan-21 May-21 Sep-21 Jan-22 May-22
Feb-20 Sep-20 Apr-21 Nov-21
Hospitalization and fatalities have declined Testing has followed the broad European trend
Daily Covid-19 Hospitalization and Deaths New Covid-19 Tests
(7-day moving average per 1 million people) (7-day average tests per thousand persons)
250 12 16
Hospitalization Europe
14 Germany
10
200 Death (RHS)
12 Swizterland
8
150 10
6 8
100 6
4
4
50
2
2
0 0 0
Feb-20 Sep-20 Apr-21 Nov-21 May-22 Feb-20 Sep-20 Apr-21 Nov-21 May-22
All federal restrictions were lifted by end-March 2022 Omicron has affected mobility, but less than Delta.
Stringency Index Google Mobility Indicators
(0 least restrictive to 100 most restrictive) (Percent deviation from baseline)
90 Retail
20 Workplaces
80
70 Public Transport Transit
0
60
-20
50
40 -40
30
Europe(Simple Avg.) -60
20
Germany
10 -80
Switzerland
0
-100
Feb-20 Sep-20 Apr-21 Nov-21 May-22 May-22
Feb-20 Sep-20 Apr-21 Nov-21
Sources: Haver Analytics; Bloomberg; IMF staff calculations.

SWITZERLAND
Figure 2. Switzerland: High Frequency and Leading Economic Indicators

Recovery is continuing with a weakened momentum Retail was strong in late 2021, but is moderating
Weekly Economic Activity Index Retail Sales (3mma) Growth
(Annual growth, % yoy)
10 25
GDP, % yoy WEA Nominal Real
20
5
15
0
10
-5 5
-10 0
-5
-15
Jan May Aug Dec Apr Aug Dec Apr -10
2020 2020 2020 2020 2021 2021 2021 2022 Dec-12 Oct-14 Aug-16 Jun-18 Apr-20 Feb-22
Mar-22
Activity receded with Omicron and the war in Ukraine Same for confidence indicators….
KOF Economic Barometer Swiss Economic Confidence Indicator (SECO)
(Index, 2009-2018 LT average = 100)
160 2
140 1.5
120 1
0.5
100
0
80
-0.5
60
-1
40 -1.5
20 -2
0 -2.5
Apr-10 Apr-13 Apr-16 Apr-19 Apr-22 Apr-10 Apr-13 Apr-16 Apr-19 Apr-22
…and purchasing managers indexes… …including in services

Procure.ch PMI Procure.ch Services PMI
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
Apr-10 Apr-13 Apr-16 Apr-19 Apr-22 Apr-16 Oct-17 Apr-19 Oct-20 Mar-22
Sources: Haver Analytics; SECO.

SWITZERLAND
Figure 3. Switzerland: Key Macroeconomic Indicators, 2000–21

Exports, investment, and consumption boosted growth… …with higher net exports of goods supporting the BOP.
Contribution to Real GDP Growth Current Account Balance
(percent) (percent of GDP)
12 12 30 30
10 10 25 25
8 8 20 20
6 6 15 15
4 4
10 10
2 2
5 5
0 0
0 0
-2 -2
-5 Secondary income -5
-4 -4
-10 Primary income -10
-6 Consumption Construction -6
Fixed investment Net exports Services
-8 -8 -15 -15
Inventories and others GDP Goods
-10 -10 -20 -20
2000 2003 2006 2009 2012 2015 2018 2021
2021 2000 2003 2006 2009 2012 2015 2018 2021
Manufacturing has been a key driver of broad recovery. Public debt remains moderate.
Contribution to Real GDP Growth General Government Debt
(percent) (percent of GDP)
6 6 80 80
70 70
4 4 60 60
50 50
2 2
40 40
0 0 30 30
20 20
Industry exl. construction
-2 Trade, repair of motor vehicles -2 10 10
Financial service activities 0 0
-4 Real estate; prof.; admin service -4 Social security funds Municipalities
Other
-10 -10
Cantons Confederation
GDP -20 -20
-6 -6
2000 2004 2008 2012 2016 2020
2000 2003 2006 2009 2012 2015 2018 2021
Unemployment has trended down after a Covid-19 spike. Appreciation pressures have moderated.
Labor Markets Effective Exchange Rates
(percent) (index 2010=100)
10 8 140 140
9 Unemployment rate (left scale) 7 NEER
8 Employment growth (right scale) 6 130 CPI-based REER 130
7 5
120 120
6 4
5 3 110 110
4 2
3 1 100 100
2 0
90 90
1 -1
0 -2 80 80
2000 2006 2012 2018 2022 2000 2006 2012 2018 2022
Sources: Haver Analytics; Federal Finance Administration; Information Notice System; State Secretariat for Economic Affairs; and Swiss National
Bank.

SWITZERLAND
Figure 4. Switzerland: Monetary Policy, 2000–21

Policy and short-term rates have remained around -0.75 …while exchange rates have been fairly stable.
Money Market Rates Bilateral Exchange Rate
(Percent) (Index - 1999 January = 100, increase = CHF appreciation
1.5 1.5
& EUR appreciation against US dollar )
250 250
EURCHF
1.0 1.0
220 USDCHF 220
0.5 0.5 USDEUR
190 190
0.0 0.0
. 160 160
Target Range
-0.5 -0.5 130 130
SARON /1
-1.0 3M Libor -1.0 100 100
SNB policy rate
-1.5 -1.5 70 70
2010 2013 2016 2019 2022 Jan-07 Jan-10 Jan-13 Jan-16 Jan-19 Jan-22
Apr-22
FX reserves increased by less in 2021 than 2020. Cash in circulation has recovered from a Covid-19 hit.
Balance Sheet Items of the SNB Cash in Circulation
(Billions) (Growth rate, percent)
Other sight liabilities
1200 28 All banknotes except CHF 1000 notes 28
Sight deposits of foreign banks and institutions
CHF 1000 notes
Amounts due to the Confederation 24 24
All banknotes
800 Sight deposits of domestic banks 20 20
Banknotes in circulation
Foreign currency investments 16 16
400
12 12
0 8 8
4 4
-400 0 0
-4 -4
-800
-8 -8
2007 2010 2013 2016 2019 2022
2000 2003 2007 2011 2014 2018 2022
Loan rates remain low and stable, especially mortgages… …banks are gradually passing through negative rates.
Bank Lending Rates Bank Deposit Rates
(Percent) (Percent)
8 8
Current account advance facilities
0.5 0.5
7 Investment loans with fixed interest rates 7
Mortgages with fixed interest rates
6 6 0.3 0.3
5 5 0.1 0.1
4 4
-0.1 -0.1
3 3
-0.3 -0.3
2 2 Savings Deposits
1 1 -0.5 Time Deposits at least CHF 100,000, 3-month -0.5
Sight Deposits w/o withdrawal restrictions
0 0 -0.7 -0.7
2010 2012 2014 2016 2018 2020 2022 2010 2012 2014 2016 2018 2020 2022
Sources: Swiss National Bank; Bloomberg Finance L.P; Haver Analytics; and IMF staff calculations.
1/ SARON (Swiss Average Rate Overnight) is an overnight average rate referencing the Swiss Franc interbank repo market.

SWITZERLAND
Figure 5. Switzerland: Selected Inflation and Monetary Indicators, 2010–21

Inflation has picked up, albeit from negative readings…. …imports and energy products are leading the way.
Inflation Inflation by Component
(y/y percent change) (y/y percent change)
3.0 3.0
CPI inflation 6 CPI 6
2.5 2.5
5 CPI domestic 5
2.0 Core inflation 2.0 4 CPI imported 4
1.5 1.5 3 3
2 2
1.0 1.0
1 1
0.5 0.5 0 0
0.0 0.0 -1 -1
-0.5 -0.5 -2 -2
-3 -3
-1.0 -1.0
-4 -4
-1.5 -1.5 -5 -5
-2.0 -2.0 -6 -6
2010 2012 2014 2016 2018 2020 2022 2010 2011 2013 2014 2016 2017 2019 2020 2022
The changes are not coming from the euro exchange rate. Pressures on labor costs remain relatively muted
CPI Foreign Inflation and Exchange Rates Unit Labor Costs
(y/y percent change) (y/y percent change)
8 1.6
4 4
6 1.5
3 3
4 1.4
2 2
1.3
2
1.2 1 1
0
1.1 0 0
-2
1.0 -1 -1
-4 0.9 -2 -2
-6 CPI imported 0.8
-3 -3
CHF/Euro (level, rhs)
-8 0.7
-4 -4
2010 2012 2014 2016 2018 2020 2022
2010 2012 2014 2016 2018 2020 2021
Real rates have declined with higher inflation… …including the real policy rate.
Real Lending Rates Interest Rates
(percent) (percent)
2.0 2.0
8 Current account advance facilities 8 1.0 1.0

Investment loans with fixed interest rates
Mortgages with fixed interest rates 0.0 0.0
6 6
-1.0 -1.0
4 4
-2.0 -2.0
2 2 -3.0 -3.0
-4.0 Target/policy rate -4.0

0 0
Real target/policy rate
-5.0 -5.0
-2 -2 2010 2012 2014 2016 2018 2020 2022
Note: 1/ Nominal rate minus inflation.
2010 2012 2014 2016 2018 2020 2022
Sources: Haver Analytics; Swiss Federal Statistics Office; and Swiss National Bank.

SWITZERLAND
Figure 6. Switzerland: Selected Financial Indicators, 2007–21

Exchange rates developments have seen limited action…. Socks trended up with Covid-19, down with war in Ukraine
Foreign Currency Exchange Rates Stock Market Indices

(Units) (Index)
1.5 1.5 220 220
200 200
1.4 1.4
180 180
1.3 1.3
160 160
1.2 1.2 140 140
1.1 1.1 120 120
1.0 1.0 100 100
80 80
0.9 0.9
60 60
0.8 0.8
40 40
0.7 USD/CHF EUR/CHF 0.7 20 20
Overall Financials
0.6 0.6 0 0
2010 2011 2013 2015 2016 2018 2020 2022 2010 2011 2013 2015 2016 2018 2020 2022
Long-term government bond yields have turned positive Mortgages have spiked since Covid-19.
10-Year Government Bond Yields Credit Growth
(Percent) (Nominal credit, y-o-y, percent)
4.0 4.0 15 15
3.5 3.5
10 10
3.0 3.0
2.5 2.5 5 5
2.0 2.0
1.5 1.5 0 0
1.0 1.0
-5 -5
0.5 0.5
0.0 0.0 -10 -10
Household Mortgages
-0.5 -0.5
Mortgage Credit
-1.0 -1.0 -15 Credit to domestic nonbanks -15
Switzerland Germany
-1.5 -1.5 Non-Mortgage Credit to NFCs
United States -20 -20
-2.0 -2.0
2009 2011 2013 2015 2017 2019 2021
2022:Q1
2010 2011 2013 2015 2016 2018 2020 2022
Short-term rates have remained near the policy rate… Government bonds yields have risen across maturities
Short-Term Interest Rates Government Bond Yields
(Percent) (Percent, eop)
1.00 1.00 4 4
0.75 0.75 3 3
0.50 1-Month LIBOR 0.50 2 2
6-Month LIBOR
0.25 0.25
12-Month LIBOR 1 1
0.00 0.00
0 0
-0.25 -0.25
-1 -1
-0.50 -0.50
-2 -2
-0.75 -0.75 1-Yr 2-Yr 5-Yr
-3 7-Yr 10-Yr 30-Yr -3
-1.00 -1.00
3-m Treasury Bill Rate
-1.25 -1.25 -4 -4
2010 2011 2013 2015 2016 2018 2020 2022 2007 2010 2013 2016 2019 2022
Sources: Thomson Reuters Datastream; Haver; and IMF staff calculations.

SWITZERLAND
Figure 7. Switzerland: Indicators for Global Systemic Banks, 2006–20 1/

Risk weights of Swiss banks have trended downward… …supported by de-risking and de-leveraging measures.
RWA to Assets Tangible Common Equity to Tangible Assets
(Percent) (Percent)
12 12
60 60
50 50 10 10
40 40 8 8
30 30 6 6
20 20 4 4
10 10 2 CHE Other 2
CHE Other
0 0 0 0
2006 2008 2010 2012 2014 2016 2018 2020 2006 2009 2012 2015 2018 2020
Swiss banks have strong liquidity buffers… …but rely a bit more on wholesale funding than peers.
Loans-to-Deposits and Liquidity Wholesale Funding
(Percent) (Percent of total funding)
100 100
120 120
90 90
100 100 80 80
CHE Other 70 70
80 80
60 60
60 60 50 50
40 40
40 40 30 30
20 20 20 CHE Other 20
10 10
0 0 0 0
Loans-to-deposits (2020) Liquid assets-to-deposits 2006 2009 2012 2015 2018 2020
and borrowings (2019)
Sources: Thomson Reuters Datastream database; S&P Global Market Intelligence database; and IMF staff calculations.
1/ Switzerland numbers are for Credit Suisse and UBS. "Other “includes Citigroup, Deutsche Bank, HSBC, JP Morgan Chase, Barclays, BNP, Bank of
America, New York Mellon, Goldman Sachs, Mitsubishi, Morgan Stanley, Royal Bank of Scotland, Bank of China, BBVA, BPCE, Crédit Agricole, ING,
Mizuho, Nordea, Santander, Société Générale, Standard Chartered, State Street, Sumitomo, UniCredit, Wells Fargo, Commerzbank, and Lloyds.

SWITZERLAND
Figure 8. Switzerland: External Account, 2000–21

The current account has remained in surplus… …supported by exports of chemicals and watches.
Balance of Payments Goods Balance by Product
(billions of CHF; positive sign indicates cash inflows) (percent of GDP)
320 320
20 20
240 240 15 15
160 160 10 10
5 5
80 80
0 0
0 0
-5 -5
-80 -80 Other
-10 Motor vehicles
-10
Net errors and omissions
-160 Net other investment -160 -15 Textiles/clothing/footwear -15
Net portfolio investment Metals
-20 Chemicals -20
-240 Net direct investment -240
Capital transfers -25 Percision Instr/Watches -25
-320 -320 Machine/Equipment/Electronics
Current account -30 -30
Reserves (- sign, increase) 2000 2003 2006 2009 2012 2015 2018 2021
-400 -400
2000 2003 2006 2009 2012 2015 2018 2021
Net investment income has remained low…. …and the secondary income balance remains negative.
Primary Income Balance Secondary Income Balance
(percent of GDP) (percent of GDP)
15 15 1 1
10 10
0 0
5 5
-1 -1
0 0
-2 -2
Private
-5 Investment income -5
Public
Labor income
Secondary income balance
Primary income balance -3 -3
-10 -10
2000 2003 2006 2009 2012 2015 2018 2021
2000 2003 2006 2009 2012 2015 2018 2021
NIIP positions are balanced across USD, euro, and other… SNB flows remain the key driver of the NIIP.
NIIP by Currency NIIP by Sector
(billion CHF) (percent of GDP)
4000 4000
200 Other Public Sector 200
3000 3000 Banks SNB
160 NIIP 160
2000 2000
120 120
1000 1000
80 80
0 0
40 40
-1000 -1000
CHF USD 0 0
-2000 EUR Other -2000
-40 -40
Precious metals
-3000 -3000 2000 2003 2006 2009 2012 2015 2018 2021
2000 2004 2008 2013 2017 2021
2021
Sources: Swiss National Bank; Federal Customs Administration; and Haver Analytics.

SWITZERLAND
Figure 9. Switzerland: Housing Markets, 1996–21

Prices continue to rise in all segments. Some locales have stronger growth, others weaker
Real Residential Property Transaction Prices House Prices In Advanced Economies
(Index, 2007 Q1=100) (Index, 2007Q1=100)
180
250 CHE Single Family Homes
160 CHE Flats
200
140 150
120 100
Privately owned apartments
100 Single-family houses 50
Residential investment property 2007 2009 2011 2013 2015 2017 2019 2021
80 Note: Shown in the chart are selected EU members and other
advanced economies, including AUT, AUS, BEL, CAN, CHE, CHE,
2007-Q1
2008-Q1
2009-Q1
2010-Q1
2011-Q1
2012-Q1
2013-Q1
2014-Q1
2015-Q1
2016-Q1
2017-Q1
2018-Q1
2019-Q1
2020-Q1
2021-Q1
2022-Q1
CYP, DEU, DNK, ESP, FRA, GBR, HRV, HUN, ITA, LTU, LUX, NLD,
NZL, SWE, SVN, SVK, and USA.
PTI ratios now 30 percent higher than historical averages. Switzerland shares RE risks with other European countries
Price-to-Income Ratio Real House Price and Real HH Income Growth in Europe
(Index; Long-term average=100; transaction prices) (Cumulative period-over-period change, annualized)
140 20
Owner occupied apartments Real house price growth: 2020-21
Single family home 16

130 HH disposable income growth: 2020-21
Apartment buildings 12
120
8
110
4
100
0
90
-4
80 -8
1996 2001 2006 2011 2016 2021
LUX
DNK
NLD
EST
SWE
PRT
DEU
ISL
EA
CHE
FRA
BEL
ESP
RUS
HRV
UKR
HUN
NOR
AUT
CZE
GBR
ISR
LTU
SVN
LVA
SVK
ITA
MLT
SRB
BGR
FIN
IRL
CYP
TUR
POL
ROU
AE EE
The mortgage-to-GDP has reached very high levels. Household debt is high by international standards1).
Mortgages Total Household Debt, 2020
(Percent of GDP) (Percent of gross household disposable income)
180 180 300
170 170
250
160 160
150 150 200
140 140 150

130 130
100
120 120
110 110 50
100 100
0
90 90
ITA
GRC
IRL
CHE
DNK
AUT
AUS
SWE
BEL
GBR
ESP
PRT
FIN
ISL
CAN
NLD
NOR
DEU
FRA
2000 2003 2006 2009 2012 2015 2018 2021
Sources: Swiss National Bank; Wuest Partners; IAZI; BIS; OECD; Haver Analytics and IMF staff calculations. 1) While per capita household financial
assets in Switzerland are two to three times higher than in neighbouring countries, per capita liabilities are three to four times higher.

SWITZERLAND
Table 1. Switzerland: Selected Economic Indicators, 2017–27

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Staff projections
Real GDP (Percent Change) 1/ 1.7 2.9 1.2 -2.5 3.7 2.2 1.4 1.8 1.2 1.8 1.2
Total domestic demand 1.5 1.3 1.9 -0.7 -1.4 3.5 1.7 1.2 1.2 1.2 1.2
Private consumption 1.2 0.6 1.4 -3.7 2.7 2.6 1.5 1.1 1.1 1.1 1.1
Public consumption 0.6 1.0 0.7 3.5 2.7 1.5 1.0 1.0 1.0 1.0 1.0
Gross fixed investment 3.6 1.4 0.6 -1.7 3.0 2.5 2.2 1.6 1.5 1.5 1.5
Inventory accumulation 2/ -0.3 0.3 0.7 1.3 -3.4 0.7 0.1 -0.1 -0.1 -0.1 0.0
Foreign balance 2/ 0.3 1.8 -0.4 -1.9 4.9 -0.7 -0.1 0.8 0.2 0.8 0.2
Nominal GDP (billions of Swiss francs) 693.9 719.8 727.9 705.9 742.5 773.8 795.2 817.7 836.8 861.5 881.7
Savings and Investment (Percent of GDP)

Gross national saving 31.3 30.8 30.7 31.3 33.0 30.9 31.7 32.1 31.7 31.9 31.6
Gross domestic investment 25.0 24.8 25.2 28.5 23.8 24.6 24.7 24.6 24.7 24.5 24.6
Household savings 10.4 9.8 10.9 15.4 … … … … … … …
Current account balance 6.3 6.1 5.4 2.8 9.3 6.3 7.0 7.4 7.0 7.4 7.0
Prices and Incomes (Percent Change)

GDP deflator -0.4 0.8 -0.1 -0.5 1.4 2.0 1.3 1.0 1.1 1.1 1.1
Consumer price index (period average) 0.5 0.9 0.4 -0.7 0.6 2.5 1.6 1.2 1.0 1.0 1.0
Consumer price index (end of period) 0.9 0.7 0.1 -0.8 1.5 2.4 1.7 1.0 1.0 1.0 1.0
Nominal hourly earnings 0.4 0.5 0.9 0.9 0.3 2.2 1.2 1.0 1.0 1.0 1.0
Unit labor costs (total economy) -0.1 -0.8 1.6 1.6 -0.4 1.1 0.8 -0.1 0.5 0.0 0.5
Employment and Slack Measures

Unemployment rate (in percent) 3.1 2.5 2.3 3.1 3.0 2.6 2.7 2.8 2.8 2.8 2.8
Output gap (in percent of potential) 0.0 0.8 0.5 -1.5 -0.9 -0.6 -0.3 0.0 0.0 0.0 0.0
Capacity utilization 74.6 73.8 74.6 71.8 76.6 … … … … … …
Potential output growth 1.8 1.8 1.8 -0.5 2.8 1.2 1.3 1.3 1.5 1.5 1.5
General Government Finances (Percent of GDP)

Revenue 33.1 32.6 32.9 33.5 33.7 32.9 32.4 32.1 32.0 32.0 32.0
Expenditure 32.0 31.3 31.5 36.5 34.5 33.2 32.3 32.1 32.0 32.0 32.0
Balance 1.1 1.3 1.3 -3.0 -0.7 -0.3 0.1 0.0 0.0 0.0 0.0
Cyclically adjusted balance 1.1 1.0 1.1 -2.5 -0.4 -0.1 0.2 0.0 0.0 0.0 0.0
Gross debt 3/ 41.2 39.3 39.1 42.6 41.4 40.1 38.9 37.8 36.9 35.8 35.0
Monetary and Credit (Percent Change, Average)

Broad money (M3) 3.5 3.2 0.8 6.5 1.4 … … … … … …
Domestic credit, non-financial 2.7 4.0 4.2 2.4 3.8 … … … … … …
Three-month SFr LIBOR -0.7 -0.7 -0.7 -0.7 -0.8 … … … … … …
Yield on government bonds (7-year) -0.3 -0.2 -0.7 -0.6 -0.4 … … … … … …
Exchange Rates (Levels)

Swiss francs per U.S. dollar (annual average) 1.0 1.0 1.0 0.9 0.9 … … … … … …
Swiss francs per euro (annual average) 1.1 1.2 1.1 1.1 1.1 … … … … … …
Nominal effective rate (avg., 2000=100) 122.2 120.1 123.1 130.1 129.7 … … … … … …
Real effective rate (avg., 2000=100) 4/ 106.0 103.1 104.2 108.1 105.3 … … … … … …
Sources: Haver Analytics; IMF's Information Notice System; Swiss National Bank; and IMF staff estimates.
1/ The medium-term forecasts reflect the impact on Swiss GDP of major international sporting events, such as the Olympic Games, FIFA World Cup and UEFA European Championship.
2/ Contribution to growth. Inventory accumulation also includes statistical discrepancies and net acquisitions of valuables.
3/ Reflects new GFSM 2001 method, which values debt at market prices. Calculated as the sum of Federal, Cantonal, Municipal and Social security gross debts.
4/ Based on relative consumer prices.

SWITZERLAND
Table 2. Switzerland: Balance of Payments, 2017–27
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Staff projections
(In billions of Swiss francs, unless otherwise indicated)
Current Account 43 44 40 20 69 49 56 61 58 63 62
Goods balance 63 71 71 58 103 89 89 96 102 109 117
Exports 324 338 340 330 395 442 471 499 529 560 594
Imports 260 267 270 272 292 353 382 403 427 451 477
Service balance -2 4 1 -9 -7 5 5 4 0 2 -2
Net primary income -5 -22 -20 -13 -14 -30 -22 -24 -28 -31 -35
Net secondary income -13 -9 -12 -16 -13 -15 -16 -16 -16 -17 -17
Private Capital and Financial Account 21 70 57 29 32 49 56 61 58 63 62

Capital transfers 1 14 -2 1 -5 -2 -3 -3 -3 -3 -3
Financial account 23 84 54 30 28 47 52 58 55 61 59
Net direct investment -88 124 49 119 -18 -50 -64 -77 -71 -74 -72
Net portfolio investment 26 10 5 31 34 33 33 33 33 33 33
Net financial derivatives -1 4 2 -9 0 -5 -2 -3 -3 -3 -3
Net other investment 24 -68 -19 -227 -33 69 85 105 95 104 101
Change in reserves 61 13 16 117 44 0 0 0 0 0 0
Net Errors and Omissions -22 26 17 10 -37 0 0 0 0 0 0
(In percent of GDP, unless otherwise indicated)
Current Account 6.3 6.1 5.4 2.8 9.3 6.3 7.0 7.4 7.0 7.4 7.0
Goods balance 9.2 9.8 9.7 8.2 13.8 11.5 11.2 11.7 12.2 12.7 13.3
Exports 46.6 47.0 46.8 46.7 53.2 57.2 59.2 61.0 63.2 65.0 67.3
Imports 37.5 37.2 37.1 38.5 39.4 45.7 48.0 49.3 51.0 52.4 54.1
Service balance -0.3 0.6 0.1 -1.3 -0.9 0.6 0.6 0.5 0.1 0.2 -0.3
Net primary income -0.7 -3.1 -2.7 -1.9 -1.9 -3.9 -2.8 -2.9 -3.4 -3.6 -4.0
Net secondary income -1.9 -1.2 -1.7 -2.2 -1.7 -2.0 -2.1 -1.9 -1.9 -2.0 -2.0
Private Capital and Financial Account 3.1 9.7 7.8 4.2 4.3 6.3 7.0 7.4 7.0 7.4 7.0
Capital transfers 0.2 2.0 -0.3 0.1 -0.6 -0.3 -0.4 -0.3 -0.4 -0.3 -0.3
Financial account 3.3 11.7 7.5 4.3 3.7 6.0 6.6 7.1 6.6 7.0 6.7
Net direct investment -12.7 17.2 6.8 16.8 -2.5 -6.4 -8.1 -9.4 -8.4 -8.6 -8.2
Net portfolio investment 3.8 1.4 0.8 4.4 4.6 4.2 4.2 4.0 4.0 3.8 3.8
Net financial derivatives -0.2 0.6 0.3 -1.3 0.0 -0.6 -0.3 -0.4 -0.3 -0.4 -0.3
Net other investment 3.5 -9.4 -2.6 -32.1 -4.4 8.9 10.7 12.9 11.4 12.1 11.4
Change in reserves 8.8 1.9 2.2 16.5 6.0 0.0 0.0 0.0 0.0 0.0 0.0
Net Errors and Omissions -3.2 3.6 2.4 1.4 -5.0 0.0 0.0 0.0 0.0 0.0 0.0
Memorandum Items:
Net IIP (in percent of GDP) 97.0 107.4 88.0 108.3 89.8 93.3 92.1 91.2 92.6 93.1 94.9
Official reserves
(billions of Francs, end-period) 792.1 776.5 826.4 954.1 1014.1 … … … … … …
Sources: Haver Analytics; Swiss National Bank; and IMF staff estimates.

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Table 3. Switzerland: SNB Balance Sheet, 2012–21
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(Millions of Swiss francs; unless otherwise indicated)

Assets
Gold 50,772 35,565 39,630 35,467 39,400 42,494 42,237 49,111 55,747 55,691
Foreign currency reserves 432,209 443,275 510,062 593,234 696,104 790,125 763,728 794,015 910,001 966,202
IMF, international, and monetary assistance loans 7,332 6,834 6,664 6,486 5,903 5,577 5,889 6,026 7,121 14,821
Swiss franc repos … … … … … … … 6,529 550 3,216
U.S. dollar repos … … … … … … … … 8,842 2,147
Swaps against Swiss francs … … … … … … … … … …
Money market, Swiss franc securities, other 9,121 4,709 4,845 4,965 5,095 5,110 5,214 11,805 26,159 20,062
Total assets 499,434 490,382 561,202 640,152 746,502 843,306 817,069 860,956 999,028 1,056,776
Liabilities
Currency in circulation (banknotes) 61,801 65,766 67,596 72,882 78,084 81,639 82,239 84,450 89,014 90,685
Sight deposits 369,732 363,910 387,666 469,034 530,049 573,679 574,827 591,454 702,862 727,162
Repo, SNB bills and time liabilities … … … … … … … … 9,027 2,174
Foreign currency and other liabilities 9,825 12,682 19,635 37,183 53,841 50,821 39,770 17,970 14,175 32,506
Provisions and equity capital 58,075 48,023 86,305 61,053 84,527 137,168 120,232 167,083 183,951 204,249
Total liabilities 499,434 490,382 561,202 640,152 746,502 843,306 817,069 860,956 999,028 1,056,776
Memorandum Items:
Nominal GDP (billions of Swiss francs) 649 661 673 676 685 694 719 727 706 743
Balance sheet, percent of GDP 77.0 74.2 83.4 94.7 108.9 121.6 113.6 118.4 141.5 142.3
Banknotes, percent of total liabilities 12.4 13.4 12.0 11.4 10.5 9.7 10.1 9.8 8.9 8.6
Refinancing operations, percent of total assets … … … … … … … … … …
Provisions and equity capital, percent of total assets 11.6 9.8 15.4 9.5 11.3 16.3 14.7 19.4 18.4 19.3
Monetary base 1/ 284,381 360,765 375,305 455,863 504,140 551,849 549,374 564,161 674,297 725,618
Sources: Swiss National Bank; and IMF staff estimates.

1/ Currency in circulation and sight deposits of domestic banks.

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Table 4. Switzerland: General Government Finances, 2018–27
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Staff projections
(In billions of Swiss francs, unless otherwise specified)
General Government
Revenue 234 239 237 251 255 258 263 267 275 282
Expenditure 225 229 258 256 257 257 262 267 275 282
Net lending/net borrowing 9 10 -21 -5 -3 1 0 0 0 0
Confederation (Federal Government) 1/
Revenue 78 80 75 86 87 88 90 92 94 97
Expenditure 73 74 92 92 90 86 89 92 94 97
Net lending/net borrowing 5 6 -17 -6 -3 2 1 0 0 0
Cantons
Revenue 95 97 100 108 110 111 113 115 118 121
Expenditure 93 94 104 106 109 113 114 115 118 121
Net lending/net borrowing 3 3 -4 2 0 -2 -1 0 0 0
Communes/Municipalities
Revenue 49 49 49 50 51 51 52 53 55 56
Expenditure 49 50 51 51 52 52 52 53 55 56
Net lending/net borrowing 0 -1 -1 -1 -1 -1 0 0 0 0
Social Security 2/
Revenue 64 65 78 73 69 70 71 72 74 76
Expenditure 63 64 77 73 69 70 73 73 73 73
Net lending / net borrowing 1 1 1 1 1 1 0 0 0 0
General Government Gross Debt 3/ 282 284 301 308 310 309 309 309 309 309
Confederation (Federal government) 1/ 133 137 145 150 151 149 148 148 148 146
Cantons 85 87 93 93 92 94 95 95 95 95
Communes/municipalities 65 62 63 65 66 66 66 66 66 66
Social security 2/ 2 1 3 2 1 0 0 0 0 1
(In percent of GDP)

General Government Operations
Revenue 32.6 32.9 33.5 33.7 32.9 32.4 32.1 32.0 32.0 32.0
Expenditure 31.3 31.5 36.5 34.5 33.2 32.3 32.1 32.0 32.0 32.0
Net lending/net borrowing 1.3 1.3 -3.0 -0.7 -0.3 0.1 0.0 0.0 0.0 0.0
Confederation (Federal government) 1/ 0.7 0.8 -2.4 -0.9 -0.4 0.3 0.1 0.0 0.0 0.0
Cantons 0.4 0.5 -0.5 0.2 0.1 -0.2 -0.1 0.0 0.0 0.0
Communes/municipalities 0.0 -0.1 -0.2 -0.2 -0.1 -0.1 0.0 0.0 0.0 0.0
Social security 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0
General Government Gross Debt 3/ 39.3 39.1 42.6 41.4 40.1 38.9 37.8 36.9 35.8 35.0
Confederation (Federal government) 1/ 18.5 18.8 20.6 20.2 19.5 18.7 18.1 17.6 17.1 16.6
Cantons 11.8 12.0 13.1 12.5 11.9 11.8 11.6 11.3 11.0 10.8
Communes/municipalities 9.1 8.5 8.9 8.7 8.5 8.4 8.1 7.9 7.7 7.5
Social security 2/ 0.2 0.1 0.4 0.2 0.1 0.0 0.0 0.0 0.0 0.1
Memorandum Items:
Nominal GDP (billions of francs) 719 727 706 743 774 795 818 837 862 882
Output gap (percent) 1.6 1.6 -2.3 -0.4 -0.3 -0.2 -0.1 -0.1 -0.1 -0.1
General Government cyclically adjusted balance 1.0 1.1 -2.5 -0.4 -0.1 0.2 0.0 0.0 0.0 0.0
Sources: Federal Ministry of Finance; and IMF staff estimates.

1/ Includes the balance of the Confederation and extrabudgetary funds (Public Transport Fund, ETH, Infrastructure Fund, Federal Pension Fund).
2/ Includes old age, disability, survivors protection scheme as well unemployment and income loss insurance.
3/ Forcasted.

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Table 5. Switzerland: General Government Finances, 2011–21
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(In billions of Swiss francs, unless otherwise specified)
Revenue 204.2 205.3 210.3 212.6 220.5 221.5 229.9 234.5 238.9 236.5 250.6
Taxes 125.5 126.1 129.1 130.9 135.9 138.0 144.6 146.9 151.2 145.5 153.9
Taxes on income, profits, and capital gains 75.7 76.2 78.3 79.3 83.7 85.0 89.9 91.9 95.5 89.9 93.3
Taxes on goods and services 38.3 38.3 38.6 38.8 39.1 38.9 40.2 39.9 39.9 39.5 46.0
Taxes on property 9.8 9.9 10.4 10.9 11.2 12.0 12.4 12.8 13.5 13.7 12.3
Taxes on international trade and transactions 1.0 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.2 1.3
Social contributions 41.3 42.3 43.2 43.7 44.5 45.0 45.5 46.3 47.5 49.6 49.8
Grants 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3
Other revenue 37.2 36.7 37.8 37.7 39.9 38.2 39.5 41.0 40.0 41.2 46.7
Of which: property income 8.7 7.1 7.5 6.5 8.3 7.3 7.9 8.3 8.2 9.9 8.9
Expenditure 199.9 203.8 213.1 214.2 216.9 219.8 222.2 225.3 229.3 257.5 256.1
Expense 198.5 201.9 211.7 212.8 215.0 218.1 219.6 222.3 225.7 253.1 242.3
Compensation of employees 45.9 47.0 47.9 48.7 49.6 50.2 50.9 51.6 52.7 54.1 54.8
Purchases/use of goods and services 22.1 22.8 23.7 24.1 24.3 24.4 24.6 25.3 25.4 25.8 27.1
Interest expense 4.7 4.4 4.0 3.7 3.6 3.2 2.7 2.3 2.1 2.0 2.9
Social benefits 67.6 69.3 71.5 73.0 74.3 76.4 77.5 78.1 79.5 95.9 88.3
Expense n.e.c. 58.1 58.4 64.7 63.2 63.2 64.0 63.8 65.0 66.1 75.3 69.2
Net acquisition of nonfinancial assets 1.4 1.9 1.4 1.4 1.8 1.7 2.6 3.0 3.6 4.4 13.8
Net Operating Balance 5.7 3.4 -1.4 -0.2 5.5 3.3 10.3 12.1 13.2 -16.5 8.3
Net Lending/Borrowing 4.3 1.5 -2.8 -1.6 3.6 1.6 7.7 9.2 9.6 -21.0 -5.5
Net acquisition of financial assets 12.3 21.6 -5.2 42.0 -23.7 14.1 77.5 -10.8 63.0 12.5 17.9
Net incurrence of liabilities 7.9 20.1 -2.4 43.7 -27.3 12.5 69.8 -20.0 53.4 33.5 23.4
(In percent of GDP)
Revenue 31.9 31.6 31.8 31.6 32.6 32.3 33.1 32.6 32.9 33.5 33.7
Taxes 19.6 19.4 19.5 19.5 20.1 20.1 20.8 20.4 20.8 20.6 20.7
Taxes on income, profits, and capital gains 11.8 11.7 11.9 11.8 12.4 12.4 13.0 12.8 13.1 12.7 12.6
Taxes on goods and services 6.0 5.9 5.8 5.8 5.8 5.7 5.8 5.6 5.5 5.6 6.2
Taxes on property 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9 1.9 1.7
Taxes on international trade and transactions 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Social contributions 6.4 6.5 6.5 6.5 6.6 6.6 6.6 6.4 6.5 7.0 6.7
Other revenue 5.8 5.6 5.7 5.6 5.9 5.6 5.7 5.7 5.5 5.8 6.3
Expenditure 31.2 31.4 32.3 31.8 32.1 32.1 32.0 31.3 31.5 36.5 34.5
Expense 31.0 31.1 32.0 31.6 31.8 31.8 31.7 30.9 31.0 35.8 32.6
Compensation of employees 7.2 7.2 7.2 7.2 7.3 7.3 7.3 7.2 7.2 7.7 7.4
Purchases/use of goods and services 3.5 3.5 3.6 3.6 3.6 3.6 3.5 3.5 3.5 3.6 3.6
Interest expense 0.7 0.7 0.6 0.5 0.5 0.5 0.4 0.3 0.3 0.3 0.4
Social benefits 10.5 10.7 10.8 10.9 11.0 11.2 11.2 10.9 10.9 13.6 11.9
Expense n.e.c. 9.1 9.0 9.8 9.4 9.4 9.3 9.2 9.0 9.1 10.7 9.3
Net acquisition of nonfinancial assets 0.2 0.3 0.2 0.2 0.3 0.2 0.4 0.4 0.5 0.6 1.9
Net Operating Balance 0.9 0.5 -0.2 0.0 0.8 0.5 1.5 1.7 1.8 -2.3 1.1
Net Lending/Borrowing 0.7 0.2 -0.4 -0.2 0.5 0.2 1.1 1.3 1.3 -3.0 -0.7
Net acquisition of financial assets 1.9 3.3 -0.8 6.2 -3.5 2.1 11.2 -1.5 8.7 1.8 2.4
Net incurrence of liabilities 1.2 3.1 -0.4 6.5 -4.0 1.8 10.1 -2.8 7.3 4.7 3.1
Source: Federal Ministry of Finance.

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Table 6. Switzerland: Bank Soundness Indicators, 2011–21
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Capital Adequacy
Regulatory Tier I capital as percent of risk-weighted assets 1/ 15.4 15.7 17.8 16.1 16.6 15.7 18.2 18.3 19.0 19.3 19.1
Regulatory Tier 1 capital as percent of assets 5.5 5.5 6.1 6.9 7.3 7.1 8.0 8.3 8.6 8.1 7.9
Non-performing Loans
Non-performing loans net of provisions as percent of tier I capital 5.4 5.0 4.5 3.7 3.8 3.9 3.0 3.2 3.0 3.4 3.1
Non-performing loans as percent of total gross loans 0.8 0.8 0.8 0.7 0.7 0.7 0.6 0.7 0.6 0.8 0.7
Return on Assets … 0.1 0.3 0.1 0.2 0.3 0.3 0.4 -0.1 0.4 0.5
Liquidity Coverage Ratio 33.9 35.4 47.4 47.4 140.3 152.7 150.9 158.3 160.6 179.2 177.6
Asset Quality and Exposure

Non-performing loans as percent of gross loans 0.8 0.8 0.8 0.7 0.7 0.7 0.6 0.7 0.6 0.8 0.7
Sectoral distribution of bank credit to the private sector (percent)
Households 67.3 66.9 66.2 66.6 67.6 67.4 67.6 67.2 66.9 66.1 66.1
Agriculture and food industry 0.8 0.8 0.8 0.8 0.9 0.9 0.9 0.9 0.9 0.8 0.8
Mining and Quarry 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.2 0.1 0.1
Manufacturing 3.2 3.0 2.6 2.4 2.2 2.1 2.1 2.1 2.0 2.0 1.9
Utilities 0.6 0.6 0.7 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.5
Construction 1.6 1.6 1.6 1.5 1.6 1.5 1.6 1.6 1.6 1.7 1.7
Retail 3.1 3.0 2.7 2.8 2.5 2.7 2.5 2.6 2.4 2.6 2.7
Hotels and restaurants / Hospitality sector 1.0 1.0 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.9 0.8
Transportation & Storage 0.8 0.8 0.8 0.8 0.8 0.8 0.7 0.8 0.7 0.7 0.7
Info & Comm, Real Estate; Professional, Scientific & Admin. Activities 12.2 12.6 13.0 13.2 13.2 13.4 13.6 13.9 14.2 14.5 14.8
Finance and Insurance 5.0 5.2 5.7 5.3 4.8 4.7 4.7 5.0 5.4 5.7 5.8
Public Administration and Defence 1.7 1.7 2.3 2.3 2.3 2.3 2.0 1.9 1.8 1.7 1.6
Education 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Health & Social services 1.2 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.4 1.5 1.4
Art and Entertainment 1.0 1.0 0.9 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0
Extraterritorial Organization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Source: Swiss National Bank.

1/ Based on parent company consolidation. This consolidation basis equals the CBDI approach defined in FSI compilation guide plus foreign bank branches operating in
Switzerland, and minus overseas deposit-taking subsidiaries.

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Annex I. Status of Previous Article IV Recommendations
2021 Article IV Recommendations Policy Actions

Fiscal Policy
Avoid early withdrawal of fiscal support, with Covid support continued in 2021 (1.9 percent of GDP, compared to 2.1 percent in
adjustments under the fiscal framework (longer 2020). It will be scaled back in 2022, but remain sizable (0.9 percent of GDP).
offset for COVID-19 spending, limiting spending The Federal Council (FC) has proposed to use future financial surpluses to amortize
underruns). Covid-related extraordinary expenditures, extending the deadline to 2035.
Keep fiscal policy accommodative until there are Fiscal policy has been accommodative since the outbreak of the pandemic. Outlays
signs of sustained recovery; expand support if needed. related to the war in Ukraine (e.g., to support refugees) have been included in 2022.
Enhance, where possible, fiscal support for green- While no provisions were made for additional spending, new measures have been
digital transition, building on existing programs and proposed to supplement the existing CO2 levy with targeted incentives and investment,
plans and with attention to low-income earners. especially in transport and the building sector. The FC is preparing a framework for
green government bonds. A “Framework Conditions for the Digital Economy” report
is being updated.
Monetary Policy
Keep monetary policy accommodative, in light of The SNB kept monetary policy accommodative in 2021 (policy rate of -0.75 percent),
uncertainties and risks of an extended period of with some finetuning (allowing the Covid-19 refinance facility and USD liquidity
very low or negative inflation. support to diminish, adjusting FX market operations).
Continually review the monetary framework and The SNB has been continually reviewing its monetary policy framework, instruments,
tools to consider whether adjusting targets and and developments and prospects of monetary conditions.
instruments would help respond to new challenges.
Financial Sector Policy

Closely monitor financial sector risks (Covid-19 FINMA and SNB have closely monitored risks. The CCyB for residential mortgages was
losses, search-for-yield, leveraged exposures, reactivated and increased. Remedial actions have been taken following recent high-
residential and commercial real estate), with new profile cases, and enforcement proceedings are ongoing. Enhanced special liquidity
measures as needed. requirements for systemically-important banks (SIBs) were introduced, and a proposal
for a public liquidity backstop has been planned.
Structural Reforms
Protective labor policies in the near term to limit Covid-related short-time work scheme adjustments and compensation of income
scarring and inequality, with increased focus on losses for self-employed were kept in 2021 and will be phased out in 2022. In addition
mobility and flexibility, in light of ongoing structural to continued efforts to strengthen and adapt education, several measures have been
changes. proposed or adopted to increase labor force participation, including changes to
individual income taxation for married people, a higher limit of the tax deduction for
third-party childcare expenses; financial aid for supplementary family childcare; and a
vocational consultation program for people over 40.
More decisive pension reforms (retirement age, Efforts to reform both Pillar 1 and Pillar 2 have continued (planned or in legislative
conversion rates, pension fund arrangements) to process). Pillar 1: increase of retirement age for women (64 to 65), additional VAT
head off emerging financial gaps. financing, flexibility in retirement, and incentives to work after 65. Pillar 2: reduction of
minimum conversion rate (6.8 to 6), reduction of entry threshold (age, income) and
coordination deduction, adjustment of old-age credit rates.
Putting in place of a clear, monitorable action plan The authorities are advancing emission-reduction actions after the revised CO2 law was
to support the ambitious new long-term climate rejected in 2021, extending pre-vote measures and targets for 2022–24, revising
strategy. proposals for 2025–30, and devising plans for 2030–2050. The 2025–30 proposals
focus on regulation, incentives, subsidies, and investment.
Source: IMF staff.

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Annex II. Implementation of FSAP (2019) Recommendations

The authorities are continuing to implement 2019 FSAP advice. FINMA should make further progress
in ensuring risk-focused, in-depth, forward-looking supervision, filling resource gaps, and stepping up
system-wide analysis of fast-moving activities in fintech, AM, and FMIs. The authorities should
strengthen the macroprudential framework by broadening the toolkit to address rising vulnerabilities
in the real estate and mortgage markets. They should fill gaps in recovery and resolution planning of
too-big-to-fail institutions, including FMIs (particularly after the launch of SDX), and better monitor
and manage asset management concentration risk and pension fund systemic risks. They should
operationalize the public liquidity backstop to ensure funding under resolution for systemically
important banks.
Recommendation and Responsible Authority Timing* Implementation1

1. Strengthen FINMA’s autonomy, governance, and C Partly taken into account in the 2020
accountability, and preserve the primacy of its Ordinance to the Financial Market
prudential mandate. (FDF/FINMA; ¶32–34) Supervision Act. Further steps are needed to
strengthen FINMA autonomy, governance,
and accountability.
2. Increase resources for high-quality data gathering MT Progress has been made in some areas
and analysis of financial system risks, especially for (fintech, asset management, recovery and
the fast-moving fintech sector, and to advance resolution planning, FMIs), but gaps remain
recovery and resolution planning. (SNB/FINMA/OAK This recommendation remains a key topic of
BV; ¶15, ¶29, ¶36 ¶41, ¶51, ¶54, ¶58, ¶63) in the ongoing policy dialogue.
Financial Stability Policy Framework
Macroprudential
3. Expand the macroprudential toolkit with mandated ST New mandated tools have not been
supply- and demand-side tools, and strengthen introduced in the macroprudential toolkit,
accountability and expectations to act in decision- but adjustments will be considered in the
making. (SNB/FINMA/FDF; ¶35–36) context of Basel III implementation.
Banking
4. Ensure that FINMA—rather than banks—contracts ST FINMA can directly contract for supervisory
and pays directly for supervisory audits using ‘audit- audits, but the bank pays the bill. On audit
level’ practices in critical areas. (FDF/FINMA; ¶38) depth, for risks rated very high, FINMA
performs ‘audit level’ reviews. No additional
progress has been made.
5. Focus supervisory audits and increase FINMA’s risk- ST FINMA has adjusted its supervisory approach
based on-site inspections. (FINMA; ¶38) by guiding external auditors to follow a more
risk-focused approach, working more closely
with external auditors, and increasing the
number of on-site inspections (supervisory
reviews and deep dives).

SWITZERLAND

6. Strengthen assessments of key risk management and MT Progress has been made by integrating
control practices. (FINMA; ¶39) measures identified in FINMA Risk Barometer
into the supervisory planning process, by
formalizing the internal risk assessment
process through a ‘risk inventory’, and by
influencing bank remediation plans.
Additional measures are needed to
strengthen ex ante governance assessments
and feed them into supervisory action.
Financial Market Infrastructures

7. Strengthen recovery and resolution planning for I Progress has been made in approving
financial market infrastructures (FMIs). recovery plans for SIX x-clear and SIX SIS for
(FINMA/SNB/SIX; ¶49) the first time, subject to conditions. The
preferred resolution strategy for SIX x-clear
has been defined. But final approval of
recovery plans and development of
resolution strategies is still ongoing.
8. Improve independence of FMIs governance ST Limited progress has been made in the
arrangements. (SNB/SIX; ¶48) context of consolidated supervision to ensure
FMIs governance and autonomy in risk
management in crisis situations. Analysis and
discussions are ongoing.
Asset Management
9. Better monitor and manage concentration risk of ST Legislation with additional requirements for
regulated funds, and empower FINMA to impose risk monitoring has been approved by
administrative fines. (FDF/FINMA; ¶52–53) Parliament. Discussions on additional
monitoring, including of concentration risks,
are ongoing. The authorities do not intend to
empower FINMA to impose fines.
Fintech and Crypto-Assets

10. Enhance the monitoring of activities and address ST The authorities have stepped up supervision
regulatory gaps. (FDF/FINMA; ¶58–59) and monitoring of fintech and crypto
activities. The DLT Act entered into force in
2021 making Switzerland a pioneer in DLT
trading by recognizing transfer of ledger-
based securities as legally valid without
physical transfer or book-entry, and by
allowing DLT-based FMIs to admit non-
financial intermediaries to trade DLT
securities. The law provides legal certainty in
insolvency law by regulation the segregation
of cryptoassets in the event of bankruptcy.

SWITZERLAND
Financial Safety Net and Crisis Management

11. Enhance, expand, and expedite recovery and ST Partial progress made. FINMA approved GSIB
resolution planning, including resolvability. recovery plans, and banks made further
(FDF/FINMA; ¶63–66) progress on their global resolvability. FDF will
submit a new incentive setting for GSIBs to
become and remain resolvable to public
consultation in 2022. Emergency plans to
guarantee the resolvability of other systemic
banks are not ready. An evaluation to extend
the RRPs to non-SIBs is being conducted.
12. Thoroughly reform the DIS with a public DIA that is MT Current reforms fall short of international
included in the crisis management framework, ex- norms regarding a public DIA, ex ante DIS
ante DIS funding, and the authority to use deposit funding, and use of deposit insurance funds
insurance funds for resolution funding, subject to for resolution funding. The authorities do not
safeguards. (FDF; ¶67–68) intend to overhaul the DIS as recommended.
At the same time, the FC is planning to
expand its toolkit by establishing a ‘public
liquidity backstop’ to ensure funding under
resolution of systemically important banks.
* C = Continuous; I = Immediate (within one year); ST = Short Term (within 1–2 years); MT = Medium Term (within 3–5 years).
1
Based on information provided by the Swiss authorities.

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Annex III. Inflation in Switzerland: Why is it Rising, but by Less

than in Other Advanced Economies? 1
Inflation has been low or negative for several years; in recent months, the inflation pickup has been
less than elsewhere in Europe or the U.S. This reflects several factors. Risks of inflation above the
0–2 percent range have increased.
1. Inflation has risen, although less than in the euro HICP-Electricity & Gas Prices
(Index, Dec-2019=100)
area (EA). Headline inflation through April was 2.5 percent
155
versus 7.5 percent in the EA (8.3 percent in U.S.). The 150 EA electricity
145 EA gas
contribution of energy has been smaller, with a lower 140 CHE electricity
basket-weight, a larger share of administered energy prices, 135 CHE gas
130
and electricity more from hydro/nuclear than hydrocarbons. 125
Fuel/lubricant prices have developed similarly to the EA. The 120
115
2021 PPI-inflation differential was larger: 1.2 percent in 110
Switzerland; 9.7 percent in the EA. 105

100
95
2. Global drivers have been present: recovery to pre- 90
Dec-19 Jun-20 Dec-20 Jun-21 Dec-21
Covid levels for air travel/hotels; global bottlenecks for
computer chips/vehicles; higher costs for commodities and shipping.
3. Administered prices are another factor. A higher share of Swiss non-energy prices are
administered (27.6 percent vs. 10.5 percent in the EA). In Switzerland, non-energy administered
prices declined by 1.2 percent on average during 2014–21, but increased by 10.2 percent in the EA.
The influence of administered prices may be larger than their weight, due to competition and
second-round effects.
1 Prepared by Svitlana Maslova and Li Zeng.

SWITZERLAND
Text Table. Switerland and Euro Area: A Comparison of Administered Prices

Switzerland Euro Area
Dec. 2014 Dec. 2021 Dec. 2014 Dec. 2021
Inflation (%) Inflation (%)
index level index level index level index level
Energy 99.4 106.2 6.8 Energy 101.77 123.64 21.5
(2.7) (2.8)
Non-energy 100 98.8 -1.2 Non-energy 98.95 109.01 10.2
(27.6) (10.5)
Note: In parentheses are the weights (out of 100) in the HICP basket at the end of 2021.
4. Producer-price inflation, often an early indicator PPI excl. Costruction: Switzerland and
for consumer-price inflation, suggests limited CPI the Euro Area
(percent)
pressures. Producer-price inflation continued to trend up in 30 140
CHE PPI
March, similar to EA developments, although the pickup size 25 120
EA PPI C17
differed. Notable differences were in prices of electricity, 20 100
CHE Electricity, Gas, Steam
gas, steam and air-conditioning: EA inflation was 10x higher 15 and Air Cond. 80
than in Switzerland. Even for manufacturing, EA prices 10

EA Electricity, Gas, Steam and
60
Air Cond. (RHS)
increased by 4x more than in Switzerland. 5 40
0 20
5. The long-term CHF appreciation trend and well-
Jan-20
Apr-20
Jan-21
Apr-21
Jan-22
Jul-20
Oct-20
Jul-21
Oct-21
-5 0
anchored expectations are structural factors that have
-10 -20
supported lower inflation. Growth performance and Source: Haver Analytics.
demand pressures have not played a role. In the past

decade, Switzerland had better growth performance
(17.3 percent actual, vs. 18.4 percent potential) than the EA
(9.0 vs. 11.1 percent).
6. Wage pressures are muted. An increase in public

salaries by 0.5 percent in 2022 was agreed at the
confederation level. Based on the SNB’s company survey, a
wage increase of 1.6 percent on average is expected in 2022.
Still, the labor market has tightened, and firms see
recruitment as a key challenge.
7. Updated forecasts suggest that inflation will

likely average above 2 percent in 2022. Forecasts based
on an ARIMA model or the assumption that prices will stay constant at the latest observed levels
both suggest inflation averaging 2.1 percent in 2022 (see Scenarios 1 and 3 in “Likely Paths of CPI
Inflation in Switzerland”). If both domestic and import prices experience another trough-to-peak rise
as in the previous 12 months, 2022 average inflation will be close to 3 percent (Scenario 2). This
outlook reflects a gradual but steady rise since the early stage of Covid-19 (see “Projected Average
Inflation from Month T+1 to Month T+12 in Switzerland”).

SWITZERLAND
8. While the breach of 2 percent may still be temporary, risks of persistently-higher

inflation have increased. Extending the 12-month-ahead forecasts using an ARIMA model shows
that, under Scenarios 1 and 2, medium-term inflation will remain within the 0–2 percent band (see
“Projected Average Inflation from Month T+13 to Month T+24 in Switzerland”). On the other hand,
factors such as the war in Ukraine, Covid developments in China, and rising inflation expectations
suggest that prices may continue to face upward pressures, even in the medium term, rather than
returning to a steady, moderate trend as implied by the ARIMA model.

SWITZERLAND
Annex IV. External Sector Assessment

Overall Assessment: Switzerland’s external position in 2021 was assessed as broadly in line with the level implied by medium-term fundamentals and
desirable policies. However, complex measurement issues and data lags complicate the assessment.1
Potential Policy Responses: To maintain a broadly-balanced external position, fiscal policy should remain broadly balanced in structural terms, in
line with the authorities’ debt-brake rule framework, accommodating additional spending related to the war in Ukraine (e.g., accommodation of
refugees) and continuing Covid-19 support to vulnerable households/firms where needed. The required offset of extraordinary Covid-19-related
spending via future fiscal surpluses should be extended to avoid excessive headwinds to sustained recovery. With risks rising of persistently higher
inflation, the SNB should monitor closely inflation developments and prospects, including at the international level, and stand ready to adjust FX
market operations and policy interest rates if needed. Inflation gaps versus the euro area and the U.S. suggest possible room for franc appreciation
to ease inflation pressures. If significant downside risks materialize (e.g., large safe-haven inflows, deep and/or sustained downturn), the authorities
should consider targeted FXIs to mitigate disruptive volatility, and allow full operation of the structural-balance fiscal rule and/or temporary
discretionary fiscal stimulus. Macroprudential policies should focus on containing real estate imbalances and reducing financial sector risks. Medium-
term policies should be geared to ensuring balanced domestic and external contributions to growth, while improving the public-private mix in
financial outflows, thereby easing pressures on the franc.
Foreign Asset Background. Switzerland is a major financial center with a large, positive NIIP of 89.8 percent of GDP and large gross foreign
and Liability asset and liability positions of 753.1 and 663.3 percent of GDP, respectively, at end-2021. The NIIP reflects both a history of large
Position and CA surpluses and valuation changes.2 Valuation changes reflect fluctuations of exchange rates (ERs) and prices of securities and
Trajectory precious metals that interact with differences among assets and liabilities in terms of currencies and instruments.3 Compared with
2020, the NIIP declined in 2021 by 18.5 percentage points of GDP, mainly driven by negative valuation effects due to price
changes. Projections of the NIIP in 2022 and beyond are complicated by heightened uncertainty: because of the large gross
positions and compositional differences among assets and liabilities, even modest changes in ERs, asset prices, and returns may
have a material effect on the NIIP.
Assessment. Switzerland’s large gross liability position and the volatility of financial flows and investment returns present some
risk, but this is mitigated by the large gross asset position and the CHF denomination of about two-thirds of external liabilities.
2021 (% GDP) NIIP: 89.8 Gross Assets: 753.1 Reserve Assets: 136.5 Gross Liab.: 663.3 Debt Liab.: 205.6
Current Background. Switzerland’s CA surpluses averaged 7.2 percent of GDP during 2011–20.4 The CA surplus increased in 2021 to
Account 9.3 percent of GDP, from 2.8 percent in 2020, reflecting reversal of some Covid-linked shocks (e.g., watch exports, precious metals
trade), continued strong pharmaceutical sector performance, and a surge in the surplus on merchanting trade, likely related the
sharp rise of commodity prices. In 2022, the CA surplus is expected to moderate to 6.3 percent of GDP, slightly below the
medium-term average.
Assessment. The EBA CA norm of 6.7 percent of GDP is higher than last year’s norm. Based on a cyclically-adjusted CA surplus of
9.8 percent and the norm, the overall EBA-estimated CA gap equaled +3.1 percent of GDP in 2021.5 Domestic policy gaps account
for -1.8 percentage points and include excessive private sector credit -1.7 pp and fiscal overspending -0.2 pp; policy gaps in the
rest of the world contribute +1.3 pp. Adjustments for: (i) specific factors relevant for Switzerland that are not treated appropriately
in the income account—namely valuation losses on fixed-income securities arising from inflation (-3.3) and retained earnings on
portfolio equity investment (-0.1), and (ii) transitory impacts of the COVID-19 pandemic (-0.6), reduced the gap to -0.9 percent of
GDP (±0.8 percentage points).6
2021 (% GDP) CA: 9.3 Cycl. Adj. CA: 9.8 EBA Norm: 6.7 EBA Gap: 3.1 COVID-19 Adj.: -0.6 Other Adj.:-3.4 Staff Gap: -0.9
Real Exchange Background. CHF appreciation pressure eased in 2021 with recovery of the global economy and expectation that major central
Rate banks including the U.S. Fed might hike policy rates to tackle high inflation. Relative to 2020, the average NEER stayed virtually
unchanged, while the CPI- and PPI-based REERs depreciated by 2.4 and 8.9 percent, respectively.7 In the first quarter of 2022,
while the average NEER and CPI-based REER appreciated by 2.7 and 0.6 percent, respectively, the PPI-based REER depreciated by
9.6 percent. From a long-term perspective, the NEER has appreciated by 38 percent since 2010, while the CPI- and PPI-based
REERs have appreciated by 6 percent and depreciated by 9 percent, respectively (reflecting lower domestic inflation).
Assessment. The staff CA gap implies REER overvaluation of 1.9 percent in 2021 (applying an elasticity of 0.47). The EBA REER
index and level models suggest that the average REER in 2021 was overvalued by 11.6 and 16.3 percent, respectively, with policy
gaps accounting for a small amount of the total gap. This finding largely reflects a “reversion to trend” property of the empirical
model in the context of prior rapid appreciation episodes. However, due to measurement issues, the results may not fully capture
a secular improvement in productivity, especially in knowledge-based sectors. Consistent with the staff CA gap, staff assess the
REER gap in 2021 to be in the range of +0.2 percent and +3.6 percent (overvalued), with a midpoint of +1.9 percent.
Capital and Background. Net financial outflows totaled 3.7 percent of GDP in 2021, including private inflows of 2.3 percent of GDP and an
Financial increase in SNB reserve assets of 6.0 percent of GDP. During 2009–20, net private inflows averaged 2.9 percent of GDP, while the
Accounts: average annual increase in SNB reserves was 10.5 percent of GDP.
Flows
Assessment. Financial flows are large and volatile, reflecting Switzerland’s status as a financial center and safe haven. From a
and Policy
long-term perspective, sizable net private financial outflows prior to the global financial crisis have declined, and on average,
Measures
turned into net capital inflows, adding to appreciation pressures.

SWITZERLAND
FX Intervention Background. Official reserve assets (including gold) amounted to US$1,110 billion (137.4 percent of GDP) at end-2021, up
and Reserves US$26 billion from end-2020 (including valuation changes). The SNB purchased CHF21 billion of FX (net) through FXIs in 2021,
Level down from CHF110 billion in 2020.
Assessment. Reserves are large relative to GDP, but more moderate in comparison with short-term foreign liabilities. The high
level of reserves also reflects monetary operations aimed at avoiding persistent undershooting of inflation as a result of FX inflow
surges and given the limited scope for significant easing via other monetary policy tools. The supply of domestic assets for
purchase is limited, and the marginal interest rate on bank deposits at the SNB of –0.75 percent is already the lowest in the world.
The SNB’s initiation of quarterly publication of (net) FXI information in 2020 was an important step to enhance transparency.
1
Due to large revisions to historical BOP and IIP data, particular caution is needed when comparing external sector assessments for different
periods. For example, in the December 2021 BOP release (after the publication of the 2021 ESR), net incurrence of direct investment liabilities in
2020 was revised from CHF129 billion in the March 2021 BOP release (prior to the publication of the 2021 ESR) to CHF245 billion, contributing to
a large downward adjustment to the end-2020 direct investment foreign liabilities in the IIP. Please also see the 2021 ESR for details on major
BOP and IIP revisions in 2020.
2
Other stock-flow adjustments include changes in statistical sources, such as changes in the number of entities surveyed and items covered,
although their quantitative importance is not known.
3
As a result, an appreciation (depreciation) of the Swiss franc has a negative (positive) effect on the NIIP, whereas a symmetric percentage
increase in share prices in Switzerland and abroad would reduce the NIIP.
4
At the time of the previous assessment, this average was 8.2 percent of GDP. The change was due to revisions to historical BOP data.
5
Part of the positive EBA CA gap may reflect institutional pension features, such as replacement and coverage rates, in Switzerland rather than
other economic policy gaps.
6
The underlying CA is adjusted for Switzerland-specific factors in the income account : (1) retained earnings on portfolio equity investment that
are not recorded in the income balance of the CA (or, the PE RE bias) under the sixth edition of the IMF Balance of Payments and International
Investment Position Manual (BPM6), and (2) recording of nominal interest on fixed income securities under the Balance of Payments Manual
framework, which compensates for expected valuation losses (due to inflation and/or nominal exchange rate movements), even though this
stream compensates for the (anticipated) erosion in the real value of debt assets and liabilities. The PE RE bias was estimated using the “stock
method” and “flow method” as explained in “The Measurement of External Accounts” (IMF Working Paper 19/132), and it is similar in size to
estimates based on the SNB’s pilot BPM7 data.
In addition, the CA balance is also adjusted for transitory impacts of the COVID-19 pandemic on trade of goods and services, including
adjustors for (i) tourism (0.0 ppts); (ii) transport (-0.1 ppts); (iii) household consumption composition shift (-0.5 ppts); (iv) medical products
(0.0 ppts). Adjusting for these COVID-19 related effects, the underlying CA would need to be reduced by about 0.6 percent of GDP.
7
Prices of energy products, especially gas prices, were a main driver underlying the PPI inflation differentials between Switzerland and other
advanced economies such as the euro area and the U.S. If core PPIs excluding energy products were used, the depreciation of the PPI-based
franc REER in 2021 and early 2022 would be smaller.

SWITZERLAND
Annex V. Possible Implications of the War in Ukraine 1

1. Exposures. Direct exposure to Russia and Ukraine is modest, via energy (including through
neighboring countries), merchanting, and the financial sector. Trade constitutes a small share of
total trade. 2 Tourists declined sharply during Covid-19. Net remittances (Russia) are small, despite
large gross flows. Half of natural gas comes from Russia (via EU countries) and is used mainly in
home heating. Natural gas is just 15 percent of the energy mix; 90 percent of electricity comes from
nuclear, hydro, and renewables. Some uranium comes from Russia, but there are other suppliers and
sizeable stocks. At the outset of the war, banks had exposure to Russia on both sides of the balance
sheet; outstanding claims of Swiss banks on Russian borrowers were $3.9 billion (0.5 percent of GDP;
0.1 percent assets). The size of indirect exposures is uncertain, given prime-brokerage activities, off-
balance sheet positions (derivatives, assets under management), connections with commodity-trade
finance (Russian commodity trade is conducted via Swiss-based firms), and use of offshore entities
for transactions. 3,4 Some Russian banks have Swiss subsidiaries (Gazprombank, Sberbank). 5 Before
the war, the Bank of Russia reportedly held 2 percent of its balances (~$10 billion) in Switzerland
(outside SNB); the SNB held a very small stake of Russia-connected securities.
Text Table. Switzerland: Exposure to Russia and Ukraine

(percent of GDP)
Goods Trade Services Trade Direct Investments Portfolio investment Banks Remittances Tourist
Exports Imports Receipts Expenses Inward Outward Assets Liabilities Assets Liabilities To From arrivals
Russia 0.4 0.0 0.3 0.1 1.7 4.5 0.5 0.1 0.4 2.1 1.1 0.8 0.7
Ukraine 0.1 0.0 0.5 0.0 0.0 0.3 0.0 0.2
Sources: Haver Analytics, central banks, and IMF staff calculations.
Notes: The data presented is mostly for 2020, except for goods trade (2021), and tourist arrivals (2019). Goods' trade data excludes trade in precious
metals. Cross-border transfers for individuals are shown as remittance for Russia. Tourist arrivals are in percent of total tourist arrivals.
2. Sanctions. Switzerland has adopted nearly all EU sanctions on Russia/Belarus. In 2014,

Switzerland did not adopt EU sanctions, but took steps to prevent circumvention via Switzerland.
Among the sanctions are: (i) travel bans, asset freezes, and funding prohibition for designated
individuals/entities; (ii) financing restrictions on the Russian government and central bank; (iii)
sanctions on Russian banks and SOEs; (iv) prohibition on sale, supply, transfer, or export of certain
goods/technologies and services; and (v) airspace closure. Merchanting is largely excluded. The
authorities have activated a special status for Ukrainian refugees.
1 Prepared by Svitlana Maslova.

2 Based on Swiss data on trade in goods excluding precious metals, imports from Russia were CHF 270 million in
2021; Russian data showed exports to Switzerland of USD 2.8 billion.

3The Swiss Banking Association has suggested that Swiss financial institutions may hold CHF150–200 billion of
Russian-client funds (~2½ percent of AuM).
4 Traders finance three-quarters of trades via banks, usually secured by commodity liens, with price volatility a key
risk. Overall exposure to traders (Russia/non-Russia) was CHF 3.3 bn at UBS (0.9 percent of loans), and CHF 14.6 bn at
CS (5 percent).
5 Sberbank’s Swiss subsidiary was not part of Sberbank Europe AG (which lost its license in March).

SWITZERLAND
3. Impacts. Direct and indirect exposures are expected to put downward pressures on growth,
push inflation higher, and lower the current account surplus. An immediate impact was market
volatility, flight to safety, and CHF strengthening. Swiss companies and multi-nationals prominent in
Switzerland reduced their presence in Russia. About 50,000 refugees were registered by mid-May.
4. Risks. Risks are to the downside, especially from a protracted/wider conflict. Flight to safety
could resume with CHF appreciation pressures. Rising food and energy/commodity prices or supply
disruptions could depress activity, although higher commodity prices and increased volatility may
benefit traders. Prior to the war, traders based in Switzerland played an important role in the export
of hydrocarbons and other commodities from Russia. The largest firms hedged transactions and
may refocus operations to other suppliers. All traders may face difficulties if there is a full embargo
on commodities from Russia (including trade-related services), with specialty/smaller traders that
focused primarily on Russia particularly exposed. As traders and merchanting firms borrow from
banks, a decline in activity/profits and outright losses could affect the banking system. 6 Public and
private buffers appear sufficient to mitigate impacts.
6 It is difficult to provide concrete estimates, given the closely-held nature of the trade, the extent of hedging and
price developments, and coverage of sanctions and the evolving situation. The firms have a relatively small footprint
in terms of employment.

SWITZERLAND
Annex VI. Risk Assessment Matrix 1
Relative Time
Source of Risks Expected Impact Policy Response
Likelihood Horizon
Global Risks
Russia’s invasion of Ukraine leads to High ST High
escalation of sanctions and other Switzerland is a For safe-haven flows,
disruptions. Sanctions on Russia are financial center and use targeted FXIs to
broadened to include oil, gas, and food safe haven. Flight to moderate market
sectors. Russia is disconnected almost conditions. Provide
safety would lead to
completely from the global financial temporary, discretionary
appreciation pressures.
system and large parts of the trading fiscal stimulus if a
Franc appreciation downturn is deep or
system. This, combined with Russian
adds to deflationary sustained. Further
countersanctions and secondary sanctions
pressure and affects enhance the anti-
on countries and companies that continue
business with Russia, leads to even higher competitiveness and corruption and AML/CFT
growth. Vulnerable frameworks to protect
commodity prices, refugee migration,
households and firms the financial sector
tighter financial conditions, and other
may also be affected against inflows from
adverse spillovers, which particularly affect
foreign illicit proceeds.
LICs and commodity-importing EMs. via energy prices, as
Financial sector buffers
well as the financial are strong.
sector and others (e.g.,
commodity traders
with links to Russia).
Rising and volatile food and energy High ST High
prices. Commodity prices are volatile and Besides direct effects, Consider normalization
trend up amid supply constraints, war in increasing energy of monetary policy.
Ukraine, export restrictions, and currency prices would depress Provide support to low-
depreciations. This leads to short-run profit margins, income households.
disruptions in the green transition, bouts Prepare contingency
prompting a
of price and real sector volatility, food plans in case energy
transmission to suppliers face liquidity
insecurity, social unrest, and acute food consumer prices and
and energy crises (especially in EMDEs challenges. Accelerate
decreasing income of green energy transition.
with lack of fiscal space).
households. Rising
energy and food prices
would hit poor
households hard.
Outbreaks of lethal and highly Medium ST Medium
contagious Covid-19 variants. Rapidly Stricter containment Allow countercyclical
increasing hospitalizations and deaths due measures in support. Implement
to low vaccine protection or vaccine- Switzerland and abroad targeted measures for
resistant variants force more social would lead to lower the most affected
distancing and/or new lockdowns. This GDP growth, larger households and
results in extended supply chain sales losses, and higher companies. Monitor and
disruptions and a reassessment of growth likelihood of relieve liquidity stress
bankruptcy, likely with and solvency risk if they
prospects, triggering capital outflows,
concentration in occur.
financial tightening, currency
contact-intensive
depreciations, and debt distress in some
sectors and transport.
EMDEs.
1 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most
likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks
surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between
10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source
of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks
may interact and materialize jointly. ST is 12–18 months.

SWITZERLAND
Relative Time
Likelihood Horizon
De-anchoring of inflation expectations Medium (US) ST Low
in the U.S. and/or advanced European Inflationary pressures If de-anchoring in the
economies. Worsening supply-demand Medium/Low are well contained in U.S. and Europe leads to
imbalances, higher commodity prices (in Switzerland, although similar developments in
(Euro area)
part due to war in Ukraine), and higher de-anchoring in the Switzerland, tighten
nominal wage growth lead to persistently U.S. or Europe may monetary policy. Allow
higher inflation and/or inflation lead to capital inflows the franc to appreciate.
expectations, prompting central banks to and CHF appreciation If there are
pressures. sharp/volatile inflows
tighten policies faster than anticipated.
and pressures on the
The resulting sharp tightening of global
CHF, conduct targeted
financial conditions and spiking risk
FXIs.
premia lead to lower global demand,
currency depreciations, asset market
selloffs, bankruptcies, sovereign defaults,
and contagion across EMDEs.
Geopolitical tensions and de- High ST, MT High
globalization. Intensified geopolitical While direct exposures Consider options to
tensions, security risks, and wars cause are relatively limited, diversify trade partners.
economic and political disruptions, the Swiss economy is Strengthen monitoring
fragmentation of the international highly open and of the bank and
monetary system, production reshoring, a integrated in global nonbank financial
decline in global trade, and lower investor trade and capital sectors to increase
markets. Disruptions to resilience. May need to
confidence.
trade and/or capital undertake FXIs in case of
flows could have an strong/volatile safe-
impact on growth and haven inflows. In case of
inflation. Developments downturn, consider fiscal
could trigger flight to loosening.
safety and CHF
appreciation pressures.
Cyberthreats. Cyberattacks on critical Medium ST, MT High
physical or digital infrastructure (including Swiss economy is Take steps to ensure
digital currency platforms) trigger financial highly open and that cyber defenses are
instability or widespread disruptions in integrated in global robust. Stand ready to
socio-economic activities. trade and capital provide support to
markets. It is a leader in critical infrastructure or
cross-border asset institutions in case of
management and attacks. If effects are
fintech, which may be widespread, consider
vulnerable to cyber- fiscal and liquidity
attacks. support.
Switzerland-Specific Risks
Correction in real estate market and Medium ST, MT Medium / High
other financial risks. Low interest rates have Strengthen
encouraged search for macroprudential toolkit,
yield in real estate. consider introducing
Given the economy’s regulatory limits on
very large exposure to mortgages and
the property market, a coordinate with Swiss
decline in property Banks Association to
prices or abrupt tighten self-regulation
increase of interest rules and avoid fire sales
rates could create triggered by the
significant stress for activation of margin
players with large calls. Strengthen bank
balance sheet buffers against the
exposure. A significant property-related
event would pose risks exposure. Assess risks to
to economic and non-banks (pension
financial sector funds, asset managers,
stability. insurers) and in the

SWITZERLAND
Relative Time
Likelihood Horizon
construction sector.
Consider changes to
limits on portfolio
allocations for pension
funds (indicative) and
insurance companies. In
the event of a sharp
downturn, supervisors
should ensure that
banks use their buffers
to absorb losses and
keep credit flowing.
Political developments further Low ST, MT Medium
negatively affect Swiss-EU relations. Beyond the baseline of Seek to limit economic
disruptions fallout by preserving
progressively efficient flows of goods,
undermining trade, labor, and financial
investment, and services with the EU.
labor relations with the Continue discussions
EU, further negative with the European
challenges could authorities on a way
emerge. forward.

SWITZERLAND
Annex VII. Debt Sustainability Analysis

Figure 1. Switzerland: Public Sector Debt Sustainability Analysis—Baseline Scenario
(In percent of GDP, unless otherwise indicated)
Debt, Economic and Market Indicators 1/
Actual Projections As of May 03, 2022
2/
2011-2019 2020 2021 2022 2023 2024 2025 2026 2027 Sovereign Spreads
Nominal gross public debt 41.0 42.6 41.4 40.5 39.3 38.2 37.4 36.4 35.7 EMBIG (bp) 3/ 0
Public gross financing needs 3.6 7.2 4.9 4.7 4.2 4.5 4.5 4.4 4.3 5Y CDS (bp) 13
Net public debt 41.0 42.6 41.4 40.5 39.3 38.2 37.4 36.4 35.7
Real GDP growth (in percent) 1.9 -2.5 3.7 2.2 1.4 1.8 1.2 1.8 1.2 Ratings Foreign Local
Inflation (GDP deflator, in percent) -0.2 -0.5 1.4 2.0 1.3 1.0 1.1 1.1 1.1 Moody's Aaa Aaa
Nominal GDP growth (in percent) 1.6 -2.9 5.2 4.2 2.8 2.8 2.3 3.0 2.3 S&Ps AAA AAA
Effective interest rate (in percent) 4/ 1.2 0.7 1.0 1.0 0.9 1.0 1.1 1.2 1.4 Fitch AAA AAA
Contribution to Changes in Public Debt

Actual Projections
2011-2019 2020 2021 2022 2023 2024 2025 2026 2027 cumulative debt-stabilizing
Change in gross public sector debt -0.2 3.5 -1.2 -0.9 -1.2 -1.1 -0.8 -1.0 -0.7 -5.7 primary
Identified debt-creating flows -0.9 4.4 -1.1 -1.1 -0.9 -0.8 -0.6 -0.7 -0.4 -4.6 balance 9/
Primary deficit -0.7 2.9 0.6 0.2 -0.2 -0.1 -0.1 -0.1 -0.1 -0.5 -0.3
Primary (noninterest) revenue and grant32.0 33.3 33.5 32.7 32.2 31.9 31.7 31.7 31.7 191.9
Primary (noninterest) expenditure 31.2 36.2 34.1 32.9 32.0 31.7 31.6 31.6 31.6 191.4
5/
Automatic debt dynamics -0.2 1.5 -1.7 -1.3 -0.7 -0.7 -0.5 -0.6 -0.3 -4.1
6/
Interest rate/growth differential -0.2 1.5 -1.7 -1.3 -0.7 -0.7 -0.5 -0.6 -0.3 -4.1
Of which: real interest rate 0.6 0.5 -0.2 -0.4 -0.2 0.0 0.0 0.0 0.1 -0.5
Of which: real GDP growth -0.8 1.0 -1.5 -0.9 -0.6 -0.7 -0.4 -0.7 -0.4 -3.6
7/
Exchange rate depreciation 0.0 0.0 0.0 … … … … … … …
Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
8/
Residual, including asset changes 0.7 -0.9 -0.1 0.2 -0.3 -0.3 -0.3 -0.3 -0.3 -1.1
5 0
Debt-Creating Flows projection
4
(in percent of GDP) -1
3
-2
2
1 -3
0
-4
-1
-5
-2
-3 -6
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 cumulative
Primary deficit Real GDP growth Real interest rate
Exchange rate depreciation Other debt-creating flows Residual
Change in gross public sector debt
Source: IMF staff.

1/ Public sector is defined as general government.
2/ Based on available data.
3/ Long-term bond spread over German bonds.
4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.
5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate;
a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.
7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).
8/ Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.
9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

SWITZERLAND
Figure 2. Switzerland: Public Debt Sustainability Analysis—Composition of Public Debt and

Alternative Scenarios
Composition of Public Debt
By Maturity By Currency
(in percent of GDP) (in percent of GDP)
45 45
Medium and long-term Local currency-denominated
40 Short-term 40 Foreign currency-denominated
35 35
30 30
25 25
20 20
projection
15 15
projection
10 10
5 5
0 0
2011 2013 2015 2017 2019 2021 2023 2025 2027 2011 2013 2015 2017 2019 2021 2023 2025 2027
Alternative Scenarios
Baseline Historical Constant Primary Balance
Gross Nominal Public Debt Public Gross Financing Needs

(in percent of GDP) (in percent of GDP)
44 8
7
42
Net debt (in 6
40 percent of GDP)
5
38 4
3
36
2
34
1
projection projection
32 0
2020 2021 2022 2023 2024 2025 2026 2027 2020 2021 2022 2023 2024 2025 2026 2027
Underlying Assumptions
(in percent)
Baseline Scenario 2022 2023 2024 2025 2026 2027 Historical Scenario 2022 2023 2024 2025 2026 2027
Real GDP growth 2.2 1.4 1.8 1.2 1.8 1.2 Real GDP growth 2.2 1.6 1.6 1.6 1.6 1.6
Inflation 2.0 1.3 1.0 1.1 1.1 1.1 Inflation 2.0 1.3 1.0 1.1 1.1 1.1
Primary Balance -0.2 0.2 0.1 0.1 0.1 0.1 Primary Balance -0.2 0.2 0.2 0.2 0.2 0.2
Effective interest rate 1.0 0.9 1.0 1.1 1.2 1.4 Effective interest rate 1.0 0.9 1.1 1.4 1.7 2.0
Constant Primary Balance Scenario
Real GDP growth 2.2 1.4 1.8 1.2 1.8 1.2
Inflation 2.0 1.3 1.0 1.1 1.1 1.1
Primary Balance -0.2 -0.2 -0.2 -0.2 -0.2 -0.2
Effective interest rate 1.0 0.9 1.0 1.1 1.2 1.4
Source: IMF staff.

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Annex VIII. Mortgage Risk and Possible Responses1

1. The Swiss mortgage market is “too big to Household Mortgages in Europe, 2021
fail,” amounting to 150 percent of GDP (2021). 2 (Percent of GDP)
120
Household mortgages (110 percent of GDP) are
100
3 times euro-area levels. Mortgages are 85 percent
of total loans, half of bank assets. Most household 80
(95 percent) and corporate loans (65 percent) are 60
mortgages. Markets are thus vulnerable to price 40
corrections. Pension funds and insurers are also 20
increasingly tilted to real estate—23 and 12 percent 0
of assets, respectively. 3 CH SE UK FR BE ES EA DE AT IT
Sources: Haver Analytics; IMF staff calculations
2. The large market is partly

driven by non-amortizing loans and
tax treatment. Self-regulation rules
introduced in 2012 and adjusted in
2014 and 2020 stipulate mandatory
amortization to two-thirds of collateral
at origination, over 15 years for owner-
occupied mortgages and 10 years for
investment mortgages. Mortgages
granted before 2012 or with an LTV
below two-thirds of collateral value are
interest-only, exposing borrowers to rollover risk (on
Price-to-Rent Ratio
average, mortgages are rolled over 1–5 years after (Index, Long-term average=100; transaction prices)
origination) and interest-rate risk. 4 Homeowners 140
Owner occupied apartments
must pay personal income tax on the imputed rental 130 Single family home
value of property (~70 percent of market value); 120

Apartment buildings
interest is deductible, providing incentives to hold

110
debt. A tax regime change is under consideration,
100
but unlikely before 2025. 5
90
3. Homeownership is relatively low—lowest 80
in the OECD (37 percent), with the highest ratio of 1996 2001 2006 2011 2016 2021
Sources: IAIZ; OECD; and IMF staff calculations.
1 Prepared by Laura Valderrama.

2 The ratio has increased from 100 percent in 2003.
3 PFs and insurers are 2 and 4 percent of the mortgage market, respectively.
4 One-fifth of mortgages are issued with floating interest rates, mainly in the income-producing segment.
5Abolition of imputed-rent taxation has been discussed since 2017. In 2021, the first parliament chamber adopted a
proposal to abolish imputed rent taxation for primary residences and to restrict deductibility of interest expense (with
a first-time-buyer phase-out).

SWITZERLAND
homeowners with outstanding mortgages (90 percent). Ownership increases with income:
28 percent of households in the bottom quintile own a dwelling. Renting at subsidized rates is far
less common than in peers (7 percent).
Real Estate Price Index, Apartments
4. There are signs of overheating across (Index, 2000Q1=100)
Total Zurich Eastern
all sub-segments. With negative interest rates Central
Southern
Northwestern
Geneva
Berne
Western
350
since 2015, price growth has resulted in 300
imbalances, and price-rises accelerated during 250
the pandemic. Gains have been particularly 200
strong in Geneva and Zurich. In the owner- 150
occupied segment, strong demand and surging 100
preference for ownership has outpaced supply, 50
as construction remains below pre-Covid levels,
2000-Q1
2002-Q1
2004-Q1
2006-Q1
2008-Q1
2010-Q1
2012-Q1
2014-Q1
2016-Q1
2018-Q1
2020-Q1
2021-Q4
Vacancy rates declined, even as investors
Sources: SNB; and IMF staff calculations.
increasingly turned to residential real estate in
search-for-yield. 6 Residential price-to-income DSTI/DSTR In Owner-Occupied and Investment-Led
(Ratio)
and price-to-rent ratios have increased for DSTI, 50th i=3% DSTI, 50th i=5% DSTI, 75th i=3%
DSTI, 75th i=5% Max
privately-owned apartments, single-family
160
140
homes, and apartment buildings and are 120
30 percent above long-term averages for 100

80
apartments. SNB estimates of overvaluation 60
range between 5 and 30 percent based on a 40
broad set of indicators. 20

0
2018-Q1
2018-Q2
2018-Q3
2018-Q4
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
2018-Q1
2018-Q2
2018-Q3
2018-Q4
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
5. Despite self-regulation tightening, risk
OO Inv-led (corp)
profiles of new mortgages are elevated. With Sources: SNB; and IMF staff calculations.
rising prices and declining rates (by half over

DSTR in Buy-To-Let Segment Under Different Amort Rules
ten years), the Swiss Banking Association (Ratio) DSTI, 50th i=3% DSTI, 50th i=5% DSTI, 75th i=3%
amended self-regulation rules in 2019 (effective 1.8
DSTI, 75th i=5% Max
2020) to require a 25-percent down-payment 1.7

1.6
and shorter mandatory amortization periods of 1.5
mortgages in excess of 2/3 of property values— 1.4

1.3
from 15 to 10 years—for residential investment 1.2
1.1
properties. Still, as of Q4:2021, 10 percent of new 1
0.9
production in the buy-to-let market and 0.8
25 percent in commercial investment exceeded

2018-Q1
2018-Q2
2018-Q3
2018-Q4
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
2018-Q1
2018-Q2
2018-Q3
2018-Q4
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
75 percent LTV, high by international standards. 7 Amort=15y Amort=10y (starting in 2020)
There is no quantitative cap on borrower Sources: SNB; and IMF staff calculations.
6 The gap between real house price and real household income growth rates rose from 60 bps pre-Covid to 130 bps.
7Some EU countries have set limits on the investment-led segment, including Ireland and Latvia with 70 percent LTV
caps, the Czech Republic with a pre-Covid limit of 60 percent (relaxed to 90 percent during the pandemic), and
Belgium with an 80 percent threshold (first-time buyers 10 percent exemption).

SWITZERLAND
leverage. The median LTI in the owner-occupied segment, 5.7, is higher than in peers, where the
most common LTI threshold is 4.5. High leverage leads to elevated affordability risk. 8 Staff estimates
that a quarter (half) of mortgages could become unaffordable if rates increase to 3 percent
(5 percent) across all sub-segments. The average mortgage rate is 1.2 percent, and long-term rates
are 4 percent, so prospects of an increase to 3 percent are non-negligible. If tighter amortization
rules (from 15 to 10 years) are applied in the buy-to-let segment (as in commercial segment), the
implied debt-service-to-rent ratio at the 75th percentile and a 3 percent rate could increase by
10 basis points to 117 percent, above the 100 percent benchmark.
6. To increase resilience, the authorities reactivated the residential CCyB at the maximum
2.5 percent, with effect from September. This calibration is supported by FINMA’s stress tests that
suggest half of banks would breach capital requirements in a real-estate shock. The 2.5 percent rate
will be Europe’s highest. FINMA has called for tighter guidelines in the buy-to-let segment, as
revised self-regulation rules do not apply explicitly to investment properties of private borrowers
(20 percent of new issuances as of Q4: 2021).
7. A real estate crisis would be significant for banks. 9 Stress tests show that aggregate
losses could reach CHF 27.6 billion (15 percent of CET1 capital) over three years, with the banking-
system CET1 ratio declining by 230 basis points to 14 percent. 10 The three-year cumulative
mortgage portfolio loss rate would increase to 265 bps (185 bps in owner-occupied, 450 bps in
income producing). While the stressed-loss rate would be lower than during Switzerland’s 1990–93
crisis, household debt (percent of GDP) has risen by a third since 2000 and the 1990’s correction was
protracted (25 percent peak-to-trough over 8 years). An asset-price fall could trigger margin calls
and forced sales, triggering feedbacks and adding to pressures.
8. Policy considerations. Staff stress tests suggest that the CCyB would absorb 25 percent of
losses; some banks could breach capital buffers. Introducing legally-mandated tools on new
mortgages could mitigate risk and build resilience. Limiting mortgages that can be extended at LTV-
DSTI ratios higher than 75–20 percent (75–25 percent) with a 20 percent flow limit, or requiring that
the mortgage is paid down to 50 percent of its lending value (rather than two-thirds) could reduce
losses by 40 percent (25 percent) in the owner-occupied segment, enhancing stability. 11
8Affordability risk is high when imputed costs from mortgage servicing (amortization, interest, maintenance) exceed
one-third of income (owner-occupied segment) or rents (investment-led segment). To compute affordability risk, we
assume that average LTV is 80 percent and maintenance represents 1 percent of loan value.
10 The 3-year stress test scenario includes a house-price correction of 25 percent with a stochastic shock
differentiated across sub-segments, a cumulative decline in household disposable income of 3.6 percent, a reduction
in rents of 1.2 percent, an unemployment shift of 170 bps, and an upward interest rate shift of 300 bps.
11 Easing supply-side constraints, tax adjustments, and further rental-market development could support affordable
housing.

SWITZERLAND
Annex IX. The Rise of Fintech and Regulatory Action 1

1. Switzerland is a global hotspot for distributed-ledger-technology (DLT)-based fintech
and a hub for investment management, with a rapidly-evolving regulatory framework. As of
2020, 405 fintech firms with total funding of CHF 6 billion were registered, centered in Zurich and
Zug. Swiss banks manage 27 percent of global cross-border assets under management (AuM)
(CHF 8 trillion in 2020, 11x GDP). Fintech companies operating in investment management provide
portfolio services through robo-advisors. Since
2018, fintech firms may operate under a
regulatory “sandbox” exemption, which enables
provision of some services without authorization
or supervision, but subject to AML regulation. 2 A
fintech license became effective in 2019, with
FINMA authorization/supervision, allowing
fintech firms to hold deposits <CHF 100 million
with the same restrictions applied to sandbox
deposits. In February, the FC set out twelve action
areas for efficiency gains while containing risks. 3
2. Fintech firms are increasing market share across products and partnering with banks
to support cost-cutting. IFZ (2021) estimates that fintech firms have been involved in 3.6 percent of
mortgages and 2.6 percent of capital/money-market transactions. They hold 0.7 percent of AuM.
Fintech firms provide digital solutions to bank cost-cutting: personnel expenses have declined by
one-fifth since 2010, while assets have grown by 30 percent and net interest income has remained
flat (partly due to fintech competition). Risks related to vulnerability to cyberattacks, client
protection, value-chain fragmentation, dependence on third-party providers, and operational risks
are rising and should be monitored.
3. The authorities are at the forefront of promoting development of DLT/blockchain

technology and green fintech. A DLT Act (2021) made Switzerland a pioneer in DLT trading by
recognizing transfer of ledger-based securities as legally valid without physical transfer or book-
entry and by allowing DLT-based financial market infrastructures (FMIs) to admit non-financial
intermediaries to trade DLT securities. The law also provides legal certainty in case of insolvency by
protecting virtual assets in insolvency proceedings. In September 2021, SIX Digital Exchange (SDX)
received FINMA authorization as the world’s first fully-regulated and integrated trading, settlement,
1 Prepared by Laura Valderrama.

2 The Swiss sandbox is different from others, as it is open to all companies without supervisory guidance,
authorization, or conditions, with deposits capped at CHF 1 million (provided deposits are not invested, bear interest,
and are protected by the deposit-guarantee scheme). Most crowdfunding falls under this category. By contrast,
cryptocurrency wallet services, where private token keys lie with custodian-wallet providers, in principle require a
banking license. Exceptions apply if the wallet-provider has a system in place to specify/assign cryptocurrencies
received to their respective owners (in contrast to pooling).
3 See Digital Finance: Areas of Action 2022.

SWITZERLAND
and custody infrastructure based on DLT for digital securities. In November 2021, SDX successfully
issued the world’s first digital bond in a fully-regulated environment. 4 Also in 2021, FINMA licensed
the Crypto-Market Index Fund as the first Swiss crypto-asset fund open to institutional investors.
The authorities have positioned Switzerland as a green fintech hub by launching a Green Fintech
Network in 2020, implementing mandatory climate-reporting by large firms, and combating
greenwashing.
4. Switzerland’s digital ecosystem includes two “crypto-banks,” a growing number of

other banks and broker-dealers entering the cryptoasset market, and over 100 Virtual-Asset
Service Providers (VASPs). Sygnum and SEBA were licensed as fully-fledged banks in 2019. They
specialize in digital assets, tokenization, and decentralized finance (DeFi). 5 Sygnum issues its own
stablecoin pegged at parity to the franc (DCHF); in March 2022, it launched a DCHF 3 million deposit
product at 0.75 percent yield. Twenty-three banks and broker dealers are engaged in virtual assets,
most in custody (18), client trading (15), and own-trading (10), with virtual assets under custody of
CHF 5 billion. 112 VASPs operate, mostly in fiat-to-crypto exchange (68), with some active in crypto-
to-crypto exchange, virtual-asset transactions, custody services, and ICO services. AML/CFT is a key
risk. The authorities follow a strong supervisory stance to safeguard Switzerland’s position as a
leading financial center. Under a “same-risk, same-rules” approach, AML/CFT regulations were
applied to VASPs at an early stage. 6 Switzerland has adopted FATF standards on VASPs, including
lowering the threshold to CHF 1,000 for due-diligence application and beneficiary-information
requirements and applying a “travel rule” for crypto transactions by Swiss VASPs, including a ban on
transactions to/from anonymous wallets (exceeding FATF standards). 7
5. While digital finance offers potential to enhance efficiency, contagion, legal, and
reputational risks are important. Innovation could bring benefits, including a diversified, non-
correlated asset pool. However, as cryptoassets become more interconnected with the wider
financial system, banks could incur losses in the event of price corrections, and face legal and
reputational risk from client losses. 8 Back-of-the-envelope estimates suggest that client losses of
Swiss asset managers could reach 1 percent of GDP if recent monthly-price changes are realized. As
foreign clients hold 45 percent of AuM, sharp changes could affect BoP flows, ERs, and the NIIP.
6. Increasing interrelations among fintech, banks, and SIX Group could contribute to
systemic risk. While interconnectedness may help mitigate market fragmentation, it may fuel shock
4The bond comprised digital (CHF 100 million) and traditional (CHF 50 million) components. It was oversubscribed
several times and attracted a broad Swiss institutional-investor base.
5Digital assets include the blockchain-version of company shares and financial instruments; tokenization refers to
encoding valuables (e.g., gold, paintings) onto blockchains (‘tokens’); DeFi involves digital-asset trading on
blockchain-based exchanges.
6 Custody of virtual assets with omnibus-wallet structures is considered equivalent to deposit-taking, subject to
FINMA-prudential supervision. Other VASPs not prudentially-supervised by FINMA are subject to AML-supervision by
self-regulatory bodies supervised by FINMA.
7 The ‘travel rule’ applies requirements for wire transfers to ‘virtual asset transfers’—transaction originators and
beneficiaries must be identifiable.

8 Investor lawsuits can have large impacts, shown by CS’s CHF 1.6 billion loss linked to the Greensill default.

SWITZERLAND
transmission under stressed conditions from volatile cryptoassets or fintech firms to intermediaries.
Use of leverage could amplify risk. Also, new technologies could increase financial-system
vulnerability to cyber risk or unanticipated operational risk. The successful launch of SDX has the
potential to unlock global liquidity based on DLT, but also presents new risks and regulatory issues,
including potential spillovers to SIX Group’s traditional clearing, settlement, and custody platforms. 9
7. The completion of “Project Jura” in December 2021 and ”Project Helvetia Phase II” in
January 2022 has laid the foundation for a possible wCBDC. Jura explored direct CHF and euro
wCBDC transfer among French and Swiss commercial banks on a single DLT platform operated by
SDX. Today, SDX settles transactions of digital assets using tokenized commercial-bank money. Jura
demonstrated that a wCBDC could facilitate cross-border payment and settlement of digital assets
more efficiently by allowing different wCBDCs to co-exist on a single platform and providing non-
resident institutions with access to wCBDC. 10 However, transition to a tokenized ecosystem raises
challenges, including: (i) smooth functioning of money markets as instant gross-settlement requires
prefunding of asset and cash legs; (ii) design of the cash-leg of tokenized asset transactions (e.g.,
intraday wCBDC, tokenized commercial-bank money or stablecoins, or an RTGS-link using traditional
reserve balances); (iii) increased settlement complexity as platforms multiply; and (iv) operational
challenges from integration of trading and settlement.
8. Policy considerations. The authorities should sustain their conservative approach to fintech
regulation, including VASP supervision, and to enforcement activities through data collection,
inspections, and sanctions. They should safeguard independence of systemic FMI governance
arrangements from other business lines (SIX Group), maintain a strong stance regarding observance
of regulatory requirements of FMIs, ensure that risk models are robust (including conservative
margining practices) and continue advancing recovery plans and resolution strategies to support
continuity of critical services, even under extreme scenarios. 11 The authorities should be proactive in
implementing upcoming global cryptoassets prudential regulations (BIS, 2021) 12 to encourage
sustainable innovation while maintaining Switzerland’s attractiveness as a leading global financial
center.
9 SIX Group operates three systemically-important infrastructures, SIX x-clear (CCP), SIX SIS (an SSS and CSD), and SIX
Interbank Clearing (SIC) (an RTGS system), as well as a trade repository, securities exchange, and multilateral trading
facilities.
10By integrating wCBDC into core central-bank and commercial-bank systems and running transactions end-to-end,
”Project Helvetia Phase II” established interoperability between DLT-based and traditional systems. It also tested
settlement of monetary-policy transactions through issuance/redemption of wCBDC against tokenized assets.
11In March 2022 FINMA approved the recovery plans of SIX s-clear and SIX SIS for the first time subject to conditions
and is coordinating the resolution strategy of SIX x-clear.
12 BIS regulatory initiatives to tighten prudential treatment of crypto asset exposures could increase capital
requirements for Swiss banks due to the rise in risk weights for group 2 cryptoassets (from 800 to 1,250 percent) and
its conservative approach to hedges.

SWITZERLAND
Annex X. Anti-Bribery and Anti-Corruption Efforts1

1. Although Switzerland remains one of the most active enforcers of the OECD Anti-
Bribery Convention, further efforts to increase the enforcement of the foreign bribery offence
are called for. The 2020 follow-up report of the OECD Working Group on Bribery in International
Business Transactions (WGB) 2 noted the high number of discontinued cases as well as the decrease
in the number of newly investigated cases and ongoing cases in the Office of the Attorney General
(OAG) between 2018 and 2020. The WGB also agreed to follow-up on the management of
investigations within the OAG as well as on its internal organization and structural operation.
Progress has been made on other fronts. In particular, Switzerland has increased resources allocated
to the Money Laundering Reporting Office (MROS), which plays an important role in detecting
foreign bribery. It has also revised Federal Law on Public Procurement and efforts have been made
by the State Secretariat for Economic Affairs (SECO) in raising awareness among companies on the
issue of bribery of foreign public officials.
2. The authorities are encouraged to deploy more efforts to strengthen the framework
further. Several important reforms have not been executed and are called for by the OECD Working
Group on Bribery, e.g., in relation to the maximum amount of fines for legal persons, whistleblower
protection, the conditions governing appeals by interested persons in the framework of mutual legal
assistance or accounting standards. The WGB also noted that the Law on Anti-Money Laundering
(AMLA) still does not apply to lawyers, notaries, fiduciaries where their roles are restricted to
preparing acts that do not involve any financial transactions for their clients (such as acts relating to
the creation of companies and legal arrangements). 3
1 Prepared by the IMF Legal Department, in line with the IMF Framework for Enhanced Engagement on Governance
and Transparency. Text coordinated with the OECD, and approved by the OECD’s Working Group on Bribery in
International Business Transactions.
2 Information relating to supply-side corruption in this section of the Report draws on the Phase 4 Report of
Switzerland (2018) and the Summary and Conclusions on the Phase 4 Written Follow-Up Report of Switzerland
(2020). Based on the 2020 Written Follow-up Report, the WGB concluded that Switzerland has fully implemented
11 recommendations, partially implemented 18 recommendations, and not implemented 17 recommendations.
3 A progress report on some of these outstanding issues is expected to be adopted by the WGB in June 2022.

SWITZERLAND
STAFF REPORT FOR THE 2022 ARTICLE IV
May 25, 2022
CONSULTATION—INFORMATIONAL ANNEX
Prepared By European Department
CONTENTS
FUND RELATIONS ________________________________________________________________________ 2
STATISTICAL ISSUES _____________________________________________________________________ 4

SWITZERLAND
FUND RELATIONS
(As of April 30, 2022)
Membership Status: Joined May 29, 1992; Article VIII.
General Resources Account:

SDR Million Percent of Quota
Quota 5,771.10 100.00
Fund holdings of currency 4,160.76 72.10
Reserve position in Fund 1,610.36 27.90
New arrangements to borrow 73.85
SDR Department:
SDR Million Percent Allocation
Net cumulative allocation 8,819.38 100.00
Holdings 9,077.21 102.92
Outstanding Purchases and Loans: None
Financial Arrangements: None
Projected Payments to Fund1

(SDR Million; based on existing use of resources and present holdings of SDRs):
Forthcoming
2022 2023 2024 2025 2026
Principal
Interest 0.11 0.11 0.11 0.11
Total 0.11 0.11 0.11 0.11
1
When a member has overdue financial obligations outstanding for more than three months, the
amount of such arrears will be shown in this section.
Exchange Rate Arrangement:

The de jure exchange rate arrangement is free floating. The exchange rate of the Swiss franc is
determined by market forces in the foreign exchange market, and all settlements are made at free
market rates. However, the SNB reserves the right to intervene in the foreign exchange market. The
SNB publishes quarterly information regarding its foreign exchange transactions on the SNB data
portal, starting with data for Q1:2020. 1 The de facto exchange rate regime was reclassified from
floating to crawl-like, effective May 19, 2020.
Switzerland has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an
exchange system that is free of multiple currency practices and restrictions on the making of
1 Annual information for previous years was published by the SNB in its annual accountability report.

SWITZERLAND
payments and transfers for current international transactions except for restrictions in place for
security reasons notified to the Fund pursuant to Decision No. 144-(52/51).
On May 19, 2022, Switzerland notified the IMF of the exchange restrictions that have been imposed
against certain countries, individuals, and entities, in accordance with relevant UN Security Council
resolutions and EU regulations. More information on the restrictions can be found at the Swiss State
Secretariat for Economic Affairs (SECO) site.
Latest Article IV Consultation: The last Article IV consultation was concluded on June 11, 2021, with
the staff report published on June 21, 2021. Switzerland is on the standard 12-month consultation
cycle.
Technical Assistance (TA): No receipt of IMF TA. Switzerland is a major financial supporter of IMF
externally-financed capacity development (TA and training), including country-specific and region-
wide projects globally as well as IMF’s multi partner vehicles (regional and thematic trust funds and
capacity development centers). Switzerland has also been a supporter of other IMF initiatives, the
Catastrophe Containment and Relief Trust (CCRT), including financing for low-income countries via
the Poverty Reduction and Growth Trust, debt relief, and support to Somalia.
Resident Representatives: None
Financial System Stability Assessment Update and ROSCs:
• Missions for the 2019 FSAP were held in November 2018 and January 2019. The findings were
discussed with the authorities during Article IV consultation discussions in March 2019 and were
presented to the Executive Board for discussion alongside the Article IV staff report on
June 17, 2019. The report for the previous FSAP update was issued on May 28, 2014.
• Reports on the Observance of Standards and Codes (Basel core principles, IAIS core principles,
and IOSCO objectives and principles) were conducted in 2013–14, and the report was issued on
May 28, 2014.

SWITZERLAND
STATISTICAL ISSUES
(As of May 9, 2022)
I. Assessment of Data Adequacy for Surveillance

General: Data provision is adequate for Fund surveillance. Switzerland publishes timely economic
statistics and posts most of the data and the underlying documentation on the internet.
National Accounts: National accounts are timely (including the expenditure, production, and income
approaches). GDP by canton are published with a significant lag, however, with 2018 data being
released in January 2021. Responsibility for national accounts compilation is split between two different
agencies: quarterly national accounts are published by the State Secretariat for Economic Affairs, and
annual national accounts are published by the Federal Statistics Office.
Price Statistics: Consumer price indices (CPI) and producer price indices (PPI) for agricultural and
industrial activities are disseminated monthly by the Federal Statistical Office. The weights for the CPI
are updated every year, based on the results of the household budget survey. The weights for the
agricultural and industrial PPI are currently based on the average value of production in 2017 and 2018.
These weights are updated every five years, which is in line with best practice. A quarterly residential
property price index is compiled based on price data from mortgage lenders.
Government Finance Statistics: General government finance statistics are compiled by the Federal
Finance Administration. Data for general government are released with one quarter lag, but finalized
with a longer delay mainly due to fiscal accounts at the level of cantons and communes. The concept
and methodology of every account, including the most recent addition of financial transactions in
financial assets and liabilities and other economic flows, have been fully reconciled with the Swiss
system of national accounts of the Federal Statistical Office with the publication of
September 28, 2020. The Swiss National Bank (SNB) publishes statistics on outstanding and new bond
issues by the Swiss Confederation.
Monetary and Financial Statistics: The SNB reports monetary statistics for the monetary authorities,
deposit money banks, and other banking institutions for publication in the IMF’s International Financial
Statistics (IFS). However, data are reported with a long lag, using report forms that are not consistent with
the Standardized Report Forms (SRFs) developed based on the IMF’s Monetary and Financial Statistics
Manual and Compilation Guide, 2016. To improve data reporting, the SNB has worked on migration to
the SRFs. As a result, the SRFs 1SR for central bank and 2SR for other depository corporations have been
compiled and reported for dissemination. STA is working with the authorities to fix the remaining
issues on 1SR, 2SR, and 5SR. The SNB reports data on some key series and indicators of the Financial
Access Survey, including the two indicators (commercial bank branches per 100,000 adults and ATMs per
100,000 adults) adopted by the UN to monitor Target 8.10 of the Sustainable Development Goals.
Financial Sector Surveillance: Switzerland reports 10 core Financial Soundness Indicators (FSIs), six
additional FSIs for deposit takers, and two additional FSIs for real estate markets on a quarterly basis.
Two core and two additional FSIs for deposit takers are reported semi-annually, and two
additional FSIs on real estate market on an annual basis. The FSI data and metadata have been
posted on the IMF’s FSI website.

SWITZERLAND
External Sector Statistics: Balance of Payments (BOP) and international investment position (IIP)
statistics are published based on the sixth edition of the IMF’s Balance of Payments and International
Investment Position Manual (BPM6). Official data in BPM6 format are available from 1999 onwards.
Switzerland reports to the IMF annual data on the Coordinated Direct Investment Survey (CDIS); semi-
annual and annual data on the Coordinated Portfolio Investment Survey CPIS); monthly data on the
International Reserves and Foreign Currency Liquidity; and annual and quarterly balance of payments
and IIP data for Special Purpose Entities. Switzerland is also reporting quarterly external debt data to the
World Bank database.
II. Data Standards and Quality
In January 2021, Switzerland adhered to the IMF’s Special Data Dissemination Standard (SDDS)
Plus—the highest tier of the Data Standards Initiatives, having been an SDDS subscriber since
1996 and maintaining SDDS flexibility options on dissemination of production index data (for
periodicity and timeliness) and of wages/earnings data (for periodicity). Switzerland’s SDDS Plus
data are accessible through the Dissemination Standards Bulletin Board.

SWITZERLAND
Table 1. Switzerland: Common Indicators Required for Surveillance

(As of May 9, 2022)
Date of Date Frequency Frequency Frequency
Latest Received of Data7 of of
Observation Reporting7 Publication7
Exchange Rates Same day Same day D and M M and M D and M

International Reserve Assets and Reserve
Mar 22 Apr 22 M M M
Liabilities of the Monetary Authorities1
Reserve/Base Money Mar 22 Apr 22 M M M

Broad Money Mar 22 Apr 22 M M M
Central Bank Balance Sheet Mar 22 Apr 22 M M M
Consolidated Balance Sheet of the
Feb 22 Apr 22 M M M
Banking System
Interest Rates2 Same day Same day D and M M and M D and M

Consumer Price Index April 22 May 22 M M M
Revenue, Expenditure, Balance and
Composition of Financing3–General Q4/21 Mar 22 Q Q Q
Government4
Revenue, Expenditure, Balance and

Composition of Financing3–Central Q4/21 Mar 22 Q Q Q
Government
Stocks of Central Government and

Q4/21 Mar 22 Q Q Q
Central Government-Guaranteed Debt5
External Current Account Balance Q4/21 Mar 22 Q Q Q

Exports and Imports of Goods and
Q4/21 Mar 22 Q Q Q
Services
GDP/GNP Q4/21 Mar 22 Q Q Q
Gross External Debt Q4/21 Mar 22 Q Q Q
International Investment Position6 Q4/21 Mar 22 Q Q Q

1
Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise
short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial
derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.
2
Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and
bonds.
3
Foreign, domestic bank, and domestic nonbank financing.
4
The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) a
state and local governments.
5
Including currency and maturity composition.
6
Includes external gross financial asset and liability positions vis-à-vis nonresidents.
7
Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Statement by Marcel Peter, Alternate Executive Director for Switzerland and
Ronald Gindrat, Senior Advisor to Executive Director
June 10, 2022
On behalf of our Swiss authorities, we thank staff for the insightful policy dialogue and the
thorough analysis presented in the report. The consultations were appropriately broad in scope
and covered the key topical policy challenges. In fact, the global and regional environment has
remained highly volatile, necessitating flexible but prudent domestic policy responses. The
Swiss economy has proved highly resilient, on account of very strong institutional and macro-
economic frameworks and the ability to mitigate external shocks in a timely manner. The au-
thorities are in broad agreement with the staff’s assessment and the thrust of their recommen-
dations. These recommendations will usefully inform their macroeconomic policies under
heightened uncertainty as well as further reform steps.
Overall Outlook
Our authorities broadly agree with staff on the outlook and risks. The Swiss economy contin-
ues to recover and is set to grow at a significantly above-average rate in 2022. The lifting of
most pandemic restrictions bodes well for further recovery in the service sector. Strong em-
ployment growth testifies to a robust labor market. So far, the economic impact of the war in
Ukraine has been modest. While trade with Russia and Ukraine fell on the back of the sanc-
tions and reduced demand, the overall impact was minor, given the weak trade links. Against
this background, staff’s growth forecast for 2022 seems to be on the low side.
The main impact of the war on the Swiss economy has been on the price front. The sharp rise
in commodity prices increased production costs and inflation, thereby also dampening real in-
come and private consumption. As a result, inflation reached 2.9 percent in May. While the
current situation could persist a little longer, the Swiss National Bank (SNB) shares staff’s
view that the recent increase in inflation above the price stability range is likely to be tempo-
rary.
On the exchange rate side, after an initial sharp appreciation towards the beginning of the war,
the Swiss franc weakened again to below pre-war levels in nominal effective terms. Nonethe-
less, the risk of further safe-haven appreciation pressures remains high, should the war escalate
and/or global uncertainty rise. While the direct effects of the war on Switzerland’s open econ-
omy have so far been modest, its indirect effects are subject to high uncertainty and may be
severe. Switzerland would be significantly affected if its key trading partners were to suffer a
major economic downturn, possibly due to severe production shortfalls. At the same time, a
worsening in the already-tight supply of raw materials could lead to a further rise in inflation
globally. This would also increase the risk of inflation dynamics firming as a result of second-
round effects. Finally, a renewed deterioration of the pandemic situation cannot be ruled out.
Monetary Policy
The authorities agree with staff that the accommodative monetary policy in 2021 and early
2022 has been appropriate. At the same time, the SNB has emphasized that its framework is
robust and flexible to address challenges, and that it would not hesitate to react if inflation was
to become more broadly based and persistent. If the SNB were to tighten, it could either raise
its policy rate or sell foreign exchange or use a combination of both tools. The exact choice
would depend on the circumstances if and when a tightening becomes necessary.
Fiscal Policy
The debt brake is the backbone of Swiss fiscal policy and has proved to be the key anchor for
fiscal sustainability. Debt reduction in earlier years in adherence to the fiscal rule enabled
Switzerland to tackle the Covid-19 crisis in excellent budgetary conditions. The flexibility of
the rule has also allowed the federal authorities to act rapidly and with significant extraordi-
nary spending to support the economy and households. The Federal Council has proposed to
lengthen the amortization period of this extraordinary spending to 12 years, which, together
with the use of SNB profit distributions and budget underspend, would smoothen the consoli-
dation path required by the debt brake rule. A decision by parliament on an according bill is
expected in 2022.
The challenges for fiscal policy remain high, also due to markedly risen spending demands.
Expenditure pressures come from defense, the climate/energy transition, and to cover ageing-
related costs. Despite low debt and ample fiscal space, reconciling these requests with the debt
brake will not be straightforward since the Swiss constitution does not allow persistent defi-
cits. The authorities agree that more mid-term planning for structurally higher expenditures is
necessary to credibly comply with the debt brake. This is accommodated by the three-year fi-
nancial plan that the Federal Council presents to Parliament annually with the annual budget.
This financial plan allows to quickly identify negative structural balances and to propose re-
medial measures. In addition, at the beginning of each four-year legislative period, the Federal
Council presents its 10-year financial outlook. The 2023 outlook will serve to project and as-
sess spending priorities and expected revenues through 2033.
External Sector Assessment
The authorities take good note of the IMF’s external sector assessment. The estimated current
account (CA) gap amounts to –0.9 percent of GDP. On this basis, staff assesses the Swiss
franc to be overvalued by almost 2 percent. It should be emphasized that while the surplus in-
creased notably compared to the previous year, this rebound is mainly due to the reversal of
Covid-specific factors, as well as other global factors. In particular, as noted by staff, the in-
crease in commodity prices has led to significantly higher merchanting income. Importantly,
the CA increase has been driven neither by a change in Swiss policies and fundamentals, nor
by the exchange rate. In view of these developments, the authorities would like to stress three
points.
First, it is crucial that staff looks through the transitory global factors driving the Swiss CA
surplus in their assessment. This is necessary to ensure consistent assessments over the years.
More generally, the Swiss case illustrates that the methodology underlying these assessments
would benefit from a deeper and more flexible consideration of temporary factors.
Second, the CA developments over the past two years highlight the limitations of the CA bal-
ance as an indicator to assess over- or undervaluation. Large CA fluctuations are often not as-
sociated with exchange rate movements. Conversely, large exchange rate movements may
2
have a very limited impact on the CA balance in the short run. This is especially true in the
case of Switzerland due to the composition of its CA surplus, which is dominated by industries
that are rather insensitive to exchange rate movements.
Third, given those limitations, using a wider set of indicators to assess a country’s external
sector position would support a more robust assessment. In this regard, we very much wel-
come the focus on the net international investment position (NIIP) in the special issues paper.
The most important takeaway is that cumulated CA surpluses over the years have not been as-
sociated with an increase in the NIIP. Instead, the NIIP has remained broadly stable. As staff
notes, the gap between CA surpluses and effective NIIP accumulation has been driven not
only by exchange rate losses stemming from the nominal appreciation of the Swiss franc, but
also by measurement issues in the CA. Further work on the NIIP is certainly warranted. An
important avenue would be to investigate how to systematically integrate the analysis of stocks
into the EBA methodology.
Financial Sector Policies
The authorities have continued to strengthen regulation, enhance supervisory intensity, and
have taken remedial action to address risk control failures. The regulatory and supervisory
framework has been adapted and enhanced to reflect new types of risks for financial interme-
diaries, including from climate change and cyber threats. With the decision to turn the Na-
tional Cyber Security Centre (NCSC) into a federal office, the Federal Council has reinforced
the institutional setup for cyber security. A more formalized cooperation between financial in-
stitutions and the authorities is being established through the newly founded Swiss Financial
Sector Cybersecurity Centre (Swiss FS-CSC) association. Switzerland has been at the fore-
front in implementing a systematic and technology-neutral regulatory approach towards dis-
tributed ledger technology (DLT) and token-based financial services that leaves room for in-
novation. The authorities consider technological innovations also as a source of significant op-
portunities for the Swiss financial center. These can best unfold and grow on the basis of fi-
nancial sector regulation that continues to be risk-based, transparent, and predictable.
The Basel III finalization package for banks is on track to be implemented in 2024 and, with
regard to substance, in line with the standard. The proposal by the Federal Council to intro-
duce a public liquidity backstop for systemically important banks under resolution will further
enhance the credibility of large banks oversight and financial stability. Insurance legislation
has been amended to, among other things, allow the restructuring of insolvent insurance com-
panies, thereby better protecting existing contracts and avoiding bankruptcy.
Even with negative interest rates, banks’ profitability has held up, also on account of expanded
mortgage lending. On the downside, the authorities are aware that risks in the real estate and
mortgage markets have risen, reflecting significant increases in property valuations, including
of private homes. The reactivation of the sectoral counter-cyclical capital buffer (CCyB) will
enhance the banking sector’s ability to absorb losses and help maintain and strengthen banking
sector resilience. The authorities consider these risks to be manageable, although time-lags add
complexity. They agree that the possibilities for a further tightening of banks’ self-regulation
or an expansion of the legally mandated macroprudential toolkit may not be exhausted, should
vulnerabilities in these markets develop further. Legally mandated self-regulation will remain
3
the predominant approach to restrain high credit demand. In this respect, the mortgage stress
test performed by staff is appreciated.
Switzerland continues to be committed to ensuring financial sector integrity and firmly imple-
menting its latest revision of the AML/CFT legislation. New fintech/crypto service providers
are already covered by the Swiss AML/CFT legislation. Staff’s recommendations to remain
vigilant and further enhance the framework to combat financial crime and bribery are well
noted.
Switzerland has rapidly adopted all EU economic and financial sanctions imposed in relation
to the war in Ukraine. The authorities are closely monitoring evolving international develop-
ments, continue to ensure the effectiveness of the Swiss sanctions regime, and are actively en-
gaging with international partners, in particular also regarding the enforcement of financial
sanctions.
Structural Issues
The Swiss labor market coped well with the disruption caused by the pandemic. Use of short-
term work compensation by companies was extensive and prevented larger scale layoffs. This
being said, sectors have been affected very differently and targeted support to facilitate the
transition into new jobs and (re-) training remain a priority. The authorities agree that further
measures to enhance overall labor market participation would be beneficial, not least to pro-
vide relief for a tight labor market. Pension system reform has been high on the political
agenda for some time. The government supports further reforms that will, in particular, en-
hance the financial sustainability of both the first and second pillars. Gradual advances should
garner the broad-based political support necessary for securing confirmation by popular vote.
Switzerland remains one of the EU’s closest partners. The Federal Council in February 2022
reiterated Switzerland’s interest in maintaining and developing the bilateral approach with the
EU. Exploratory discussions on a potential negotiation package are now taking place, and
Switzerland remains committed to further develop constructively its important relationship
with the EU.
Although Switzerland covers around 60 percent of its energy needs through hydropower, it re-
mains reliant on other supply sources and is not shielded from the recent surge in energy
prices. Energy security has rapidly emerged as a political priority. Pragmatic, mutually benefi-
cial solutions are being pursued with neighboring countries to enhance resilience to potential
energy shortages. The authorities are aware of the significant challenge of reconciling immedi-
ate and future energy needs with an ambitious climate strategy in order to achieve the 2050
net-zero greenhouse gas emissions target. They are preparing a revised CO2 law to replace the
interim measures beyond 2024. It should be noted that Switzerland’s carbon taxes are already
among the highest globally.
The authorities are planning to mandate climate-related disclosures and transition plans based
on TCFD starting in 2024. Their aim is to incentivize financial institutions to be more trans-
parent on the compatibility of their commitments, targets, and portfolios with the Paris climate
goals. Work is underway to finalize voluntary Swiss Climate Scores that reflect Switzerland’s
views with respect to best practice transparency on the Paris-alignment of financial products.

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IMF Country Report No.

• An Informational Annex prepared by the IMF staff.

• A Statement by the Executive Director for Switzerland.

The documents listed below have been or will be separately released.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

International Monetary Fund

© 2022 International Monetary Fund

IMF Executive Board Concludes 2022 Article IV Consultation

Growth is expected to slow in 2022—remaining above medium-term potential, but dampened

Executive Board Assessment2

Switzerland: Selected Economic Indicators, 2020–23

2020 2021 2022 2023

General government finances

Monetary and credit

Recommendations. Policies should remain agile and data-dependent, responding to

RECENT DEVELOPMENTS _______________________________________________________________________ 4

OUTLOOK AND RISKS ___________________________________________________________________________ 7

POLICY DISCUSSIONS ___________________________________________________________________________ 8

STAFF APPRAISAL _____________________________________________________________________________ 18

2 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 3

2. Political developments in 2021 continue to reverberate. EU relations have been more

growth, but is below full recovery. Strong exports 0

2020). High-frequency and confidence indicators -6

4 INTERNATIONAL MONETARY FUND

6. The general government deficit narrowed from -3 percent of GDP in 2020 to

Text Table. Switzerland: Covid-Related Expenditures Switzerland: Central Government Balance

7. Labor indicators have largely recovered to pre-pandemic levels. Seasonally-adjusted

Total (100) -2.5 Total (100) 3.7

-50 -40 -30 -20 -10 0 10 -5 0 5 10 15

INTERNATIONAL MONETARY FUND 5

(December: 0.66 percent). With further housing-

1 See Selected Issues Paper.

6 INTERNATIONAL MONETARY FUND

Switzerland-relevant factors and Covid-related 5

be -0.9 percent of GDP, with the corresponding -5

OUTLOOK AND RISKS

INTERNATIONAL MONETARY FUND 7

8 INTERNATIONAL MONETARY FUND

Current framework (amortization period=6 years)

Proposal (no past surpluses, amortization period=12 years)

Source: Swiss authorities, and IMF staff calculations.

framework; earmarking/additional profits could fiscalize SNB operations.

INTERNATIONAL MONETARY FUND 9

Monetary and Exchange Policy

10 INTERNATIONAL MONETARY FUND

brought side-effects (balance-sheet expansion, profitability pressures, higher housing prices). 12

prospects; these suggest room for appreciation to 0.5

ease inflation pressures. Also, medium-term

INTERNATIONAL MONETARY FUND 11

Macroprudential and Financial Policies

25. The authorities have progressed in implementing prudential and risk-based

12 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 13

Climate Change and Energy

using risk-oriented and principle-based approaches.

incidents. There are proposals to introduce cyberattack reporting obligations.

14 INTERNATIONAL MONETARY FUND

Selected Economies: Electricity Production, Switzerland: Electricity Generation and Net

climate/environment (EU approach).

INTERNATIONAL MONETARY FUND 15

Labor Market, Pensions, Inclusion