IMF sees migration crisis lifting Austrian economic growth

An Austrian soldier fixes the fence as migrants wait to cross the border into Spielfeld in Austria from the village of Sentilj, Slovenia, October 31, 2015. REUTERS/Srdjan Zivulovic
By Francois Murphy

By Francois Murphy VIENNA (Reuters) - The wave of refugees flooding into Austria could bolster the country's economic growth if Vienna continues to work on integrating them quickly, the International Monetary Fund (IMF) said on Monday. Hundreds of thousands of migrants, many of them fleeing war and poverty in the Middle East, Afghanistan and elsewhere, have reached Austria since early September, most continuing on into neighboring Germany. A fraction, however, have stayed -- the IMF said 80,000 to 90,000 asylum applications were expected this year, a number equivalent to about 1 percent of the population, and a similar number was expected next year. "While still in early stages, measures to integrate refugees are timely and well-targeted," the IMF said in a statement on the conclusion of an official staff visit, which usually happens once a year. While Austrian politicians and even President Heinz Fischer, whose role is largely ceremonial, have said the country is reaching the limit of what it can manage in terms of immigrants, there has been little public discussion of the economic upside to taking in so many people, many of them young. "We estimate that the increased immigrant inflows over 2015-20 could lift potential GDP growth by 1/4 of a percentage point by 2020 and reduce net pension and health spending by a similar amount," it said, referring to gross domestic product. The IMF mission chief for Austria, Nikolay Georgiev, told a news conference the estimate was "a bit conservative". "We also have a scenario with higher employment ratios that could in the best case add another quarter point in five years," he said. The IMF praised efforts to provide immigrants with language training and setting up systems for skill certifications and apprenticeships. But it said more should be done to ease restrictions on asylum seekers working while their applications are being processed. It also said affordable housing was "crucial" to ensuring immigrant labor is available in areas where it is needed most. RISK The IMF, however, also listed the migration crisis as a potential challenge for the economy, and it raised doubts about whether Austria would be able to stay within its 2016 budget. The country is already relying on an exemption for some of its spending on migrants to stay within European Union deficit rules, and even that projection has been called into question by the European Commission and a body of experts. The other main risk to Austria's budget plans is a planned reduction in most taxpayers' income tax next year, the IMF said. "Keeping to these plans, however, is subject to significant risks related to (i) the ability to fully finance the ambitious 2016 personal income tax reform and (ii) uncertainties about the costs associated with the refugee crisis," the IMF said. "While recent revenue buoyancy will help, it is likely that additional measures will be needed to reach the targeted deficit," it added. Austria's major banks have improved their capital buffers to protect them against future downturns, but those buffers "remain thin in comparison with peers", the IMF said, adding that the lenders' profitability was recovering slowly. "The sector remains exposed to political and economic risks in CESEE (central, eastern and southeastern Europe)," the IMF said, also suggesting that the authorities encourage banks to wean customers off their loans denominated in Swiss francs. "The authorities should continuously assess the adequacy of bank capital requirements and stand ready to tighten them if risks intensify," the IMF said. Asked to elaborate, Georgiev said current supervision was accurate but constant vigilance would be necessary. "What we recommend here is that the regulators are basically breathing down the neck of the banks all the time, constantly assessing and reassessing whether the bank capital is enough and if not, acting quickly to ask for more capital," he said. The IMF also appeared to criticize a plan by the Austrian province of Carinthia, supported by federal loans, to buy back bonds of "bad bank" Heta Asset Resolution [HAABI.UL] at a discount to the 11 billion euros ($12.1 billion) in guarantees the province provided. "Certain resolution options could involve a retroactive change of contracts," he said. "This remains a concern." (Reporting by Francois Murphy, editing by Larry King)