former Yugoslav Republic of Macedonia and the IMF

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Macedonia—Letter of Intent,
Memorandum of Economic and Financial Policies,
and Technical Memorandum of Understanding


December 24, 2001

The following item is a Letter of Intent and a Memorandum of Economic Policies of the government of Macedonia. It is being made available on the IMF website by agreement with the member as a service to users of the IMF website. This memorandum describes the policies that Macedonia is implementing in the framework of a staff-monitored program. A members's staff-monitored program is an informal and flexible instrument for dialogue between the IMF staff and a member on its economic policies. A staff-monitored program is not supported by the use of the Fund's financial resources; nor is it subject to the endorsement of the Executive Board of the IMF.
 

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431

Dear Mr. Köhler:

As a result of the security crisis, which has inflicted severe social strain and enormous economic costs to the country during this year, the Government's ability to achieve the objectives of the PRGF/EFF-supported program that was approved by the IMF Executive Board on November 29, 2000 has been compromised. Therefore, the government requested the cancellation of the PRGF/EFF as expressed in our letter dated November 22, 2001. The Government intends to seek a new upper credit tranche arrangement with the IMF in 2002. As a bridge to a new arrangement, the Government is requesting the IMF staff to monitor its program of economic and financial policies during January 1-June 30, 2002. The six-month staff monitored program will provide a macroeconomic framework on which financial assistance from donors is expected to be based.

The attached Memorandum of Economic and Financial Policies describes the Government's economic program for 2002. Although the negative economic effects of the crisis is likely to remain for some time, this economic program reflects the Government's full recognition of the need to pursue prudent fiscal and monetary policies to preserve macroeconomic stability. We request the IMF to post this letter and the attached memorandum on the IMF website, and we intend to publish these documents in the local press as well.

The Government believes that the policies and measures described in the attached memorandum are adequate to achieve the objectives of the staff monitored program, but stands ready to take additional measures, as necessary, to achieve those objectives. The Government intends to evaluate with the IMF staff progress made under the program on an ongoing basis, but more formally through a review by end-April 2002.

Sincerely,

/s/

Nikola Gruevski
Minister of Finance
  /s/

Ljube Trpeski
Governor
National Bank of the Republic of Macedonia


MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES FOR STAFF MONITORED PROGRAM

I. Introduction

1. The security crisis which erupted from terrorist attacks in late February 2001 has inflicted severe social strain and enormous economic costs to the country. As a result, the Government's ability to achieve the objectives of the PRGF/EFF-supported program, which was approved by the IMF Executive Board in November 2000, has been compromised. Therefore, the Government has requested cancellation of the PRGF/EFF arrangements and intends to seek a new upper credit tranche arrangement with the IMF in 2002. As a bridge to a new arrangement, the Government is requesting the IMF staff to monitor its program of economic and financial policies during January 1, 2002-June 30, 2002. This six-month staff monitored program will provide a framework to help donors give financial assistance.

2. The Government is confident that implementation of the Framework Agreement, which the main Macedonian and ethnic Albanian political parties signed in mid-August and the parliament ratified in mid-November, will significantly contribute to resolving the crisis. The negative economic effects of the crisis are likely to linger for some time. The Government is fully aware of the need to pursue prudent fiscal and monetary policies in order to preserve macroeconomic stability and foster economic recovery. This memorandum outlines the economic policies that the Government intends to pursue in 2002.

3. After a generally favorable economic outturn in 2000, economic activity slowed down markedly during the first three quarters of 2001, as the security crisis led to disruption of production and a sharp deterioration in consumer and business confidence. During this period, real GDP declined by nearly 6 percent compared to the same period last year. The contraction of output was broad-based and affected most sectors in the economy, except the government sector where activities were boosted by the security-related operations. Despite the stimulus from outlays in the fourth quarter on projects financed from telecom privatization proceeds, real GDP is projected to decline by 4½ percent in 2001 as a whole. The decline in real GDP has been accompanied by a pick up in inflation, mainly reflecting higher food prices. Consumer prices are estimated to have increased on average by about 5.3 percent during 2001.

4. The fiscal position came under pressure because of the slowdown in economic activity and new expenditures related to security operations. Partly to create room for the additional outlays, the Government postponed revenue-reducing measures originally envisioned for June and introduced on July 1, for a six-month period, a new tax on financial transactions with an estimated yield of about 1 percent of GDP. In addition, expenditure plans were scaled back substantially in several areas. With new security-related expenditures reaching about 5.4 percent of annual GDP, the general government deficit during the first eleven months of 2001 was 5.1 percent of annual GDP. Mainly because of accelerated implementation of government investments in December and further security-related expenditures, the general government deficit for 2001 as a whole could reach 6.7 percent of GDP, implying an expansionary fiscal swing of 9.2 percentage points of GDP relative to 2000. The higher deficit has been financed mainly through withdrawal of government deposits in the central bank.

5. Since the beginning of the crisis through end-November 2001, gross foreign exchange reserves declined by US$178 million (excluding valuation adjustments). However, owing to the receipts of US$323 million (or 9½ percent of GDP) from the privatization of the telecommunication company in January, gross reserves remained at a relatively comfortable level of about US$760 million at end-November. Taking into account the anticipated expansionary fiscal stance in December, gross foreign reserves at end-2001 is projected at US$744 million, before donor support. The loss of reserves in 2001 reflected mainly a combination of the direct impact of security-related imports and erosion of market confidence in the denar induced by the security crisis.

6. To stem the loss of reserves, the central bank initiated steps to tighten monetary policy. During May-June, the reserve requirement was increased in two steps by 2 percentage points for demand deposits to 10 percent and by 1½ percentage point for time deposits to 5 percent. In addition, the interest rate on 28-day central bank bills was more than doubled to about 20 percent, transaction costs were lowered, bills of shorter maturity were introduced, and procedures were changed to allow private enterprises to buy bills directly from the National Bank of Macedonia (NBM). Moreover, in August the period for surrendering export proceeds was shortened from 180 to 30 days, in order to increase the supply of foreign exchange. As a result of these measures, the net issue of central bank bills increased by about denar 2.5 billion (1.1 percent of GDP) from July through November. Following the tightening of monetary policy and the signing of the Framework Agreement in mid-August, the foreign exchange market stabilized. Prompted by the subsequent calm market conditions and the increased demand for central bank bills by commercial banks, since mid-October the NBM lowered the interest rate on 28-day bills in two steps to 15 percent.

7. On the structural front, there was notable progress in civil service reform, strengthening the banking supervision, and reforming the payments system. The government reduced employment in public administration by 6½ percent (or 4,500 persons) by end-May, mainly through voluntary separation and early retirement. However, the saving on the wage bill on this account was partly offset by new hiring and increases in allowances to security forces. In the banking sector, the health of banks improved and the regulatory framework of bank supervision was strengthened. The CAMEL rating of three of the eight "problem" banks was upgraded to the minimum required level of 3. For the five banks whose rating was not upgraded, the NBM took a variety of measures such as appointing an administrator for a six-month period and removing a member of the management board. Two of the problem banks merged with other banks in order to improve their operations. The Government started implementation of the restructuring of the payments system on July 1, and expects to complete the implementation as planned by end-2001. The preparatory steps for divesting non-core government activities and resolving loss-making enterprises continued, albeit at a much slower pace than originally envisaged. Hence, the structural benchmark of the PRGF/EFF-supported program to sell or close Jugochrom and four other large loss-making enterprises by end-March was not observed. However, in recent months one of these enterprises has been liquidated, and bankruptcy process will soon be initiated for Jugochrom with the expectation liquidating the company by March 2002.

II. Objectives and Policies for 2002

A. Strategy and Macroeconomic Framework

8. The implementation of the Framework Agreement should provide a lasting cessation of hostilities and set the stage for the economy and market confidence to return to a normal footing. With the political resolution of the crisis, security-related spending should fall significantly in 2002, and the challenge will be to address the additional peace-related needs while preserving macroeconomic stability.

9. The outlook for economic growth should brighten with the improved security situation. In 2002, a real GDP growth of 4 percent is projected, predicated on a strengthening of private demand, reconstruction spending financed from the donor community, and a return of favorable weather. Taking into account the projected recovery in agriculture and lower oil prices, average inflation is projected to decline to 2½ percent in 2002.

10. A key stabilization objective is to ensure that the underlying level of gross official reserves (i.e., excluding the net saving of telecom privatization proceeds) stabilizes at the equivalent of about 4 months of next year's imports of goods and services. In view of the prevailing uncertainties and the risks to the balance of payments, this level of reserve coverage, which is broadly similar to the level prevailing before the crisis and comparable to that prevailing in other countries in the region, is deemed essential for sustaining confidence in the de facto exchange rate anchor. To achieve this reserve coverage implies an exceptional financing need of about US$42 million for 2001 and US$131 million for 2002, excluding the financing needs for implementing the Framework Agreement that have yet to be identified. The international community has indicated its willingness to help close the financing gap. In this regard, the World Bank's Economic Recovery Credit (US$15 million) and the corresponding co-financing from the Dutch government (US$25 million) have been committed in mid-December. In the very near term, particularly in the remainder of 2001, the reserve coverage may fall temporarily below the 4 month target as disbursements may lag behind commitments due to technical considerations. However, if more permanent shortfalls of external financing to cover the external financing gap for 2001-02 occur, then the Government commits to promptly tighten fiscal and monetary policies.

B. Fiscal Policy

11. The fiscal policy agenda for 2002 outlined in this memorandum excludes new expenditures on implementing the Framework Agreement (except for the hiring of 500 ethnic Albanians in the police force by mid-2002 and the costs for a third TV channel). The Government has sought technical assistance from the Netherlands and the European Union for estimating the fiscal costs of implementing the peace agreement. Without donor support to cover the bulk of these costs, the implementation of the peace agreement will suffer. The fiscal projections also assume that donor assistance related to humanitarian needs and reconstruction of war-damaged infrastructure and housing will be channeled to the implementing agencies outside the budget framework through NGOs.

12. Consistent with the external sector objectives and macroeconomic framework for 2002, the Government intends to contain the general government deficit to 3.4 percent of GDP. Taking into account expected externally financed expenditures by the Road Fund, this would imply a central government budget deficit of 2.7 percent of GDP. The deficit for the first half of 2002 is projected at 2.2 percent of annual GDP for the general government and 2.1 percent of annual GDP for the central government. The Government would be prepared, if necessary, to take revenue-enhancing measures to ensure compliance with the fiscal targets, which in turn will be revised for shortfalls in the use of privatization receipts or delays in the implementation of enterprise reforms.

13. Total general government revenues are expected to decline to 33.4 percent of GDP in 2002 from 34.3 percent of GDP in 2001. Recent initiatives on free trade agreements with countries in the region and the EU required elimination of the 1 percent fee for processing customs documentation, scheduled from January 2002, will lead to some loss in customs revenues. The Government has decided to extend the financial transaction tax for a period of one year beyond the scheduled expiration of end-2001. On an annual basis, the revenues from this tax could amount to about 2 percent of GDP. The Government is aware of the deficiencies of prolonged implementation of this tax. Therefore, the Government intends to reconsider the country's tax structure in due course based on an analysis of the medium-term fiscal prospects as well as on the findings of a recent IMF Fiscal Affairs Department technical assistance mission on tax policy and administration.

14. The Government expects total general government expenditures to reach 36.8 percent of GDP in 2002. Security-related expenditures will not return to the pre-crisis level. Such expenditures in 2002 are expected to be higher than pre-crisis levels by 2.5 percent of GDP. Demobilization of the reservists in the police is expected to be completed by mid-2002. In addition, the Government will implement its program to expand and modernize the armed forces according to NATO standards. However, the government intends to hold back on expenses in other areas, especially capital expenditures and transfers to the strategic commodity reserve fund.

15. The Government has embarked on a public investment program financed from the telecom privatization receipts. The projects focus on public infrastructure (mainly water supply and road maintenance), rehabilitation of schools, and equipment for health centers. The projects totaling US$125 million (3¼ percent of GDP) are divided in three phases. Projects for the first two phases, in an amount of US$96 million, have been selected with assistance from the World Bank and a USAID-financed consultant. In 2001, the spending on projects will not exceed US$36 million. In the first half of 2002, the project spending, including any delayed spending carried over from 2001, will not exceed US$26 million. The Government is committed to follow the recommendations presented in the final report of the USAID-financed consultant, including setting up systems for proper evaluation, review and implementation tracking of the projects. The Government will put in place by March 2002 mechanisms for reviewing the implementation of the first and second phase projects. The third phase projects, for which US$29 million has been earmarked, will be defined only after completion of this review and an assessment of whether sufficient resources exist from the telecom receipts to complete the projects of the first two phases and the remaining third phase. The Government will also consider diverting the resources for the third phase to other priority areas if the situation warrants it. The Government has used about US$57 million of telecom privatization receipts on security-related expenditures as of end-November 2001, and further use of privatization proceeds for these purposes will not exceed US$8.4 million. Besides the spending on projects described above, the telecom privatization proceeds will be used through 2003 for settling outstanding court-mandated payments to pensioners, for which about US$60 million has been earmarked, and reducing the external debt burden. The proceeds from the sale of the second mobile phone operator license, amounting to US$25 million, has been earmarked for servicing the country's external debt.

16. The wage bill of the central government in 2001 exceeded the originally targeted level in the PRGF/EFF program. This is explained by delays in downsizing of the civil service, wage increases granted to special units in the police and the army, and new permanent hiring of security personnel. The Government will ensure that there is no further drift in personnel costs during 2002, excluding new hiring related to the implementation of the Framework Agreement. There will be no selective or general wage increases in the public sector in 2002. Also, the Government has decided to postpone implementation of the wage decompression for civil servants that was foreseen under the current law; the required amendment to the legislation will be submitted for parliamentary approval by end-December 2001. In addition, the special measures to control new hiring in the civil service, described in paragraph 20 of the November 2000 Memorandum of Economic and Financial Policies, will be strengthened. Ceilings have been established on the central government wage bill at end-March 2002 and end-June 2002, which will constitute performance benchmarks under the staff-monitored program.

17. Priority will continue to be given to strengthening expenditure management. The treasury system in the Ministry of Finance is expected to become fully operational by end-2001. To prevent pressures from the extra-budgetary funds on the central government budget, limits will be placed on transfers and net lending to them, which will constitute a performance benchmark under the staff-monitored program. Furthermore, procedures will be strengthened to ensure that all new legislation with fiscal implications are cleared by the Ministry of Finance before they are submitted for parliamentary approval.

18. Consistent with the programmed fiscal stance, ceilings have been set for March 2002 and June 2002 on net credit to the general government from the banking system, which will constitute performance benchmarks under the staff-monitored program. The outcomes for the general government balance and the net banking sector credit to the general government will be adjusted for shortfalls in project spending from privatization revenues and outlays on structural reforms. In addition, the outcome for net bank credit to the general government will be adjusted for unprogrammed privatization receipts. The details of the adjustors are laid out in the revised Technical Memorandum of Understanding (Attachment II). The use of unprogrammed privatization receipts will be determined in consultation with the IMF staff. The Government will not incur any new domestic and external payments arrears during the program period. In addition, the government will continue to monitor and report domestic arrears on a monthly basis, and improve procedures early on during the program period to further increase the quality and coverage of the data being collected.

C. Monetary and Exchange Rate Policies

19. The National Bank of Macedonia (NBM) will continue to orient monetary policy toward sustaining the de facto exchange rate anchor. The trends in real exchange rate indices do not suggest a problem with competitiveness. The increased liquidity from the fiscal expansion and the erosion of market confidence in the denar triggered by the crisis complicated the conduct of monetary policy in the middle of 2001, but the situation was efficiently handled by the NBM. The NBM will take further steps as necessary to tighten policy through sale of NBM bills and adjustment of interest rates. The NBM will refrain from introducing direct controls, and will provide the foreign exchange demanded by the private sector without limitation at the de facto fixed exchange rate.

20. The NBM has developed a monetary program for 2002 that is consistent with the macroeconomic objectives of the program. The velocity of denar money is subject to considerable uncertainty owing to confidence effects. Assuming a relatively stable velocity, the demand for money (excluding foreign exchange and government deposits in banks) is projected to increase by about 7.5 percent in 2002, roughly in line with the expected increase in nominal GDP growth. The behavior of foreign currency deposits will be influenced by factors related to conversion of foreign currency savings into Euros (see paragraph 21). Net credit from the banking system to the general government is projected to increase moderately which provides the room for credit to the private sector from the commercial banks to grow by almost 7 percent. In the first half of 2002, the demand for broad denar money is expected to decline by about 1 percent in accordance with normal seasonal pattern, while credit to the private sector is expected to increase by 3.2 percent in support of the initial phase of the expected rebound in economic activity. Performance benchmarks have been established for the net foreign assets of the NBM (floor) and net domestic assets of the banking system (ceiling) for end-March 2002 and end-June 2002.

21. Savings in cash (denominated in currencies of the Euro-zone countries) held outside the banking system are expected to be deposited for conversion to Euros, and therefore to boost foreign exchange deposits by about US$200 million, or almost 6 percent of GDP, by end-2001. The expectation is that a sizable amount will not be withdrawn immediately after the conversion. The NBM will monitor the situation closely and is prepared to tighten denar liquidity in case the banks decide to use what will remain of these funds to substantially increase credit to the private sector. Moreover, the NBM will ensure that the liquidity impact of the planned transfer of deposits of government funds and non-government deposits from the NBM to commercial banks is neutralized. Specifically, the NBM will impose on government deposits at commercial banks the regular reserve requirement and will sell central bank bills to mop up any remaining excess liquidity.

22. The efforts to improve the performance of the banking system will be sustained through strict enforcement of the supervisory and prudential regulations. In particular, the NBM will monitor the quality of the loan portfolio of commercial banks in the aftermath of the crisis and will ensure that the banks make adequate loan-loss provisioning. Moreover, the NBM will closely monitor all problem banks. No bank will be removed from the problem bank unit in the near term, irrespective of whether its CAMEL rating has been upgraded, to ensure that the improvement in banking operation and practice is durable. With the purpose of defining an exit strategy for the five problem banks currently with CAMEL rating of 4, the NBM will impose a time-bound program of corrective actions based on the results of individual on-site examination of each bank. In this regard, the NBM is in the process of completing the on-site examination report for one bank and will conduct on-site examinations in two other banks during the first quarter of 2002. Non-implementation of corrective actions will result in sanctions, such as suspension of all or particular banking operations for a certain period of time or revoking the operating license of the bank. The audit of the final statements of the NBM for 2000 by an independent external auditor based on international auditing standards is expected to be completed by January 2002, and the results will be published and reviewed according to the recommendations of the IMF's Stage One safeguards assessment of the NBM. The Government is committed to seek parliamentary approval of the revised Central Bank Law by end-December, 2001. Also, the Government intends to seek parliamentary approval before end-March 2002 of several amendments to the Banking Law, including adding provisions requiring the NBM to approve changes in the share holding structure of commercial banks only after adequate information is provided regarding the legitimacy of the sources of the funds used to purchase shares. The amendments to the Banking Law will be reviewed by IMF technical experts before submission to the parliament. The new anti-money laundering law will go into force on March 1, 2002, and the effective date of the new foreign exchange law will be postponed from January 1, 2002 to July 31, 2002.

23. The Government expects to complete the reform of the Payments Operations Bureau (ZPP) by end-2001. The ZPP is in the process of being transformed into several new institutions: a clearing house owned and operated by banks, an agency for blocked accounts, a central securities depository, a central registry of movable and immovable properties, and a national payments card operation. The responsibility for collecting income and profit taxes will be shifted from the ZPP to the Public Revenue Office (PRO). Steps are being taken, including empowering the PRO appropriately, to ensure that tax administration does not suffer during or after the transition to the new system.

III. External Financing Requirements

24. The balance of payments position has deteriorated in 2001 because of the security crisis, but a slight improvement is expected for 2002. Exports are projected to remain weak in 2002, mainly on account of increasing difficulties in renewing export contracts, especially in the textile industry, due to the perception of increased country risk, and the slowdown in the world economy. Overall imports are projected to increase only moderately, as a growing demand for consumer and intermediate goods will be offset by a decline in security-related imports. With the ending of the hostilities, private transfers are expected to increase. On this basis, the external current account deficit, excluding grants, is projected to decline from 11.3 percent of GDP in 2001 to about 10.5 percent of GDP (US$385 million) in 2002. Given the external reserves target specified in paragraph 10 of this memorandum and taking into account identified and anticipated disbursements of loans from bilateral and multilateral sources, including the World Bank and the EU, the Government estimates a financing gap of US$42 million in 2001 and US$131 million in 2002 (Table 1), excluding most of the costs of implementing the peace framework agreement. The Government will request donors to fill this financing gap amounting to a total of US$173 million through a combination of grants and loans on concessional terms.

25. The external debt burden is moderate. At end-2001, total external debt (of the government and the non-government sector) is estimated to amount to the equivalent of 39 percent of GDP and total debt service payment to about 18½  percent of exports of goods and services. The Government will continue to limit the amount of new debt that it contracts or guarantees on non-concessional terms under the staff-monitored program. As of December 18, 2001 there were no outstanding external payments arrears as defined in the Technical Memorandum of Understanding, and the Government will avoid new arrears in the future.

IV. Program Monitoring

26. Progress under the staff-monitored program will be monitored based on quantitative performance benchmarks for end-March 2002 and end-June 2002 (Table 2). The quarterly quantitative targets include: (i) a ceiling on net domestic assets of the banking system; (ii) a ceiling on net credit to the general government from the banking system; (iii) a floor on net foreign assets of the NBM; (iv) a ceiling on transfers and net lending from the central government to the extra-budgetary funds; (v) a ceiling on contracting or guaranteeing of new non-concessional medium- and long-term external debt by the government or the NBM; (vi) a ceiling on the level of short-term debt or guarantees by the government, except for normal import-related credits; (vii) non-accumulation of any new external arrears on a continuous basis; (viii) a ceiling on central government domestic payments arrears; (ix) a ceiling on the wage bill of the central government; (x) a ceiling on personnel expenditures financed from special revenue accounts; and (xi) a minimum for central and general government budget balances. Details of the monitoring of the quantitative targets, including definition of adjusters, are provided in the revised Technical Memorandum of Understanding (Attachment II). During the program period, the Government will not impose or intensify exchange restrictions on current transactions, impose or intensify import restrictions for balance of payments reasons, introduce or modify multiple currency practices, or conclude bilateral trade agreements inconsistent with Article VIII of the IMF's Articles of Agreement. The Government will take additional measures and seek new understandings with the IMF staff, if necessary, to keep the program on track. The performance under the staff-monitored program will be reviewed by IMF staff not later than April 30, 2002.

27. The Government believes that the policies set forth in this memorandum are adequate to achieve the objectives of the program. However, the Government is prepared to take further measures to correct any slippages from the program targets. Any slippages from the program targets will be corrected before a follow-up arrangement is agreed with the IMF. The Government will maintain close contacts with the IMF staff in monitoring the program.

/s/
Nikola Gruevski
Minister of Finance
Republic of Macedonia
  /s/
Ljube Trpeski
Governor
National Bank of the Republic of Macedonia

Table 1. FYRM: External Financing Requirements and Sources, 2001–02
(In millions of U.S. dollars)
    2001 2002 2001–02

1. Gross Financing Requirement 669 492 1,161
  External current account deficit (excluding official transfers) 381 385 766
  Debt amortization 181 110 292
     Multilateral1 58 47 105
     Bilateral 42 37 80
     Commercial Creditors 81 26 107
  Repayment of arrears 12 0 12
  Gross reserves accumulation 72 -12 61
  IMF/BIS repurchases and repayments 22 9 31
         
2. Identified Financing 626 362 988
  Official creditors 84 141 225
     Official transfers and grants 13 15 29
        European Union 5 0 5
        Other 9 15 24
     Debt financing 71 125 196
        Multilateral 64 100 164
           IMF 0 0 0
           World Bank 26 63 89
              FESAL 0 20 20
              Other (e.g., education, etc.) 26 43 69
           European Union 10 0 10
           Other 28 37 65
        Bilateral 7 25 32
  Commercial creditors2 22 12 34
  IMF/BIS purchases and disbursements 0 0 0
  Foreign direct investment (net) 434 71 504
  Other flows3 69 138 207
  Accumulation of arrears4 18 0 18
         
3. Financing Gap (1–2) 42 131 173
  of which "old" macrofinancial assistance from EU 0 44 44

1Excluding the IMF
2Includes the capitalization of moratorium interest according to the London Club agreement of 1997
3Includes all other net financial flows and errors and omissions
4Private sector and public enterprise arrears

Table 2. Quantitative Benchmarks for January–June 2002
under the Staff Monitored Program1,2

  2001
  2002
End-   End-December
September
Stock
  Stock
Projections
End-
March
End-
June

          (Cummulative changes since end-December 2001)
Ceiling on net domestic assets of the banking system (denar millions) -8,720   -6,882   411 667
Ceiling on net domestic credit to the general government from the banking system (denar millions) -16,081   -16,100   -299 -778
Ceiling on transfers and net lending from the central government budget to the extra-budgetary funds (denar millions) 6,591   8,862   2,697 5,004
Minimum change in net foreign assets of the National Bank (US$ millions) 709   735   1 -5
Ceiling on new nonconcessional medium- and long-term external debt contracted or guaranteed by the public sector . . .   . . .   150 150
   with maturities of 1-5 years (US$ millions) . . .   . . .   25 25
Ceiling on short-term debt with maturities of up to 1 year (US$ millions) 0   0   0 0
Accumulation of central government domestic arrears (denar millions) 541   541   0 0
Accumulation of external payments arrears on a continuous basis (US$ millions) 0   0   0 0
Ceiling on wage bill of the central government budget (denar millions) 12,105   16,373   4,380 8,855
Ceiling on personnel expenditures financed from special revenue accounts (denar millions) 491   806   201 403
Minimum for central government budget balance (denar millions) -10,927   -15,329   -2,582 -5,270
Minimum for general government budget balance (denar millions) -11,991   -15,816   -2,694 -5,612

Sources: The FYRM authorities; and IMF staff.
1Cummulative changes will be measured from actual end-December 2001 outcomes.
2Adjustments to outcomes of quantitative benchmark variables under the program are described in the Technical Memorandum of Understanding.


Technical Memorandum of Understanding

This memorandum defines the quantitative benchmarks, established in the Memorandum of Economic and Financial Policies for the period January-June 2002 (MEFP).

A. Net Foreign Assets of the National Bank of Macedonia

1. Net foreign assets (NFA) of the National Bank of Macedonia (NBM) are defined as the NBM's foreign assets minus foreign liabilities, and stood at US$763.2 million at end-June 2001 and US$709.5 million at end-September 2001 (Table 1).

2. Foreign assets of the NBM consist of reserve assets and the frozen deposits of the NBM at a foreign bank, which is the only frozen foreign asset of the NBM. Reserve assets are those that are readily available and exclude any pledged, frozen, or encumbered assets. Reserve assets are defined to include gold, convertible currency deposits in foreign banks, foreign currency held at the NBM, SDR holdings, holdings of foreign securities, and all other foreign currency assets as specified in the data template for foreign reserves developed by the Statistics Department of the IMF. Foreign assets so defined stood at US$835.9 million at end-June 2001 and at US$783.3 million at end-September 2001. Reserve assets so defined stood at US$814.8 million at end-June 2001 and at US$761.7 million at end-September 2001.

3. Foreign liabilities shall be defined as liabilities to nonresidents contracted by the NBM, irrespective of their maturity, including outstanding obligations to the IMF; liabilities to the Bank of International Settlements; all arrears on principal or interest payments to commercial banks, suppliers, or official export credit agencies, and all other categories of liabilities to nonresidents as specified in the data template developed by the Statistics Department of the IMF. Foreign liabilities so defined stood at US$72.8 million at end-June 2001 and at US$73.8 million at end-September 2001.

4. Quarterly targets have been established for minimum cumulative changes in the NFA of the NBM from end-December 2001 (see Table 2 of the MEFP). The changes in the NFA will be measured in U.S. dollars excluding valuation effects. The valuation effects are estimated according to the methodology used by the Foreign Reserves Department of the NBM (see section I). The NFA targets are defined based on the assumption that the balance of payments financing will amount on a cumulative basis, from end-December 2001 to:

End-March 2002 US$39.3 million
End-June 2002 US$82.7 million

The balance of payments financing is defined as net disbursement (gross disbursement minus amortization payments) of foreign financing and non-budgetary grants to the government (or one of its agencies), or the NBM. Excluded from the definition of balance of payments financing are project loans, commodity loans and grants, and budgetary support (on-budget project loans). Funds received to close the financing gap is included in the balance of payments financing.

Adjusters

5. In case when balance of payments financing exceeds (falls short of) this projection, the target for the minimum cumulative change in the NFA of the NBM will be adjusted upward (downward) to that extent, with the proviso that the downward adjustment of the target will not exceed the equivalent of US$30 million on a cumulative basis.

6. The target for the minimum cumulative change in the NFA will be adjusted downward by the amount of any prepayment of external debt from existing privatization receipts. The target for the minimum cumulative change in the NFA will be adjusted upward for any excess in privatization proceeds in foreign currency, to the extent they are not used to prepay external debt, over the following programmed levels on a cumulative basis from end-December 2001 to:

End-March 2002 US$0.0 million
End-June 2002 US$0.0 million

7. The target for the minimum change in the NFA will be adjusted upward by the amount of shortfalls in project spending and pension repayments (agreed under the program as uses of privatization receipts from the sale of the Telecom company), compared to the following programmed levels on a cumulative basis from end-December 2001 to:

End-March 2002 denar 1,187 million or US$17.3 million
End-June 2002 denar 2,374 million or US$34.6 million

B. Net Domestic Assets of the Banking System

8. Net domestic assets (NDA) of the banking system, which includes the NBM and the deposit money banks, are defined as broad money (M3) minus the net foreign assets (NFA) of the banking system. NDA so defined stood at denar -17,259 million at end-June 2001 and at denar -8,720 million at end-September 2001 (Table 2).

9. Broad money (M3) includes currency in circulation, demand deposits, quasi-deposits, and non-monetary deposits (time deposits over 12 months and restricted deposits) of the social and private sector, and government deposits held at domestic money banks. Quasi and non-monetary deposits include deposits denominated in denar and in foreign currency. Broad money (M3) so defined stood at denar 45,178 million at end-June 2001 and denar 46,899 million at end-September 2001.

10. NFA of the banking system are defined as the banking system's foreign assets minus foreign liabilities. NFA so defined stood at denar 62,437 million at end-June 2001 and denar 55,619 million at end-September 2001.

11. Ceilings on changes to the NDA of the banking system have been established on a cumulative basis from end-December 2001 (see Table 2 of the MEFP).

Adjusters

12. The cumulative ceilings on the NDA of the banking system will be adjusted on the following basis.

13. In case when balance of payments financing exceeds (falls short of) the programmed levels shown above (in paragraph 4), the limit for cumulative changes in NDA of the banking system will be adjusted downward (upward) to that extent, with the proviso that the upward adjustment will not exceed the denar equivalent of US$30 million on a cumulative basis.

14. The limit for cumulative changes in NDA of the banking system will be adjusted upwards by the amount of any prepayment of external debt from existing privatization resources. The limit for cumulative changes in NDA of the banking system will be adjusted downward for any excess in privatization proceeds in foreign currency, to the extent they are not used to prepay external debt, over the following programmed levels on a cumulative basis from end-December 2001 to:

End-March 2002 denar 0 million
End-June 2002 denar 0 million

All receipts in foreign currency from sale of government assets, excluding the sale of government flats, will be treated as privatization revenues against which the adjustment on the limit for cumulative changes in NDA will be undertaken. Such privatization revenues will be held in special accounts at the NBM or in special sub-accounts within the single treasury account at the NBM. In addition, the use of these resources will continue to be subject to the same rules and procedures that are currently in place.

15. The limit for cumulative changes in the NDA of the banking system will be adjusted downward by the amount of shortfalls in project spending and pension repayments (agreed under the program as uses of privatization receipts from the sale of the Telecom company), compared to the following programmed levels on a cumulative basis from end-December 2001 to:

End-March 2002 denar 1,187 million
End-June 2002 denar 2,374 million

16. There will be no adjustment to the limits for cumulative changes in the NDA of the banking system in case of an excess in programmed external budgetary support (on-budget project loans).

C. Net Domestic Credit to the General Government

17. Net credit to general government is defined to include net position of the external account at the NBM, plus other credit to general government from the NBM and deposit money banks minus total general government deposits with the NBM and deposit money banks. For the purpose of this program, accounts of the general government includes all accounts recorded as government accounts in the monetary statistics reported by the NBM. Total net credit to the general government from the banking system stood at denar -23,895 million at end-June 2001 and at denar -16,081 million at end-September 2001. Of this the net position at the deposit money banks was equal to denar 4,916 million at end-June 2001 and denar 5,149 million at end-September 2001 and net credit to general government from the NBM at end-June 2001 stood at denar -28,811 million and at denar -21,230 million at end-September 2001 (Table 3).

18. The net position of the external account stood at denar 344 million at end-June 2001 and at denar 3,596 million at end-September 2001.

19. Credit to the general government from deposit money banks includes credit in denar and foreign currency. This includes credit to budget and line ministries, Pension Insurance Fund, Health Insurance Fund, Agency for Stock Reserves, other central government institutions, bills issued by the BRA, and accrued interest. The amount of outstanding credit from deposit money banks in denar and foreign currency stood at denar 7,439 million at end-June 2001 and at denar 7,627 million at end-September 2001.

20. General government deposits with the deposit money banks consists of demand, quasi, and nonmonetary deposits, including deposits of the Pension Insurance Fund and the Privatization Agency. The amount of general government deposits held at deposit money banks at end-June 2001 was equal to denar 2,523 million and denar 2,478 million at end-September 2001. In addition, general government deposits with the deposit money banks will also consist of the deposits of the Pension Insurance Fund, Health Insurance Fund, Employment Fund, and the Road Fund, which are scheduled to be transferred from the NBM to the deposit money banks in December 2001.

21. Credit to the general government from NBM consists of the following: use of that portion of IMF credit corresponding to the earlier STF arrangement with the IMF; ordinary credit; purchased government securities; and other. The amount of outstanding credit from the NBM to the general government in denar and foreign currency stood at denar 4,289 million at end-June 2001 and at denar 4,207 million at end-September 2001.

22. Deposits of the general government in the NBM include deposit accounts of the budget and line ministries, funds, institutions of central government (for example: courts), restricted deposits, and foreign currency deposits (including privatization receipts) (see Table 3). The deposit balance as recorded under the category funds consists of deposit accounts of the Pension Insurance Fund, Health Insurance Fund, Employment Fund, Agency for Stock Reserves, other Government Funds and Agencies, and the Road Fund. The amount of general government deposits as defined held at the NBM at end-June 2001 was equal to denar 33,444 million and denar 29,033 million at end-September 2001. Of the deposits currently listed under funds (see Table 3), the Pension Insurance Fund, Health Insurance Fund, Employment Fund, and the Road Fund are scheduled to be transferred to the deposit money banks in December 2001 (see paragraph 19 above), while the deposits of the Agency for Stock Reserves and other Government Funds and Agencies are to be incorporated into the single treasury account at the NBM. At the same time deposits of schools, etc. , currently classified as nongovernment demand deposits in the NBM's balance sheet is scheduled to be included as deposits of the general government at the NBM as part of the single treasury account.

23. In the event, that accounts that are currently classified as government deposits at the NBM are excluded from the unified treasury account when it's created, or are reclassified as nongovernment accounts at the deposit money banks, these accounts will continue to be treated as part of general government deposits for the purpose of this program. If new accounts that are not currently classified as government deposits are included in the unified treasury account, the calculation of net domestic credit to the general government will be adjusted upwards by the amount of those unprogrammed deposits.

24. The ceilings on the net domestic credit to the general government from the banking system have been established on a cumulative basis from end-December 2001 and are specified in Table 2 of the MEFP.

Adjusters

25. The limits for cumulative changes of net domestic credit to the general government will be adjusted by the same amount as the adjustment made to the limits on the NDA of the banking system and also on the following basis.

26. The limit for cumulative changes of net domestic credit to the general government will be adjusted downward for any excess in privatization proceeds in denars, over the following programmed levels on a cumulative basis from end-December 2001 to:

End-March 2002 denar 175 million
End-June 2002 denar 350 million

27. There will be no adjustment to the net domestic credit to the general government target for any shortfalls in programmed privatization receipts. All receipts in denars from sale of government assets, excluding the sale of government flats, will be treated as privatization revenues against which the adjustment on the limit for cumulative changes on net domestic credit to government will be undertaken. Such privatization revenues will be held in special accounts at the NBM or in special sub-accounts within the single treasury account at the NBM. In addition, the use of these resources will continue to be subject to the same rules and procedures that are currently in place.

28. The limit for cumulative changes of net domestic credit to the general government will be adjusted downward by the amount of shortfall in outlays on structural reforms compared to the following programmed levels on a cumulative basis from end-December 2001 to:

End-March 2002 denar 118 million
End-June 2002 denar 952 million

D. Ceilings on Transfers to Extra-Budgetary Funds

29. A quarterly aggregated ceiling on transfers and net lending from the central government budget to the pension, health, and employment insurance funds is established, on a cumulative basis, beginning end-December 2001 (see Table 2 of the MEFP).

30. Transfers to the pension fund have three components; mandatory, gap, and reform transfers, the latter includes transfers for enterprise and public sector reforms. Mandatory transfers are set by law and include the retroactive payment of pension obligations mandated by the Constitutional Court. Gap transfers are required for balancing pension fund accounts. Enterprise reform transfers arise from the implementation of the enterprise restructuring program initiated in March 2000 and comprise payments by the central government of pension contributions, in effect through additional transfers to the employment fund, on account of employees that are registered at the employment fund as a result of this program. Transfers for public administration reform include the payment of pensions by the central government under the early retirement programs of 2000 and 2001, contributions done by the pension fund to the health fund for these retirees, and pension fund contributions, in effect through additional transfers to the employment fund, for those employees declared redundant. The ceiling under the program applies to mandatory and gap transfers. Reform transfers will be determined, in consultation with IMF staff, as these reforms are implemented, and will be reported separately to the IMF.

31. Transfers to the employment fund refer to regular and gap transfers to the employment fund. It excludes transfers arising from payment by the central government of pension and health contributions, in effect through additional transfers to the employment fund, on account of those employees that will have to be registered at the employment fund as a result of the government's enterprise restructuring program initiated in March 2000. It also excludes transfers related to the unemployment benefits paid to these employees, benefits which are determined using existing rules for the calculation of unemployment benefits and reported separately to the IMF. Also excluded are the transfers to the employment fund linked to the government's public administration reform program. Reform transfers will be determined, in consultation with IMF staff, as these programs are implemented, and will be reported separately to the IMF.

32. Transfers to the health fund are set equal to zero. These transfers exclude, however, transfers that arise from the implementation of the enterprise restructuring program which comprise payments by the central government of arrears to the health fund on account of firms which are sold or liquidated, and of health contributions, in effect through additional transfers to the employment fund, on account of employees registered at the employment fund as a result of the program. Reform transfers will be determined, in consultation with IMF staff, as these reforms are implemented, and will be reported separately to the IMF.

E. Nonconcessional Borrowing

33. The limit on medium and long-term debt (see Table 2 of the MEFP) applies to the contracting or guaranteeing by the central government (including all budget users and official agencies), local governments, the NBM, Pension Insurance Fund, Health Insurance Fund, Employment Fund, or by the Road Fund, of new nonconcessional external debt with an original maturity of more than one year, with sublimits on external debt with an original maturity of more than one year and up to and including five years. This quantitative benchmark applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted on August 24, 2000 by the Executive Board of the IMF, but also to commitments contracted or guaranteed for which value has not been received.1 Excluded from this quantitative benchmark are changes in indebtedness resulting from refinancing credits and rescheduling operations (including the deferral of interest on commercial debt), credits extended by the IMF and the BIS, and credits on concessional terms, defined as those with a grant element of 35 percent or more calculated using the OECD Commercial Interest Reference Rates (CIRRs). Debt falling within the limit shall be valued in U.S. dollars at the exchange rate prevailing at the time the contract or guarantee becomes effective.

34. The limit on short-term debt (see Table 2 of the MEFP) applies to the outstanding stock of short-term government and government-guaranteed debt of the central government (including all budget users and official agencies, local governments), the NBM, Pension Insurance Fund, Health Insurance Fund, Employment Fund, or by the Road Fund, with an original maturity of up to and including one year. The term "debt" has the meaning set forth in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted on August 24, 2000 by the Executive Board of the IMF (see footnote 1). Excluded from this quantitative benchmark are changes in indebtedness resulting from rescheduling operations (including the deferral of interest on commercial debt), and normal import-related credits. Debt falling within the limit shall be valued in U.S. dollars at the exchange rate prevailing at the time the contract or guarantee becomes effective. There was no official short-term debt or guarantees on outstanding short-term debt as of end-September 2001.

F. External and Domestic Payments Arrears

35. External payments arrears consist of the total past-due amounts of debt service obligations (interest and principal) on the government, government-guaranteed, and the NBM external debt, excluding arrears on external debt service obligations pending the conclusion of debt rescheduling arrangements. Under the program, the nonaccumulation of external payments arrears is a continuous quantitative benchmark. As of December 18, 2001, there were no outstanding external payment arrears as defined above.

36. Central government domestic arrears, excluding those to suppliers, are defined to include all payment delays to: (i) banks for bond payments; (ii) individuals for Social Assistance Program payments; (iii) central government employees for food and travel allowances; (iv) the Employment Fund and the Pension Fund; and (v) benefit recipients of the Child Care Program. The definition excludes the customary lag in paying wages, social assistance payments, and transfers to the extra-budgetary funds (in the following month after they accrue). According to the definition here, and as reported to IMF staff, central government domestic arrears, excluding those to suppliers, was denar 0 million as of end-October 2001. Central government domestic arrears to suppliers are defined as obligations by government entities and institutions, including but not restricted to the Agency for Under-Developed Regions, the Service for Common Government Functions, and the Ministries of Agriculture, Culture, Education, Finance, Defense, Health, and Interior to suppliers which are overdue by more than 60 days and are non-disputed. As defined here, and as reported to Fund staff, the stock of arrears to suppliers stood at denar 541 million as of end-September 2001. Under the program, the outstanding stock of domestic arrears, as defined above, will not exceed at any time the amount outstanding as of end-September 2001.

G. Ceilings on the Wage Bill

37. Ceilings on the wage bill are set from the central government budget, on a cumulative basis, from end-December 2001 (see Table 2 of the MEFP). The wage bill ceiling includes all components of the budget chapter 40 of the Macedonian budget classification (this component includes wages and salaries; social contributions; travel, food and vacation allowances; and other related categories in existence in the budget law of the year 2001), and any other personnel related expenses including overtime payments and bonuses. No wage bill or personnel related expenditures should be assigned to other budget categories. The wages and personnel expenses paid out of the central government budget category 40 during the period January-September 2001 was denar 12,105 million. A separate ceiling is also established on wages and other personnel expenses being paid out of special revenue and expenditures accounts, or so-called 631, 785, 786, 787, and 788 accounts. Wages and personnel expenses paid out of these accounts in January-September 2001 amounted to denar 491 million.

H. Central and General Government Budget Balances

38. Quarterly quantitative benchmarks for the central and general government budget balances, on a cumulative basis (see Table 2 of the MEFP), will be determined and monitored from the financing side beginning end-December 2001. Domestic financing for the central government budget includes net credit from the domestic banking system, net placement of securities outside the domestic banking system and other net credit from the domestic non-banking sector, and net variation in domestic arrears. Foreign financing includes disbursements of external loans and non-budgetary support grants received by the central government (i.e. , balance of payments support deposited at the external account of the government at the NBM) minus amortization due or pre-paid, and rescheduled debt service payments programmed to be paid out of the mentioned external account. The financing side also includes privatization proceeds that are either deposited in the external account or deposited in the special account for privatization. The central government balance as of end-September 2001 was denar-10,928 million.

39. The general government budget includes, in addition to the financing position of the central government budget, the financing position of the pension, health, employment, and road funds. Monitoring will also be done from the financing side and include, in particular, foreign financing resources linked to the road construction program. The general government balance as of end-September 2001 was denar -11,991 million.

Adjusters

40. Upward adjustments will be made to the target for the central government balance to the extent that privatization proceeds fall short from programmed levels. Upward adjustments will be made to the target for the central government balance in the amount of shortfalls in project spending and pension repayments (agreed under the program as uses of privatization receipts from the sale of the Telecom company), compared to the cumulative programmed levels as stated in paragraph 15. Upward adjustments will also be made to the target for the central government balance in the amount of shortfalls in outlays on structural reforms compared to the cumulative programmed levels as stated in paragraph 28.

41. The target for the general government balance will be adjusted in line with the adjustment made to the target for the central government balance. Unprogrammed privatization receipts will not lead to automatic adjustments in the target for budget balances but will trigger consultations with the IMF staff on the basis of the government's policy for use of privatization proceeds.

42. In addition, if foreign financing to the Road Fund exceeds (falls short of) the programmed level, the target for the general government balance will be adjusted downward (upward) by the full difference compared with the amount programmed. The current financing schedule of the Road Fund, on a quarterly cumulative basis from end-December 2001, is:

End-March 2002 denar 110 million (or US$1.6 million)
End-June 2002 denar 521 million (or US$7.6 million)

I. Valuation

43. The stocks of assets and liabilities denominated in foreign currencies in the monetary survey will continue to be valued according to the stock/flow methodology. The stocks of assets and liabilities denominated in foreign currencies outstanding at September 30, 1996, are valued at the current exchange rate on that day. On a monthly basis, any subsequent changes in the assets and liabilities in foreign currencies to residents and non-residents relative to end-September 1996 will be valued at the average exchange rate prevailing in the month of the transaction. In particular, changes in the NFA of the NBM (in denar), after end-September 1996, will be calculated by applying the average monthly denar per U.S. dollar exchange rate to the monthly dollar value of transactions (equal to the change in NFA excluding valuation effects as calculated by the Foreign Reserves Department of the NBM). Changes in the telecom privatization account held at the NBM (in denar) will be calculated by applying the average monthly denar per Euro exchange rate to the monthly Euro value of transactions. Gold is valued at the price fixed in the London market and was valued at US$278 per ounce at end-November 2001. The programmed foreign exchange flow projections assumes an exchange rate of denar 68.58 per U.S. dollar and cross exchange rates at the level prevailing at end-November 2001.

44. The Foreign Reserves Department of the NBM estimates the valuation effects on the NFA of the NBM as follows. On a daily basis all foreign currency denominated balances are converted into U.S. dollars using end of day exchange rates. The change in the daily U.S. dollar denominated balances, so calculated, is compared to the recorded daily transaction flows in U.S. dollars, and any difference between the two values is attributed to valuation effects.

45. The exchange rate effects on the foreign currency denominated assets and liabilities of the commercial banks will be estimated on the basis of their currency composition, as provided by the NBM.

J. Monitoring and Reporting Requirements

46. Performance under the program will be monitored from information provided to the IMF by the NBM and the Ministry of Finance. All data will be monthly, unless otherwise specified, and should be sent to the IMF within 30 days of the end of each month, unless otherwise specified.

47. The following information will be communicated to the IMF by the Ministry of Finance: (i) fiscal table for the central government and extra-budgetary funds; (ii) monthly information on privatization receipts (including detailed description of cash payments in local and foreign currency and payments with government bonds); (iii) data on enterprises including action taken and workers registered as unemployed; (iv) information on special revenue accounts (functional and economic classification) and separately by line ministries, particularly on personnel expenditures financed from these accounts; (v) information on guarantees given on new debt, and on new debt contracted by the government, government agencies, and public enterprises; (vi) information on domestic arrears, including to suppliers and distinguishing between court disputed and non-disputed arrears; and (vii) data on spending on projects and repayment to pensioners (agreed under the program as uses of privatization receipts from the sale of the Telecom company), and outlays on structural reforms.

48. The NBM will supply: (i) balance sheets of the NBM and the consolidated accounts of the commercial banks--both should include details of the credit and deposits position of funds and other government entities as listed in section C; (ii) the monetary survey; (iii) data on components of NFA of the NBM as defined in section A, valued in U.S. dollars adjusted for valuation changes; (iv) statement from the Road Fund indicating its balances (in denar and foreign currency) at the NBM and at the commercial banks separately; (v) the foreign exchange cashflow of the NBM, including the level of official reserves; (vi) record of transactions in the privatization account identified by their use and valued in U.S. dollars and Euros; (vii) daily and monthly closing and average exchange rates; (viii) detailed data on exports and imports; (ix) information on all overdue payments on short-term external debt and on medium- and long-term external debt; (x) data on transactions of the external account (gross disbursements, amortization, and interest payments); (xi) information on lending by domestic money banks according to credit ratings of borrowers; (xii) data on off-balance sheet activity of domestic money banks; and (xiii) data on each domestic money banks' compliance with prudential regulations will be provided in a quarterly basis till end-2000 and in a monthly basis thereafter within 30 days of the end of the quarter/month. Monthly data on balance of payments will be submitted within 2½ months of the end of each month. Data on stock of external debt will be provided on a quarterly basis, within 30 days of the end of the quarter.

Table 1. Net Foreign Assets of the National Bank of Macedonia, June–September 2001
(In millions of U.S. dollars)
    2001
    Jun. Sep.

Net foreign assets [1 - 2] 763.2 709.5
1. Foreign assets 835.9 783.3
  Gold 52.1 56.5
  Demand deposits in foreign banks 92 129.1
  Time deposits in foreign banks 659.4 563.5
  Foreign currency at the NBM 7.4 6.4
  Foreign securities 25 26.5
  Letters of credits 0 1.3
  Guarantees 0 0
  Checks 0 0
 
2. Foreign liabilities 72.8 73.8
  IMF 72.8 73.8
  BIS    
       
Memorandum items:    
Reserve assets 814.8 761.7
Frozen assets abroad 21.1 21.5

Source: National Bank of Macedonia.   

Table 2. Monetary Survey, June 2001–September 2001
(In millions of denars)
                                    2001
                                    Jun. Sep.

Net foreign assets   62,437 55,619
    National Bank of Macedonia (NBM)   54,468 47,802
    Domestic money banks   7,969 7,817
        Assets   14,943 15,014
        Liabilities   6,974 7,196
                                       
Net domestic assets   -17,259 -8,720
    Domestic credit   14,978 22,696
        Banks   43,789 43,926
            In denar   32,265 31,586
                Government   720 908
                    Credit   699 802
                        Budget and line ministries   403 506
                        Funds   296 296
                            Pension insurance fund   0 0
                            Health insurance fund   128 128
                            Agency for stock reserves   0 0
                            Bills issued by BRA   168 168
                        Institutions   0 0
                    Accrued interest   21 106
                Private   31,545 30,678
            In foreign currency   11,524 12,340
                Government   6,719 6,719
                Private   4,805 5,621
        NBM credit to government   -28,811 -21,230
    Other items (net)   -32,237 -31,416
                                       
Broad money (M3)   45,178 46,899
    Currency in circulation   10,100 9,146
    Government denar deposits   2,523 2,478
        Demand deposits   1,106 950
            Budget and line ministries   235 204
            Funds   871 746
                Pension insurance fund   537 568
                Privatization agency   334 178
            Other   0 0
        Quasi deposits   1,065 1,171
        Nonmonetary deposits   352 357
    Private denar deposits   22,454 24,115
        Demand deposits   10,405 11,045
            Social and private   9,132 10,048
            Demand deposits with NBM   1,273 997
        Quasi deposits   7,884 8,982
        Nonmonetary deposits   4,165 4,088
    Private foreign currency deposits   10,101 11,160
    Government foreign currency deposits   0 0

Source: National Bank of Macedonia.

Table 3. National Bank of Macedonia Accounts,
June 2001–September 2001

(In millions of denars)
                      2001
                      Jun. Sep.

Net foreign assets 54,468 47,802
       
Net domestic assets -43,938 -38,330
    Banks (net) -1,975 -5,234
        Credits 703 443
        Instruments -2,678 -5,677
            Reserves -1,237 -2,305
            Other (NBM bills) -1,441 -3,372
    Government (net) -28,811 -21,230
        Credit (including securities) 4,289 4,207
            Use of IMF credit 464 386
            Oridinary credit 23 19
            Purchased government securities 1,039 1,039
            Other 2,763 2,763
        Deposits -33,444 -29,033
            Demand -5,153 -3,517
                Budget and line ministries -4,738 -3,202
                Funds -400 -300
                    Pension insurance fund 0 0
                    Health insurance fund -111 -40
                    Employment fund -64 -39
                    Other government's funds and agencies -65 -28
                    Agency for stock reserves -149 -84
                    Road fund -11 -109
                Institutions -15 -15
            Restricted deposits -8,684 -8,693
                Monetary support -8,560 -8,560
        Other restricted -124 -133
            Foreign currency -19,607 -16,823
        External credit 344 3,596
            In foreign currency 946 4,198
            In denar -602 -602
    Other items (net) -13,152 -11,866
        Of which: non government demand deposits -1,273 -997
                         
Reserve money 10,530 9,472
    Currency in circulation 10,100 9,146
    Other (giro accounts and cash in vault) 430 326

Source: National Bank of Macedonia.     


1The term "debt" will be understood to mean a current, i.e. , not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e. , advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, i.e. , contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property. Under the definition of debt set out in point 9(a) of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted on August 24, 2000 by the Executive Board of the IMF, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g. , payment on delivery) will not give rise to debt.

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