FYR Macedonia—May 2010 Staff Visit, Preliminary Findings
May 5, 2010
Describes the preliminary findings of IMF staff at the conclusion of certain missions (official staff visits, in most cases to member countries). Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, and as part of other staff reviews of economic developments.
An IMF team headed by Wes McGrew visited Skopje April 29-May 5. The purpose of the visit was to assess economic and financial conditions and discuss economic policies with the authorities. The team would like to thank the Macedonian authorities for their gracious hospitality and open discussions.
The economy appears to be recovering, with growth of about 2 percent likely in 2010. Meanwhile Macedonia’s external balances have improved significantly as exports have started to pick up while imports remain subdued. The current account deficit is on course to narrow further this year, to around 6 percent of GDP. As the rebound of growth in the world economy gathers pace and global financial conditions normalize further, Macedonia can look forward to a more robust recovery next year.
Last year the economic slowdown reduced revenues and required the government to contain spending in order to achieve its fiscal deficit targets. Revenues are again running below budgeted levels, and if this persists additional spending restraint may be required. The fiscal deficit target for this year appears appropriate, providing a balance between the need to keep public debt at low levels and the benefits of supporting demand to bolster growth.
Turning to monetary policy, the National Bank of the Republic of Macedonia has embarked on a policy of gradual easing in response to improved confidence and a rebound in international reserves. If external balances and international reserves continue their favorable trend, this should provide room for further gradual easing of monetary policy.
Macedonia’s banking system has weathered the economic difficulties well and remains in healthy shape, with strong capital and liquidity buffers. As the economic recovery progresses and demand for loans increases, Macedonian banks are well-positioned to support growth through expanded lending.
Altogether, the prospects for continued stability and a gradual return to growth are good. However, uncertainties and risks in the external environment remain considerable, with respect both to growth of trading partners and to global financial conditions. This calls for continued caution in economic policies.
The Fund values its close cooperation with the Macedonian authorities and stands ready to support Macedonia in whatever way is most helpful.