For more information, see former Yugoslav Republic of Macedonia and the IMF

Former Yugoslav Republic of Macedonia—Enhanced Structural Adjustment Facility Medium-Term Economic and Financial Policy Framework Paper, 1998–2000

Tables

Table 1. Summary and Timetable for Macroeconomic and Structural Measures
Under the ESAF-Supported Program, 1998–2000
Policy Area Objectives and
Targets
Strategies and Measures Imple-
mentation
Technical
Assistance





I. Fiscal
Revenue Improve the structure and administration of the tax system • Approve and implement a VAT 1998-99 1998 FAD Resident Advisor





• Rationalize tax exemptions including eliminating exemptions from personal income tax granted for passing specified thresholds in the hiring of invalids 1998






• Establish and implement effective global income tax 1999-2000






• Prepare a plan for transferring special revenue items to general budget revenue—including at least earmarked taxes (such as stamp duties) and administered fees (such as passport fees and legal penalties)—to be implemented in the 1999 budget 1998-99






• Eliminate taxation of bank lending spreads in coordination with the implementation of VAT on financial services 1999






• Reduce social security tax rates 1999-2000





Expenditure and budget control Rationalize public expenditure

• Prepare a comprehensive public expenditure plan and begin its implementation in the 1999 budget

1998-2000 1997 FAD 1999 WB






Improve budget management

• Establish Central Treasury Office, separate from the Budget Department, incorporating all treasury functions currently performed by ZPP

1998-99







• Implement system of recording and monitoring payments commitments of budgetary users and introduce system of program budgeting

1998







• Develop plan to computerize and improve expenditure management of the Health Insurance Fund

1998-99






Debt management

• Prepare and implement plan to restructure and formally securitize frozen foreign currency debt. Investigate ways to reduce cash payouts by swapping deposits for government assets such as land and privatization shares

1998-2000







• Develop plan to issue treasury bills

1998-99






Improve public investment planning

• Update and prepare annual reports on execution of the Public Investment Program and provide budgetary resources and guarantees only for those programs which have been included in the PIP

1998-2000







• Review financing of the railway project

1998 1997-98 EBRD





2. Money and Banking
Monetary operations Develop indirect instruments of monetary control • Strengthen market for NBM bills, establish market for treasury bills and introduce repurchase operations with short-term commercial and government papers 1998-99 1998-99 MAE







• Eliminate bank-by-bank credit ceilings 1999 1998-99 MAE







• Unify and raise the remuneration on reserve requirements

1998 1998 MAE







• Raise the interest rate on Lombard credits to penalty levels

1998-99





Bank supervision Strengthen bank supervision

• Develop guidelines for dealing with failing financial institutions

1998 1998 MAE







• Improve monitoring capabilities of Bank Supervision Department, increase on-site inspections, introduce tougher accounting standards and audit requirements for banks. Increase staff and review salary structure of Supervision Department. Develop a basic training program for supervisors

1998-99 1998-99 MAE






Rehabilitate Stopanska Banka

• Complete the privatization of the remaining government equity position in the bank to a foreign strategic investor. Stopanska Banka’s credit ceiling not to be increased, and its access to National Bank credit to remain restricted, until then

1998






Ensure compliance with prudential regulations

• The NBM to enforce provisions of the Bank Law governing (i) exposure to any single debtor or to a bank’s founder, (ii) the share of fixed assets and equity in a bank’s founders’ capital, (iii) exposure to connected persons, and (iv) sale within two years of non-bank equity acquired through debt-equity swaps; that come into effect as of April 1, 1998. In specific cases where exemptions are granted, a schedule for compliance will be announced

1998-2000 1998 MAE






Limit the guarantee for bank deposits

• Amend the by-laws of Deposit Insurance Fund to impose a denar cap on coverage under the scheme, limit the premium to no more than 2 percent, and insure that depositors will be covered only in cases of insolvency

1998








Strengthen lending practices

• Complete full on-site inspections of Stopanska Banka, Komercijalna Banka and Makedonska Banka

1998







• Complete study of the implications for the banking system of increased exposure to large delinquent debtors

1998







• The National Bank to instruct all banks that are in breach of the provisions of the Banks Act concerning limits on the amount of all loans to any single debtor or to a bank’s founder, to stop all new lending to that debtor

1998







• The National Bank to approve corrective plans for all banks that are in breach of the provisions of the Banks Act concerning limits on the total amount of all loans to any single debtor or to a bank’s founder. The approved plans should include quarterly targets for reduction of exposure and an explicit deadline for full compliance with the Banks Act

1998







• The National Bank to circulate to all banks a list of (i) the 20 largest delinquent debtors with non-performing loans and (ii) debtors whose outstanding loans breach the limits on lending to any single debtor or to a bank’s founder, as of end-March 1998. The National Bank will inform the banks of the minimum required level of provisioning for any new loan to these debtors. For enterprises with more than 50 percent of their debt classified in category D or E, the National Bank will advise banks to classify any new loans into category E

1998







• Approve the law on movable collateral

1998 1998 bilaterals/EU, WB







• Establish credit bureau

1998







• Improve risk management, credit appraisal, loan administration, and accounting standards

1998-2000 1998 EBRD/bilaterals





3. Payments System Reform the payments system

• Continue to lower threshold for large value payments to be cleared through commercial banks

1998-99







• Eliminate credit risk to the NBM resulting from settlement guarantee and shift this risk to banks through amended payment system law defining finality

1998-99








• Banks take over administration of accounts and implementation of a real time gross settlement system

2000





4. Privatization and Enterprise Restructuring

Privatization

Reorient the mainstream privatization program

• Amend the Law for Transformation of Socially Owned Enterprises to eliminate price restrictions on the direct sale of enterprises and to allow all investors to purchase shares in installments

1998









• Cancel privatization contracts of enterprises delinquent on share installment payments to the Privatization Agency

1998-99









• Liquidate or sell to strategic investors the equity in 12 companies that are (i) owned by the public sector, and/or; (ii) late in payment of installments to Privatization Agency

1998-99









• Prepare plans for privatization of the oil refinery and electricity company

1998-99

1998 EU








• Complete sale of about 35 percent of government equity in Telecom

1999








Share trading

• Lift remaining restrictions on secondary trading of shares

1998









• Amend the securities law to require the share registries of all joint stock companies to be held by the central share registry.

1998







Restructuring and bankruptcy

Complete restructuring and improve financial discipline

• Re-examine the seniority of wage claims over commercial creditors for illiquid firms

1999









• The government to initiate bankruptcy proceedings against legal entities for non-payment of tax obligations and arrears on payments to the public utilities and replace management of these enterprises

1998-2000









• Enforce the right of the privatization agency to appoint board members in companies

1998







Foreign direct investment

Reduce obstacles to Foreign Direct Investment

• Modify Law on Issuance and Trading of Securities to allow for majority foreign participation in brokerage firms

1998









• Review and streamline the administrative procedures for the issuance of licenses and approval of foreign investments

1998-99

1998 WB






Enterprise management

Provide technical assistance to enterprises

• Business planning and management; training in accessing and using credit; improving accounting standards

1998-2000

1998 EU/ bilaterals






5. Restitution, and Land Ownership

• Adopt the Law on Denationalization

1998









• Adopt laws on the use and ownership of land

1998







6. Labor Markets

Improve flexibility of the labor market

• Pass revised Labor Relations Law that, (i) simplifies the process of terminating workers; (ii) improves flexibility in collective bargaining by allowing the enterprise collective agreement to determine greater or lesser rights than the branch collective agreement, but no less than rights set by law; (iii) retains paid maternity leave for 9 months, and grants women who choose to return to work early 50 percent of the remaining unused benefits

1998









• Review vacation benefits, maternity leave, redundancy pay, and sick pay

1999-2000









• Revise delivery system of Health Insurance coupons to unemployed persons

1998









• Amend the Law on Employment and Insurance to: (i) reduce special benefits for unemployed persons with 25 years of insurance;
(ii) delete the provision allowing employers to receive unused benefits of new hires

1998-99







7. Trade Policy

Liberalize foreign trade regime

• Continue liberalization—based on guidelines agreed with World Bank—of tariffs and/or surcharges on items which were previously subject to quotas and special levies

1998-2000









• Enact a revised customs code

1998










• Establish trade policy unit within a central economic ministry

1998







8. Agriculture

• Complete privatization in a manner satisfactory to the World Bank, of at least 70 percent of agricultural enterprises, including at least three agro-kombinats with more than 1,000 employees and 17 kombinats with at least 200 employees

1998









• Implement formula agreed with World Bank linking guaranteed base prices for wheat and tobacco, to world prices

1998









• Submit to the World Bank a plan for security operations for food, fuel and pharmaceuticals of the Agency for Strategic Reserves

1998









• Eliminate any remaining price premia

1998









• Establish trade markets for agro-produce

1998-99

1998-99 USAID






9. Energy

Improve efficiency of energy use

• Prepare energy strategy study

1999







10. Environment

• Adopt a new Environment Law

1998

1998 WB








• Implement project for improving water management around Lake Ohrid

1998-2000

1998-2000 WB/bilaterals






11. Social Security and Human Capital Development

Social assistance

Improve equity, targeting and administration of Social Assis. Prog.

• Ensure benefits paid on time

1998-2000









• Adopt revised social Assistance Decree to, (i) equalize rural and urban and rural social assistance level, based on newly established single national poverty line and fiscal considerations; (ii) revise and simplify scale rates; (iii) remove ‘exact percentages and rates’ from the law; (iv) increase penalties for fraudulent claims; (v) introduce work incentives by limiting full benefits to two years, reducing the minimum income benefits over next two years and make requalification for benefits a subject of two years of non-receipt of benefits

1998







Pensions

Rationalize the pension system

• Prepare plan to reduce financing requirement of public pension fund and introduce private pensions

1998-99

1998 WB/bilaterals








• Amend Pension Law to (i) raise the retirement age for men and women further; (ii) place retirement on age-exclusive basis; (iii) index benefits below wage growth; (iv) reduce the rate for accumulating the pension base used to specify the public pension. Contribution rates will not be increased

1998-99

1998 WB/bilaterals






Health

Rationalize and make more cost-effective supply of public health services

• Adopt a new Health Insurance Law which establishes a framework for a capitated primary health care system, basic benefits package, copayment/user charges policy for health services, and referral system by primary care providers for outpatient specialists and hospital care—to be tested in two districts (1998-99) prior to nation-wide implementation.

1998

1998 WB








• Adopt a new Drug Law which allows for streamlined registration of drugs, implementation of reference pricing based on generic products, adoption of essential drugs lists for public sector reimbursement, and competitive bidding procedures for public sector drug procurement.

1998

1998 WB








• Improve the information system in the health sector

1998-99

1998 WB/ Italy






12. Statistics

Improve statistical base for macroeconomic decision-making

• Regularly compile SNA-based annual national accounts on an annual and quarterly basis

1998-2000

1998-99 WB








• Improve price statistics

1998









• Improve compilation of balance of payments data

1998-99

1998 IMF







 

Table 2. Main Economic Indicators, 1993–2000
  1993 1994 1995 1996 1997
Prel.
1998
Proj.
1999
Proj.
2000
Proj.
  (Change in percent)
Real economy
   Real GDP -9.1 -1.8 -1.2 0.8 1.5 5.0 5.0 5.0
   GDP Deflator 452.0 134.1 13.9 1.9 4.0 2.5 3.0 3.0
   CPI (12-month change e.o.p.) 241.8 55.0 8.6 -0.7 2.7 3.0 3.0 3.0
   Unemployment rate (average) 1 18.7 20.7 23.7 24.8 26.3 . . . . . . . . .
                 
  (Percent of GDP)
General government finances
   Total revenues and grants2 41.5 47.6 42.0 41.0 38.9 37.2 38.4 37.4
   Total expenditures and net lending2 55.3 50.5 43.1 41.5 39.4 37.9 40.1 38.9
   Balance (accrual) -13.8 -2.9 -1.2 -0.5 -0.4 -0.7 -1.7 -1.5
   Balance (cash) . . . . . . . . . 0.2 -0.1 -0.5 -1.7 -1.5
                 
  (12-month change in percent, end of period)
Money and credit
   Private denar credit 408.0 47.6 13.2 7.4 14.4 15.2 . . . . . .
   Private denar M2 1,123.0 43.3 10.1 2.3 13.1 9.6 . . . . . .
   Short-term lending rate 275–368 77–81 25–30 22.4 21.2 . . . . . . . . .
      (December, in percent)                
   Discount rate (December, in percent) 295.0 33.0 15.0 9.2 8.9 . . . . . . . . .
                 
  (In millions of U.S. dollars)
Balance of payments
   Exports3 1,056 1,086 1,204 1,147 1,201 1,325 1,430 1,588
   Imports3 -1,227 -1,272 -1,439 -1,464 -1,589 -1,674 -1,819 -1,979
   Trade balance -171 -186 -235 -317 -388 -349 -363 -364
   Current account balance4 -87 -213 -230 -288 -275 -238 -258 -251
      (in percent of GDP) -3.5 -5.7 -5.7 -7.3 -8.3 -7.3 -7.3 -6.5
   Official reserves gross
      (reserves in months of regular imports)    1.2 1.3 1.9 2.0 1.9 2.3 2.8 3.0
   Debt service ratio5 13.1 15.8 10.1 10.8 9.2 8.5 7.2 6.5
                 
Exchange rates
   Denar per U.S. dollar
      (End-of-period) 44.5 40.6 38.0 41.3 55.4 54.9 . . . . . .
      (Period average) 23.2 43.3 38.1 39.9 49.9 55.0 . . . . . .
Sources: The authorities; and staff estimates.
1The registered unemployed in percent of total labor force is based on estimates by the staff and the authorities.
2From 1999, this incorporates the Special Revenue and Expenditure Accounts.
3 Changes in the coverage of trade data during the period result in discontinuities in the trade series, and related ratios, which are particularly evident in 1996.
4There are indications that the current account deficit is substantially overestimated due to unreported remittances.
5Debt service due, excluding IMF, as a percentage of exports of goods and services. It includes an estimate of debt service due to commercial creditors.
 

Table 3. Demographic and Social Indicators

Indicator Period

Population mid-1996 2.0 million
GNP per capita 1996 US$920
Population growth 1990–96 0.9 percent p.a.
Life expectancy (at birth) 1991–92 70.1 yrs (male) 74.4 yrs (female)
Fertility rate 1995 2.2 births per woman
Infant mortality 1995 23 per 1,000 live births
Under 5 mortality 1987–92 35.1 per 1,000 live births
Gross primary enrollment 1994 88 percent (male) 87 percent (female) of school-age population
Sources: The authorities and World Bank staff estimates.
 

Table 4. External Financing Requirements and Sources, 1997–2000

(In millions of U.S. dollars)
  1997 1998 1999 2000
External financing requirements 460 390 469 445
   Current account (excluding official transfers) 282 258 289 272
      Of which, net interest to:        
         Bilateral creditors 28 24 23 18
         Multilateral creditors 19 21 22 21
   Amortization 40 64 55 61
      Of which:        
         Bilateral creditors 16 29 28 30
         Multilateral creditors 18 25 23 28
   Change in arrears (net, (-) increase) 106 0 0 0
   IMF repurchase 0 2 17 20
   Change in gross official reserves 32 66 108 91
         
Expected disbursements 192 219 191 157
   Official transfers and grants 8 20 31 21
   Loans 159 175 135 136
      Bilateral creditors 6 5 3 2
      Multilateral creditors1 136 165 124 126
         Of which: World Bank 48 79 51 44
      Other 17 4 8 8
   IMF disbursements 25 25 25 0
         
Other capital, net 182 150 218 238
         
Total identified financing 373 369 409 395
         
Financing gap 87 20 60 50
         
Rescheduling 87 0 0 0
         
Residual financing gap 0 20 60 50
         
Source: Staff estimates.
1Includes expected equity investment by the IFC and the EBRD in Stopanska Banka and Macedonian Telecommunications.
 
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