IMF Executive Board Concludes 2010 Article IV Consultation with FYR Macedonia

Public Information Notice (PIN) No. 11/18
February 4, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2010 Article IV Consultation with FYR Macedonia is also available.

On January 19, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the 2010 Article IV consultation with FYR Macedonia.1


The pace of economic recovery is picking up, with growth expected to accelerate from somewhat over 1 percent in 2010 to 3½ percent in 2011. The recovery was driven initially by a rebound in exports, but the contribution from domestic consumption and investment has increased more recently. Inflation remains at low levels, despite some increases in food and energy prices. On the external side, the current account deficit has adjusted rapidly over the past two years, on the back of strong remittances and an improved trade balance. The current account deficit is expected to finish 2010 at some 3½ percent of GDP. Meanwhile, international reserves have fully recovered their earlier losses to reach their pre-crisis levels.

In the financial sector, non-performing loans (NPLs) rose and bank profitability declined as a result of the crisis. However, the system remained free of pressures on liquidity or solvency. NPLs were close to fully provisioned, capital ratios remained well above their regulatory minimum, and bank liquidity was ample. Stable funding sources (primarily domestic deposits), minimal reliance on external funding, and conservative asset portfolios all helped to contain the effect of the crisis on the banking system. After dipping following the onset of the crisis, bank deposits and bank credit to the private sector have both resumed growing, although at a more moderate pace than before the crisis.

Macedonia appears to be on track to meet its 2010 fiscal deficit target of 2½ percent of GDP. This was achieved by reducing expenditure as revenues fell short of projections, in part due to weak economic growth. The 2011 budget passed by parliament also targets a deficit of 2.5 percent of GDP, which represents a neutral cyclical stance. On the monetary policy side, the National Bank of the Republic of Macedonia (NBRM) has reduced interest rates from a high of 9 percent in 2009 to the current level of 4 percent. The NBRM based this easing on the recovery of international reserves and favorable underlying trends in the balance of payments.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They commended the Macedonian authorities for their sound macroeconomic and financial policies, which helped to contain the impact of the global crisis, and welcomed prospects for a return to more robust growth in 2011 and beyond.

Directors noted that the fiscal outcome in 2010 and the 2011 budget strike the right balance between safeguarding investor confidence in continued fiscal prudence and the need to support the economic recovery. They concurred that, once a more robust recovery is underway, fiscal consolidation will help strengthen the public finances further and provide a policy buffer against future shocks. Directors considered that deepening the domestic public debt market over time could help reduce external financing vulnerabilities.

Directors noted that the significant reductions in policy interest rates over the preceding year were justified against a background of subdued inflation, output below potential, and favorable trends in international reserves. In their view, the scope for further interest rate cuts is limited by the narrowing spread over ECB rates, and additional easing should be contingent on continued favorable developments in the balance of payments and international reserves.

Directors were encouraged by the overall healthy condition of the financial system. They noted in particular the high capital and liquidity cushions at banks and the reliance on relatively stable domestic deposits for funding. Directors encouraged the authorities to move forward with the implementation of the new law on the central bank.

Directors emphasized the need to accelerate structural reforms and strengthen public infrastructure to raise productivity and help reduce high unemployment. Directors were also encouraged by the authorities’ commitment to improve data quality, including by subscribing to the Fund’s Special Data Dissemination Standard.

Despite the broadly favorable outlook for macroeconomic stability, Directors agreed that vulnerabilities to spillovers from economic and financial volatility in the region remain. Directors believed that Macedonia met the Precautionary Credit Line (PCL) qualification requirements and that such an arrangement would mitigate the risk of contagion, including by signaling sound policies. In light of Macedonia’s strong fundamentals, the absence of balance of payments pressures at present, and the generally positive economic prospects, Directors expected that Macedonia would not need to draw upon the resources available under the PCL.

FYR Macedonia: Selected Economic Indicators
  2007 2008 2009 2010
  (Annual percentage change, unless otherwise specified)

Real GDP

6.1 5.0 -0.9 1.2

Total domestic demand

9.2 6.7 -2.6 0.2


6.5 8.0 -4.4 0.2


22.2 5.4 0.9 0.2

Net exports 1/

-4.6 -3.1 2.2 1.0

CPI (Average)

2.3 8.3 -0.8 1.5

Unemployment rate (annual average)

34.9 33.8 32.2
  (In percent of GDP)

Current Account

-7.0 -12.7 -7.2 -3.5

Trade balance

-19.7 -26.1 -23.2 -21.8

Exports of goods

40.9 40.0 28.8 34.6

Imports of goods

-60.6 -66.1 -52.0 -56.3

Gross external debt

47.6 49.2 57.5 58.5

Gross Domestic Investment

24.6 26.8 26.2 25.4

National savings

17.7 14.1 18.9 21.9


4.4 3.9 0.6 1.1


13.3 10.2 18.3 20.8

Foreign savings

7.0 12.7 7.2 3.5

Central Government Gross Debt

24.0 20.7 23.9 24.6

Central Government Balance

0.6 -0.9 -2.7 -2.5



GDP (billions of denar, 2009)


EUR (billions)


Per capita (EUR)


Sources: Ministry of Finance, National Bank of Republic of Macedonia; World Development Indicators 2008, and IMF staff estimates.

1/ Contribution to growth.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6220 Phone: 202-623-7100