Press Release: Statement by an IMF Mission to Macedonia
November 19, 2007
An International Monetary Fund (IMF) mission has visited Skopje November 7-16, 2007 to continue discussions for the third review under the Stand-By Arrangement. The program has biannual reviews, the last of which was successfully completed on April 27, 2007. The mission issued the following statement at the conclusion of its work on November 16:
"Economic performance has been strong. Through September, all of the program's main macroeconomic targets have been met. The fiscal position continues to strengthen, international reserves are increasing, and central bank interest rates remain low. Growth this year and next should reach 5 percent. Despite higher food prices, average inflation should stay low, at around 2 percent this year and 3 percent in 2008.
"The government's budget for 2008, submitted to parliament on November 13, will safeguard macroeconomic stability. Despite ambitious plans to cut personal and corporate income taxes, to make selective cuts in VAT, to increase spending on pensions, public investment in roads and education, and government wages, the budget should deliver the deficit target of 1.5 percent of GDP, essential for macroeconomic stability.
"Many structural reforms are also being implemented. The government and central bank have submitted their revised central bank law to the European Central Bank and to the European Commission for review, to make sure that it is aligned with the EU acquis. The new law strengthens the financial soundness of the National Bank of the Republic of Macedonia (NBRM), and reaffirms the government's commitment to safeguarding the NBRM's independence.
"Labour taxes are also being reduced. From January 2008, health care contributions of part time workers will fall substantially, as they will be calculated on an hourly basis (rather than assuming full time work). The mission encourages the government to take the next step - to link pension, health, and unemployment contributions for low wage workers to the wage they actually earn, not to the average wage in the economy - quickly. These reforms will encourage firms and workers to register in the formal economy. They could also lead to a substantial reduction in unemployment.
"The energy sector's financial problems are also being addressed. Starting from January, large electricity users will purchase all their needs at market prices. This will remove the need for a budget subsidy to MEPSO, the electricity transmission company. We encourage the authorities to finalize their comprehensive action plan to improve the finances of the energy sector, working closely with the World Bank.
"In light of this good progress, we have reached understandings on almost all elements of the next Letter of Intent. We expect that this can be signed in the next few weeks, and an IMF Executive Board meeting to complete the review can take place in January 2008.
"Finally, the mission again thanks the Macedonian authorities for their cooperation and generous hospitality."