IMF Executive Board Concludes 2014 Article IV Consultation and Third Post-Program Monitoring Review with the Former Yugoslav Republic of Macedonia

Press Release No. 14/364
July 25, 2014

On July 1, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the 2014 Article IV Consultation and Third Post-Program Monitoring with Macedonia.1

Growth accelerated to 3.1 percent in 2013 and has been more job-friendly than in the past. After a good performance at 3.9 percent year-on-year in the first quarter, baseline growth is expected to gather pace—to about 3.5 percent this year—and to broaden further. Domestic demand will be supported by private consumption and large public infrastructure projects, while the contribution of exports will be offset by higher investment-related imports. Inflation is weakening, led by lower food and commodity prices, but a pickup in the second half of the year is projected, bringing average inflation to about 1 percent in 2014. The decline in foreign exchange reserves observed since end-2012 has been mostly due to valuation effects and is expected to halt and partially reverse in the second half of 2014, preserving reserve adequacy. A pickup in foreign direct investment (FDI) and significant financial inflows to the public sector from multilateral and bilateral external creditors will offset a widening current account deficit and slightly declining private transfers.

The nominal cash budget deficit target for 2013 was met, but resulted in a higher-than-targeted 4.1 percent of GDP deficit. For the first four months of 2014, growth in expenditures has outpaced that of revenues, resulting in a cumulative budget deficit of 2.5 percent of GDP, against a targeted deficit of 3.5 percent of GDP for the year. As in 2013, subsidies and other transfers were frontloaded, with almost 50 percent of the budgeted amount spent in the first four months.. Central government debt rose to 35.8 percent of GDP at end-2013 and is expected to rise by about half a percent of GDP in 2014. Debt of state-owned-enterprises is increasing at a faster pace and is expected to bring public sector debt at about 43.5 percent of GDP at the end of the year.

The financial sector has been resilient. Banks’ overall capital adequacy ratio stands at around 17 percent and liquidity ratios at around 30 percent; while the share of non-performing loans to non-financial entities (11.1 percent in March 2014) is gradually declining. Monetary conditions remain accommodative, with the main policy rate reduced by 75 basis points to 3.25 percent in several steps since mid-2012, the successive relaxation of reserve requirements for specific categories of liabilities, and additional credit support measures in July 2013. As a result, credit growth has been gathering pace since the second half of 2013, bouncing back to 7.5 percent year-on-year in March 2014. However, dynamic household lending growth contrasts with still weak lending growth to the corporate sector.

Executive Board Assessment2

Executive Directors welcomed the economic recovery underway, the decline in unemployment, and the broadly favorable economic outlook. Directors noted, however, that securing a lasting expansion and durable reductions in unemployment requires continued efforts to preserve macroeconomic stability and promote a dynamic financial sector, as well as a more supportive business environment.

Directors encouraged the authorities to meet their 2014 deficit target for the central government, as a first step toward securing the consolidation needed to safeguard a sustainable trajectory for the public debt. More broadly, they agreed that the overall policy framework would benefit from greater fiscal transparency and a well-articulated debt management strategy that takes into consideration both domestic and external sources of financing while maintaining macroeconomic stability and supporting growth. Directors advised the authorities to specify the measures underpinning fiscal adjustment to reduce implementation risks and noted that greater efforts to prioritize and monitor public investment projects would also strengthen public financial management.

Directors concurred that monetary policy should continue to refrain from providing additional accommodation in the period ahead, barring an unforeseen deterioration of the macroeconomic environment. The primary focus of policy should instead shift to supporting the adequacy of international reserves and an exchange rate regime that has served the country well.

Directors agreed that Macedonia’s financial system remains liquid and adequately capitalized. They noted, nonetheless, that structural weaknesses in the sector, if unaddressed, would continue to hamper intermediation and the flow of credit. Directors agreed that in light of the systemic importance of euro-area subsidiaries to the domestic banking system, preserving cooperation between home and host country authorities will be critical, as the European Union’s Single Supervisory Mechanism comes into force.

Directors commended the authorities’ efforts to advance their structural reform agenda. In particular, they noted important progress in implementing labor market policies to mitigate skill mismatches. Directors also underscored the importance of further alleviating long-standing impediments to private sector activity, including by better enforcing payment discipline in public and private sector contracts. They also welcomed efforts to strengthen supply chain linkages between foreign enterprises and domestic firms.

FYR Macedonia: Selected Economic Indicators



2009 2010 2011 2012 2013 2014


Annual percentage change, unless otherwise specified  

Real GDP

-0.9 2.9 2.8 -0.4 3.1 3.4

Real domestic demand

-3.1 -0.3 3.9 2.0 -0.6 4.1

Private consumption

-4.7 2.1 2.9 -3.0 4.3 3.5

Gross investment

-0.4 -6.7 9.6 20.0 -11.5 7.0

Net exports 1/

2.9 3.0 -1.9 -2.8 3.5 -0.5

CPI inflation (annual average)

-0.8 1.5 3.9 3.3 2.8 1.0

Unemployment rate (annual average)

32.2 32.0 31.4 31.0 29.0 29.0


In percent of GDP


Current account balance

-6.8 -2.0 -2.5 -3.0 -1.8 -4.5

Trade balance

-23.0 -20.0 -20.8 -22.9 -19.5 -22.1

Exports of goods

38.0 45.5 53.6 52.7 52.9 55.3

Imports of goods

61.1 65.5 74.4 75.6 72.5 77.4

Private transfers

16.4 18.9 19.0 21.1 19.4 19.2

External debt (percent of GDP)

56.4 58.2 64.8 69.4 63.0 60.3

Gross investment

25.9 25.5 26.2 29.4 24.4 25.6

Domestic saving

19.1 23.5 23.7 26.4 22.6 21.1


0.6 1.1 1.4 0.2 -0.6 0.5


18.5 22.4 22.3 26.2 23.2 20.6

Foreign saving

6.8 2.0 2.5 3.0 1.8 4.5

Central Government Gross Debt

24.1 24.4 27.9 33.4 35.8 36.4

Public Sector Gross Debt 2/

27.1 28.0 32.1 28.3 42.1 44.8

Central Government Balance

-2.7 -2.4 -2.5 -3.9 -4.1 -3.5

Memorandum items:







Nominal GDP (billions of denars)

411 434 460 459 474 491

Nominal GDP (billions of euros)

6.7 7.1 7.5 7.5 7.7 8.0

GDP per capita (EUR)

3265 3430 3629 3615 ... ...

Sources: NBRM; SSO; MOF; IMF staff estimates.
1/ Contribution to growth.
2/ Total Public Sector (including MBDP, municipalities, public sector non-financial enterprise; w/o NBRM.

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.

The central objective of PPM is to provide for closer monitoring of the policies of members that have substantial Fund credit outstanding following the expiration of their arrangements. Under PPM, members undertake more frequent formal consultation with the Fund than is the case under surveillance, with a particular focus on macroeconomic and structural policies that have a bearing on external viability.

2 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:


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