Yugoslav Republic of Macedonia: Second Post-Program Monitoring Discussions

Publication Date: February 26, 2014
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Summary: KEY ISSUES Context. Growth continues to strengthen, although the recovery is not yet broad-based. External and fiscal vulnerabilities have risen: private non-debt creating capital flows have slowed, and could leave the reserve path increasingly driven by an accumulation of external public debt; central government debt—although still moderate at a projected 36 percent of GDP—has increased by about 15 percentage points since the beginning of the global financial crisis, in the context of growing broader public sector operations. Fiscal Policy. The newly re-established medium-term strategy is welcome, as it highlights the government’s policy priorities and helps shape stakeholder expectations. The targets are consistent with a gradual withdrawal of stimulus, and would produce stable baseline debt dynamics. However, should private demand recover faster than expected, frontloading the consolidation would stave off the emergence of imbalances and would boost policy credibility. Ensuring adequate fiscal space for priority infrastructure remains key. Monetary and Financial Policies. Looser monetary policy in the second half of 2013 has not resulted in the hoped for pickup in private credit growth. Nonetheless, the strong recovery in H1 2013, high bank liquidity, and the decline in reserves (albeit not indicative of pressures on the peg) suggest an end to the easing cycle would be in order. External Position. Capacity to service outstanding external debt obligations, including to the IMF, remains adequate. Despite still weak net FDI flows, increased activity in large foreign-owned companies is contributing to stronger exports. However, backward linkages will likely develop only slowly. In the absence of domestic spillovers, the structural improvement in the trade deficit will be gradual and growth could be uneven.
Series: Country Report No. 14/62
Subject(s): Post-program monitoring | Fiscal policy | Monetary policy | Debt sustainability analysis | Staff Reports | Press releases | former Yugoslav Republic of Macedonia (FYR Macedonia)

Publication Date: February 26, 2014
ISBN/ISSN: 9781475570809/1934-7685 Format: Paper
Stock No: 1MKDEA2014001 Pages: 44
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