## _cr13178 — Former Yugoslav Republic of Macedonia — IMF staff report conclusion

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---

### CONTEXT
- Track record of conservative policies and external official assistance provided buffers to confront global crisis spillovers and domestic shocks.
- Balance of payments pressures in H1 2009 managed through higher policy rates and tighter bank liquidity requirements.
- Early 2011: authorities requested a high-access precautionary Fund arrangement (Precautionary and Liquidity Line). In March 2011 authorities drew on the PLL; the drawing reinforced gross reserves.
- World Bank financing in late 2011 and early 2013 relieved public sector financing constraints, allowed a widening of the deficit to support weak domestic demand, and helped start clearing budgetary arrears.
- Exchange rate regime: de facto peg (NBRM keeps denar trading in a very narrow band around 61.5 denars per euro); de jure classification “floating”, de facto “stabilized”.
- EU accession negotiations blocked by the name dispute with Greece; candidate status granted in December 2005. European Commission’s April 2013 report urged implementation of commitments to end political stalemate.

### RECENT ECONOMIC DEVELOPMENTS — Overview
- 2012: shallow recession; activity declined 0.3 percent.
- 2013 baseline: modest recovery forecast (~2 percent) predicated on acceleration in public investment and FDI projects.
- Downside risks: weak external environment and difficult liquidity conditions for domestic private sector.
- Policy stance: fiscal and monetary policies supportive; monetary policy constrained by commitment to maintain exchange rate stability.
- Financial sector: liquid and well-capitalized with rising NPLs.
- Current account impact in 2012 mitigated by high private transfers and public sector net external borrowing; reserves built up despite modest FDI.

### A. Growth and Inflation — Key findings
- Activity: declined 0.3 percent in 2012; negative contributions from net exports and private consumption.
- Employment: rose 0.6 percent in 2012; gross wages flat → declining real incomes.
- Effective import demand: trade weighted decline of 1.9 percent in 2012.
- 2013 baseline growth expected about 2 percent; recovery contingent on public infrastructure works, FDI projects, and slight rebound in private consumption.
- Export projections for 2013 driven by rebound in metal exports and FDI-generated specialized exports.
- Headline inflation:
  - peaked at 5.3 percent year-on-year in September 2012;
  - averaged 3.3 percent for 2012;
  - expected to moderate to 2.5 percent in 2013.
- Core inflation:
  - accelerated to 2.9 percent year-on-year in December 2012;
  - fell to 2.4 percent in April;
  - expected to average 2.2 percent in 2013.
- Unit labor costs expected to remain broadly flat; output gap not expected to close before end-2015.

### B. External Sector — Key findings and scenarios
- 2012 current account deficit: widened to 3.9 percent of GDP.
- 2012 trade balance: 23.7 percent of GDP.
- 2012 private transfers (remittances): 21 percent of GDP.
- 2013 projections:
  - Trade balance expected to worsen to 25 percent of GDP due to import growth related to FDI projects.
  - Current account deficit expected to widen to about 4.9 percent of GDP, assuming no further acceleration of private transfers.
  - Current account financing assumed: net FDI inflows of about 3 percent of GDP, plus net public sector medium-term external borrowing.
- Reserves and adequacy indicators:
  - Reserves cover about 120 percent of short-term debt and 4.7 months of prospective imports.
  - Reserves equal about 53 percent of broad money.
  - Greenspan-Guidotti combined metric: reserves cover 99.6 percent of the sum of short-term debt and current account deficit (average over 2012–2016).
  - Fund new metric places reserve levels almost exactly in midpoint of suggested adequacy range of 100 to 150 percent.
- Reserve adequacy under adverse scenarios:
  - Reserves cover about 90 percent of needs under Fund metric augmented by 50 percent shortfall in private transfers.
  - Reserves cover about 75 percent of needs under similarly adjusted Greenspan-Guidotti metric.
  - Less severe scenario with import compression: reserve cover about 80 percent under Greenspan-Guidotti metric.
- Technical assistance using Jeanne and Ranciere (2008) welfare-based model: reserve holdings adequate, including when incorporating endogenous probability of currency or banking crisis.

### C. Fiscal Policy — Key findings and budget developments
- 2012 cash deficit widened to 3.8 percent of GDP due to weaker revenues and start of arrears clearance.
- Total realized revenues in 2012 were 8 percent below the supplementary budget forecast.
- VAT refund arrears cleared in 2012: MKD 1.8 billion (0.38 percent of GDP).
- Containing the cash deficit at 3.8 percent of GDP required expenditure compression beyond supplementary budget ceilings; adjustment fell mainly on capital expenditure given only about 20–25 percent of discretionary room in the budget.
- Q1 2013: deficit equals 2.4 percent of projected annual GDP and represents two thirds of the annual target.
  - Q1 revenue developments dominated by large VAT refunds through February; other revenues at ~a quarter of the annual target; profit taxes overperformed.
  - Subsidies and other transfers rose by 250 percent relative to Q1:2012, mainly due to advance payments of agricultural subsidies.
- Off-budget shifts and PESR:
  - As of January 2013, most public road infrastructure projects to be taken up by Public Enterprise for State Roads (PESR), previously part of central government budget.
  - PESR can borrow on its own behalf; most of its debt carries explicit sovereign guarantee.
  - Projected increase in SOE debt from 2.7 to 4.5 percent of GDP in 2013 mainly reflects creation of PESR and external credit lines supporting its activity.
  - Recommendation: track public sector aggregate including deficit and debt of PESR for debt sustainability and aggregate demand impact; consolidating PESR within central government for deficit and debt accounting is advisable.
- Public sector debt developments:
  - MBDP debt rose from 0.4 percent of GDP in 2009 to 2.2 percent in 2012, reflecting EIB credit lines (some €250 mn in 2009–2012, and additional €100 mn announced in 2013).
- Financing in 2012:
  - Net domestic issuance of €451 million and net external borrowing of about €79 million financed the budget deficit and built government deposits at NBRM to €319 million (4¼ percent of GDP) at year end.
  - Net domestic issuance through April 2013 stands at €120 million (higher than the €100 million envisaged in the budget), intended as a financing buffer for 2014.
  - Debt maturity extension: 3- and 5-year bonds now make up 25 percent of total debt stock, up from 5 percent at end-2011.

### D. Monetary and Financial Developments and Policies — Summary points
- Monetary policy constrained by de facto peg and commitment to exchange rate stability.
- Financial sector: liquid and well-capitalized, with rising NPLs.
- Reserve accumulation supported by official external inflows, sizeable trade credits and inward bank deposits, despite weak FDI and some capital outflows (intra-company loans and corporate deposits).

### Monetary policy, liquidity, and sterilization (operational details)
- NBRM lowered policy rate by 25 basis points to 3.5 percent in January 2013.
- NBRM gradually reduced stock of outstanding Central Bank bills; outstanding 1-month CB bills reduced by about MKD 10 billion to MKD 24 billion since April 2012.
- Reserve requirement change: lowered by amount of new loans to domestic net exporters and electricity producers, effective January 1, 2013, with limited take-up to date.
- Higher subscription of 7-day NBRM deposits carrying a 1¾ percent interest rate.

### Banking sector soundness and provisioning
- Capital adequacy ratio: 17.1 percent as of December 2012.
- Tier 1 capital: 14.5 percent as of December 2012.
- Over 29 percent of total assets were highly liquid.
- NPL ratio rose to 11.7 percent in February 2013; provisions exceed NPLs.
- Profitability: low but positive.
- Euroization of deposits: high but decreasing gradually to below pre-crisis levels.
- Provisioning rule changes:
  - Mid-2012: minimum provisions for unsold collateral-in-possession introduced.
  - March 2013: further changes announced, effective December 1, 2013, to allow banks more leeway in considering collateral value when provisioning; expected modest release of provisions which banks obliged to allocate to reserves.

### Credit growth and supply-side dynamics
- Loan growth declined from 5.2 percent (y/y) in December 2012 to 4.4 percent in February 2013.
- Deposit growth accelerated from 4.9 percent to 5.6 percent over same period.
- Banks expected to remain conservative due to modest growth prospects and low profitability.
- Group-wide policies of foreign parent banks aiming to strengthen consolidated capital ratios likely to limit asset growth in largest banks.
- Credit demand affected by economic outlook.

### Crisis management toolkit and risks
- Banking law amendments closed all but one gap in crisis management framework:
  - NBRM can impose fit and proper requirements on bank management and owners.
  - Paves way for widening class of collateral for liquidity support.
  - Remaining issue: clarification of NBRM’s power to intervene in an insolvent bank without being subject to court challenge.
- Mitigating factors for near-term external risks:
  - New tradable sector FDI reduced reliance on traditional exports and reoriented export geography.
  - Local subsidiaries of euro area banks (Greece and Slovenia) are well-capitalized, liquid, limited exposure to parents, no short-term wholesale funding dependency, limited credit exposure to those economies.
  - Banks funded mainly by resident deposits; public sector external financing requirements for 2013 already met.
- Tail risks:
  - Sudden loss of confidence could transmit through remittances (private transfers equal to 20 percent of GDP); a sudden stop could create large BOP pressures as in 2009.
  - Late-March deposit withdrawal spike from Macedonian subsidiary of Slovenia’s NLB demonstrates such risks.
- Recommended enhancements:
  - Consider widening Financial Stability Committee (FSC) membership to include other financial sector regulators such as the Insurance Supervision Agency.
  - Review scope of deposit insurance system, currently applying only to natural persons.
- Authorities’ readiness:
  - Monitor deposits daily; tested bank IT systems to generate insured deposit data on short notice.
  - Expect to supply ample liquidity on short notice in case of deposit outflows.
  - NBRM believes bank resolution framework adequate; deposit insurance coverage and scope seen as appropriate.

### Fiscal policy: restoring medium-term perspective and debt sustainability
- Fiscal drivers and pressures:
  - Ad-hoc pension increases in excess of indexation add about MKD 2 billion (0.4 percent of GDP) to 2013 primary expenditure.
  - Agricultural subsidies increasing.
  - Public sector wages expected to rise by 5 percent in 2014 after temporary freeze.
  - Scaling up public investment (roads, railways) and higher spending on labor market activation, training, skills, and education.
  - Rising interest costs due to higher debt stock and projected rise in global interest rates; currently mitigated by ~40 percent of total public sector debt in 2012 being long-dated official external debt at concessional rates.
- Need for medium-term fiscal strategy:
  - Anchor fiscal policy in medium-term fiscal strategy to reconcile priorities and preserve debt sustainability.
  - Emphasize multi-annual budgeting, strengthen forecasting framework and commitment recording and control.
  - Treasury corrective measures: amended Manual of Treasury operations; working group to define technical specifications for Treasury software upgrade (new module not rolled out before 2014).
  - Resume publication of medium-term fiscal strategy documents (last published for 2011–2013 in December 2010).
- Risks from proliferation of public entities:
  - Creation of PESR should be monitored to avoid dilution of accountability, reporting, and consolidation problems; central authorities must exercise tight control and ensure timely, transparent financial reporting.
- Recommended fiscal path and consolidation:
  - Central government primary deficit should be gradually reduced to first stabilize debt and then rebuild fiscal buffers.
  - Near term: fiscal policy should remain supportive; current fiscal targets provide very small positive impulse in 2013.
  - Once recovery sets in, central government deficits should decline.
  - Under benign assumptions about the growth-interest rate spread, stabilizing debt would require reduction of central government primary fiscal deficit by about 1.6  percent of GDP relative to forecast for 2013 outturns.
  - Start of consolidation could be managed by identifying measures to commit to in 2014 with full-year effect in 2015.

### Underlying assumptions for debt paths (presented values)
- Consolidation scenario overall deficit: 3.8 3.5 2.5 2.2
- Consolidation scenario primary deficit: 2.9 2.6 1.5 0.5
- Current policies overall deficit: 3.8 3.5 3.0 3.0
- Nominal interest rate (Percent, domestic): 3.3 2.7 3.0 5.0
- Nominal interest rate (Percent, foreign): 2.9 2.8 3.2 5.1
- Growth, shock scenario (Percent): -0.3 0.9 2.1 2.9

### Annex I — Public Debt Sustainability Analysis (DSA) — key points
- Growth assumed to revert gradually to 4 percent potential.
- Baseline fiscal assumptions: central government deficit of 3 percent of GDP over medium term; current year cash deficit 3.5 percent of GDP.
- Government deposits: MKD 19.6 billion at end-2012; assumed to decrease and stabilize around MKD 5.5–6 billion by 2015.
- Starting central government debt: 33.8 percent of GDP at end-2012.
- External composition assumptions: official external debt share assumed to fall from 37 percent of total central government debt to 20 percent by 2018; domestic debt share to rise from 32 percent in 2012 to 38 percent by 2018.
- PESR treatment in staff DSA:
  - PESR deficit assumed constant at 0.3 percent of GDP until 2018.
  - Difference between debt including and excluding PESR currently 1.2 percent of GDP.
- Shock scenarios:
  - Growth shock (½ std. dev.): plausible shock adds 9 percentage points to baseline central government debt over 5 years—breaching plausibly sustainable levels.
  - Interest rate shock (½ std. dev.): real interest rate reaches 3.8 percent in 2018 vs 2.6 percent baseline; described as mild.

### Structural reform — boosting growth and labor market
- Labor market:
  - Measured unemployment: 30½ percent.
  - Employment unresponsive to output changes; structural factors significant.
- Structural impediments:
  - Large emigration/brain drain, late structural transformation, historically small FDI inflows.
  - Dependence on low-productivity sectors (small-scale farming, heavy industry).
- Reform priorities:
  - Continue attracting FDI and ensure spillovers/linkages to domestic suppliers.
  - Invest in infrastructure and align education and training with new industry needs, with greater focus on primary education.
  - Monitor impact of linking minimum wage to average wage.
  - Review bankruptcy legislation, corporate accounting practices for SMEs, improve real estate transaction data, and review interest rate cap (8 and 10 percent above policy rate for household and corporate loans) which may inhibit access to credit.

### Capacity to pay and financing needs
- Fund repayments total some €230 million concentrated in 2014–15.
- €150 million Eurobond matures in 2015.
- Bulky repayments due on syndicated lending operations in 2016.
- Authorities’ domestic issuance plans seen as covering financing requirements for current year and part of next year; potential for bond issuance in second half of 2014.
- Staff projects modest reserve accumulation in 2014 even without sovereign bond issuance, contingent on public sector external borrowing plans and benign market conditions.

### Staff appraisal — key conclusions and policy recommendations
- Outlook and risks:
  - Macedonia well positioned to return to growth; avoided pre-crisis large imbalances.
  - Near-term moderate recovery supported by solid FDI pipeline, export base improvements, export market diversification, and public infrastructure investment.
  - External outlook is key risk due to real linkages to euro area.
- Policy priorities:
  - Focus on boosting medium-term growth while maintaining macro stability and fiscal sustainability by gradually reducing deficit and debt.
  - Accommodate investment in future capacity—transportation, energy, education, training, labor market policies—within fiscal space to reap FDI benefits.
- Financial and external stability:
  - External and financial stability maintained despite difficult external environment.
  - Reserve levels adequate; authorities should remain vigilant and ready to react to low probability, high impact confidence shocks.
  - Banking Law changes closed most remaining gaps in crisis management framework; addressing court-challenge risk to NBRM interventions in insolvent banks would complete the agenda.

### Near-term policy stance (summary)
- Near-term policy mix remains appropriate; policies should remain supportive given downside growth risks.
- Fiscal policy settings for 2013 provide a small positive impulse to growth.
- Monetary policy margins limited by exchange rate stability commitment; current settings balance stability and growth.

### Monitoring and control of public sector entities
- Important to consider evolution of debt and deficits of broader public sector aggregate in setting budget targets.
- Maintain tight central control of budget preparation and indebtedness pace/nature of PESR and other state-owned enterprises.

### Next Article IV Consultation
- Expected on the standard 12-month cycle.

*Italic: IMF staff report conclusion (content unit: _cr13178).*

### conclusion of the visit a joint press conference was held with the

### _cr13178 - conclusion of the visit a joint press conference was held with the finance minister.

### CONTEXT
- A track record of conservative policies, together with external official assistance, provided Macedonia with buffers to confront spillovers from the global crisis and deal with domestic shocks.
- Balance of payments pressures in the first half of 2009 were managed through higher policy rates and tighter bank liquidity requirements.
- In early 2011 the authorities requested a high-access precautionary Fund arrangement (Precautionary and Liquidity Line). In March 2011 the authorities drew on the PLL; the drawing reinforced gross reserves.
- Financing operations with the World Bank in late 2011 and early 2013 relieved public sector financing constraints, allowed a widening of the deficit to support weak domestic demand, and helped start clearing budgetary arrears.
- The de facto peg limits policy space; the report refers to the exchange rate regime as a peg while noting the de jure classification is “floating” and the de facto regime is “stabilized” with the NBRM keeping the denar trading in a very narrow band around the rate of 61.5 denars per euro.
- EU accession negotiations remain blocked by the name dispute with Greece; the country was granted candidate status in December 2005. The European Commission’s April 2013 report urged implementation of commitments to end the political stalemate.

### RECENT ECONOMIC DEVELOPMENTS — Overview
- Following a shallow recession in 2012, a modest recovery is forecast for 2013, predicated on an acceleration in public investment and FDI projects coming on stream.
- Weak external environment and difficult liquidity conditions for the domestic private sector present important downside risks.
- Fiscal and monetary policies are providing support, with monetary policy constrained by the commitment to maintain exchange rate stability.
- Financial sector remains stable—liquid and well-capitalized—albeit with still rising NPLs.
- Impact of weaker trade on the current account in 2012 was mitigated by high private transfers and public sector net external borrowing, which helped build up reserves despite modest FDI.

### A. Growth and Inflation — Key findings
- Activity declined 0.3 percent in 2012, with a negative contribution from net exports and private consumption.
- Employment rose 0.6 percent in 2012 while gross wages remained flat, implying declining real incomes.
- Trade weighted effective import demand for Macedonian products declined by 1.9 percent in 2012.
- 2013 baseline growth is expected to be about 2 percent, with risks tilted to the downside; recovery contingent on public infrastructure works, FDI projects, and a slight rebound in private consumption.
- Projected export growth in 2013 driven by a rebound of metal exports and FDI-generated specialized exports.
- Headline inflation: peaked at 5.3 percent year-on-year in September 2012; averaged 3.3 percent for 2012 as a whole.
- Inflation is expected to moderate to 2.5 percent in 2013.
- Core inflation accelerated to 2.9 percent year-on-year in December 2012, fell to 2.4 percent in April, and is expected to average 2.2 percent in 2013.
- Unit labor costs expected to remain broadly flat; output gap not expected to close before end-2015.

### B. External Sector — Key findings and scenarios
- Current account deficit widened to 3.9 percent of GDP in 2012.
- Trade balance in 2012: 23.7 percent of GDP.
- Private transfers (notably remittances) reached 21 percent of GDP in 2012.
- 2013 projections:
  - Trade balance expected to worsen to 25 percent of GDP due to import growth related to FDI projects.
  - Current account deficit expected to widen to about 4.9 percent of GDP, assuming no further acceleration of private transfers.
  - Current account financing assumed: net FDI inflows of about 3 percent of GDP, plus net public sector medium-term external borrowing.
- Reserves and adequacy:
  - Reserves cover about 120 percent of short-term debt and 4.7 months of prospective imports.
  - Reserves equal about 53 percent of broad money.
  - Greenspan-Guidotti combined metric: reserves cover 99.6 percent of the sum of short-term debt and current account deficit (average over 2012–2016).
  - A new Fund metric places reserve levels almost exactly in the midpoint of the suggested adequacy range of 100 to 150 percent.
- Reserve adequacy under adverse scenarios:
  - Reserves cover about 90 percent of needs under the Fund metric augmented by a 50 percent shortfall in private transfers.
  - Reserves cover about 75 percent of needs under similarly adjusted Greenspan-Guidotti metric.
  - A less severe scenario with import compression brings reserve cover to about 80 percent under the Greenspan-Guidotti metric.
- A technical assistance mission using a Jeanne and Ranciere (2008) welfare-based model concluded reserve holdings were adequate, including when incorporating endogenous probability of a currency or banking crisis.

### C. Fiscal Policy — Key findings and budget developments
- 2012 cash deficit widened to 3.8 percent of GDP due to weaker revenues and the start of the arrears clearance process.
- Total realized revenues in 2012 were 8 percent below the supplementary budget forecast.
- VAT refund arrears cleared in 2012: MKD 1.8 billion (0.38 percent of GDP).
- Containing the cash deficit at 3.8 percent of GDP required expenditure compression beyond supplementary budget ceilings; adjustment fell mainly on capital expenditure given only about 20–25 percent of discretionary room in the budget.
- Q1 2013 deficit equals 2.4 percent of projected annual GDP and already represents two thirds of the annual target.
  - Q1 2013 revenue developments dominated by large VAT refunds through February; other revenues at about a quarter of the annual target; profit taxes overperformed.
  - Subsidies and other transfers rose by 250 percent relative to Q1:2012, mainly due to advance payments of agricultural subsidies.
- Authorities were not considering a supplementary budget as of discussions; expected to accommodate required spending adjustment within normal capital spending buffers by postponing not-yet-started projects.
- Off-budget shifts:
  - As of January 2013, most public road infrastructure projects to be taken up through the Public Enterprise for State Roads (PESR), previously part of central government budget.
  - PESR can borrow on its own behalf; most of its debt carries an explicit sovereign guarantee.
  - Projected increase in SOE debt from 2.7 to 4.5 percent of GDP in 2013 mainly reflects creation of PESR and external credit lines supporting its activity.
  - Recommendation: track public sector aggregate including deficit and debt of PESR for assessing debt sustainability and aggregate demand impact; consolidating PESR within central government for deficit and debt accounting is advisable.
- Public sector debt developments:
  - MBDP debt rose from 0.4 percent of GDP in 2009 to 2.2 percent in 2012, reflecting EIB credit lines (some €250 mn in 2009–2012, and additional €100 mn announced in 2013).
- Financing:
  - Net domestic issuance of €451 million and net external borrowing of about €79 million in 2012 financed the budget deficit and built government deposits at the NBRM to €319 million (4¼ percent of GDP) at year end.
  - Net domestic issuance through April 2013 stands at €120 million (higher than the €100 million envisaged in the budget), intended as a financing buffer for 2014.
  - Debt maturity extension: longer dated securities (3- and 5-year bonds) now make up 25 percent of total debt stock, up from 5 percent at end-2011.

### D. Monetary and Financial Developments and Policies — Summary points
- Monetary policy constrained by de facto peg and commitment to exchange rate stability.
- Financial sector described as liquid and well-capitalized, with rising NPLs.
- Reserve accumulation supported by official external inflows, sizeable trade credits and inward bank deposits, despite weak FDI and some capital outflows (intra-company loans and corporate deposits).

*Former Yugoslav Republic of Macedonia — IMF staff report conclusion (content unit: _cr13178).*

### 16.      The absence of external pressures in a

### 16.      The absence of external pressures in a

### Monetary policy, liquidity, and sterilization
- The NBRM lowered the policy rate by 25 basis points to 3.5 percent in January 2013.
- The NBRM gradually reduced its stock of outstanding Central Bank bills.
- Reserve requirement change: lowered by the amount of new loans to domestic net exporters and electricity producers, effective January 1, 2013, with limited take-up to date.
- Outstanding 1-month CB bills reduced by about MKD 10 billion to MKD 24 billion since April 2012.
- Higher subscription of 7-day NBRM deposits carrying a 1¾ percent interest rate.

### Banking sector soundness and provisioning
- Capital adequacy ratio: 17.1 percent as of December 2012.
- Tier 1 capital: 14.5 percent as of December 2012.
- Over 29 percent of total assets were highly liquid.
- NPL ratio rose to 11.7 percent in February 2013; provisions exceed NPLs.
- Profitability: low but positive.
- Euroization of deposits: high but decreasing gradually to below pre-crisis levels.
- Provisioning rule changes:
  - Mid-2012: introduced minimum provisions for unsold collateral-in-possession on banks’ balance sheets.
  - March 2013 announcement of further changes, effective December 1, 2013, to allow banks more leeway in taking into account collateral value when provisioning loans; expected modest release of provisions which banks will be obliged to allocate to reserves.

### Credit growth and supply-side dynamics
- Loan growth declined from 5.2 percent (year-on-year) in December 2012 to 4.4 percent in February 2013.
- Deposit growth accelerated from 4.9 percent to 5.6 percent over the same period.
- Banks expected to remain conservative due to modest growth prospects and low profitability.
- Group-wide policies of foreign parent banks aiming to strengthen consolidated capital ratios likely to limit asset growth in the largest banks.
- Credit demand continues to be affected by the economic outlook.

### Crisis management toolkit and risks
- Amendments to the banking law closed all but one long-standing gap in the crisis management framework:
  - NBRM can impose fit and proper requirements on bank management and owners.
  - Paves the way for widening the class of collateral for liquidity support.
  - Remaining issue: clarification of NBRM’s power to intervene in an insolvent bank without being subject to court challenge.
- Factors mitigating near-term external risks despite strong linkages to the euro area:
  - New tradable sector FDI has reduced reliance on traditional exports and reoriented exports geographically.
  - Local subsidiaries of euro area banks (Greece and Slovenia) are well-capitalized, liquid, limited exposure to parents, no short-term wholesale funding dependency, limited credit exposure to those economies.
  - Banks funded mainly by resident deposits; public sector external financing requirements for 2013 already met.
- Key tail risks:
  - Sudden loss of confidence could be transmitted through remittances (private transfers equal to 20 percent of GDP); a sudden stop could create large balance of payments pressures as in 2009.
  - Short-lived spike in deposit withdrawals from the Macedonian subsidiary of Slovenia’s NLB in late March demonstrates such risks.
- Recommended enhancements:
  - Consider widening Financial Stability Committee (FSC) membership to include other financial sector regulators such as the Insurance Supervision Agency.
  - Review scope of the deposit insurance system, which currently applies only to natural persons.
- Authorities’ readiness:
  - Monitor deposits daily; tested bank IT systems’ ability to generate reliable insured deposit data on short notice.
  - Expect to supply the system with ample liquidity on short notice in case of deposit outflows.
  - NBRM believes bank resolution framework is adequate; deposit insurance coverage and scope are seen as appropriate.

### Fiscal policy: restoring a medium-term perspective and debt sustainability
- Authorities aim to increase growth potential with some upfront fiscal costs, while debt levels have shifted up from low to moderate.
- Fiscal pressures and expenditure drivers:
  - Ad-hoc pension increases in excess of the standing indexation formula add about MKD 2 billion (0.4 percent of GDP) to 2013 primary expenditure.
  - Agricultural subsidies continue to increase.
  - Public sector wages, temporarily frozen as a crisis-adjustment measure, are expected to rise by 5 percent in 2014.
  - Scaling up public investment projects (road and railway infrastructure) and higher spending on labor market activation, training, skills and education.
  - Rising interest cost due to higher debt stock and projected rise in global interest rates will compete with productive expenditure; currently mitigated by around 40 percent of total public sector debt in 2012 being long-dated official external debt at concessional rates.
- Need for medium-term fiscal strategy:
  - Anchor fiscal policy in a medium-term fiscal strategy to reconcile competing priorities and preserve debt sustainability.
  - Focus on multi-annual budgeting to assess fiscal space and avoid arrears; strengthen forecasting framework and commitment recording and control.
  - Treasury corrective measures underway: amended Manual of Treasury operations; working group to define technical specifications for upgrading Treasury software (new module not rolled out before 2014).
  - Resume publication of medium-term fiscal strategy documents (last published for 2011–2013 in December 2010) to improve transparency, accountability, and risk awareness.
- Risks from proliferation of public entities:
  - Creation of PESR (public entity) should be carefully monitored to avoid dilution of accountability, reporting and consolidation problems; central authorities must exercise tight control and ensure timely, transparent financial reporting.
- Recommended fiscal path and consolidation:
  - Central government primary deficit should be gradually reduced to first stabilize debt and then rebuild fiscal buffers.
  - Near term: fiscal policy should remain supportive; on current fiscal targets, expected to provide a very small positive impulse in 2013.
  - Once recovery sets in, central government deficits should decline.
  - Under benign assumptions about the growth-interest rate spread, stabilizing debt would require a reduction of central government primary fiscal deficit by about 1.6  percent of GDP relative to forecast for 2013 outturns.
  - Start of consolidation could be managed by identifying measures to commit to in 2014 with full-year effect in 2015.
  - Recommended fiscal path balances risks to debt from shocks against growth benefits of higher public infrastructure spending; transition period carries risk of permanently higher debt if not offset by adjustments in current expenditures.

### Underlying assumptions for debt paths (as presented)
- Consolidation scenario overall deficit: 3.8 3.5 2.5 2.2
- Consolidation scenario primary deficit: 2.9 2.6 1.5 0.5
- Current policies overall deficit: 3.8 3.5 3.0 3.0
- Nominal interest rate (Percent, domestic): 3.3 2.7 3.0 5.0
- Nominal interest rate (Percent, foreign): 2.9 2.8 3.2 5.1
- Growth, shock scenario (Percent): -0.3 0.9 2.1 2.9

*Source: MoF; and IMF staff estimates*

### Annex I on debt sustainability).

### Annex I on debt sustainability

### Authorities’ views
- Boosting growth is the centerpiece of economic policies; addressing arrears has played a crucial role in supporting demand in the near term.
- Increasing capital expenditure is a key pillar of the growth strategy, together with attracting and accommodating FDI to ensure positive spillovers and linkages to the domestic economy.
- A cautious pace of deficit reduction is preferred as the cycle turns; the pace of consolidation will depend on a number of factors.
- Capital expenditure plans include big projects requiring budgetary space: Corridor X highway construction, railways, a gas pipeline.
- The authorities view a solid social safety net as an important stabilizer and foresee higher subsidies in agriculture and increases in pensions and social assistance as cushions that counterbalance less popular structural reforms.
- A medium-term fiscal and debt management strategy is under preparation and will be provided to Parliament before the 2014 budget; it should provide detailed information and analysis on expenditure and debt of various levels of government.
- Fiscal risks from the broader perimeter of government are contained by strict controls at the central government level; the Ministry has full control over the indebtedness process of public enterprises, including the newly created Public Enterprise for State Roads.
- Emphasis on a durable solution for public sector arrears: authorities have publicly announced that all arrears have been cleared and have taken measures to prevent reoccurrence, including by strengthening reporting requirements for multi-annual contracts and improving monitoring of payment delays.
- Budget execution through March has been in line with authorities’ expectations, providing assurances of sufficient budget space and liquidity to remain current on all due obligations.

### Monetary policy and international reserves
- The exchange rate peg to the euro continues to deliver low average inflation and a stable real exchange rate; staff view the peg as appropriate provided supportive macroeconomic policies remain in place.
- CGER estimates do not indicate significant misalignments of the real exchange rate, and the current account deficit remains lower than the estimated norm.
- A persistent large trade deficit—mainly attributable to structural constraints—needs addressing through policies aimed at boosting non-price competitiveness, securing FDI, and unlocking potential growth via backward linkages from new firms to domestic suppliers.
- The primacy of the exchange rate peg limits latitude for further easing; the policy rate spread over euro rates has narrowed.
- Conditions that may allow some limited stimulus: reserves remain adequate, balance of payments pressures are limited, core inflation is coming down, the ratio of euro-denominated to denar deposits continues to decline, but credit growth is weak.
- Risks and concerns:
  - Further rate declines may be less effective given banks’ risk aversion and already high liquidity.
  - Since January 2013 there has been a persistent shift of volume from Central Bank bills to 7-day deposits, posing a risk to the effectiveness of CB bills as the main monetary instrument.
  - Recent issuances of 6-month government paper below the policy rate emphasize this risk.
- Authorities’ stance:
  - They see monetary policy as appropriately accommodative and reaffirm readiness to raise interest rates to respond to potential exchange rate pressures.
  - Last year’s inflationary peak is viewed as transitory; a gradual decline in headline and core inflation is expected to continue, with monthly core inflation in February and March at zero percent.
  - The decision to keep the central bank bill level stable despite excess demand was intended to incentivize banks to extend credit to the private sector.
  - Authorities view the recent increase in uptake of 7-day deposits as temporary and do not intend to use this instrument as the main liquidity-management tool.

### External sector assessment (Box 2) — findings and projections
- Assessment summary:
  - Macedonia’s external position appears sustainable; net external liabilities are on a declining path.
  - Frameworks for computing the real effective equilibrium exchange rate do not point to overvaluation.
  - The persistence of a high trade deficit is an important vulnerability, indicating non-price competitiveness weaknesses.
- FDI and competitiveness:
  - Policies focus on attracting FDI by maintaining cost competitiveness and improving the business environment; inflows have been significant in tradable sectors (automotive component, food processing, tobacco).
  - Key advantages: proximity to core EU markets, stable macroeconomic environment, contained unit labor costs from wage moderation, large pool of available labor, and a low-tax environment.
- External debt and forecasts:
  - External debt is projected to have peaked at 68 ½ percent of GDP in 2012.
  - Staff’s baseline forecast is for a decline in the external debt to GDP ratio of about 8 percentage points over the forecast horizon.
  - The baseline forecast is predicated on about 4 percent of GDP in non-debt creating inflows annually, i.e., slightly below average pre-crisis inflows (2003–2008), fully financing the non-interest current account deficit.
  - The assumed recovery of FDI to pre-crisis levels is viewed as plausible.
- Structural constraints to reduce the trade deficit:
  - Low labor participation rates and a widespread grey economy.
  - Infrastructure gaps—particularly in roads and railways, but also in energy—are being addressed through public expenditure programs, mostly financed by concessional long term loans.
  - Need for mechanisms to provide feedback from new industries to education and training; skill upgrades and business environment improvements should strengthen FDI linkages to the domestic economy.
- Note: the recently announced indexation of the minimum wage in the private sector is expected to have limited second-round effects.

### Structural reform — boosting growth and labor market
- Labor market and unemployment:
  - Measured unemployment is 30½ percent.
  - Standard labor market frictions do not fully explain the high unemployment: employment protection legislation is slightly more flexible than peers; social assistance size and duration do not provide notable disincentives; labor tax wedges are not particularly high.
  - Employment has been unresponsive to output changes, suggesting structural factors are important.
- Structural impediments:
  - Large emigration flows and loss of skilled labor (brain drain), late structural transformation, and historically small FDI inflows slowed structural transformation and job creation.
  - The economy remains dependent on low-productivity sectors such as small-scale farming and heavy industry.
- Reforms and policy direction:
  - Efforts to attract FDI are yielding results and should positively impact structural transformation, activity rates, and employment.
  - Authorities’ strategy extends beyond low taxes to building infrastructure and aligning education and training with new industry needs, with a greater focus on primary education.
  - Authorities should carefully monitor the impact on labor costs of linking the minimum wage to the average wage.
  - Durably boosting growth depends on FDI projects developing closer linkages with the domestic economy; this will be gradual and helped by continued business environment improvements.
- Authorities’ view:
  - They concur with the assessment, highlight the magnitude of structural challenges given limited public expenditure space, and see value in investigating which constraints to job creation are most binding and the potential role of labor mobility as job creation accelerates.

### Financing convergence and credit growth
- Need to boost sustainable credit growth to finance economic convergence to European income levels; Macedonia historically has low financial deepening as proxied by credit-to-GDP ratio.
- Evidence suggests unsatisfied demand for credit likely due to constraints on credit supply.
- Structural impediments to credit supply and suggested measures:
  - Review and streamline bankruptcy legislation to address inefficient and lengthy procedures.
  - Improve corporate accounting practices at SMEs to allow banks to lend against business plans rather than only collateral.
  - Improve data collection and dissemination, particularly on real estate sales transactions, to enable more realistic collateral valuations.
  - Review the interest rate cap, set at 8 and 10 percent above the policy rate for household and corporate loans, respectively, which has led to bunching of rates near the ceiling and likely negatively affected access to credit for riskier projects; the cap is reset every 6 months and could inhibit monetary policy transmission in a rising-rate environment.
- Authorities’ view:
  - They largely concur; note the cap may have raised lending rates across the board by preventing risk differentiation.
  - Recording and publishing real estate transaction data could be done by the cadastre but may require a formal change to its mandate.
  - While these measures could boost credit growth at the margin, overall effects may not be large.

### Capacity to pay and financing needs
- Fund obligations and sovereign debt schedule:
  - Macedonia’s capacity to repay the Fund is considered adequate.
  - Fund repayments total some €230 million in total, concentrated in 2014–15.
  - A €150 million Eurobond matures in 2015.
  - Bulky repayments are due on syndicated lending operations in 2016.
- Authorities’ financing plans and market access:
  - Current domestic issuance plans seen as covering financing requirements for the current year and part of next year.
  - Authorities view external capital markets as open, with potential for bond issuance in the second half of 2014.
  - Staff projects a modest accumulation of reserves in 2014 even without a sovereign bond issue, contingent on realization of public sector external borrowing plans and benign market conditions to allow rollover of short-term external debt.
- Selected external financing and reserves figures (Millions of euros, unless specified otherwise) — projections:
  - Gross financing requirements (2012–2016): 22 23 24 09 25 36 27 59 25 54 (as presented in source table layout).
  - Current account deficit (2012–2016): 29 13 87 49 8 52 3 52 3 52 4 (as presented in source table layout).
  - ST debt amortization (original maturity) (2012–2016): 15 88 17 41 17 77 18 19 18 68 (as presented in source table layout).
  - MLT debt amortization 1/ (2012–2016): 344 106 261 268 162 (as presented in source table layout).
  - Sovereign Eurobond amortization (2012–2016): 0 1750 1500 (as presented in source table layout).
  - Financing sources (2012–2016): FDI (net) 11 13 54 41 64 42 47 3 (as presented); ST debt disbursements 174 117 77 181 918 681 925 (as presented); MLT debt disbursements 407 482 449 591 462 (as presented); of which: Syndicated loan disbursement 750000; Sovereign Eurobond disbursement 0001500; Other 2/ 85 -33 -36 -44 -61; Net change in reserves (-: increase) -120 -171 -112 -248 -245.
  - Gross international reserves (GIR) (2012–2016): 219 323 652 476 272 529 70 (as presented).
  - GIR as % of ST debt: 108.5 116.0 110.7 134.2 132.9 (as presented).
  - GIR as % of Fund New Metric: 127.2 128.2 124.0 128.4 128.7 (as presented).
  - Sources: NBRM; and IMF staff estimates. 1/ Excluding the amortization of MLT intercompany loans, which is included in FDI (net). 2/ Including the capital account balance, net errors and omissions, currency and deposits, portfolio investments, and other flows and stock data.

### Staff appraisal — key conclusions and policy recommendations
- Outlook and risks:
  - Macedonia is well positioned to return to growth, having avoided pre-crisis large imbalances requiring balance-sheet repair.
  - Near-term moderate recovery is supported by a solid FDI pipeline, improvements in the export base and diversification of markets, and public infrastructure investment.
  - The external outlook is a key risk: strong real linkages to the euro area could weigh on the fragile recovery.
- Policy priorities:
  - Policies should remain focused on boosting medium-term growth; maintaining macroeconomic stability and ensuring fiscal sustainability by gradually reducing the deficit and debt over time is essential.
  - Accommodate investment in future capacity—public physical investment in transportation and energy, and investment in education, training, and labor market policies to counter long-term and youth unemployment—within available fiscal space.
  - These policies would allow Macedonia to fully reap the benefits of incoming FDI.
- Financial and external stability:
  - External and financial stability have been maintained despite a difficult external environment.
  - Bank funding models and prefinancing of public sector external borrowing have limited direct transmission channels from renewed financial market stress in Europe.
  - Reserve levels are adequate, but the authorities should remain vigilant and ready to react to low probability but high impact confidence shocks.
  - Recent changes to the Banking Law have closed most remaining gaps in the crisis management framework; progress on the last outstanding issue—addressing the risk of court challenges to the NBRM’s intervention of insolvent banks—would complete this agenda.

*Source: IMF staff report (Annex I on debt sustainability).*

### 51.      The near term policy mix remains appropriate.  Given the largely downside risks to

### The near term policy mix remains appropriate. Given the largely downside risks to

### Near-term policy stance
- The near term policy mix remains appropriate.
- Given the largely downside risks to growth, policies should remain supportive.
- Fiscal policy settings for 2013 provide a small positive impulse to growth.
- While margins for maneuver are limited by the commitment to exchange rate stability, monetary policy settings reflect an appropriate balance between stability and growth.

### Medium-term fiscal strategy and debt sustainability
- The authorities should anchor fiscal policy in a medium-term fiscal strategy which commits to a long term sustainable debt level.
- Medium-term fiscal deficits would need to be lowered relative to the authorities’ current baseline scenario, in order to first stabilize central government debt and then gradually rebuild some fiscal space for future countercyclical responses.
- The debt trajectory should take into account the fact that safe debt levels depend on country-specific characteristics such as the level and volatility of revenue ratios and average growth rates.
- A fleshed out medium-term strategy would increase budget transparency and present a framework for the prioritization of expenditure in the context of consolidation.

### Monitoring and control of public sector entities
- Strong monitoring and control of public sector entities would ensure that fiscal risks remain contained.
- With some capital expenditure being moved off-budget, it will be important to:
  - take into consideration the evolution of the debt and deficits of the broader public sector aggregate in setting budgetary targets, so as to appropriately balance the risks to debt against the growth benefits of infrastructure building, and
  - maintain tight central control of budget preparation and the pace and nature of indebtedness of the PESR as well as other state-owned enterprises.

*Source: _cr13178 - 51. The near term policy mix remains appropriate.*

### 54.      It is expected that the next Article IV consultation will be held on the standard

### _cr13178 - 54.      It is expected that the next Article IV consultation will be held on the standard

### Next Article IV Consultation
- It is expected that the next Article IV consultation will be held on the standard 12-month cycle.

### Real Sector Developments (2008–2013)
- Figures present indices and percent changes for:
  - Industrial Production (Total, Energy, Manufacturing) (y/y, percent).
  - Sectoral year-on-year changes: All Sectors, Manufacturing, Construction, Public administration, Average monthly gross wages (y/y, percent).
  - Labor Market: Employed; Unemployed; Unemployment Rate (Percent, lhs) (Thousands of Persons).
  - Inflation: Headline Inflation; Food; Energy; Core Inflation (Percent).
  - Business Surveys: Percent balance (difference between 'positive' and 'negative' assessments).
  - Output gap (Percent of potential GDP) and Manufacturing Capacity Utilization (percent, lhs).
- Note: “1/ Note: the percent balance is the difference in percentage shares between the 'positive' and 'negative' assessments on the current business situation.”

### Credit Developments (2008–2013)
- Private Sector Credit Interest Rates: LC Loan rate; FX-Indexed Loan rate; FX Loan rate (Percent).
- Credit composition (Percent of private sector credit):
  - Loans to HH, LC; Loans to HH, FX; Loans to Non-Fin Corps, LC; Loans to Non-Fin Corps, FX.
- Deposit composition (Percent of private sector deposits):
  - Deposits of HH, LC; Deposits of HH, FX; Deposits of Non-Fin Corps, LC; Deposits of Non-Fin Corps, FX.
- Growth measures (Y/y, percent):
  - Private Sector Credit Growth.
  - Private Sector Deposit Growth.
- Deposit Interest Rates: LC Deposit rate; FX-Indexed Deposit rate; FX Deposit rate (Percent).

### Monetary Policy Developments (2004–2013)
- Policy rates and spreads:
  - MKD policy rate; ECB policy rate; Spread.
- Euroisation indicators:
  - Loan euroisation (share of total, rhs).
  - Deposit euroisation (share of total, rhs).
- Interest rate spreads:
  - FX to LC loan interest rate spread.
  - FX to LC deposit interest rate spread.
- Monetary policy instruments (Mil. denars): CB Bills; 6-month Deposits; Short-term Facility.
- Policy rates (percent, rhs) and Overnight Credit Rate (percent, rhs).
- Reserve accumulation and money creation:
  - Broad Money (Bil. denars).
  - GIR (Bil. euros, rhs).
- Monetary policy spread and domestic financing conditions:
  - Monetary policy spread; Currency spread on newly granted loans; Currency spread on newly received deposits.

### Banking Sector Developments (2008–2013)
- Prudential ratios:
  - Capital Adequacy ratio; NPLs (Percent of Total loans); Provisions to NPLs (rhs).
- Bank profitability:
  - ROA; ROE; LC Loan to Deposit rate spread; FX Loan to Deposit rate spread.
- Sources of funding for banks (quarterly shares, 2009Q4–2013Q1):
  - Other sources; Equity and reserves; Loans, sub. debt and hybrid; Long-term deposits; Short-term deposits; Deposits from parent; Deposits of fin. instit.; LTD ratio (rhs).
- Liquidity risk indicators:
  - Highly liquid assets (Percent of ST liabilities); Highly liquid assets (Percent of total assets).

### Macroeconomic Framework (Table 1: 2009–2018 projections)
- Real GDP growth (year series): 2009: -0.9; 2010: 2.9; 2011: 2.9; 2012: -0.3; 2013: 2.0; 2014: 3.0; 2015: 3.5; 2016: 4.0; 2017: 4.0; 2018: 4.0.
- Real domestic demand: 2009: -2.9; 2010: -0.1; 2011: 5.3; 2012: 1.8; 2013: 2.9; 2014: 4.0; 2015: 3.7; 2016: 3.6; 2017: 3.6; 2018: 3.6.
- Consumption and investment series provided (private/public consumption, gross investment).
- Exports (volume) and Imports (volume) series (percent changes).
- Contributions to growth: Domestic demand and Net exports by year.
- Central government operations (percent of GDP):
  - Revenues: series showing 30.5, 29.6, 28.8, 28.9, 28.5, ... culminating 28.5.
  - Expenditures: series showing 33.2, 32.0, 31.3, 32.8, 32.0, ... culminating 31.5.
  - Of which: capital and Unidentified expenditure adjustment (noted values including -1.0; -1.3).
  - Balance and Balance incl. PESR: Balance: -2.7, -2.4, -2.5, -3.8, -3.5, -3.0, -3.0, -3.0, -3.0, -3.0. Balance incl. PESR: -2.7, -2.4, -2.5, -3.8, -3.8, -3.3, -3.3, -3.3, -3.3, -3.3.
- Savings and investment (percent of GDP): Domestic saving, Public, Private, Foreign saving, Gross investment series.
- Consumer prices:
  - Period average: -0.8; 1.5; 3.9; 3.3; 2.5; 2.1; 2.0; 2.0; 2.0; 2.0.
  - End-period: -1.6; 3.0; 2.8; 4.7; 2.2; 2.0; 2.0; 2.0; 2.0; 2.0.
- Memorandum items:
  - Current account balance (percent of GDP): -6.8; -2.1; -3.0; -3.9; -4.9; -6.0; -5.9; -5.5; -5.3; -5.0.
  - Gross official reserves (millions of euros): 1,598; 1,715; 2,069; 2,193; 2,365; 2,476; 2,725; 2,970; 3,088; 3,410.
  - Gross Central Government Debt (percent of GDP): 23.8; 24.2; 27.8; 33.8; 34.8; 34.8; 35.3; 36.0; 36.7; 37.3.
  - Public Sector Gross Debt (percent of GDP): 26.8; 27.8; 31.9; 38.7; 41.8; 42.5; 43.7; 44.3; 44.8; 45.2.
  - External debt (percent of GDP): 56.4; 58.2; 64.6; 68.6; 67.9; 66.4; 65.9; 64.5; 61.5; 60.2.
  - Nominal GDP (billions of denars): 411; 434; 462; 463; 484; 512; 544; 582; 622; 666.
  - Nominal GDP (millions of euros): 6,703; 7,057; 7,506; 7,523; 7,870; 8,316; 8,845; 9,455; 10,114; 10,819.
- Footnotes:
  - 1/ The Road Fund was converted into the Public Enterprise for State Roads (PESR) in January 2013.
  - 2/ Total Public Sector (including MBDP, municipalities, public sector non-financial enterprises; w/o NBRM).

### Central Government Operations (Tables 2, 2010–2013; Billions of denars and percent of GDP)
- Table 2 (Billions of denars):
  - Total revenue 1/: 2010: 128.5; 2011: 132.9; 2012: 152.5; 2013 (Budget): 133.9; 2013 (Proj.): 143.2; 2013 (outturn?) 137.7.
  - Tax revenue: 109.3; 115.2; 125.3; 113.8; 121.4; 116.5.
  - Social contributions (total): 35.5; 36.3; 39.0; 37.2; 38.6; 38.2.
  - Non tax revenue; Capital revenue; Grants series provided (exact values in table).
  - Total expenditure 1/: 139.0; 144.4; 165.0; 151.6; 160.9; 154.8.
  - Current expenditure; Wages and salaries; Goods and services; Transfers; Interest; Capital expenditure; Lending minus repayment reported.
  - Overall fiscal balance (billions of denars): -10.5; -11.5; -12.4; -17.8; -17.7; -17.0.
  - Financing (domestic, central bank deposits, other domestic, privatization, foreign, official, private) with values.
  - Memo items: Contributions to second pillar pensions and Gross debt (as share of GDP) series.
  - Note: 1/ Adjusted for transitional costs for the pension system and revenue from the repayment of loans, amounting to MKD 4,200 million and MKD 600 million respectively in 2013.
- Table 2 (Percent of GDP): parallel percent-of-GDP series for the same revenue/expenditure items (e.g., Total revenue 1/: 29.6; 28.8; 29.6; 28.9; 28.9; 28.5, etc.). Overall fiscal balance (percent of GDP): -2.4; -2.5; -2.6; -3.8; -3.6; -3.5.

### Balance of Payments (Table 3: 2009–2018, Millions of euros and Percent of GDP)
- Current account (millions of euros): 2009: -457; 2010: -144; 2011: -224; 2012: -291; 2013: -387; 2014: -498; 2015: -523; 2016: -524; 2017: -536; 2018: -536.
- Trade balance, Exports, Imports (value and volume), Services (net), Income (net), Transfers (net) series provided.
- Capital and financial account: 444; 203; 560; 370; 558; 610; 771; 769; 654; 858.
- Financial account components: Direct investment (net): 137; 159; 337; 111; 354; 416; 442; 473; 506; 541.
- Memo and ratios:
  - Current account (percent of GDP): -6.8; -2.0; -3.0; -3.9; -4.9; -6.0; -5.9; -5.5; -5.3; -5.0.
  - Exports Volume (year-on-year percent change): -15.7; 24.2; 10.4; -0.5; 8.4; 10.5; 10.0; 9.0; 8.4; 8.2.
  - Imports Volume (year-on-year percent change): -14.3; 9.4; 13.2; 3.6; 7.9; 9.8; 8.1; 6.8; 6.4; 6.4.
  - Terms of trade (2008=100): 96.2; 94.5; 99.8; 100.2; 101.2; 101.9; 103.1; 103.4; 103.4; 103.5.
  - Gross foreign exchange reserves (millions of euros): values repeat from Macroeconomic Framework.
  - Months of prospective imports: 4.2; 3.7; 4.4; 4.1; 4.0; 3.9; 3.9; 4.0; 3.9; 4.1.

### Monetary Survey (Table 4: 2007–2018, Billions of denars)
- Broad Money (M3) series: 175.8; 195.5; 207.3; 232.6; 234.7; 239.4; 245.1; 255.0; 257.6; 258.5; 260.5; 266.3.
- Currency in Circulation; Total Deposits (Denars; FX) with detailed values.
- Private Sector Credit and Private Sector Deposits (year-on-year percent change) and contributions.
- Reserve requirement ratios:
  - Denars: 10.0 (percent of deposits) across listed periods.
  - FX Indexed and FX ratios listed (10.0, 20.0, 13.0 as historical values).
- Memorandum: Money Multiplier and Velocity values.

### Central Bank Survey (Table 5: 2007–2018, Billions of denars)
- NFA, NDA, Reserve Money series with quarters detailed (NFA and NDA values across quarters).
- Reserve Money components: Currency in Circulation; Other; Cash in Vaults; Total Reserves; on Denar Deposits; on FX Deposits.
- NBRM Bills (percent of GDP) and Government Deposits at Central Bank (Percent of GDP) memorandum items.

### Financial Soundness Indicators of the Banking System (Table 6: 2007–2012)
- Capital adequacy:
  - Regulatory capital/risk weighted assets: 17.0; 16.2; 16.4; 16.1; 16.8; 17.5; 17.4; 17.1; 17.1.
  - Tier I capital/risk weighted assets: series provided.
- Asset composition and lending structure:
  - Loans to enterprises/total loans: 54.9; 54.2; 58.7; 58.9; 58.2; 58.4; 58.2; 57.8; 56.9.
  - Loans to households/total loans: 37.7; 38.5; 37.9; 37.1; 36.5; 36.0; 36.1; 36.6; 36.4.
  - Lending with foreign currency component to private sector: 54.7; 57.0; 58.5; 58.8; 59.2; 58.3; 57.0; 55.7; 55.4.
  - Foreign currency lending/total credit to private sector: 24.6; 22.9; 22.6; 25.8; 28.2; 28.0; 27.1; 26.0; 25.5.
- NPL indicators:
  - NPLs/gross loans: 7.5; 6.7; 8.9; 9.0; 9.5; 9.9; 9.7; 10.6; 10.1.
  - Provisions to Non-Performing Loans: 114.3; 118.1; 101.4; 100.7; 101.9; 104.2; 104.7; 100.9; 107.1.
- Profitability and efficiency:
  - ROAA: 1.8; 1.4; 0.6; 0.8; 0.4; -0.3; 0.4; 0.3; 0.4.
  - ROAE: 15.0; 12.5; 5.6; 7.3; 3.4; -2.5; 3.2; 2.3; 3.8.
- Liquidity and other ratios:
  - Highly liquid assets/total assets and /short-term liabilities series.
  - Customer deposits/total (noninterbank) loans: 128.4; 107.7; 108.2; 114.3; 115.7; 114.9; 111.8; 111.9; 113.5.
  - Foreign currency deposits/total deposits: 44.5; 48.1; 56.2; 53.5; 50.8; 49.1; 48.6; 48.0; 47.3.
- Notes clarifying definitions and adjustments (e.g., treatment of Tier I capital, NPLs adjustments, definitions of highly liquid assets and short-term liabilities).

### Capacity to Repay and External Debt Sustainability (Tables 7–8: 2008–2018)
- GRA credit exposure and repurchases (Millions of SDR):
  - GRA credit to Macedonia: 197.0; 123.1; 24.6; 0.0; 0.0; 0.0; 0.0.
  - Charges: 2/2.2; 2.1; 1.2; 0.2; 0.1; 0.1.
  - Repurchase: 0.0; 73.9; 98.5; 24.6; 0.0; 0.0; 0.0.
- Debt and debt service ratios:
  - Total external debt (percent of GDP): 67.9; 66.4; 65.9; 64.5; 61.5; 60.2 (by projection horizon).
  - External debt, public: 21.9; 21.8; 22.7; 22.9; 21.3; 20.3.
  - Total public debt: 34.8; 34.8; 35.3; 36.0; 36.7; 37.3.
  - Total external debt service: 27.4; 26.2; 27.0; 23.2; 23.7; 21.6.
- External Debt Sustainability Framework (Table 8):
  - Baseline external debt path (percent of GDP): 49.2; 56.4; 58.2; 64.6; 68.6; 67.9; 66.4; 65.9; 64.5; 61.5; 60.2.
  - Change in external debt: 1.5; 7.2; 1.8; 6.4; 4.1; -0.7; -1.5; -0.5; -1.4; -3.0; -1.3.
  - Identified external debt-creating flows (sum of current account deficit excluding interest payments; net non-debt creating capital inflows (negative); automatic debt dynamics) with line items:
    - Current account deficit, excluding interest payments: 11.5; 5.7; 0.7; 1.2; 2.2; 3.2; 4.3; 4.2; 3.9; 3.7; 3.4.
    - Net non-debt creating capital inflows (negative): -5.1; -5.3; -1.0; -3.4; -1.7; -3.6; -4.0; -5.7; -4.0; -4.0; -4.0.
    - Automatic debt dynamics and decomposition (contributions from nominal interest rate; real GDP growth; price and exchange rate changes).
  - External debt-to-exports ratio (in percent): 97.6; 148.2; 128.8; 121.6; 131.7; 118.9; 110.2; 103.6; 98.4; 91.9; 88.2.
  - Gross external financing need (in billions of euros): 2.2; 1.8; 1.7; 1.9; 2.1; 2.4; 2.5; 2.8; 2.6; 2.8; 2.7.
  - Key macro assumptions underlying baseline (Real GDP growth, GDP deflator in euros, Nominal external interest rate, Growth of exports/imports, Current account balance excluding interest payments, Net non-debt creating capital inflows) with historical averages and projections.
- Fiscal Debt Sustainability Framework (Table 9):
  - Baseline public sector debt (percent of GDP): 20.7; 23.8; 24.2; 27.8; 33.8; 34.8; 34.8; 35.3; 36.0; 36.7; 37.3.
  - Change in public sector debt: -3.3; 3.1; 0.5; 3.6; 6.0; 1.0; 0.0; 0.5; 0.8; 0.6; 0.6.
  - Identified debt-creating flows (Primary deficit; Automatic debt dynamics; Other identified flows) and decomposition.
  - Primary deficit (percent of GDP): 0.3; 2.1; 1.7; 1.7; 2.9; 2.6; 2.1; 1.9; 1.5; 1.3; 1.1.
  - Public sector debt-to-revenue ratio: 63.7; 77.9; 82.0; 96.7; 116.9; 122.2; 122.2; 123.9; 126.6; 128.9; 131.1.
  - Gross financing need (percent of GDP and billions of euros) series.
  - Scenario outcomes: scenario with key variables at historical averages and scenario with no policy change (constant primary balance) in 2012–2018.
  - Key macro and fiscal assumptions underlying baseline:
    - Real GDP growth (percent): 5.0; -0.9; 2.9; 2.9; -0.3; 2.0; 3.0; 3.5; 4.0; 4.0; 4.0.
    - Average nominal interest rate on public debt (percent): 3.0; 2.9; 3.2; 3.3; 3.3; 2.7; 2.7; 3.4; 4.4; 5.1; 5.5.
    - Inflation rate (GDP deflator, percent): 7.4; 0.7; 2.7; 3.4; 0.5; 2.5; 2.6; 2.8; 2.8; 2.8; 2.8.
    - Primary deficit (percent of GDP) repeated above.

*Italic: Sources: NBRM; Haver; SSO; MOF; IMF staff calculations and estimates as presented in the document.*

### Annex I. Public Debt Sustainability Analysis (DSA)

### Annex I. Public Debt Sustainability Analysis (DSA)

### Key assumptions underlying the DSA
- Economic growth is assumed to gradually revert to the 4 percent potential growth rate.
- Baseline fiscal assumptions:
  - Central government deficit: 3 percent of GDP over the medium term (baseline).
  - Current year cash deficit: 3.5 percent of GDP.
- Deficit financing and deposits:
  - Deficit financed through a mix of domestic and external issuance and by drawing on government deposits at the NBRM.
  - Government deposits stood at MKD 19.6 billion at end-2012.
  - Deposits are assumed to gradually decrease and stabilize around a level of MKD 5.5–6 billion by 2015.
- Starting debt stock:
  - Central government debt level of 33.8 percent of GDP at end-2012.
- Interest rate and financing composition:
  - Average real interest rates are expected to gradually increase from 2014 onwards.
  - On the external side, official external debt is assumed to gradually fall from 37 percent of total central government debt to 20 percent by 2018.
  - Share of domestic debt of total central government debt is assumed to rise from 32 percent in 2012 to 38 percent by 2018.

### Public sector concept and PESR treatment
- Importance of broader public sector:
  - Some capital expenditure is being moved off-budget; thus broader public sector debt and deficits should be considered when setting budgetary targets.
  - Transformation of the Road Fund into the Public Enterprise for State Roads (PESR) means central government debt would no longer capture a considerable portion of infrastructure-related borrowing.
- Treatment of PESR in staff DSA:
  - DSA models dynamics of both central government debt and debt including PESR.
  - PESR deficit is assumed to stay constant at its current level of 0.3 percent of GDP until 2018.
  - This 0.3 percent of GDP level is in line with last year’s cash deficit and the projected 2013 deficit and does not include potential expansion of construction activity.

### Baseline debt dynamics and magnitude of PESR effect
- Under baseline assumptions:
  - Central government debt continues to rise over the forecast horizon.
  - The difference between debt including and excluding PESR currently amounts to 1.2 percent of GDP.
  - The 1.2 percent of GDP is equivalent to about half of the total debt incurred for the purpose of building new road infrastructure; the remainder relates to debt associated with European transport Corridor X, which remains on-budget.

### Shock scenarios and impacts
- Growth shock:
  - A plausible growth shock adds 9 percentage points to the baseline projections for the central government debt level over the 5-year forecast horizon.
  - Under this shock, central government debt breaches what could be plausibly considered long term sustainable debt levels for Macedonia.
  - The employed (standard) growth shock is equivalent to ½ a standard deviation, calculated over a ten year horizon between 2002 and 2011, translating into growth of about 3 percent in the outer years, compared to 4 percent under the baseline scenario.
- Interest rate shock:
  - The real interest rate shock employed is equivalent to ½ standard deviation.
  - This shock translates into a real interest rate level of 3.8 percent in 2018, compared to 2.6 percent under the baseline.
  - The shock is characterized as mild; larger shocks would lead to larger increases in debt.

### Broader public sector debt considerations and limitations
- Public sector debt definition:
  - Public sector debt includes central government, sub-national governments (municipalities), public agencies, state-owned enterprises, and public financial institutions (development banks and the National Bank).
  - Most of these debts are ultimately guaranteed by the government and are therefore direct or contingent claims on the sovereign.
- Data and modeling limitations:
  - Modeling dynamics of total public sector debt is beyond the current scope of the DSA due to insufficient information on medium-term plans and deficit projections of these entities, particularly public corporations.
- Aggregate figures:
  - At end-2012 total public debt (excluding NBRM debt) stood at 38.7 percent of GDP.
  - This is 4.9 percentage points above central government debt.

*Source: Annex I. Public Debt Sustainability Analysis (DSA), _cr13178.*

### 2. Bank work

### 2. Bank work

### Program, missions, and supervision
- Continuous and periodic missions for multiple projects, with specific missions:
  - Policy Based Guarantee: Continuous and periodic missions, next mission planned in May 2013.
  - Public Expenditure Policy Based Guarantee: Continuous and periodic missions, next mission planned in May 2013.
  - Supervision and assessment: Ongoing, most recent mission in March 2013.
  - Treasury and Revenue forecast practitioner exchange: MOF Treasury and Revenue forecast team invited to visit Washington DC later in 2013; March 2013.
  - Real Estate Cadaster and Registration project supervision: Continuous.
  - Municipal Services Improvement project supervision: Continuous.
  - Regional and Local Roads Program Support project supervision: Continuous; Project closing December 2014.
  - CCT project supervision: Continuous; Project closing November 2017.
  - ECSEE APL 3 supervision: Continuous; Project closing December 2015.
  - Balkan Financial Sector Technical Assistance Facility (TA to NBRM and MoF on bank resolution; LoLR etc.): Continuous; Project closing February 2014.
  - Green Growth and Climate Change Analytic and Advisory Services: Continuous; Project closing March 2014.
- Editions published every June and December for the South eastern Europe Regular Economic Update.
- Implementation Completion Report expected in June 2013 for unspecified project(s).
- BTORs and Aide memoires prepared after missions.

### Statistical issues (as of April 30, 2013)
- General: Data provision has some shortcomings but is broadly adequate for surveillance. Priority areas for improvement: national accounts and government finance statistics.
- National accounts:
  - Quarterly GDP data in constant prices from the production approach published since September 2011.
  - Improvements needed for estimates of changes in inventories and household consumption expenditure.
  - Employment data from the company survey continue to be unreliable.
- Price statistics:
  - CPI methodology improved to accord with international standards and EU regulations (treatment of seasonal products; use of the geometric mean for elementary indices).
- Government finance statistics:
  - Data coverage on government below-the-line financing from the National Bank deposits is inadequate due to different account coverage between the Ministry of Finance and the National Bank.
  - Government does not regularly report Treasury Single Account and budgetary FX account balances.
  - Debt data for the broader public sector are not available on a regular basis.
  - Macedonia does not report government finance statistics to the Fund for publication in the Government Finance Statistics Yearbook (GFSMY) or the International Financial Statistics (IFS).
- Monetary sector:
  - EUR receives a monthly electronic report of monetary statistics covering the balance sheet of the central bank, the commercial banks and other depository corporations.
- External sector:
  - External sector statistics meet international standards.
  - Authorities compile and disseminate monthly balance of payments data, international investment position (IIP) data, reserve assets and foreign currency liquidity data, and external debt statistics.
- Data standards and quality:
  - FYR Macedonia participates in the General Data Dissemination System (GDDS), and, since November 2011, in the Special Data Dissemination Standard (SDDS).
  - Data ROSC published on September 29, 2004.

### Data availability and metadata (as of April 30, 2013)
- Exchange Rates: Latest observation 4/26/13; Date received 4/30/13; Frequency D; Frequency of reporting W; Frequency of publication D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Latest observation 4/25/13; Date received 4/19/13; Frequency D; Frequency of reporting W; Frequency of publication Q.
- Reserve/Base Money: Latest observation 4/28/13; Date received 4/30/13; Frequency W; Frequency of reporting W; Frequency of publication M.
- Broad Money: Latest observation Mar. 13; Date received 4/19/13; Frequency M; Frequency of reporting M; Frequency of publication M; Data Quality – Methodological Soundness: O, LO, LO, O; Data Quality – Accuracy and Reliability: O, LO, O, O, O.
- Central Bank Balance Sheet: Latest observation Mar. 13; Date received 4/12/13; Frequency M; Frequency of reporting M; Frequency of publication M.
- Consolidated Balance Sheet of the Banking System: Latest observation Mar. 13; Date received 4/19/13; Frequency M; Frequency of reporting M; Frequency of publication M.
- Interest Rates: Latest observation Mar. 13; Date received 4/30/13; Frequency M; Frequency of reporting M; Frequency of publication M.
- Consumer Price Index: Latest observation Mar. 13; Date received 4/2/13; Frequency M; Frequency of reporting M; Frequency of publication M; Data Quality – Methodological Soundness: O, O, O, LO; Data Quality – Accuracy and Reliability: LO, O, LNO, O, LO.
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Latest observation Mar.13; Date received 4/5/13; Frequency A; Frequency of reporting A; Frequency of publication A.
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Latest observation Mar. 13; Date received 4/25/13; Frequency M; Frequency of reporting M; Frequency of publication M; Data Quality – Methodological Soundness: LO, LNO, LO, O; Data Quality – Accuracy and Reliability: LO, LO, LO, LO, LNO.
- Stocks of Central Government and Central Government-Guaranteed Debt: Latest observation Mar. 13; Date received 4/5/13; Frequency A; Frequency of reporting A; Frequency of publication A.
- External Current Account Balance: Latest observation Jan. 13; Date received 3/29/13; Frequency M; Frequency of reporting M; Frequency of publication M.
- Exports and Imports of Goods and Services: Latest observation Feb. 13; Date received 4/5/13; Frequency M; Frequency of reporting M; Frequency of publication M; Data Quality – Methodological Soundness: O, LO, O, LO; Data Quality – Accuracy and Reliability: LO, O, LO, O, LO.
- GDP/GNP: Latest observation Dec. 12; Date received 3/15/13; Frequency Q; Frequency of reporting Q; Frequency of publication Q; Data Quality – Methodological Soundness: O, LO, O, LO; Data Quality – Accuracy and Reliability: LO, O, LNO, O, O.
- Gross External Debt: Latest observation 12/31/12; Date received 3/29/13; Frequency Q; Frequency of reporting Q; Frequency of publication Q.
- International Investment Position: Latest observation 12/12; Date received 3/29/13; Frequency Q; Frequency of reporting Q; Frequency of publication Q.

### IMF Public Information Notice and Executive Board assessment (PIN No. 13/70, June 26, 2013)
- Background and outlook:
  - On June 14, 2013, the IMF Executive Board concluded the Article IV consultation and First Post-Program Monitoring with Macedonia.
  - Baseline growth expected to reach 2 percent in 2013 following a shallow recession in 2012.
  - Inflation expected to moderate to 2.5 percent in 2013.
  - Current account widened to 3.9 percent of GDP in 2012.
  - Central government debt rose to 33.8 percent of GDP at end-2012.
  - 2012 cash deficit widened to 3.8 percent of GDP.
  - First quarter 2013 deficit at 2.4 percent of projected 2013 GDP, representing two thirds of the annual target of 3.5 percent of GDP.
  - Longer dated securities make up 25 percent of the total debt stock, up from 5 percent at end-2011.
- Monetary policy and banking:
  - NBRM lowered the policy rate by 25 basis points to 3.5 percent in January 2013.
  - NPL ratio rose to 11.7 percent in February 2013; provisions exceed NPLs.
  - Capital adequacy ratio as of December 2012: 17.1 percent.
  - Over 29 percent of total assets were highly liquid as of December 2012.
  - Loan growth declined from 5.2 percent (year-on-year) in December 2012 to 4.4 percent in February 2013; deposit growth accelerated from 4.4 percent to 5.1 percent.
  - NBRM lowered reserve requirements for new loans to domestic net exporters and electricity producers, effective January 1, 2013.
  - Amendments to the banking law allow NBRM to impose fit-and-proper requirements and widen class of collateral for liquidity support.
- Executive Directors’ recommendations and views:
  - Commended authorities for economic management that maintained financial and external stability.
  - Near-term policy mix should remain supportive to sustain fragile recovery, with fiscal policy anchored in a credible medium-term strategy.
  - Emphasized reducing risks to the outlook, preserving macroeconomic stability, generating stronger growth, boosting income convergence and employment.
  - Recommended multi-annual budgeting to assess fiscal space and avoid payment arrears.
  - Urged tight control on indebtedness of public sector enterprises and analysis of broader public sector debt risks.
  - Supported the exchange rate peg but recommended readiness to raise rates if exchange rate pressures emerge.
  - Noted banking sector soundness but urged vigilance over rising NPLs.
  - Welcomed improvements in the business climate and urged further structural reforms to strengthen FDI linkages, infrastructure, education and training.

### Selected economic indicators (table highlights)
- Real GDP: 2008 5.0; 2009 -0.9; 2010 2.9; 2011 2.9; 2012 -0.3.
- Real domestic demand: 2008 6.7; 2009 -2.9; 2010 -0.1; 2011 5.3; 2012 1.8.
- Consumption: 2008 6.9; 2009 -4.7; 2010 1.4; 2011 4.0; 2012 -0.9.
- Gross investment: 2008 4.7; 2009 1.0; 2010 -3.6; 2011 13.5; 2012 11.0.
- Net exports (contribution to growth): 2008 -3.1; 2009 2.7; 2010 3.0; 2011 -3.3; 2012 -2.4.
- CPI inflation (annual average): 2008 8.4; 2009 -0.8; 2010 1.5; 2011 3.9; 2012 3.3.
- Unemployment rate (annual average): 2008 33.8; 2009 32.2; 2010 32.1; 2011 31.4; 2012 31.3.
- Current account balance (percent of GDP): 2008 -12.8; 2009 -6.8; 2010 -2.0; 2011 -3.0; 2012 -3.9.
- Trade balance (percent of GDP): 2008 -26.2; 2009 -23.3; 2010 -20.5; 2011 -22.4; 2012 -23.7.
- Exports of goods (percent of GDP): 2008 40.1; 2009 28.8; 2010 35.5; 2011 42.3; 2012 41.1.
- Imports of goods (percent of GDP): 2008 -66.3; 2009 -52.1; 2010 -56.0; 2011 -64.8; 2012 -64.8.
- Private transfers (percent of GDP): 2008 13.9; 2009 16.4; 2010 18.9; 2011 18.7; 2012 20.9.
- External debt (percent of GDP): 2008 49.2; 2009 56.4; 2010 58.2; 2011 64.6; 2012 68.6.
- Gross investment (percent of GDP): 2008 26.8; 2009 25.9; 2010 25.5; 2011 27.2; 2012 28.8.
- Domestic saving (percent of GDP): 2008 14.0; 2009 19.1; 2010 23.5; 2011 24.2; 2012 24.9.
- Central Government Gross Debt (percent of GDP): 2008 20.6; 2009 23.8; 2010 24.2; 2011 27.8; 2012 33.8.
- Central Government Balance (percent of GDP): 2008 -0.9; 2009 -2.7; 2010 -2.4; 2011 -2.5; 2012 -3.8.
- Nominal GDP (billions of denars): 2008 412; 2009 411; 2010 434; 2011 462; 2012 463.
- Nominal GDP (billions of euros): 2008 6.7; 2009 6.7; 2010 7.1; 2011 7.5; 2012 7.5.
- GDP per capita (EUR): 2008 3280; 2009 3265; 2010 3430.

### Authorities’ statement (June 14, 2013)
- Authorities agreed the staff report adequately reflects the macroeconomic situation and that macroeconomic projections are generally in line with staff’s.
- Outlook and policy intentions:
  - Expected growth: about 2 percent in 2013 and about 3 percent in 2014.
  - Expected credit growth: about 7 percent in 2013 and about 8 percent in 2014.
  - Committed to clearing arrears (completed by end-February 2013), prudent fiscal policy, and preparing a medium-term fiscal strategy and debt management strategy to be submitted to Parliament in the second half of 2013.
  - Continue to prioritize implementation of capital infrastructure projects and to reduce central government deficit gradually.
  - Monetary authorities committed to protecting the exchange rate peg and ensuring price stability; readiness to adjust interest rates if needed.
  - Banking sector: expect NPLs to stabilize; banks mostly financed by domestic deposits and have limited exposure to eurozone clients; authorities actively monitor banking sector developments.
  - Continued focus on structural reforms to improve business environment, attract FDI, build infrastructure, and enhance education and training to support growth and employment.

*Public Information Notice (PIN) No. 13/70, June 26, 2013.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13178.pdf_