Press Release: IMF Executive Board Completes Final Review Under Stand-By Arrangement with the Former Yugoslav Republic of Macedonia and Approves US$11.7 Million Disbursement

August 3, 2004

The Executive Board of the International Monetary Fund (IMF) has completed the second and final review of the former Yugoslav Republic of Macedonia's economic performance under the Stand-By Arrangement. The decision will enable FYR Macedonia to draw an amount equivalent to SDR 8 million (about US$11.7 million), which will bring total drawings to the equivalent of SDR 20 million (about US$29.4 million).

The 14-month Stand-By Arrangement amounting to SDR 20 million was approved on April 30, 2003 (see Press Release No. 03/63). The arrangement was extended to August 15, 2004 after the accidental death of President Boris Trajkovski earlier this year.

The Executive Board has also reviewed Macedonia's experience with Fund-supported programs since the early 1990s, under the new guidelines on assessments of countries with a longer-term program engagement.

Following the Executive Board discussion of Macedonia on August 2, 2004, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

"The FYR Macedonia authorities have achieved the core goal of the economic program they adopted in early 2003—namely, to promote fiscal sustainability following the 2001 security crisis. They have achieved this by putting in place a sound macroeconomic policy framework, which has brought the fiscal deficit back to a sustainable level while maintaining the de facto exchange rate peg to the euro. Significant and welcome progress was also made in strengthening the NBRM's capacity to supervise foreign exchange related risks in commercial banks. Despite mixed performance in some other areas, the program remains broadly on track.

"Economic growth resumed in 2003, with low inflation, as a result of the macroeconomic stabilization and the return of political stability. However, growth, which slowed in early 2004, remains fragile. This, together with the widening external current account deficit, persistent high unemployment, and narrow export base underscores the need for further reforms.

"Going forward, it will now be crucial to complement sound macroeconomic policies with structural reforms aimed at reforming the health sector, bolstering the supervision of the banking and financial sectors, strengthening governance, and improving the business environment, in order to strengthen and diversify the sources of growth. Economic and financial policies could be improved by implementing the remaining elements of the peace framework agreement in a fiscally-sound manner.

"Macroeconomic policies will need to be carefully managed during the remainder of 2004. In the fiscal sphere, a key challenge will be to avoid the stop-go outcome that characterized budget execution in 2003. Fiscal underspending in the first half of the year should not lead to a sharp acceleration of spending in the second half of the year—and especially a burst at year-end—which could be destabilizing. The NBRM's interest rate policy will need to respond quickly to current fiscal and balance of payments developments and to monetary conditions more broadly.

"The Fund looks forward to continued close collaboration with FYR Macedonia in helping to prepare it to meet the considerable challenges ahead, as it completes its transition to a market economy and adapts and strengthens institutions and policies to gear up for greater integration with Europe," Mr. Kato said.


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