Press Release: IMF Approves Three-Year ESAF for Former Yugoslav Republic of Macedonia

April 14, 1997

The International Monetary Fund (IMF) approved a three-year loan for the former Yugoslav Republic of Macedonia (FYRM) under the Enhanced Structural Adjustment Facility (ESAF)1, in an amount equivalent to SDR 54.56 million (about US$75 million), to support Macedonia’s 1997-99 economic reform program. The first annual loan, equivalent to SDR 18.19 million (about US$25 million), is available in two equal semiannual installments, the first of which is available immediately.


The economic program launched in early 1994 with IMF support under the Systemic Transformation Facility (STF) achieved notable financial stabilization, breaking the near-hyperinflationary conditions that prevailed during 1991-93. By 1995 the post-independence collapse in output had run its course and the FYRM had made considerable progress in confronting financial imbalances. Key policies, supported by a stand-by credit from the IMF in 1995, were the de facto nominal exchange rate anchor to impose financial discipline and the strong support of fiscal policy for both monetary policy and structural reforms. While the program was successfully completed and achieved a remarkable degree of financial stabilization, with inflation reduced to industrial country levels and privatization begun in earnest, the economy has yet to turn around decisively. The unemployment rate is as high as 30 percent and the banking system is suffering from low loan collection rates and wide interest rate spreads.

Medium-Term Strategy and the 1997 Program

Over the next three years the FYRM aims to achieve sustainable growth and reduce unemployment and poverty by further restructuring the economy along market lines and maintaining a stable financial environment. Over the medium term, the program targets annual GDP growth of about 5 percent, inflation of 2-3 percent yearly, and a decline in the external current account deficit to 5.3 percent of GDP from 12 percent of GDP in 1996. Financial policies will be underpinned by tight budget discipline which will aim at balance in the general government accounts. To this end, the program provides for the introduction of a value-added tax to shore up the tax base and reduce the heavy burden of direct taxation. Agricultural and export subsidies will be virtually eliminated, and the freeze on budget sector wages will remain in place. Public investment, however, will be expanded by 5 percent in real terms in order to support economic growth and additional resources will be dedicated to provide an adequate social safety net.

In the context of the medium-term strategy, the 1997 program aims for real GDP growth of 5 percent, annual year-end inflation of 2 percent, and an external current account deficit of 8.5 percent of GDP. To achieve these objectives, budgetary policy will continue to be restrained, to support a recovery in domestic savings, and aims at a general government surplus of 1.5 percent of GDP. Monetary policy has been designed to support the inflation and balance of payments targets.

Structural Reform

A crucial condition for reviving economic growth in the FYRM is the further restructuring of the enterprise sector. Effective enterprise ownership will be encouraged by eliminating restrictions on secondary share transactions and selling remaining government-owned shares. Tax and other incentives for the conversion of wage arrears into equity are planned, as is the reform of legislative and judicial procedures regulating commercial contracts and bankruptcy procedures. By end-1997 the program aims to privatize all eligible enterprises, including 70 percent of agricultural enterprises. New laws are to be adopted on the use and ownership of state-owned land; and to encourage small farm development, a minimum of 15 percent of state-owned land will be offered for leasing on a competitive basis.

Recognizing that an open trade regime is essential to the development of a small economy and for integration into European institutions, the FYRM will continue to liberalize its trade regime by reducing average import taxes and discretionary exemptions.

Addressing Social Issues

Under the program, additional resources will be channeled to social assistance and the Employment Fund, which the government considers vital in providing an adequate safety net to support the process of economic restructuring. Spending on education as a share of GDP will be maintained at the 1996 level, and health benefits will be restructured to restore the financial balance of the Health Fund and clear outstanding arrears.

The Challenge Ahead

Although the FYRM’s fiscal record in recent years has been strong, the risk that financing gaps could result in destabilizing imbalances allows no room for relaxation. A further challenge is to improve competitiveness through productivity gains and wage discipline. Moreover, the financial system will require further liberalization and more decisive use of indirect monetary policy instruments.

The FYRM succeeded to the membership in the IMF of the former Socialist Federal Republic of Yugoslavia, effective December 14, 1992. Its quota2 is SDR 49.6 million (about US$68 million), and its outstanding use of IMF credit totals SDR 47 million (about US$64 million).

Former Yugoslav Republic of Macedonia: Selected Economic Indicators







(Percent change)

Real GDP growth







Consumer price index
(end of period)







(Percent of GDP)

General government balance







Current account balance







(Months of imports)

Official gross reserves







Sources: Authorities of the former Yugoslav Republic of Macedonia; and IMF staff estimates and projections.
* Preliminary.

1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.

2 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.


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