FYR Macedonia -- Statement of the IMF Staff Mission, January 25 - February 5, 2007

February 5, 2007

Describes the preliminary findings of IMF staff at the conclusion of certain missions (official staff visits, in most cases to member countries). Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, and as part of other staff reviews of economic developments.

FYR Macedonia-Statement of the IMF Staff Mission
January 25-February 5, 2007

An IMF mission headed by Mark Griffiths has visited Skopje January 25-February 5, 2007 to discuss the Second Review under the Stand-By Arrangement.

The mission found that good progress has been made towards completing the review. The program's macroeconomic targets for 2006 were met. The fiscal position remains strong, international reserves have increased, and interest rates are low. Preliminary official data estimate 2006 real GDP growth was broadly unchanged from 2005, but other indicators suggest that growth may well have been considerably higher.

The economic outlook for 2007 and the medium term is favorable. To secure macroeconomic stability, the 2007 budget that was approved by parliament in late December 2006 limits the fiscal deficit to 1 percent of GDP-slightly higher than the target for 2006. The additional resources will be used to finance important reforms, including harmonization of social security contributions, higher investment, the second pillar pension system, and lower tariffs and income taxes.

The mission welcomes the recent agreement with Paris Club creditors regarding debt prepayment. These prepayments are expected to be completed by end-April 2007. As a result, interest payments will decline, and medium-term debt sustainability will further improve.

In the view of the mission, it is crucial that the government adheres to its fiscal targets, and that fiscal risks stemming from problems in a few sectors of the economy-in particular, the health and energy sectors-are mitigated. Steps have been taken. However, the mission encouraged the authorities to develop a comprehensive action plan to restore the financial viability of the energy sector, in close collaboration with the World Bank.

The mission reached understandings on almost all elements of a draft letter of intent. A few issues still need to be discussed in greater detail, including: (i) clarification of the strategy for liberalization and reform of the telecommunications sector; (ii) next steps in harmonizing the bases of social security contributions and the personal income tax; (iii) improving tax collections, through integrating the social funds to collect social security contributions and, eventually, consolidating these responsibilities within the public revenue office; and (iv) the new draft banking law. Provided sufficient progress is made in the coming weeks, an IMF Executive Board meeting to complete the Second Review could be held in March 2007.

Finally, the mission would like to thank the Macedonian authorities for their continued cooperation, and for their generous hospitality.


February 5, 2007


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