IMF Executive Board Concludes Article IV Consultation with Former Yugoslav Republic of Macedonia
IMF News, November 22, 2017
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- Published: November 22, 2017
Economic activity and inflation
- Growth has slowed to 2.4 percent in 2016 and contracted by 0.9 percent in 2017H1.
- Economic activity has been supported by private consumption and exports.
- Negative effects from the prolonged political instability have restrained investment and slowed down corporate credit growth.
- Inflation has gradually picked up, after staying negative during the past few years, driven by rising increasing services prices and, to a smaller extent, food prices.
- The current account deficit has widened in recent years, albeit a narrowing trade deficit, reflecting higher profit repatriation by foreign firms, weaker remittances and higher foreign currency cash holdings by households.
Fiscal outlook
- Overall deficit narrowed to 2.6 percent in 2016, largely due to under-execution of capital investment, spending constraints imposed during the pre‑election period, and accumulation of payment arrears.
- Under-execution of goods and services and capital spending continued in 2017H1, which is expected to keep overall fiscal deficit around 3 percent of GDP in 2017.
- Public debt is projected to rise to 47 percent of GDP in 2017.
- The government is in the process of preparing the draft economic program.
Financial sector and monetary policy
- The financial sector is well-capitalized, liquid, and profitable.
- The authorities adopted Basel III standards on capital adequacy earlier this year.
- Banking system liquidity is high, in part due to a significant slowdown in credit growth to the non-financial corporate sector and banks’ limited preference for increasing sovereign assets holdings.
- Monetary conditions are accommodative, with the main policy rate reduced back to 3.25 percent in February 2017.
Executive Board assessment and policy recommendations
- Directors noted the negative impact of the prolonged political crisis on economic growth and the limited progress on structural reforms.
- Directors viewed the formation of the new government as a turning point and an opportunity to rebuild policy space and revive reforms.
- Fiscal policy
- Emphasized need for fiscal consolidation given the rapid rise in public debt and high gross financing needs.
- Welcomed authorities’ intention to reduce the overall deficit gradually to 2 percent of GDP in the medium term, stressing this should rely on durable measures.
- Recommended strengthening tax administration, and increasing property and energy taxation to boost revenues.
- Recommended improving spending efficiency through subsidy rationalization and better targeting of social spending, and ensuring pension sustainability.
- Supported plans to strengthen public finance management and increase fiscal transparency.
- Monetary and financial stability
- Agreed that an accommodative monetary policy remains appropriate given the still‑negative output gap, low inflation, and external stability.
- Emphasized that monetary stance should be appropriately tightened as inflation developments warrant or in case of a loss of market confidence, and urged close monitoring.
- Commended authorities for restoring stability after financial turbulence and for adopting Basel III capital standards.
- Stressed continued vigilance given a high degree of financial euroization and moderate deleveraging risks.
- Recommended complementing monetary policy with macro- and micro-prudential measures to counter financial stability risks.
- Structural reforms and labor market
- Urged intensifying the pace of structural reforms to increase employment and boost productivity.
- Welcomed authorities’ plan to support employment and social inclusion, noting these need careful targeting.
- Stressed need to keep wage growth in line with productivity to preserve competitiveness and fiscal sustainability.
- Noted importance of increasing labor force participation, particularly that of women, through tax, social assistance, and family leave policies, as well as active labor market policies.
- Advised further improvements in governance and public administration, trade-enabling logistics, and skills to boost FDI inflows.
FYR Macedonia: Selected Economic Indicators (as reported)
- Year-on-year change, unless otherwise specified
- Real GDP: -0.5 (2012); 2.9 (2013); 3.6 (2014); 3.8 (2015); 2.4 (2016); 1.9 (2017)
- Real domestic demand: 3.5 (2012); 1.3 (2013); 4.4 (2014); 3.4 (2015); 1.5 (2016); 1.0 (2017)
- Consumption: 1.4 (2012); 1.6 (2013); 3.7 (2014); 2.6 (2015)
- Gross investment: 10.2 (2012); 0.5 (2013); 10.7 (2014); -4.3 (2015); -3.6 (2016)
- Net exports: -26.3 (2012); 7.0 (2013); -8.0 (2014); -1.0 (2015); 3.9 (2016); 1.8 (2017)
- CPI inflation (annual average): 3.3 (2012); 2.8 (2013); -0.3 (2014); -0.2 (2015); 1.2 (2016)
- Unemployment rate (annual average): 31.0 (2012); 29.0 (2013); 28.0 (2014); 26.1 (2015); 23.6 (2016); 23.0 (2017)
- Private Sector Credit 1/: 5.2 (2012); 6.3 (2013); 9.8 (2014); 9.5 (2015); 5.8 (2016)
- In percent of GDP
- Current account balance: -3.2 (2012); -1.6 (2013); -2.0 (2014); -2.7 (2015); -1.9 (2016)
- Goods and services balance: -22.4 (2012); -18.3 (2013); -17.2 (2014); -16.3 (2015); -14.8 (2016); -14.7 (2017)
- Exports of goods and services: 44.5 (2012); 43.3 (2013); 47.7 (2014); 48.8 (2015); 49.3 (2016); 51.3 (2017)
- Imports of goods and services: 66.9 (2012); 61.6 (2013); 64.9 (2014); 65.1 (2015); 64.2 (2016); 66.0 (2017)
- Private transfers: 20.6 (2012); 18.1 (2013); 17.3 (2014); 16.9 (2015); 15.1 (2016); 15.4 (2017)
- External debt: 68.2 (2012); 64.0 (2013); 70.0 (2014); 69.4 (2015); 73.5 (2016); 71.8 (2017)
- Domestic saving: 25.8 (2012); 27.2 (2013); 29.8 (2014); 29.1 (2015); 30.9 (2016); 31.3 (2017)
- Public (saving): 0.2 (2012); -0.9 (2013); -0.1 (2014); 0.0 (2015)
- Private (saving): 25.5 (2012); 27.7 (2013); 30.6 (2014); 29.3 (2015); 30.7 (2016)
- Foreign saving: 3.2 (2012); 2.0 (2013); 2.7 (2014)
- General government gross debt: 33.7 (2012); 34.0 (2013); 38.0 (2014); 38.2 (2015); 39.0 (2016); 38.8 (2017)
- Public sector gross debt 1/: 36.2 (2012); 37.9 (2013); 44.1 (2014); 45.7 (2015); 47.1 (2016)
- Central government balance: -3.8 (2012); -4.2 (2013); -3.5 (2014); -2.6 (2015); -3.0 (2016)
- Memorandum items:
- Nominal GDP (billions of denars): 466.7 (2012); 501.9 (2013); 527.6 (2014); 558.2 (2015); 607.5 (2016); 631.6 (2017)
- Nominal GDP (billions of euros): 7.6 (2012); 8.1 (2013); 8.6 (2014); 9.1 (2015); 9.9 (2016); 10.3 (2017)
- GDP per capita (euros): 3680 (2012); 3930 (2013); 4126 (2014); 4374 (2015); 4755 (2016); ...
Source: IMF press release, November 22, 2017.
