IMF Staff Concludes Virtual Visit to North Macedonia
IMF News, November 20, 2020
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- Published: November 20, 2020
Mission overview and context
- Press Release No. 20/347; November 20, 2020.
- An IMF mission, led by Bergljot Barkbu, conducted a virtual staff visit with the authorities of North Macedonia during November 9-18, to discuss recent economic and financial sector developments, the 2021 budget and the outlook.
- End-of-Mission press releases convey preliminary findings after a visit to a country. The views expressed are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
- IMF Communications Department — MEDIA RELATIONS. PRESS OFFICER: Gediminas Vilkas. Phone: +1 202 623-7100 Email: MEDIA@IMF.org
Economic outlook and risks
- “Macroeconomic and financial stability has been maintained thanks to skillful policy management, as well as globally accommodative financial conditions.”
- The economy “contracted sharply in 2020.”
- “Economic activity is expected to rebound in 2021, after a sharp fall in 2020, but the second wave of the pandemic poses risks to the strength of the rebound.”
- “Unemployment, however, has increased only modestly, due to fiscal support measures.”
- “Headline inflation has picked up, primarily reflecting higher food prices.”
- Downside risk: “the second wave of the virus poses a considerable downside risk, despite recent promising news on vaccine development.”
Health policy and near-term priorities
- “Addressing the health crisis remains a top priority and will be essential for safeguarding the economy and public finances.”
- Near-term fiscal stance: “Fiscal policy should remain supportive to help revive growth, preserve jobs, and protect the vulnerable.”
- The draft 2021 budget: foresees “a sizeable increase in capital spending, which––if implemented––could help boost demand and lift the growth potential of the economy, provided that spending is focused on high-quality projects.”
- The draft budget “also contains a contingency envelope for possible new stimulus measures. This could be used to extend wage subsidies, unemployment insurance, and social safety nets in a targeted manner, with the understanding that additional funds may be needed as the situation evolves.”
- Planned measures to support firms: “The planned credit guarantee scheme will help support firms’ liquidity.”
Fiscal risks and medium-term fiscal guidance
- Fiscal risks noted: “budget revenue shortfalls, state-owned enterprises, and Public-Private Partnerships require close monitoring.”
- Medium-term objective: “achieve higher growth to improve living standards and income convergence with other European countries, which will require more investment in human and physical capital.”
- Cautionary guidance: “Measures that reduce the revenue base and tax collection more broadly or increase recurrent spending, such as on pensions and subsidies, would go in the wrong direction as they imply less space for growth-enhancing investment.”
Monetary policy and financial sector recommendations
- Monetary stance: “The accommodative monetary policy stance is appropriate and the NBRNM stands ready to act as needed to protect the de-facto exchange rate peg.”
- Financial soundness: “The overall banking system remains well capitalized and profitable but going forward banks’ lending capacity is expected to be lessened by a likely deterioration of asset quality.”
- Prudential measures recommended:
- “It is important to maintain strict loan classification and provisioning rules to ensure that banks set aside sufficient reserves to cover potential losses.”
- “Banks should be encouraged to refrain from discretionary dividend distribution and share buy-backs.”
- Institutional independence: “Given the criticality of the NBRNM’s capacity to take prompt supervisory actions to ensure the stability of the financial system, it is essential to preserve the NBRNM’s independence. This will enable it to continue fulfilling its mandates of maintaining price stability and protecting financial stability, which are crucial preconditions for sustainable growth.”
Closing remarks
- The mission: “would like to thank our counterparts for the candid and productive discussions and wish the Government and people of North Macedonia success in overcoming the pandemic.”
Source: IMF Press Release No. 20/347 (November 20, 2020).
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- Press Release-English