IMF Staff Concludes Virtual Visit to North Macedonia

IMF News, May 19, 2021

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IMF mission led by Bergljot Barkbu conducted a virtual staff visit with the authorities of North Macedonia during May 6-17, 2021.
End-of-Mission press release issued May 19, 2021. The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

An economic rebound is underway, with real GDP growth projected to reach 3.8 percent in 2021, supported by growing vaccine coverage following a shortage of supply earlier in the year.
Upside and downside risks:
- Faster-than-expected vaccine rollout and take-up could lift the forecast.
- The emergence of new virus variants could lead to lower growth.
Recent spikes in global energy and food prices have pushed up inflation; however:
- Inflation increase mostly reflects global factors and is projected to be temporary.
- Consumer prices are projected to rise at a still moderate pace of 2.2 percent on average in 2021.
- Inflation is expected to come down in the second half of the year against the backdrop of appreciable spare capacity.

In the near term, resolving the health crisis remains the top priority.
Fiscal stance:
- Fiscal policy should remain supportive to help revive growth, spur job creation, and protect the vulnerable.
- The government legislated an extension of support measures into 2021, including the wage subsidy, investment incentives, and liquidity support to firms.
- On this basis, staff project the deficit to reach 5.4 percent of GDP in 2021.
Targeted additional support, if necessary:
- Further targeted support to households most in need and to viable firms in the form of temporary investment credits and hiring subsidies could help secure the recovery.
Medium-term strategy and investment execution:
- A credible medium-term fiscal strategy can help tackle the country’s investment needs while rebuilding room for fiscal maneuver.
- The government’s investment plan is ambitious and should be accompanied by further improvements in public investment management to resolve bottlenecks, improve the efficiency of spending, and limit fiscal risks.
- Efforts to improve revenue collection would create space to scale up productive spending in areas such as healthcare, education, and infrastructure.
- Successful public investment would boost growth and help transform the economy, but to safeguard debt sustainability, it is essential to have a comprehensive fiscal strategy that is, among other things, built on realistic growth assumptions.

Monetary policy:
- The monetary policy stance remains appropriate; it should remain accommodative.
- Preserving the operational independence of the National Bank of the Republic of North Macedonia (NBRNM) is key to enable it to continue fulfilling its mandates of maintaining price stability and protecting financial stability.
Banking system and non-performing loans:
- The banking system is overall well capitalized and liquid.
- NPLs will likely rise somewhat as regulatory flexibility is unwound and fiscal support for firms is phased out.
- It is important to maintain strict loan classification and provisioning rules so that banks set aside sufficient reserves to cover potential losses.
- Banks temporarily not distributing dividends should help to this effect.
Transparency initiative:
- On the NBRNM’s initiative, North Macedonia will be a pilot case for the IMF’s new Central Bank Transparency Code, which can help bolster its framework for transparency and accountability to ensure effective policy outcomes and dialogues with stakeholders.

Source: Press Release No. 21/135 — IMF Staff Concludes Virtual Visit to North Macedonia, May 19, 2021.

Мисијата на ММФ ја заврши својата виртуелна посета на Северна Македонија
- Мисијата на ММФ ја заврши својата виртуелна посета на Северна Македонија (Markdown version)
- Мисијата на ММФ ја заврши својата виртуелна посета на Северна Македонија (PDF)