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A rebound in economic activity is underway, and is expected to be
supported by growing vaccine coverage.
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Supportive and well targeted fiscal policy can help secure the
recovery and prepare for the post-pandemic world.
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Monetary policy should remain accommodative. The recent increase in
inflation reflects mostly global factors and is projected to be
temporary.
Washington, DC – May 19, 2021:
An International Monetary Fund (IMF) mission, led by Bergljot Barkbu,
conducted a virtual staff visit with the authorities of North Macedonia
during May 6-17, to discuss recent economic developments and policies. At
the conclusion of the visit, Ms. Barkbu issued the following statement:
“The COVID-19 pandemic has inflicted significant human and economic costs,
but supportive macroeconomic and financial policies have mitigated the
impact on economic activity in North Macedonia.
“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. Faster-than-expected vaccine
rollout and take-up could lift the forecast, while the emergence of new
virus variants could lead to lower growth. In recent months, spikes in
global energy and food prices have pushed up inflation. While there will
likely be some second-round effects, inflation is expected to come down in
the second half of the year, against the backdrop of appreciable spare
capacity. Consumer prices are projected to rise at a still moderate pace of
2.2 percent on average in 2021.
“In the near term, resolving the health crisis remains the top priority.
Fiscal policy should remain supportive to help revive growth, spur job
creation, and protect the vulnerable. The government has legislated an
extension of the 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. 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.
“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.
“The monetary policy stance remains appropriate. The recent increase in
inflation mostly reflects global factors and is expected to be temporary.
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.
“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, which are preconditions for sustainable growth. 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,
in order to ensure effective policy outcomes and dialogues with
stakeholders.
“We would like to thank our counterparts for excellent virtual
discussions and hope to be able to return to North Macedonia soon to
meet in person
.”
