IMF Executive Board Concludes 2021 Article IV Consultation with North Macedonia
IMF News, February 15, 2022
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- Published: February 15, 2022
Key messages and recent performance
- Forceful policy support cushioned the economic impact of the pandemic: fiscal lifelines prevented large job losses and protected the most vulnerable, while monetary and financial measures kept credit flowing.
- Real GDP: After a 6 percent drop in real GDP in 2020, the economy recovered by an estimated 4 percent in 2021, driven by domestic consumption, reflecting improved mobility, a return of the diaspora, and continued policy support.
- Private investment continues to lag; external trade has recovered but certain export-oriented sectors remain negatively impacted by global supply disruptions.
- Rising energy and food prices weakened the external position and pushed up inflation to 3.2 percent in 2021.
Outlook and risks
- Growth projection: Real GDP is expected to grow by 4 percent in 2022.
- Inflation projection: Inflation is expected to rise to 4.3 percent in 2022, before stabilizing around 2 percent in 2023.
- Downside risks: The sharp rise in Covid-19 cases and low vaccination rates pose downside risks to the near-term outlook.
Fiscal, monetary, and financial conditions
- Fiscal stance: Fiscal policy remains supportive. As fiscal lifelines were gradually unwound and revenues performed strongly, the fiscal deficit was reduced from 8.2 percent of GDP in 2020 to 5.5 percent of GDP in 2021.
- Credit and banking: Private sector credit growth is solid, helped by an accommodative monetary policy stance. The banking system remains well-capitalized, with a low rate of non-performing loans.
- Exchange rate and monetary policy: Directors noted that the de facto exchange rate peg has served the country well and encouraged the central bank to be ready to tighten monetary policy if inflation is expected to become persistently higher than in the euro area, or if sustained pressures on foreign currency reserves materialize. Directors underscored the importance of preserving the operational autonomy of the central bank.
Executive Board assessment — findings and policy recommendations
- Main priorities:
- Increase vaccine coverage and limit scarring from the pandemic.
- Make progress on long-standing reform priorities.
- Fiscal policy guidance:
- Fiscal support should be targeted and gradually scaled down while maintaining flexibility given high pandemic-related uncertainty.
- A credible medium-term fiscal strategy is needed to rebuild buffers and create room for priority investment.
- Focus consolidation on tax policy and revenue administration.
- Further improvement in public financial management is needed to support the authorities’ investment plan and limit fiscal risks.
- Directors looked forward to the adoption of the Organic Budget Law and further progress in strengthening transparency and accountability of public spending.
- Financial sector and macroprudential policy:
- Continue vigilance despite a well-capitalized banking system.
- Ensure timely recognition of problem assets; closely monitor growth in foreign currency lending.
- Strengthen the macroprudential policy framework and the financial safety net, including the bank resolution framework and deposit insurance; complete relevant legislative processes.
- Structural and labor market policies:
- Encourage policies to facilitate resource reallocation, improve education outcomes, and strengthen the social safety net.
- Reduce informality and raise labor participation of women and youth.
- Minimum wage increases should be guided by productivity trends to preserve employment and competitiveness.
- Support implementation of the Growth Acceleration Plan to boost growth and spur a green and digital transformation.
Selected Economic Indicators, North Macedonia: 2019–2023
(Year-on-year percentage change, unless otherwise indicated)
- Output
- Real GDP growth: 3.9; -6.1; 4.0; 3.8
- Contributions to growth
- Domestic demand: 6.9; -8.7; 7.0; 5.3; 5.1
- Net exports: -2.9; 2.6; -3.0; -1.3
- Labor
- Unemployment rate (percent): 17.3; 16.4; 15.8; 15.6; 15.3
- Prices
- Consumer prices (period average): 0.8; 1.2; 3.2; 4.3; 1.9
- Core consumer prices (period average): 0.5; 0.9; 2.4; 2.2
- Public Finance (percent of GDP)
- Revenues: 29.4; 28.9; 31.1; 30.7; 30.8
- Expenditures: 31.4; 37.1; 36.6; 35.0; 34.3
- of which : capital: 2.5; 3.3; 3.4
- Overall balance: -2.0; -8.2; -5.5; -4.3; -3.5
- Gross general government debt: 40.4; 51.9; 54.8; 54.1; 54.3
- Non-financial public and publicly guaranteed debt: 48.4; 59.6; 62.2; 62.7
- Money and credit
- Non-performing loans (percent of total loans): 4.6; 3.51; N.A.
- Private sector credit growth: 6.3; 4.9; 8.0; 7.4; 7.3
- Balance of payments (percent of GDP)
- Current account balance: -3.3; -3.4; -2.8
- Foreign direct investment: 1.5
- Gross reserves (percent of IMF ARA Metric2): 115; 108; 109; 106
- Gross reserves (in months of prospective imports): 4.2; 4.1
- External debt: 72.4; 80.3; 80.4; 78.9; 79.2
IMF Executive Board summary, February 15, 2022.