Press Release No. 22/345

IMF Reaches Staff-Level Agreement with the Republic of North Macedonia Under the Precautionary and Liquidity Line

October 10, 2022

• IMF Team and Authorities of the Republic of North Macedonia Reach Staff-Level Agreement on a 24-Month €530 million Arrangement under the Precautionary and Liquidity Line (PLL).
• The PLL arrangement would support the authorities’ policies to address the economic fallout of consecutive global shocks from the Covid-19 pandemic and Russia’s invasion of Ukraine.
• The PLL—available to member countries with sound economic fundamentals, policy frameworks, and policies—can help safeguard economies against external shocks. The PLL arrangement is subject to approval by the IMF’s Management and Executive Board.

Washington, DC – October 10, 2022 : An International Monetary Fund (IMF) team, led by Ms. Bergljot Barkbu, conducted meetings with the authorities of the Republic of North Macedonia to discuss policies under the Precautionary and Liquidity Line (PLL). The IMF’s Executive Board previously met on April 15 for an informal discussion of the authorities’ request for a PLL. [1]

Ms. Barkbu issued the following statement at the conclusion of the meetings:

“IMF staff and the authorities of North Macedonia have reached a staff-level agreement on policies under a 24-month PLL arrangement in the amount of SDR 406.87 million (about €530 million). The agreement is subject to approval by the IMF’s Management and Executive Board. Upon Board approval, North Macedonia would have access to SDR 84.18 million (about €110 million).

“North Macedonia’s economy has been hit by two large global shocks. While it was still recovering from the pandemic, the outlook deteriorated following Russia’s invasion of Ukraine and sharply rising energy and food prices. At the same time, global financial conditions have tightened.

“The PLL arrangement will support the authorities’ policies and help replenish macroeconomic buffers. To address the shocks, the authorities are reprioritizing spending and are gradually tightening monetary policy. The arrangement will help boost international reserves and can also serve as catalyst to obtain other external financing.

“Fiscal policy under the PLL arrangement will support economic growth, protect those most affected by the cost-of-living crisis, and safeguard public finances. A supplemental budget for 2022 with a fiscal deficit of 5.3 percent of GDP was adopted by Parliament in July, and the government is committed to reducing the deficit to 4.6 percent of GDP in 2023. Over the medium term, the authorities will take fiscal measures to gradually reduce the deficit and build buffers, while scaling up public investment, subject to important safeguards against fiscal risks. The newly adopted Organic Budget Law legislates fiscal rules, which will guide the fiscal consolidation, and improves the budget process.

“Increasing-block tariffs for electricity were introduced on July 1, 2022. This will ensure that every household can afford a basic quantity of electricity, while reducing the fiscal subsidies to high-usage consumers and incentivizing energy efficiency. The authorities will prepare and implement an action plan to gradually phase out electricity subsidies, and further improve energy efficiency, while protecting vulnerable households.

“High inflation mostly reflects global factors, but inflation expectations have also increased, and nominal wage growth is high. The National Bank of the Republic of North Macedonia (NBRNM) has therefore embarked on a monetary policy normalization. Since late 2021, it has intervened in the foreign exchange market, absorbing denar liquidity. Moreover, it has raised the policy rate by 175 basis points on a cumulative basis since April. The NBRNM needs to continue its monetary policy tightening and stand ready to act as needed to address any large and persistent inflation differential with the euro area or significant pressures on international reserves. IMF staff expect inflation in North Macedonia to remain in line with euro area inflation in the medium term.

“The banking system remains well-capitalized and liquid. The NBRNM is closely monitoring risks in the banking system and will take any necessary action to mitigate these risks. The Financial Stability Law adopted in July will strengthen coordination on macroprudential policy and oversight, and other legislative initiatives are underway to enhance the financial safety net.

“The IMF team would like to thank its counterparts for the open and constructive discussions and collaboration that have brought us to today’s successful conclusion.”