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.
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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.”