Washington, DC: An International Monetary
Fund (IMF) mission, led by Jacques Miniane, visited North Macedonia during
June 5-9, to discuss recent economic developments and policies in the
context of the IMF’s Precautionary and Liquidity Line (PLL) with North
Macedonia. At the conclusion of the visit, Mr. Miniane issued the following
statement:
“An economic recovery is underway, with real GDP growth projected at 2.1
percent this year, followed by 3.4 percent in 2024. In recent months,
inflation has started to decline, helped by lower energy and food prices as
well as the ongoing monetary policy tightening. Consumer prices are
expected to rise by 9.2 percent on average this year and by 3.5 percent in
2024, and to return to 2 percent by 2026.
“Public finances are on track to meet the deficit target set out in the
2023 budget approved by parliament. Yet, delays in passing the tax policy
reform and the solidarity tax compromise tax revenues and could put
priority spending at risk. In this context, the tax reform, whose design
has benefitted from IMF input, should be adopted without delay given the
long period allowed for public consultation, and so should the solidarity
tax. Separately, efforts at improving tax collection need to be sustained
and accelerated.
“Given that the rise in consumer prices in recent years has reduced the
purchasing power of households, it is understandable that public sector
workers are demanding higher wages. There already is room in the central
government budget to accommodate an increase in the wage bill of close to
10 percent, similar to the projected rate of inflation for 2023, including
the minimum wage harmonization this year. Anything above this magnitude
would create a large and permanent burden on the budget and would also risk
squeezing out other essential spending. Large wage increases would also
risk turning temporarily high inflation into persistently high inflation.
“Going forward, and in line with the commitments under the PLL, fiscal
consolidation should continue to underpin fiscal sustainability and ensure
adequate fiscal buffers for the next crisis.
“While the electricity block-tariff reform in 2022 was a significant step
in the right direction, electricity prices for most households remain
heavily subsidized and among the lowest in Europe. As a result, public
finances remain vulnerable to surges in the cost of energy. While raising
energy tariffs is never easy, it will be important to continue to move
ahead with electricity tariff reforms that gradually phase-out subsidies
and strengthen energy efficiency. The current context of lower
international energy prices provides an opportunity to continue such
reforms. Support for electricity bills should be targeted towards poorer
households, instead of benefitting most households in an untargeted manner,
as is currently the case.
“The National Bank of the Republic of North Macedonia (NBRNM) has continued
a necessary normalization of monetary policy through higher policy rates
and other measures, to ensure that high inflation does not become
entrenched. These policy changes have helped stabilize inflation
expectations and are contributing to the gradual decline in inflation.
Importantly, they also ensure that international reserves remain adequate,
which is key for North Macedonia.
“The banking system is liquid, profitable, and adequately capitalized, and
we expect it to be able to absorb the effects of tighter financial
conditions and other shocks. However, positive conditions today should be
used to continue adding to capital buffers. Finally, we support the recent
introduction of borrower-based macro-prudential measures. They are an
important toolkit for the central bank, and they will help contain risks in
the real estate sector.
“Structural and institutional reforms, essential for North Macedonia’s EU
accession prospects, should be accelerated, to strengthen the country’s
growth prospects and income convergence to the EU in the medium-term.
“As for the Corridor 8/10d road project, IMF staff are still assessing the
implications for public finances.
“We thank our counterparts for excellent discussions and for their
hospitality during the staff visit.”
