## IMF Executive Board Concludes 2019 Article IV Consultation with the Republic of North Macedonia

_IMF News, January 27, 2020_

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## Bibliographic details
- Published: January 27, 2020

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### Economic performance and outlook
- Real GDP growth:
  - Estimated at 3.2 percent in 2019.
  - Projected at 3.4 percent in 2020.
- Drivers of 2019 growth:
  - Buoyant private consumption.
  - Rebound in investment (gross investment growth 7.4 percent in 2019).
  - High export growth despite slowdown in key trading partners.
  - Solid domestic demand boosted imports.
  - Sizeable inflows from remittances helped keep the current account deficit modest.
- Inflation and labor market:
  - Inflation is low and mainly driven by euro area inflation and food and energy prices.
  - Unemployment rate (annual average): 17.9 in 2019; projected 16.8 in 2020.
- Domestic demand and components:
  - Real domestic demand growth: 4.2 percent in 2019; projected 3.7 percent in 2020.
  - Consumption growth: 3.1 percent in 2019.
  - Net exports contributed -5.8 percentage points to growth in 2019.

### Fiscal outlook and recommendations
- Fiscal stance and public debt:
  - Overall fiscal deficit expected to have remained below 2 percent of GDP in 2019.
  - Public debt broadly stable: General government gross debt 40.4 percent of GDP in 2019.
  - Public sector gross debt 49.1 percent of GDP in 2019.
- Investment and capital spending:
  - Capital spending increased markedly from 2018 but remains below budgeted amounts.
  - Authorities should increase essential capital expenditure to narrow the investment gap.
  - Strengthen public investment management framework: better prioritization and address execution bottlenecks.
- Recommended consolidation:
  - A cumulative consolidation of 1½ percent of GDP over 2020–22, compared to staff’s baseline projections, would achieve primary budget balance.
  - Consolidation measures should include:
    - Steadfast implementation of already approved reforms to pensions and personal income tax.
    - Enhanced revenue administration.
    - Rationalization of agricultural subsidies.
  - Authorities should wait to approve new PPPs until a strengthened framework is in place.
- Fiscal risks:
  - Rebuilding fiscal space is essential to strengthen the economy’s ability to cope with future shocks.

### Monetary policy and external position
- Monetary policy stance:
  - The National Bank of the Republic of North Macedonia (NBRNM) has continued to accumulate international reserves and further cut its policy rate in January 2020, keeping monetary policy accommodative.
  - The monetary policy stance is judged appropriate.
  - Recommendation: continue building buffers against possible domestic or external shocks; be ready to tighten monetary policy if the external environment worsens.
- External sector indicators (percent of GDP):
  - Current account balance: -0.5 in 2014; -2.0 in 2015; -2.9 in 2016; -1.0 in 2017; (figure for 2018 appears missing); (2019 value not explicitly listed in table as single line).
  - Exports of goods and services: 63.0 percent of GDP in 2019.
  - Imports of goods and services: 75.8 percent of GDP in 2019.
  - Private transfers: 14.8 percent of GDP in 2018.
  - External debt: 74.0 percent of GDP in 2019.
- Reserve coverage:
  - Reserve accumulation has been pursued within the de facto exchange rate peg; reserve coverage is described as broadly adequate.

### Financial sector stability
- Banking system soundness:
  - Banking system is well capitalized and liquid.
  - Credit growth is solid: Private Sector Credit growth 6.7 percent in 2019; projected 6.3 percent in 2020.
  - Non-performing loans remain relatively low.
- Financial sector recommendations:
  - Increase deposit denarization.
  - Calibrate measures to curb foreign currency lending to households as needed.
  - Closer monitoring of household lending, including collecting granular household data.
  - Strengthen macroprudential mandate of the NBRNM and improve systemic risk identification.
  - Further progress on the financial safety net:
    - Introduce a comprehensive bank resolution framework.
    - Buttress the deposit guarantee scheme.
  - Continue implementing 2018 FSAP recommendations: enhance supervisory and regulatory framework, improve banks’ liquidity risk reporting, and increase supervisory intensity for domestic systemically important banks.

### Structural reforms, labor market, and competitiveness
- Reform priorities to accelerate convergence and raise incomes:
  - Continue reforms to improve public administration, rule of law, and control of corruption.
  - Build physical capital to address infrastructure gaps.
  - Boost human capital to address skills shortages and mismatches through vocational education and training and more use of skill-enhancing active labor market policies.
  - Tackle informality to improve the business climate, protect workers, and generate potential large revenue gains.
  - Strengthen revenue administration efficiency and compliance; raise public trust in institutions to improve tax morale.
- Minimum wage considerations:
  - Net minimum wage has been raised by 44 percent cumulatively since 2017.
  - Minimum wage estimated to reach 53 percent of the average wage in 2020.
  - Concern: productivity growth has been low; large increases in the minimum wage may not effectively reduce overall poverty and may have adverse effects on formal employment and competitiveness.

### Executive Board assessment and scenarios
- Overall assessment:
  - After a protracted political crisis, the economy has entered a period of solid growth and stability.
  - Authorities have advanced institutional and governance reforms and efforts to make public finances more sustainable and equitable, gaining substantial policy credibility.
- 2020 prospects and risks:
  - Growth expected to accelerate in 2020 driven by lower taxes and higher pensions and wages (including public sector and minimum wages), providing a one-off stimulus to consumption.
  - Export and investment growth expected to remain robust but slow somewhat reflecting weak growth in trading partners.
  - Downside risks:
    - Worsening global trade tensions.
    - Delays in investment plans due to uncertainty during the election period.
- Medium-term priority:
  - Use the period of solid growth to rebuild fiscal space and maintain an unwavering commitment to the ambitious structural reform agenda to durably raise income levels.

*IMF Executive Board press release, January 27, 2020.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Republic of North Macedonia and the IMF](http://www.imf.org/external/country/MKD/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2020/01/27/pr2017-north-macedonia-imf-executive-board-concludes-2019-article-iv-consultation_