IMF Reaches Staff-Level Agreement with the Republic of North Macedonia Under the Precautionary and Liquidity Line
IMF News, October 10, 2022
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Bibliographic details
- Published: October 10, 2022
Arrangement details and access
- IMF staff and the authorities of North Macedonia reached a staff-level agreement on policies under a 24-month Precautionary and Liquidity Line (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).
Purpose and rationale
- 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 arrangement will help replenish macroeconomic buffers, boost international reserves, and can serve as catalyst to obtain other external financing.
Economic context and shocks
- North Macedonia’s economy was still recovering from the pandemic when the outlook deteriorated following Russia’s invasion of Ukraine and sharply rising energy and food prices.
- Global financial conditions have tightened, contributing to the authorities’ policy response needs.
Fiscal policy under the PLL
- 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.
- 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.
Energy policy and subsidies
- Increasing-block tariffs for electricity were introduced on July 1, 2022.
- Purpose: ensure every household can afford a basic quantity of electricity, reduce fiscal subsidies to high-usage consumers, and incentivize 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.
Monetary policy and inflation
- 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 embarked on monetary policy normalization:
- Since late 2021, it has intervened in the foreign exchange market, absorbing denar liquidity.
- 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.
Banking system and financial stability
- 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.
IMF statement and next steps
- The PLL arrangement is subject to approval by the IMF’s Management and Executive Board.
- The IMF team thanked counterparts for open and constructive discussions that led to this staff-level agreement.
Press Release No. 22/345 — October 10, 2022. IMF Communications Department.
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- Pr22345 North Macedonia Imf Reaches Stafflevel Agreement with the Republic of North Macedonia Under