IMF Executive Board Approves SDR 406.87 million (about €530 million) Precautionary and Liquidity Line for North Macedonia
IMF News, November 22, 2022
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- Published: November 22, 2022
Approval and headline amounts
- Two-year PLL arrangement approved on November 21, 2022, in the amount of SDR 406.87 million (about €530 million).
- The SDR 406.87 million is noted as "290 percent of North Macedonia’s quota".
- Authorities intend to draw amounts available in the first year of the arrangement: SDR 203.44 million (about €265 million), treating second-year amounts as precautionary.
Disbursement schedule
- Immediate disbursement upon approval: SDR 84.18 million (about €110 million).
- Additional disbursement upon completion of the first review planned in May 2023: SDR 119.26 million (about €155 million).
- Authorities intend to draw on the PLL arrangement during the first year.
Purpose, context, and rationale
- The PLL will support policies to address the economic fallout from two consecutive global shocks: the Covid-19 pandemic and Russia’s invasion of Ukraine.
- North Macedonia experienced a deterioration in the outlook after the pandemic due to Russia’s invasion of Ukraine and sharply rising global commodity prices.
- High dependence on energy imports increased external financing needs while global financial conditions tightened, increasing the cost of market financing.
- The arrangement will help meet external financing needs in the next 12 months and provide insurance against downside risks in the following year.
Eligibility and justification for PLL
- North Macedonia qualifies for the PLL based on:
- "sound economic fundamentals",
- "strong institutional policy frameworks",
- track record of good economic performance and policy implementation,
- commitment to maintain such policies in the future.
- The PLL was introduced in 2011 to meet more flexibly the liquidity needs of member countries with sound economic fundamentals and strong records of policy implementation but with some remaining vulnerabilities.
Authorities’ policy priorities under the PLL arrangement
- Safeguarding public finances.
- Reducing energy subsidies and improving energy efficiency while protecting the vulnerable.
- Tackling high inflation.
- Preserving financial stability.
- The government actions already taken:
- Introduced block tariffs for electricity.
- Hiked electricity tariffs to mitigate the fiscal and external impact of the shock.
- Committed to containing wage and pension benefit increases, given limited fiscal space and risks to inflation.
- The National Bank of the Republic of North Macedonia (NBRNM) is tightening monetary policy and "is committed to continued tightening to address any persistent inflation differential with the euro area."
- Policy agenda under the arrangement:
- Continued deficit reduction over the medium term, underpinned by newly introduced fiscal rules.
- Scale up public investment while carefully managing associated fiscal risks.
- Phase out untargeted energy subsidies, strengthen targeted support for the vulnerable, and improve energy efficiency.
Statements and expected outcomes (from Bo Li, Deputy Managing Director and Chair)
- The PLL "will support the authorities’ policies and boost international reserves, and can also serve as catalyst to obtain other external financing."
- The PLL "would strengthen fiscal and reserves buffers, allowing the country to exit from the PLL arrangement when it expires in 2024."
Source: IMF Press Release No. 22/405, November 22, 2022.
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