Press Release No. 07/170

Press Release: Statement by IMF Mission to Macedonia

July 26, 2007

An IMF mission to Macedonia led by Mark Griffiths issued the following statement in Skopje on July 24:

"The IMF mission has visited Skopje July 11-24, 2007 to start discussions for the Third Review under the Stand-By Arrangement. The program has biannual reviews, the last of which was successfully completed on April 27, 2007.

"Progress has been made in many areas towards completing the review. The program's main macroeconomic targets for end-June 2007 were met. The fiscal position remains strong, international reserves have increased despite repayment of almost US$300 million in debt to international creditors, and central bank interest rates are low. Government policies to liberalize key product markets, including the telecommunications market, are starting to show results. With both official and indirect indicators showing stronger economic activity, real GDP growth in 2007 could well exceed the program projection of 4½ percent.

"This year's supplementary budget keeps the fiscal deficit target at 1 percent of GDP, which should safeguard macroeconomic stability. Revenues are expected to over perform by 1½ percent of GDP relative to the original budget, which allows government spending, especially investment, to be raised accordingly.

"Structural reforms are also being implemented. The new banking law adopted by parliament in May 2007 should help attract foreign banks and strengthen banking supervision. A revised central bank law, aimed at aligning this law with the EU acquis, is currently under preparation. The mission emphasized that the new law should safeguard the independence of the National Bank of Republic of Macedonia and strengthen its financial soundness.

"In March 2007, parliament passed legislation harmonizing the bases of social security contributions. The mission encourages the government to build on this, and to design a strategy to fully harmonize personal income tax and social contributions. In particular, to stop making workers who are part-time from making contributions based on full-time work, and also to progressively lower social contribution payments for low wage workers. This should help to cut labor taxes, fight the informal economy, and reduce unemployment.

"Fiscal risks stemming from higher electricity import prices need to be addressed. This March's amendments to the energy law, reducing the supply of subsidized electricity to large industrial users, are a good first step. To restore medium term financial viability in this sector, we encourage the government to develop and implement a comprehensive energy sector plan, in close collaboration with the World Bank.

"Finally, the mission would like to thank the Macedonian authorities for their cooperation throughout the mission and for their generous hospitality, and looks forward to completing the discussions later this year."