This 2017 Article IV Consultation highlights slower growth in the former Yugoslav Republic of Macedonia following a solid economic recovery since the global financial crisis. Growth slowed to 2.4 percent in 2016 and contracted by 0.9 percent in the first half of 2017. Economic activity has been supported by private consumption and exports, while negative effects from prolonged political instability have restrained investment and slowed down corporate credit growth. Inflation has gradually picked up, after staying negative during the past few years. Public debt is projected to rise to 47 percent of GDP in 2017. Currently, the government is in the process of preparing the draft economic program.
We examine the association between capital inflows and industry growth in a sample of 22 emerging market economies from 1998 to 2010. We expect more external finance dependent industries in countries that host more capital inflows to grow disproportionately faster. This is indeed the case in the pre-crisis period of 1998–2007, and is driven by debt, rather than equity, inflows. We also observe a reduction in output volatility but this association is more pronounced for equity, rather than debt, inflows. These relationships, however, break down during the crisis, hinting at the importance of an undisrupted global financial system for emerging markets to harness the growth benefits of capital inflows. In line with this observation, we also document that the inflows-growth nexus is stronger in countries with well-functioning banks.
Mr. Julian T Chow, Ms. Florence Jaumotte, Mr. Seok G Park, and Ms. Yuanyan S Zhang
The recent strong, sustained appreciation of the U.S. dollar raises questions about possible financial spillover effects for emerging markets and developing countries. This report finds that, unlike past episodes, emerging markets’ vulnerability has improved along a number of dimensions, though some risks persist (as identified in this report).
Dilyana Dimova, Ms. Piyabha Kongsamut, and Jérôme Vandenbussche
This paper presents a detailed account of the rich set of macroprudential measures taken in
four Southeastern European countries—Bulgaria, Croatia, Romania, and Serbia—during
their synchronized boom and bust cycles in 2003–12, and assesses their effectiveness. We
find that only strong measures helped contain domestic credit growth, the share of foreigncurrency-
denominated loans provided by the domestic banking sector, or the domestic
banking sector’s reliance on foreign borrowing during the boom years. We also find that
circumvention via direct external borrowing often fully offset the effectiveness of these
strict measures, and thatmeasures taken during the bust had no discernible impact. We
conclude that (i) proper calibration of macroprudential measures is of the essence; (ii) only
strong, broad-based macroprudential measures can contain credit booms; (iii) econometric
studies of macroprudential policy effectiveness should focus on measures rather than on
instruments (i.e. classes of measures) and in so doing allow for possible non-linear and
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses key findings and recommendations of the Detailed Assessment of Observance on the Basel Core Principles for Effective Banking Supervision on Bulgaria. Within the Banking Supervision Department, the Special Supervision Directorate (SSD) has been assigned multiple activities that go beyond its primary objective of ensuring integrity in the banking sector. The Bulgarian National Bank is not empowered to require a bank to change its internal organization or structure. It is recommended to refocus the activity of the SSD on its core mandate of financial integrity. This recommendation can be achieved by assigning nonsupervisory activities to other Directorates, preferably outside the Banking Supervision Department.