International Monetary Fund. External Relations Dept.
After a decade of sluggish growth, in part the result of external shocks, the former Yugoslav Republic of Macedonia’s economic growth reached 4 percent for two years in a row in 2004-05 and is expected to stay at that rate in 2006. Inflation has also remained under control, the current account deficit has narrowed, international reserves have increased, and the fiscal position is sound, the IMF said in its recent economic review.
The Macedonian labor market exhibits a high unemployment rate, yet does not demonstrate obvious and large enough constraints on the demand or supply side. Considerable achievements can be made by maintaining macroeconomic stability, attracting FDI, and closing the educational gaps. The second paper assesses ways in which the Macedonian financial sector could better contribute to growth and real convergence, taking stock of where the sector stands and its recent developments. Streamlining bankruptcy procedures, improving collateral and systematic collection and publication of real estate sales data, and revisiting the interest rate cap may serve to moderately boost credit supply.
In this study, economic recovery and growth of Macedonia are discussed. In the financial sector, nonperforming loans (NPLs) rose, and bank profitability declined as a result of the crisis. Executive Directors agreed with the thrust of the staff appraisal. Directors were encouraged by the overall healthy condition of the financial system. The need to accelerate structural reforms and strengthen public infrastructure to raise productivity and help reduce high unemployment is encouraged. Macedonia met the Precautionary Credit Line (PCL) qualification requirements.
This 2009 Article IV Consultation highlights that the Former Yugoslav Republic of Macedonia’s vulnerability at the outset of the global crisis was its large current account deficit in the context of the exchange rate peg to the euro. At the same time, it benefited from a small fiscal deficit, modest public debt, and significant international reserve buffers. Executive Directors have praised the Macedonian authorities for the conduct of macroeconomic policies, which contributed to a modest downturn in Macedonia’s economy relative to other countries in the region.
The staff report for the 2008 Article IV Consultation of the Former Yugoslav Republic of Macedonia discusses economic developments and policies. The new government’s economic program aims to raise growth further, but does not address these vulnerabilities. Plans to increase the central government deficit permanently to about 2 percent of GDP or perhaps even higher risk worsening external vulnerabilities. The main risk to growth and macroeconomic stability is the widening current account deficit.
The economy of the Former Yugoslav Republic of Macedonia suffered a setback owing to the Kosovo crisis. The impact of the crisis, however, was less severe. Inflation remained low, the balance-of-payments position and the fiscal situation improved, and indicators of external vulnerability remained satisfactory. The National Bank of Macedonia faced contrasting challenges in the conduct of monetary policy. The pace of structural reforms picked up and a value-added tax was introduced. However, structural weaknesses in the financial system have prevented a more vigorous economic recovery.
The paper analyzes the export performance and external competitiveness in FYR Macedonia. It describes the trends in the account balance, external vulnerabilities, and different approaches to estimate the equilibrium real exchange rate; and reviews economic growth experience and prospects and reveals areas of weakness. It also discusses many different factors responsible for Macedonia's high unemployment rate and examines the main factors behind the low level of intermediation.
The broad-based GDP growth supported by public investment, improved credit and labor market conditions, and robust exports is expected to moderate in the near term. Domestic political uncertainties and the crisis in Greece constitute significant downside risks. Fiscal policy space built up in pre-crisis years has largely been depleted. Rebuilding policy space and buffers to preserve macroeconomic and financial stability is a priority now.
Macedonia showed an economic recovery owing to its macroeconomic policies. Executive Directors appreciated the sound fiscal policies and efforts in bringing inflation under control and increasing international reserves. They stressed the need to reduce unemployment and keep the account deficit under control. Executive Directors stressed that the best way to meet these challenges would be by maintaining the country’s hard-won macroeconomic stability, accelerating structural reforms and prudent and well-coordinated monetary and fiscal policies, and liberalizing the labor market.