Journal Issue

Former Yugoslav Republic of Macedonia: Second Review Under the Stand-By Arrangement and Ex Post Assessment of Performance Under Fund-Supported Programs

International Monetary Fund
Published Date:
August 2004
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1. This supplement provides updated information on FYR Macedonia’s growth in the first quarter of 2004 and its implications for the outlook for the rest of the year.

2. Official data for the first quarter of 2004 show a 3.6 percent decline in GDP (year on year), compared with the 3.1 percent increase projected at the beginning of the year. The reported decline is almost entirely attributable to a 25 percent drop in the industrial production index (IPI), which the authorities use as a proxy for industrial value added in quarterly GDP estimates. In the rest of the economy, first quarter growth was close to 2 percent.

3. The reported sharp reversals in GDP and industrial value added are not consistent with the behavior of other indicators of economic activity. Tax collections, exports, and electricity sales to industry all suggest that growth was positive in the first quarter. The authorities have therefore set up a Working Group to assess the methodology used to calculate the IPI. They do not intend to revise their GDP projection for 2004 until the Working Group’s report has been delivered and reviewed.

4. The staff’s view is that growth did slow in early 2004 but that the extent of the slowdown is exaggerated by the official data owing to shortcomings in the method and possibly the data used to calculate GDP and the IPI. Most of the reported first quarter reversal in growth can be traced to the closure of one large steel producer (which has since reopened), with an implausibly large weight in the GDP estimate. Staff calculations using a more plausible weight for that producer, and making some other adjustments, suggest that GDP may in fact have increased moderately in the first quarter, rather than declining as reported. More broadly, in the context of a recent technical assistance mission, STA has urged the authorities to review the weights in the IPI and to replace the IPI with a more reliable survey when estimating industrial value added. Follow-up technical assistance is planned for later this year.

5. For 2004 as a whole, staff now projects growth of 1½ -2½ percent, compared with 4 percent projected at the time of the review discussions (and 3 percent projected at the time of the first review). The projection takes into account the official first quarter GDP data, adjusted as suggested above, and an estimate of the impact of floods in late spring.

6. Since the downward revision of the 2004 GDP projection results largely from temporary factors (floods and the temporary closure of the steel producer) and given the wide margin for error at this stage, no change in the Staff Appraisal is being proposed.

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