Journal Issue
Share
Article

Former Yugoslav Republic of Macedonia: Recent Economic Developments

Author(s):
International Monetary Fund
Published Date:
July 2000
Share
  • ShareShare
Show Summary Details

VII. External Sector Developments1

A. Current and Capital Accounts Developments

1. FYRM’s external sector developments during 1998–99 could be divided into three distinct phases: developments before the Kosovo crisis (1998-March 1999); disruption in the midst of the crisis (April-May 1999); and recovery after the crisis (June 1999 onward).

Developments before the Kosovo crisis

2. Despite a generally favorable external environment, the current account deficit remained high. For 1998, as a whole, the current account deficit widened to 8.8 percent of GDP from 7.4 percent of GDP in 1997 (Table 35 and Figure 8; also see Boxes 5 and 6 for external competitiveness of FYRM). However, the capital account position strengthened, as a large amount of foreign direct investment (FDI) poured in and the private sector resorted to foreign borrowing. Thus, gross official reserves increased by about US$50 million.

Figure 8.FYRM: Balance of Payments Developments, 1998–99

Sources: FYRM authorities; and IMF staff estimates.

1/ Including short-term capital.

3. Exports continued to increase on account of the lagged impact of the July 1997 devaluation and a cooperation agreement with the European Union.2 The strong growth in exports was concentrated in exports of clothes and textiles as well as iron and steel;3 these two product categories accounted for nearly half of the FYRM’s exports in 1998 (Figure 9). The principal destinations for FYRM’s exports in 1998 were Germany (21.2 percent), the FRY (18.2 percent), and the United States (13.2 percent) (Table 37).

Figure 9.FYRM: External Trade Developments, 1995–99

Sources: FYRM authorities; and IMF staff estimates

1/ Exports to all European countries (including Russia, Ukraine, and Belarus) other than Albania, Bulgaria, Greece, and Turkey.

4. Imports also grew strongly owing to increased domestic demand and a surge in imports of intermediate inputs for processed goods exports. Imports of investment goods rose by 30 percent. FYRM has a trade structure that links exports and imports closely; most of exporters of textiles and clothes, and iron and steel took processing contracts with foreign firms. Because of this, imported inputs for processing rose in line with hikes of exports of these products. The main sources of imports were Germany (13.3 percent) and FRY (12.8 percent) (Table 38).

5. The balance of nonfactor services also deteriorated in 1998. This was mainly attributable to a decrease in receipts of construction services (Table 40). Meanwhile, private transfers continued to run a large surplus, thanks primarily to remittances from abroad and net foreign cash exchange receipts.4 Official transfers increased because of EU-PHARE financed projects.

Box 5.FYRM: External Competitiveness

Competitiveness indicators in terms of real effective exchange rate (REER) indices show that FYRM’s competitiveness has been broadly maintained since the devaluation of July 1997. The CPI-based and ULC-based REERs exhibit similar trends.1 In terms of depreciation of REERs as well as of bilateral real exchange rates, competitiveness has improved much more for FYRM than for several other Balkan countries.

The shares of FYRM’s exports in the markets of its major trade partners have not increased much since 1996. There was a gain in market share with Germany in 1998, which reflected the resumption of operations of a major iron and steel factory following its privatization, but the share remained well below the peak achieved in 1995. The share in the United States market rose significantly in 1996 after cessation of the Greek trade sanction, but there has been no gain in share since then. These trends are in sharp contrast to the more positive experience of Romania and Albania.

Structural factors seem to underlie this disappointing export performance. One factor may be FYRM’s limited success in attracting foreign direct investment (FDI). Although there was some pick up in 1998, FYRM has absorbed far less FDI (relative to GDP) than other countries in the region. Albania and Romania, who had the largest gains in export market shares, were also the leaders in terms of FDI inflows.

Under this circumstance, the authorities should refrain from exchange rate adjustment. The focus should be on enhancing competitiveness through productivity gains from enterprise restructuring and cut in payroll taxes. Premature introduction of flexibility in the exchange rate market, say by introducing an intervention band, would undermine credibility of the authorities’ commitment to the current parity. In the future, FYRM may choose to exit from the current de facto DM peg policy if it is warranted by change in the underlying fundamentals owing to structural transformation of the economy. However, prior to introducing more market elements in exchange rate determination, FYRM needs to secure a well-developed money market and restore the health of the banking system.

1 The calculations were based on the chain index method, where trade weights change each year (see Box 6 for more details).

Box 6.FYRM: Real Effective Exchange Rate Indices

The real effective exchange rate (REER) is widely used for gauging the external competitiveness of a country. For this reason, the Fund’s Information Notice System (INS) calculates REERs of almost all of its members, including that of FYRM, and disseminates that information to the public through its monthly publication of International Financial Statistics.

For FYRM, the INS-REER is based on the weights obtained from the 1995 trade structure and deflated by the CPI.1 In order to see the robustness of findings from the INS-REER, two alternative REER measures are constructed.

  • The chain-type BEER. Like other transition countries, FYRM has experienced a rapid change in its trade structure. To capture this effect, a chain-type of REER index, which accommodates a change in trade weights, is calculated. Trade data are obtained from Direction of Trade Statistics and the third market competition is taken into account on that basis. A threeyear moving average is taken for smoothing irregularities caused by trade sanctions (e.g., the 1998 weight is based on 1995-97 average.)

  • The ULC-based REER. The CPI covers not only tradable goods, but also nontradable goods. Furthermore, it may well be affected by temporary movements associated with “pricing to market.” For this reason, it is argued that the BEER deflated by the unit labor cost (ULC) of the manufacturing sector provides more accurate information concerning external competitiveness.2 Weights are based on 1995-97 trade data, but because of data limitation some trade partners (such as Bulgaria) are excluded. For FYRM, labor incomes are all industry basis. For calculation of the ULC, the cyclical movement of productivity is normalized by the Hodrick-Prescott filter.

REERs thus obtained, although subject to data limitations,3 are by and large in line with the INS CPI-based REER.

FYRM: REER Weights(percents)
INS CPIChain index methodULC
based199419951996199719981999based
Albania2.00.00.00.00.00.00.00.0
Austria2.60.02.73.33.73.43.34.2
Belgium1.32.22.32.42.42.22.22.7
Bulgaria17.55.511.013.012.89.45.50.0
Canada0.00.00.00.00.01.11.31.4
Croatia4.55.14.13.63.23.53.84.2
Czech Republic1.70.00.00.00.00.00.00.0
France2.55.75.04.94.84.54.35.5
Germany18.34.312.516.319.719.318.523.5
Greece3.68.94.32.84.07.511.89.1
Hungary0.00.00.00.00.00.01.20.0
Italy10.518.117.617.617.014.712.617.9
Japan0.01.71.41.31.21.31.51.6
Netherlands0.04.94.74.54.64.34.25.3
Romania0.01.61.51.40.00.00.00.0
Russia9.86.75.45.23.93.01.90.0
Slovenia12.814.911.69.68.47.78.29.4
Spain0.00.00.00.00.01.21.21.5
Sweden0.00.00.00.01.21.31.81.6
Switzerland2.74.03.93.43.23.03.23.7
Turkey4.13.03.13.23.53.83.90.0
Ukraine0.00.00.00.00.01.71.60.0
United Kingdom1.47.54.43.52.52.52.83.0
United States4.65.94.54.13.94.55.15.5
Total100.0100.0100.0100.0100.0100.0100.0100.0
1 Zanello, A. and D. Desruelle (1997). “A Primer on the IMF’s Information Notice System,” IMF Working Paper, WP/97/71.2 Turner, A.G. and S.S. Golub (1997). “Towards a System of Multilateral Unit Labor Cost-Based Competitiveness Indicators for Advanced, Developing, and Transition Countries,” IMF Working Paper, WP/97/151.3 FRY is excluded from the calculation owing to data limitations, although it is one of the most important trade partners of FYRM. For the ULC calculation, poor quality of monthly labor statistics, which shows a continuous decline in employment, may bias towards improvement of the ULC-based BEER.

6. Capital inflows increased markedly in 1998. FDI took off on account of the sales of a brewery (US$33 million) and a cement factory (US$31 million), as well as investment in Macedonian Telecom5 (US$50 million). In addition, the private sector began to resort to foreign borrowing. About two-thirds of such transactions were import-related finance. The remaining one-third was project-related finance, most of which were related to the Kozjak hydroelectric power plant (US$18 million). In the meantime, disbursements from multilateral sources decreased somewhat, with the completion of some EBRD financed projects (Table 41).

7. The balance of payments performance began to deteriorate in the first quarter of 1999 even before NATO started a bombing campaign against FRY on March 24. Exports to FRY in the first quarter fell to one-half of the previous year’s level because of trade barriers6 erected by FRY and the escalation of fighting in Kosovo. In addition, exports of iron and steel were threatened with anti-dumping measures from the European Union and the United States. As a result, total exports fell by about 15 percent compared with the same period in 1998, and gross official reserves declined by US$14 million.

Impact of the Kosovo crisis

8. FYRM’s balance of payments were severely hit by the Kosovo crisis. Total exports fell in April-May 1999 to about 75 percent of the previous year’s level. Exports to FRY were down by about 80 percent (Figure 9). Exports that had previously transited through FRY (one-half of total exports) were also hurt because the use of an alternative transit route through Bulgaria and Romania or Greece increased transportation costs and prolonged delivery lags, thereby making Macedonian products less competitive. Furthermore, exports to other countries were also affected because export processing contracts (mainly in the textile and clothes industry) were canceled owing to concern about delivery risk. In addition, FDI and private borrowing, which had begun to suffer in the first quarter, worsened following the start of the NATO bombing campaign because of loss of investor confidence.

9. The loss of official reserves was however, small because of the import compression. Imports collapsed to a similar extent as exports, mainly reflecting a temporary suspension of oil and cereal imports, and a drawdown of inventories by enterprises. At the same time, nonfactor services improved because of a greater number of visitors associated with humanitarian agencies, NATO forces, and the media. Domestic payments made by these visitors contributed to an increase in private transfers and errors and omissions.7 Thus, gross official reserves fell by only US$12 million during April-May.

Recovery from the Kosovo crisis

10. The balance of payments performance improved markedly after the cessation of the bombing campaign on June 10. Exports to FRY surged, to nearly double the pre-crisis level. About two-thirds of these exports went to Kosovo (mainly foods; beverages and tobacco; and mineral fuels),8 while exports to Serbia remained below the pre-crisis level, given the shortage of purchasing power of the population. Receipts of nonfactor services also improved as transit transportation to Kosovo increased. Meanwhile, the recovery of exports to other destinations took time because of the difficulty in recapturing the canceled export processing contracts. At the same time, imports swelled rapidly, owing to the resumption of oil and cereal imports and the re-building of inventories by enterprises.

Table 10.FYRM: External Assistance Pledged at the May 1999 Consultative Group Meeting(US$ millions)
PledgedDisbursed
(as of 12/31/99)
Belgium11
Finland11
France157
Japan220
Netherlands1012
Norway10
USA286
Paris Club deferral4224
European Commission2715
World Bank9540
IMF3019
Total272125
Source: World Bank, European Union, and the FYRM authorities

11. Foreign financing improved remarkably. Following an emergency Consultative Group meeting on May 5,1999, official financing (grants and disbursements) increased rapidly. This included a drawing from the IMF under the CCFF (US$19 million); a World Bank emergency loan (US$40 million); and grants from various bilateral donors (about US$25 million) and the European Union (US$15 million). In addition, Paris Club creditors agreed to a nonconcessional deferral of all debt-service payments due during April 1999-March 2000 (US$42 million).9 At the same time, private financing (transfers, disbursements, FDI, and the commercial banks’ net position) also increased sharply in response to reduced uncertainty about the regional situation. Private transfers exceeded the pre-crisis level, and errors and omissions remained at the high level,10 Although the recovery of FDI remained slow, the private sector resumed its foreign borrowing.11 As a result, gross official reserves grew by about US$150 million during June-December, to reach US$458 million or the equivalent of 3.1 months of imports (c.i.f. base) by end-December.

B. External Debt and Reserve Adequacy

12. Before the Kosovo crisis, FYRM normalized the relations mainly through the following two reschedulings.

  • Paris Club creditors agreed12, in July 1995, on a rescheduling of about US$330 million in arrears (including late interest) and debt-service falling due between July 1, 1995 and June 30, 1996. The agreement provided for a rescheduling of arrears on pre-cutoff-date debt over 15 years, with a four-year grace period. Although the term of this rescheduling is nonconcessional, it is exceptional since the deferral of arrears on non-reschedulable post-cutoff-date debt and late interest of about US$70 million was contemplated, with a two-year grace period and repayment over the following four years.

  • London Club creditors agreed, in March 1997, to defer US$80 million in debt over 15 years, with a four-year grace period and capitalization of the first four years’ interest payments. Associated with this deferral, FYRM issued the U.S. dollar bonds, which were listed on the Luxembourg Stock Exchange.

Table 11.FYRM: Debt and Reserves Indicators
19951996199719981999
Prel.
External debt
External debt-to-GDP ratio (percent)23.825.431.541.143.3
Debt service-to-exports ratio (percent)10.411.18.710.113.0
Gross reserves
In months of cif imports1.92.01.92.13.1
Ratio to base money1.71.51.82.43.1
Ratio to M30.40.50.50.60.6
Ratio to the short-term debt 1/1.92.22.01.92.1
Source: IMF staff estimates.

13. Even though external debt increased substantially for the past two years, FYRM still managed to keep its debt-service payments reasonably modest. As of end-1999, FYRM’s external debt stood at about US$1.5 billion (43.3 percent of GDP) compared with about US$1.1 billion (31.5 percent of GDP) at end-1997 (Table 43).13 Although the private sector accumulated external debt recently, more than 85 percent of total debt outstanding was the debt owed by the public sector to multilateral institutions, and Paris Club and London Club creditors. While the external debt-service ratio increased from 8.7 percent of exports of goods and services in 1997 to 13.0 percent in 1999, the level was still low.

14. FYRM improved its external reserve position to a satisfactory level. Owing to the reserve buildup after the Kosovo crisis, the external reserve position rose to 3.1 months of imports at end-1999 from 2.1 months of imports at end- 1998. Reserve ratios to monetary indicators and short-term debt also improved from the already very prudent levels.

C. Exchange and Trade Regime

15. FYRM accepted the obligations of Article VIII in June 1998 and became free from restrictions on current payments. With the Fund’s approval, the authorities maintained an exchange restriction arising from the freeze on certain foreign currency deposits.14 The authorities are planning to exchange these deposits for government bonds. On capital account transactions, FYRM kept some restrictions including the prohibition of outward portfolio investment by residents, and the limitation of financial credits from nonresidents to residents (only credits for export-oriented projects or import-related transactions are permitted).

16. FYRM had already established a fairly open trade regime after the 1996 trade reform.15 There is no non-tariff restriction other than for security or public health reason. The range of current tariff rates is from zero to 60 percent, but most items fall into rates below 35 percent; the number of tariff bands is 16; and the simple and trade weighted average rates are 15 percent and about 11 percent respectively. In addition, there is a 1 percent fee for custom documentation, and in August 1999, the Ministry of Trade began to collect 0.1 percent fee from exporters for export promotion. The 1 percent fee for custom documentation had been scheduled to be repealed on April 1, 2000, when the new customs law became effective,16 but the government had decided to postpone its repeal to end-2000. Besides enacting the new customs law, FYRM adopted or envisages the following legislative changes:

  • At the onset of the Kosovo crisis, the government imposed import restrictions on selected commodities (mostly food products, which became subject to higher tariff rates and/or import approvals from the Ministry of Trade),17 but even before the crisis was over, the government began to remove some of these restrictions and all of them were eliminated at the beginning of January 2000.

  • The government is preparing amendments of the tariff law to increase the effective protection level—under the proposed tariff structure, while the tariff rates on raw material would be reduced, those on agricultural products would be increased to protect domestic production. As a result, the simple average tariff rate would be about 0.5 percent lower than the current average.

  • The Parliament adopted the law on free trade zones in July 1999, and construction of the zone will start in 2000.

17. Multilateral and bilateral trade agreements were the principal vehicles for trade liberalization during 1998-99. FYRM’s request for accession to the World Trade Organization (WTO) is progressing. A memorandum on the foreign trade regime and a reply to the questionnaire on the memorandum have already been submitted. The Working Party on FYRM’s accession request is scheduled to be held early 2000. Following free trade agreements with FRY (1996), Slovenia (1996), and Croatia (1997), FYRM signed free trade agreements with Turkey and Bulgaria in 1999. The agreement with Bulgaria became effective from January 2000 and the agreement with Turkey is expected to be enacted in the first half of 2000.18 FYRM is in the negotiation process of free trade agreements with Albania, Romania, Bosnia and Herzegovina, Ukraine, and EFTA. In the meantime, following the 1997 cooperation agreement, FYRM expects to initiate negotiations for Stabilization and Association agreement with the European Union from early 2000.

ANNEX I: Unemployment in Fyr Macedonia1

1. The unemployment rate in FYRM is extremely high, at an estimated 32.5 percent in 1999. Unlike in most other transition economies, the high unemployment is not the outcome of reform-related layoffs. Rather, the unemployment has been historically high, hovering around 30 percent in the past decade, mainly reflecting anemic economic growth and rigidities in the labor market. While the structural reforms undertaken in the context of the Special Restructuring Program in 1995—96 may have contributed to the worsening of the unemployment situation, it did not fundamentally alter the nature of the underlying problem. The pickup in economic growth in the past two years has had a positive impact on the unemployment dynamics, with the new qualified entrants into the labor market being able to secure jobs with relative ease and with the unemployment rate declining (Table 12).

Table 12.FYR Macedonia: Selected Labor Force Indicators, 1996-99
1996199719981999
Working age population 1/1,436,6031,489,6211,503,3681,518,249
Labor force789,082800,511823,828806,675
Employed537,592512,297539,763545,223
Unemployed251,490288,214284,065261,452
Nonemployed899,011977,324963,605973,026
(In percent)
Labor force participation rate54.953.754.853.1
Employment rate68.164.065.567.6
Unemployment rate31.936.034.532.4
Nonemployment rate 2/62.665.664.164.1
(Percent change)
Working age population3.70.91.0
Labor force1.42.9-2.1
Employed-4.75.41.0
Unemployed14.6-1.4-8.0
Nonemployed8.7-1.41.0
Source: Labor Force Survey.

2. This annex examines the nature of unemployment in FYRM, identifies factors that have potentially contributed to the high levels of unemployment, and discusses recent labor market measures undertaken to alleviate the problem. The analysis is based on the results of annual labor force surveys.2

A. The Nature of Unemployment

3. Several features of the unemployment in FYRM suggest that unemployment is essentially structural and that it is a problem of entry into the labor market, rather than of lay-offs. These features are: (i) the concentration of unemployment among the entrants into the labor market, the young, and the less educated/low-skilled; (ii) its long duration (Table 13); (iii) the low rates of inflow into and outflow from unemployment; and (iv) the low share of unemployment due to layoffs.3

Table 13.FYR Macedonia: Structure of Unemployment, 1996–1999(in percent)
199619971998199919961997199819991996199719981999
Unemployment rates 1/Participation ratesShare in total unemployment
Age Structure of Unemployment
15-2469.574.270.962.943.343.043.538.836.735.235.130.2
25-2948.253.851.851.275.376.275.573.419.620.720.021.2
30-3928.032.030.731.380.579.379.579.325.125.424.726.8
40-4915.319.118.017.077.275.376.975.612.113.913.814.0
50-5916.113.116.517.048.047.249.152.65.84.25.87.0
60-6410.17.78.18.816.314.518.818.60.60.40.50.6
65-803.06.61.55.05.34.35.54.30.10.20.00.1
Unidentified0.028.20.00.040.336.40.00.00.00.20.00.0
Education Structure of Unemployment
Without education41.740.235.634.018.919.016.412.03.42.82.01.4
Incomplete education30.929.031.027.333.131.429.729.07.76.36.36.0
Primary education40.646.744.740.347.546.646.343.435.235.837.334.4
3 years of secondary34.038.837.836.974.370.274.672.114.914.316.016.3
4 years of secondary28.933.032.231.972.071.270.469.028.530.131.734.6
Higher education16.220.217.818.579.875.476.977.12.92.92.73.2
University and higher14.518.916.215.085.182.680.680.67.47.94.04.1
Duration Structure of Unemployment
less than 1 month3.22.41.80.1
1-5 months5.25.46.04.4
6-11 months10.99.19.34.2
12-23 months13.913.712.111.3
2 yrs11.714.11.57.5
3 yrs8.49.612.20.9
more than 4yrs44.543.655.410.9
Other59.3
Gender Structure of Unemployment
Males29.133.032.531.967.066.567.465.555.556.158.160.5
Females36.240.837.633.342.941.242.240.844.543.941.939.5
Source: Data provided by the FYRM authorities.

4. The incidence of unemployment is high among the new entrants into the labor market, the young and the less educated. About three quarters of the unemployed do not have previous work experience.4 Relatedly, the share of unemployed youth (15—24 years of age) in total unemployed is very high, at about 30 percent in 1999, compared with less than 3 percent in virtually all OECD countries. The unemployment rate falls with age, particularly up to the age of 40 years (and is relatively stable thereafter), with the unemployment rate among the youth being around 50—70 percent. The unemployment rate is also high among those with low education and decreases with the level of education. In particular, post-secondary education appears to greatly reduce the probability of unemployment. For example, the unemployment rate among the uneducated and those with at most 4 years of secondary education is in the range of 30—40 percent, whereas less than 20 percent of those with higher education are unemployed.

5. The share of long-term unemployment (i.e. over one year) is very high and has increased in the past several years. In 19985, about 83 percent of the unemployed had been without a job for more than one year. This pattern is disquieting for several reasons. First, as the long-term unemployed lose their skills and their chances of reemployment diminish, “effective” unemployment—the pool of unemployed from which firms can draw to fill vacancies—is shrinking. This may create supply bottlenecks down the line, when a pickup in growth boosts demand for labor. Second, the likelihood of a continued increase in long-term employment is exacerbated by the very low rates of inflow into, and outflow from, unemployment that render the already large unemployment pool a stagnant one.6 Third, the share of those unemployed due to layoffs is very small by the standards of an adjusting economy (about 9 percent at end-1999, compared with about 60 percent in Poland). The development of the large and stagnant pool of unemployed even in the absence of serious structural reforms raises concerns about the unemployment implications of the recent acceleration in the pace of economic restructuring.

6. The dynamics of the labor market in the past couple of years, however, indicate that the employment opportunities opened up during the 1998-99 growth episode have increased the ease with which qualified entrants into the labor market could secure jobs. In 1998, for example, the highest-growth year of the past decade, not only were all new entrants into the labor market able to find employment, but so did many unemployed (most likely those who had been without a job for a short duration).

B. Causes of Unemployment

7. There are two main underlying causes of unemployment in FYRM: anemic economic growth and labor market rigidities, including high labor costs.7 Over the past 10 years, economic growth averaged about -2 percent, with positive growth rates experienced only in the past four years (Table 2). Industry, the main source of employment in the economy, has declined at an average annual rate of 6 percent during this period. This tepid economic performance has both directly constrained the economy’s ability to create jobs and has made the rigidities in the labor market a constraining factor for faster employment growth.

8. Rigidities in the labor market, which inhibit hiring and job creation, have resulted from (a) high costs of dismissal; and (b) high labor costs.

9. The labor legislation makes it very difficult and costly to dismiss workers. For example, employers must exhaust all available opportunities to keep the worker prior to dismissal, including redeploying him to other parts of the firm, reducing overtime for other workers, limiting new hires, providing vocational training and paying a generous lump sum in severance8 in case of firing. In case of group layoffs, employers are required to provide as much as three months’ advance notice to workers (in Poland, for example, the advance notice for mass layoffs is only 45 days). Notwithstanding these safeguards, the dismissed worker retains the right to resort to courts, a process that can be very costly for the firm.9 The high dismissal costs embedded in the labor code have discouraged employers from hiring new workers for fear of being unable to downsize the labor force during economic downturns.

10. Hiring is also directly inhibited by high labor costs imposed by the wage legislation and the fiscal code. These are a result of (i) high payroll taxes, (ii) high nonwage benefits, and (iii) mandatory wage floors for tax assessment.

  • (i) Payroll taxes currently constitute about 75 percent of the employee’s net earnings. The high level of taxation has both discouraged new hiring and has led to the widespread practice of employing workers without registering them officially as employed as a way of avoiding payment of taxes and contributions. This practice, in turn, accounts for the large discrepancies between official (“administrative”) employment/unemployment data and those obtained from the LFS (Table 21).

  • (ii) High nonwage benefits are mandated by national- and branch-level collective agreements and are mandatory for all enterprises that are less than 70 percent private (these account for about three quarters of total employment in the economic sector). The main nonwage benefits are food allowances (about 25 percent of the average monthly wage), transportation allowances, and holiday allowances (equivalent to one average monthly salary).

  • (iii) While there is no institutional minimum wage in FYRM, the Law on Wages imposes a mandatory floor10 (65 percent of the average wage in the branch) for assessing taxes and contributions. Thus, the tax burden on enterprises with average wages that fall below this floor is particularly high. This puts at a disadvantage small and medium-size private enterprises, the backbone of job creation in the country, and also inhibits the hiring of the young or uneducated to the extent that the productivity of these groups of workers is below that justified by the wage floor, which also accounts for the high incidence of unemployment among the young and less educated.

Assistance to the unemployed

11. To alleviate the unemployment problem there is a well-developed social safety net. Unemployed persons who have been laid off are entitled to receive unemployment benefits which are quite generous in relation to other countries in the region.11 Unemployed persons who have not held jobs previously (about 75 percent of all unemployed) do not qualify for unemployment benefits, but receive health insurance and social assistance. Thus, only about 12-13 percent of all the unemployed in 1999 were receiving unemployment benefits. While over 60 percent of the unemployed still qualify for health/social insurance, this appears to have provided incentives for employers to hire shadow workers, rather than for the unemployed to stay out of work.

C. Recent Labor Market Measures

12. The authorities have undertaken several measures over the past few years to mitigate the severe restrictions on firing imposed by the labor legislation and to make the labor market more flexible.

13. The Law on Labor Relations (LLR), a major component of the labor code, was originally adopted in 1993, but underwent two rounds of important amendments in 1997-98 as part of World Bank’s social sector programs. These amendments aimed at easing labor market restrictions, in particular restrictions on firing and hiring, as well as the high costs of terminating labor.12 More recently, new amendments to the LLR were adopted at end-March 2000 that further reduced labor market rigidities by decentralizing wage bargaining and lowering dismissal costs.

14. The Law on Employment and Insurance in case of Unemployment, the second major component of the labor code, was adopted in 1997, also in the framework of a World Bank’s program, with the view of increasing labor market flexibility by reducing the amount and the duration of the unemployment benefits. The law also aimed at directly encouraging employment by exempting firms from payroll taxes on new hires for a period of three years and providing wage subsidies to employers who hire an unemployed person. Subsequently, a new set of amendments was adopted at end-March, 2000 that restricted eligibility for open-ended unemployment benefits.

15. Apart from addressing labor market rigidities embedded in the labor code, some of the measures aimed at encouraging employment directly. These include the adoption in 1998 of the Law to Increase Employment that aimed at encouraging hiring through payroll tax exemptions. While the law helped increase hiring, it was repealed in 1999, as the new government found it largely ineffective and burdening to the budget.13

16. While important steps have been taken so far to ease labor market restrictions, further reforms aimed at minimizing disincentives to hire by reducing the high costs of adjustment of the workforce during changing demand conditions, both through the labor legislation and through decentralized wage bargaining, will be essential for coping with the unemployment problem. Without deeper structural reforms and a pickup in economic growth, it is difficult to see how the unemployment problem can be reduced in a meaningful way.

ANNEX II: Pricing of Oil Derivatives1

1. The government regulates the prices of a number of domestically sold oil derivatives at the producer and the retail levels, In January 1999 a new, transparent, system of pricing oil derivatives was introduced, replacing an arbitrary and opaque price-setting mechanism.2 This annex explains how the government administers the prices of oil derivatives under the new system and summarizes recent adjustments in these prices.

A. Pricing Mechanism

2. The price-setting mechanism at the producer level aims at ensuring that producer prices are in line with producer costs, including the cost of imported crude oil and a set profit margin for the refinery.3 The price commission, set up specifically for this purpose, meets at least once every two weeks and adjusts producer prices whenever the estimated production costs have changed by more than 5 percent in either direction during the previous three-month period. This pricing mechanism safeguards the profit margin to the refinery, since failure to increase producer prices in line with costs would result in the compensation of the producer for the losses incurred due to non-adjustment, Producer prices, therefore, are always adjusted in line with international prices for crude oil.

3. In contrast to producer prices, the ultimate authority for setting retail prices rests with the government. Retail, or pump, prices consist of (i) the producer price; (ii) the cost of transporting the oil derivative from the refinery to the gas station; (iii) the profit margin of the gas station; and (iv) excise taxes. Transportation costs and the profit margins, which vary across oil derivatives, are set and have been unchanged throughout 1999. Thus, once the government sets the retail price for various oil derivatives, it defines, by default, a specific, but variable, excise rate. Every change in the producer prices enacted by the commission, in the absence of an equal change in the retail price, will translate into a change in the tax rate. In particular, if the government fails to raise (lower) retail prices in response to an increase (decrease) in crude oil prices, the excise tax rate will be lower (higher), as will government revenues. Thus, given that the adjustment in producer prices is pseudo-automatic, the achievement of the government target for oil excise collection depends on government’s discretion in adjusting retail prices of oil derivatives.

4. This pricing mechanism clearly aims at preserving the producer profit margin. It, however, passes through to the consumer higher costs of oil derivatives-only to the extent that, for the year as a whole, excise collections are expected to fall short of government’s budgeted target because the average effective excise rate is lower than the statutory rate on which the excise revenue target was based. This partial passthrough reflects the government’s desire to ensure stable domestic oil prices.

B. Recent Price Adjustments

5. Retail prices of oil derivatives remained virtually unchanged in 1998, despite the 16 percent fall in world crude oil prices during the year. Retail prices were lowered by about 10 percent in January 1999, as the international prices of crude oil continued to fall (see Table 14). However, with the sharp recovery in world oil prices in the spring of 1999, the government increased domestic retail prices at end-June (by about 12 percent, on average). Thereafter, despite the continued increase in world oil prices, the government waited until August 25, 1999 to further adjust domestic prices further (by an average of about 3 percent).4 This, as well as the subsequent, delay threatened the achievement of the excise revenue target and prompted the authorities to make an additional adjustment in early December 1999 of an average of 14 percent. This adjustment ensured that the excise rates were well in excess of the statutory rates legislated in July 1999, thereby compensating in part for the excise losses incurred earlier in the year.

Table 14.FYRM: Prices of Oil Derivatives, 1999-2000.
Average price 1/

(denar per liter 2/)
Percentage changeCumulative percentage change

since June 30, 1999
Producer

Prices
Retail prices,

actual
Retail Prices,

full passthrough 3/
Producer

prices
Retail prices,

actual
Retail Prices,

full passthrough 4/
Producer

Pricer
Retail Prices,

actual
Retail Prices,

full passthrough
31-Dec-9810.2323.09
1-Jun-997.9620.72-22.15-10.26
30-Jun-9910.0023.2923.2925.5612.40
15-Jul-9910.9523.3524.259.560.244.109.560.244.10
26-Jul-9911.4923.4824.784.880.586.1414.910.836.40
9-Aug-9911.2023.4824.49-2.540.004.2912.000.835.15
25-Aug-9911.5624.3424.853.253.645.8415.644.496.71
25-Sep-9911.7924.3425.092.010.003.0817.964.497.71
5-Oct-9912.6724.3425.967.390.006.6626.684.4911.45
13-Oct-9913.0924.3426.383.320.008.3930.894.4913.26
10-Nov-9912.0324.3425.32-8.070.004.0520.324.498.72
15-Nov-9913.1924.3426.499.660.008.8231.954.4913.71
29-Nov-9914.4524.3427.759380.0014.0144.584.4919.14
10-Dec-9914.5027.6127.790.3113.4514.2045.0318.5419.33
16-Feb-0016.4527.8829.7513.490.997.7464.5819.7227.72
23-Feb-0016.7830.2530.122.018.508.0267.8929.8929.31
8-Mar-0017.3530.7930.693.381.761.4373.5632.1831.75
Source: Data provided by the FYRM authorities; slid IMF staff estimates.

6. In 2000, the authorities have continued to pass through increases in world oil prices, reflecting this time their de facto commitment at the beginning of the year to follow flexible oil pricing policies.

ANNEX III: Did privatizationincreaseprofitability infyrm?1

A. Introduction

1. A substantial empirical literature suggests that privatization improves the profitabilty of firms but much of this literature fails to correct for potential sources of bias. A number of studies suggest that privatized firms tend to be more efficient and more profitable than those that have remained in the state sector (e.g. Boardman and Vining, 1989; Megginson, Nash and van Randenburg, 1994). However, many of the studies that compare the performance of privatized, or private firms, with firms in the state sector have not addressed the fact that privatization is endogenous (Claessens and Djankov, 1998). In particular, there is reason to believe that more profitable, or potentially profitable, enterprises are likely to be privatized early in the process. A simple comparison of the performance of enterprises that have been privatized with those still in the state sector will therefore be subject to selection bias. Comparisons of pre-and post-privatization performance have often failed to account for changes in economic conditions that may affect all firms. This is a particular concern for economies in transition where privatization is often accompanied by other reforms, such as stabilization, which may lead to a general improvement in profitability in the enterprise sector.

2. More recent studies have addressed these biases and find mixed evidence on the effect of privatization. Three recent studies have controlled for selection bias by comparing the change in profitability of firms that have been privatized with the change in profitability of other firms. La Porta and Lopez-de-Silanes (1999) find that privatization leads to an increase in various measures of profitability whether or not there is a change in management as part of the privatization process. Frydman et al (1999), find no increase in profit margins as a result of privatization. They do find an increase in revenue in enterprises sold to outsiders but not in those sold to insiders. Claessens and Djankov (1998) find greater growth in total factor productivity in privatized firms compared to those that remained in the state sector.

3. This study finds that once selection bias is controlled for, there is little evidence that privatization in FYRM has led to an improvement in firm profitability, at least in the short run. This paper examines data on the financial position of 661 enterprises which had undergone privatization or were due to undergo privatization in FYRM in 1996-97. A simple comparison of privatized and yet to be privatized firms would suggest that privatized firms were more profitable than those that had not yet been privatized. However, firms that were more profitable prior to privatization were more likely to be privatized early. Once this selection bias is controlled for, there is little evidence that privatization improves profitability, at least in the short run. This result may reflect the predominance of insider buyouts and the lack of supporting legislation and institutions to ensure creditor and shareholder rights.

4. The remainder of this paper is divided into four sections. Section B provides some background on the overall performance of the enterprise sector in FYRM and a description of the privatization process. Section C describes the data. Section D describes the methodology and presents the results. Section E draws some conclusions.

B. Background

5. At the start of the reform process, the majority of workers were in socially-owned enterprises. In 1994, less than two percent of workers were in fully private firms, according to official statistics, although there were likely to be more in unregistered enterprises and on small private farms not fully captured in these statistics. Private enterprises tended to be small shops and other service sector enterprises. There were also a small number of workers in cooperatively-owned enterprises. Roughly four percent of workers were in state owned firms which included most of the utilities. Roughly two thirds of workers in FYRM, however, were in enterprises which were neither owned by the state nor by workers but by “society”. Managers in these enterprises were elected by worker’s councils but property rights were very unclear. The remainder of the workforce was in enterprises with mixed ownership.

6. In 1998, over 50 percent of employment was in privatized firms. By the end of 1998, 1,435 enterprises, with over 213,013 employees, had been privatized (Table 27). According to figures from the centralized payments bureau (ZPP), 51 percent of employment in 1998 was in privatized firms,2 Employment in firms which had been founded with private capital (i.e. had never been state- or socially-owned) was also rising during this period, from 20 percent in 1996 to 26 percent in 1998. Only 24 percent of employment were in state or socially-owned enterprises in 1998.

7. Enterprise sector profitability has improved since 1995, but it is not clear whether this is due to privatization. The enterprise sector as a whole ran substantial losses prior to reform; in 1995, losses before tax and depreciation were equivalent to 4 percent of GDP. The aggregate financial position of the enterprise sector improved considerably from 1995 to 1998. By 1998, losses before tax and depreciation were equivalent to 1 percent of GDP. However, it is not clear how much of this improvement is due to privatization and how much is a reflection of other factors, such as macro-economic stabilization.

The privatization process

8. Mass privatization got underway in late 1994. The first steps towards reform and privatization were taken in 1990, while FYRM was still part of the Socialist Federal Republic of Yugoslavia (SFRY), with the introduction of the Markovic law. Under this law, enterprises could be corporatized and employees could purchase shares, usually at a substantial discount to their market value. However, few enterprises were fully privatized before the law was suspended in 1991. The reform process in general was delayed until after FYRM’s political and monetary independence was completed in late 1992. A new privatization law (the Law on the Transformation of Social Capital) was passed in June 1993 but only in November 1994 were the first companies privatized under this law. By the end of 1999, 1,488 enterprises representing 215,951 workers had been privatized (Table 27).

9. While the law allowed for several different models of privatization, most enterprises were sold to insiders. Existing management was responsible for choosing the timing and method of privatization, while an independent valuation of all firms undergoing privatization was carried out under the auspices of the Privatization Agency. This valuation was based partly on an assessment of the value of the enterprises’ assets, and partly on projected profits.3 Workers and managers were permitted to purchase shares at a discount to the official valuation and were permitted to buy their shares in installments over several years. The vast majority of companies were privatized under some form of insider buyout. Forms of outsider privatization included, debt/equity conversions, foreign equity, and sale of assets (Table 27). Most of the enterprises sold under the foreign equity model were branches of enterprises registered in other former SFRY republics that were purchased by the parent company.

10. Managers of profitable enterprises had the ability and incentive to push for early privatization of their enterprise. Under the Law on the Transformation of Social Capital, all enterprises with social capital were required to undergo privatization. However, managers had considerable control over when and how an enterprise was privatized. Because managers could purchase shares at a discount to their assessed value, managers of profitable enterprises, or potentially profitable enterprises, could expect to benefit personally from privatization.

C. Data

11. The paper uses data on the financial results of 661 privatized firms. The data used in this paper was constructed from two data sets. The first data set was provided by the centralized payments bureau, known by its Macedonian acronym ZPP. It consisted of information on the 1996 and 1997 financial results of 901, mainly large, enterprises. The second data set was provided by the Privatization Agency and included information on the date and type of privatization for all enterprises privatized by mid-1999. The two data sets were merged to create a database of 661 companies representing 66 percent of all privatized firms.

12. Various measures of profitability were used and all yielded similar results. Return on capital would be the most appropriate measure of profitability. However, no data was available on the level of, or return on, capital. The level of profits, profits per worker, and profits as a proportion of sales revenue were available as alternative measures of profitability. The level of profits is likely to be noisy. Profits per worker will be a less noisy measure but may be subject to bias if privatized firms are more likely to reduce excess labor. Profits over sales revenue (or profit margins) may not be a good indicator as firms that maximize profits are unlikely to maximize profit margins. However, the results were very similar whichever measure was used. Only the results for profits per worker are presented here. In all cases profits were before tax and depreciation.4

D. Methodology and Results

Levels estimator

13. The profitability of privatized and yet to be privatized firms was compared. The level of profitability of firms that had already been privatized in 1996 and those which had yet to be privatized were compared. This was done using an OLS regression with firm profits per worker as the dependent variable (profit96/worker). The independent variable was a dummy (private95) set equal to 1 for those enterprises that had been privatized by December 31, 1995 and 0 for those enterprises that had not yet been privatized. The comparison was repeated for 1997. Dummies for the sector in which the industry operated (sector dummies) were included.

14. The relationship between time since privatization and profitability was estimated. It is possible that privatization improves profitability but only after a lag. Profits per worker were therefore regressed against the days since privatization by end 1996 (t96) and the sample was restricted to those firms that had been privatized by end 1996. The regression was repeated for 1997.

Results

15. Privatized firms were found to be more profitable than nonprivatized firms and profitability increased with time since privatization. Privatized firms in 1996 had higher profits per worker (before tax and depreciation) than nonprivatized firms (Table 15, regression 1). This result also holds in 1997 (regression 2). The coefficients on t96 and t97 are positive suggesting that firms which were privatized earlier had higher profits per worker than those privatized more recently (regressions 3 and 4).

Table 15.FYRM: Levels Estimator and Selection Bias 1/
Regressions(1)(2)(3)(4)(5)
Dependent variable 2/profits96/

worker
profits97/

worker
profits96/

worker
proflts97/

worker
proflts96/

worker
Independent variables:
private95 3/37,344 **
(12,333)
private96 4/33,897 **
(15,050)
t96 5/60.3**
(24.5)
t97 6/50.9**
(19.4)
privatized98 7/-169,067**
(49,662)
privatized99 8/33,164
(64,609)
constant-29,894 **-18,753-20,912**-17,868-56,755**
(9,215)(14,441)(12,109)(14,439)(20,961)
sector dummiesYesyesyesyesyes
Sample size506506394489112
Adjusted R squared0.0360.0090.0580.0360.064
F ratio2.91.52.21.61.9
Prob>F0.0020.1540.0660.0930.001
Sources: Data provided by Privatization Agency and Payments Bureau (ZPP); and calculations by IMF staff.

Selection bias

16. Levels estimators may be subject to selection bias. As discussed in the introduction, a simple levels estimator which compares the performance of enterprises which have been privatized with those that have not yet been privatized may be subject to selection bias. The selection bias results from the fact that managers of profitable or potentially profitable enterprise had the ability and incentive to push for early privatization of their enterprises as they were able to purchase shares in the enterprise at discounted prices. Given this endogeneity, privatized firms would be more profitable than yet to be privatized firms even if privatization itself had no impact on the level of profitability. As a result, the levels estimators discussed above would have an upward bias.

17. Evidence of selection bias was tested for. Data on pre-privatization profitability was only available for firms privatized after 1996. For these firms, the relationship between preprivatization profits and the year of privatization was determined. Data on pre-privatization profits was available by sector for firms privatized prior to 1996. The average profitability of different sectors was examined to see whether firms in more profitable sectors were privatized earlier.

Results

18. Firms in more profitable sectors tended to be privatized earlier. A disproportionate share of enterprises in the trade, construction and crafts had been privatized by end 1995. These three sectors had the highest level of net profits per worker, or lowest level of net losses per worker, among all the sectors in the economy in 1995 (Table 16) (no data on profitability by sector is available for 1994).

Table 16.FYRM: Net Profits by Sector, 1995–97(In thousands of denar)
199519961997
TotalPerPerTotalPerPerTotalPerPer
enterpriseemployeeenterpriseemployeeenterpriseemployee
Mining and industry-2,923,000-675-21-3,871,000-893-30-2,155,000-497-17
Agriculture-945,000-928-41-1,373,000-1395-69-661,000-672-34
Forestry-67,000-882-17-88,000-1189-22-5,000-68-1
Water management-148,000-6,167-52-126,000-5,250-48-115,000-4,792-44
Construction-97,000-49-3-146,000-73-5-263,000-132-8
Transport and communication-644,000-308-26-972,000-450-42-796,000-368-34
Trade-167,000-8-3-903,000-49-23-393,000-21-10
Tourism and catering-78,000-58-11-133,000-97-19-123,000-90-17
Crafts-48,000-25-9-91,000-45-16-44,000-22-8
Other sectors-16102000-19023000-16180000
Total economy-21219000-26726000-20735000
Sources: Data provided by the Payments Bureau (ZPP) and World Bank staff.

19. Enterprises privatized in 1997 had higher pre-privatization profitability than those privatized in 1998. The relationship between pre-privatization profit per worker and the timing of privatization is confirmed by regression 5 (Table 15). This shows that enterprises privatized in 1998 had significantly lower profits per worker in 1996 than those privatized in 1997 (the omitted category). The coefficient on enterprises privatized in the first half of 1999 is not significant. However, this is not surprising as the number of firms privatized during the first half of 1999 were small.

Difference estimator

20. Selection bias can be partially corrected by using a difference estimator. This method uses the change in profitability between 1996-1997 (dprofits per worker) as the dependent variable and change in privatization status as the independent variable (privatized96 etc).5 This approach is similar to using a firm-level fixed effect. The firms in the data set fall into three groups: those which have been privatized for some time, those which have just completed privatization, and those not yet privatized. If privatization leads to an improvement in profitability, the hypothesis is that those that have just completed privatization will see a larger improvement in profitability than the other two groups. This should be the case whether or not those firms with a higher level of profitability were privatized earlier. In one regression, a dummy was set equal to 1 for all enterprises which had just completed privatization (i.e. had been privatized during 1996) and 0 for the other two control groups (i.e. those privatized either before or after 1996). In a slightly modified specification, the two control groups (privatized for some time and not yet privatized) were separated out by including another dummy for firms that were already private by end 1995. Those not yet privatized were the omitted category. Finally, it is not clear how quickly the impact of privatization is reflected in improved performance. The estimations, therefore, were repeated on the assumption that privatization took 2 years to impact profitability. Previous studies, which have found a positive impact of privatization on profits, have found that the impact is evident within the first 2 years following privatization.

Results

21. There is little evidence that privatization is associated with an increase in profits. There is little evidence that enterprises privatized in 1996 experienced a larger increase in profits per worker between 1996 and 1997 than those in the control groups. This is true if the two control groups (already privatized and not yet privatized) are taken together (Table 17, regression 6) or taken separately (regression 7). It is also the case if the impact of privatization on profits per worker is assumed to take effect the year after privatization (regressions 6 and 7) or only after a 2-year lag (regressions 8 and 9).6

Table 17.FYRM: Difference Estimator 1/
Regressions(6)(7)(8)(9)
Dependent variable 2/dprofits/dprofits/dprofits/dprofits/
workerworkerworkerworker
Independent variables:
private94 3/-3,042
(18,795)
private95 4/-14,391
(13,091)
privatized95 5/-2,422-3,067
(9,993)(10,403)
privatized96 6/-7,79716,815
(9,589)(12,681)
constant30,857**40,040**27,630**28,616**
(8,323)(11,876)(7,288)(8,193)
sector dummiesyesyesyesyes
Sample size506506506506
Adjusted R squared0.0400.0380.0380.035
F ratio2.92.52.82.4
Prob>F0.0010.0020.0010.004
Sources: Data provided by Privatization Agency and the Payments Bureau (ZPP); and calculations by IMF staff.

E. Conclusion

22. There is little evidence that privatization in FYRM has increased profits in the short run. While privatized firms are more profitable than nonprivatized firms, this may be a reflection of the fact that more profitable firms were privatized earlier. After controlling for selection bias there is little evidence that privatization has led to an improvement in profitability in privatized enterprises, at least in the short run. It is possible, therefore, that the KMgeneral improvement in profits in the enterprise sector as a whole has more to do with the improved macro and trade environment than privatization itself. It is also possible that privatization will have an effect but that this effect will only be apparent over a longer period.

23. The disappointing short term results of privatization may reflect problems with insider privatization and the weak regulatory environment. This paper’s finding that privatization in FYRM appears to have had little impact on enterprises profitability, at least in the short run, may be a reflection of the predominance of insider privatization whose effectiveness has recently been questioned (Barberis et al, 1996; Shleifer and Vishny, 1996; and Frydman et al, 1999).7 The results may also reflect the fact that shareholders purchased their shares in installments over several years. Immediately following privatization, therefore, shareholders. may have had less incentive to push for improvements in the profitability of enterprises. It is also possible that privatization is not very effective at increasing profitability in the absence of an appropriate legal and regulatory environment, which enforces creditor and shareholder rights. In particular, privatization may be more effective if firms face a realistic threat of takeover or liquidation. This requires that hard budget constraints are imposed, creditors are able to seize the assets of delinquent debtors, shareholders are able to freely trade their shares, and minority shareholders have their rights protected. In 1996-97, none of these conditions prevailed in FYRM. Bank lending practices were poor, the majority of enterprises were permitted to restrict the sale of shares,8 the majority of share registries were held by companies,9 and creditors were not permitted to seize an asset if the asset was essential to the functioning of the enterprise. Measures to impose hard budget constraints and improve creditor and shareholder rights were an important component of the second year ESAF arrangement.

References

    Barberis, Nicholas, MazimBoycko, AndreiShleifer, and NataliaTsukanova, “How Does Privatization Work? Evidence from the Russian Shops,”Journal of Political Economy. CIV (1996), 764790.

    Boardman, Anthony E., and Aidan R.Vining, “Ownership and Performance in Competitive Environments: A Comparison of the Performance of Private, Mixed, and State-Owned Enterprises,”Journal of Law and Economics, XXXII (1989), 133.

    Claessens, Stijn, SimeonDjankov,“Politicians and Firms in Seven Central and Eastern European Countries,”Policy Research Working Paper No. 1954, The World Bank, Washington DC, 1998.

    Frydman, Roman, CherlyGray, MarekHessel, and AndrzejRapaczynski, “When Does Privatization Work? The Impact of Private Ownership on corporate Performance in the Transition Economies,”Quarterly Journal of Economics, Volume CXIV (1999), 11531191.

    La Porta, Rafael, and FlorencioLopez-de Silanes, “The Benefits of Privatization: Evidence from Mexico,”Quarterly Journal of Economics, Volume CXIV (1999), 11931242.

    Megginson, William L., Robert C.Nash, and Matthias vanRandenborgh, “The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis”, Journal of Finance, Volume 49 (1994), 403452.

    Shleifer, Andrei and RobertVishny, “A Theory of Privatization,”Economic Journal, Volume 106 (1996), 309319.

ANNEX IV
FYRM: Tax Summary as of April 1, 2000
TaxNature of TaxExemptions and ReductionsRates
Central Government
1. Taxes on Income and Profits
1.1 Profit TaxA tax on annual aggregate business profitsFixed assets used for:Standard rate:
(i) Technological modernization,
  • 15 percent

(ii) Structural adjustment,
Resident legal entities and physical persons are taxed on their global profits. Nonresidents are taxed on profits earned in the FYRM. An entity is a resident of the FYRM if it is established and registered there.(iii) protection of t the environment, receive accelerated depreciation.
Reinvested profits are deductible.For remitted divideends:
  • 15 percent

The taxable base is the difference between total revenues and expenses. Deductible expenses include business, financial, and extraordinary expenses, as well as depreciation.Investments in economically undeveloped districts, border regions and certain mountain districts are deductible.
Taxpayers make monthly advance payments based on the previous year’s profits, adjusted for inflation. Payments for the period July January are adjusted based on actual profits.The profits of: (i) Joint ventures with foreign partners, where the foreign partners hold at least a 20 percent share, (ii) Foreign enterprises, are exempt for the first three years of operation.
Rehabilitation firms employing disabled persons are exempt.
1.2 Personal Income TaxA tax on annual aggregate net personal income from all sources.All social security contributions are deductible.Progressive tax rates are applied as follows:
Residents are taxed on their worldwide income. Nonresidents are taxed on income carned in the FYRM.1/4 of the average salary amount is deductible.(i) Income below two times the average monthly wage (AMW):
  • 23 percent

.
The taxed is withheld at source on a monthly basis.Investment in land improvement or in land consolidation is deductible by 50 percent and 100 percent, respectively.(ii) Income between two and five times AMW:
  • 27 percent

.
Investment in farm buildings and agricultural implements is deductible for up to 30 percent of the cadastral income.(iii) Income over 5 times AMW:
  • 35 percent

.
Interest on demand deposits is exempt.
Distributed dividends are 50 percent exempt.(i) Employment, pension, economic and professional earnings: Same as tax rates
(ii) Independent contract work, copyright, patents, technical improvements, capital property and gambling earnings:
  • 23 percent

2. value-Added Tax (VAT)
A VAT is scheduled was introduced April 1,2000.A tax on consumption, calculated at all stages of production and supply, using the destination-based credit invoice method.The following are zero-rated: expots, goods transported to/or dispatched from duty-free zones; services related to important and export; services performed by brokers and other intermediaries; aircraft leases used in international commercial air traffic; and interantional air transport of passengers.General rate: 19
percent. Reduced rate:5 percent.
The threshold for monthly filers is deanr 25 million (US $ 417,000) and quarteerly filers denar 1 million (US $17,000). payments are due within 15 days from the end of the tax period. Refunds are paid within 30 days.The following are excempt from VAT; residential building and apartments except the first supply, rents, postal services, banking and financial services, insurance, health services, medical and dental services; educational services, and funeral services.The reduced rate applies to: food products except alcoholic beverages and soft drinks; basic agricultural products, water, electricity, coal, wood, gas, air conditioning and heating, drugs, personal care products, books, pamphlets, newspapaers, and periodicals; public transportation; waste disposal and services of lawers, accountants, and auditors.
2.1 Excise TaxA tax on the sale or import of goods.Exports are exempt.Oil


Gasoline
  • MF86 22.963 denar/liter

  • MF98 24.611 denar/liter

  • BMB95 22.072 denar/liter

Excises are generally imposed at the manufacturing and import stage. However, excises on luxuries are imposed at each distribution stage.Diesel.
  • D1 12.429 denar/liter

  • D2 11.759 denar/liter

Control marks are widely used to enforce payment of all excises.Heating Oil
  • EL 3.123 denar/liter

SL 38.3 percent
Jet fuel 17 percent
LPG: Standard rate 5 percent
LPG: For cars/vessels 40 percent
Fuel Oil
Mazut 0.099 denar/liter
Others 11 percent
2.1 Excise tax (continued)Alcohol
  • Alcohol (3 denars per percentage

  • of alcohol / liter)

  • Spirits (2 denars per percentage

  • of alcohol / liter)

Beer 15 denars / liter
Tobacco
  • Cigarettes

  • Domestic 1,350 denar/kilo

  • Imported 40 percent

  • Imported tobacco 40 percent

Automobiles
  • Up to 2-liter cylinder 25 percent

  • Over 2-liter cylinder 55 percent

Luxury items 50 percent
Applies to ornaments, precious metals and stones, pearls, perfume, cosmetic
products, handmade rugs, reptile
leather and fur products.
Coffee
  • Unroasted 70 denars / kilo

  • Roasted 85 denars / kilo

  • Instant 90 denars / kilo

2.2 Import DutiesTax on imported goods.Exemption for these items:Rates range from 0 percent to 25 percent
(i) Re-exports. Must provide a bank guarantee for the amount of duty, in case re-export does not occur.Lower rates on raw materials. No duty on cotton or crude oil.
(ii) Raw materials. Must pay duty, but after exporting finished product receive a duty-drawback.Preferential trade agreements. specifying 1 percent ‘statistical charge’ alone, apply to trade with:
Exemption for these organizations:
(i) Diplomatic and consular missions.
2.2 Import Duties (continued)(i) Slovenia (Agreement signed 2.96). Exception: tariffs on industrial goods reduced gradually, with final elimination by 2000.
(ii) Yugoslavia (Agreement signed 10/96). Beyond a specified quantitative limit, general tariff rates apply.
(iii) Bosnia (Agreement signed 1.97).
(iv) Croatia (Agreement signed 3.97).
Exception: refined oil is subject to prohibitive tariffs.
1997 average tariff rate: 6.3 percent
3. Taxes on Property
3.1 Inheritance & gift taxA tax on inheritance and gifts.In general, recipients within the first degree of kinship (a spouse, child, or parent) are exceptFor recipients within the second degree of kinship: 3 percent (Prior to 1997: 5 percent)
Recipients within the second degree of kinship (a grandchild, brother, or sister) are exempt only if they lived in the donor’s household at the time of death or when the gift was given.All others: 5 percent (Prior to 1997:10 percent)
Social Security Funds
4. Social Security contributionsAll persons are liable to compulsory monthly social security contributions.Rates are the same for employed and self-employed persons:
For employed persons, the contributions, together with the income tax, are withheld at source.Pension & Disability Fund:
20 percent
Health Care Fund: 8.6 percent
Employment fund: 1.5 percent
Self-employed persons pay the Contributions with their monthly income tax.
Local Government
5. Taxes on Property
5.1 Property taxA tax on the market value of:Exemptions for:0.10 percent
(i) Immovable property, e.g., houses, apartments, business premises.(i) Buildings used by government
(ii) Movable property, e.g., motor vehicles, vessels and aircraft.(ii) Buildings used for education, health, sport, and cultural purposes.
(iii) Buildings used for religious and humanitarian purposes.
(iv) Farm land.
(v) Buildings registered as historical monuments.
(vi) Buildings housing foreign diplomatic or consular representatives, or international organizations.
Residential buildings enjoy a 50 percent deduction.
5.2 Property sales taxA tax on the market value of sales of real estates and rights.3 percent
STATISTICAL APPENDIX
Table 18.FYRM: Gross Domestic Product at Current and Constant Market Prices by Economic Activity, 1995–99
1995199619971998199919951996199719981999
Eat.Est
(In millions of denars, at current market prices)(In millions of denars, at constant 1995 market prices)
Mining and industry33,27734,39038,35141,68040,51633,27734,93235,94137,55936,620
Agriculture and flaheries18,01518,87619,78019,10518,02718,01517,48717,48718,16218,212
Forestry9059229848669409051,045979854937
Water management738740755653648738784821704706
Construction8,9179,07310,13110,84012,3508,9178,8638,8809,13710,255
Services107,668112,443114,981117,683122,803107,668108,419109,891112,704117,178
Transport and communications10,33610,42511,30112,23814,04610,33610,37510,71711,45713,025
Trade18,75019,77520,10420,44721,59918,75018,95618,61318,78020,038
Tourism and catering2,6903,1453,0683,7384,1272,6902,8002,6993,2473,546
Personal services, crafts, and trade3,3733,7694,2003,9123,8733,3733,5893,8313,5403,540
Utilities and public services3,5473,8304,1494,2244,1823,5473,6113,8273,8663,866
Financial and business services9,9139,77410,15710,68610,7809,9139,1749,60510,02510,216
Education, science, culture, and information10,34610,76511,12411,06711,08810,34610,62610,38210,24710,370
Health care and social security9,0058,8199,5389,7309,7489,0058,9179,1229,2329,342
Public administration11,31211,76111,60911,99412,01711,31211,48511,68111,97312,116
Other 1/28,39730,37829,73029,64531,34326,39728,88629,41330,33831,119
Gross domestic product169,521176,444184,982190,827195,284169, 521171,530174,000179,120183,908
(in percent of GDP)(Annual percent change)
Mining and industry19.619.520.721.820.7-8.95.02.94.5-2.5
Agriculture and fisheries10.610.710.710.09.22.3-2.90.03.90.3
Forestry0.50.50.50.50.5-2.815.4-6.3-12.79.7
Water management0.40.40.40.30.37.06.24.7-14.20.2
Construction5.35.15.55.76.3-1.9-0.60.22.912.2
Services63.563.762.261.762.91.00.71.42.64.0
Transport and communications6.15.96.16.47.2-1.10.43.36.913.7
Trade11.111.210.910.711.11.01.1-1.80.96.7
Tourism and catering1.61.81.72.02.1-12.64.1-3.620.39.2
Personal services, crafla, and trade2.02.12.32.12.0-15.06.46.7-7.60.0
Utilities and pubic services2.12.22.22.22.11.71.86.01.00.0
Financial and business services5.85.55.55.65.5-5.5-7.54.74.41.9
Education, science, culture, and information6.16.16.05.85.76.42.7-2.3-1.31.2
Health care and social security5.35.05.25.15.04.1-1.02.31.21.2
Public administration6.76.76.36.36.24.61.51.72.51.2
Other 1/16.817.216.115.516.03.81.71.83.12.6
Gross domestic product100.0100.0100.0100.0100.0-1.11.21.42.92.7
Source: Data provided by the Statistical office.
Table 19.FYRM: Gross Domestic Product by Aggregate Demand Components, at Current and Constant Market Prices, 1995-99 1/
1995199619971998199919951996199719981999
EstEst
(In millions of denars, at current market prices)(In percent of GDP)
Gross domestic product, at current market prices169,521176,444184,981190,827195,283100.0100.0100.0100.0100.0
Total domestic demand186,021194,672211,644223,069223,052109.7110.3114.4116.9114.2
Consumption150,872159,239168,147174,408181,34389.090.290.991.492.9
Private119,381127,254136,350140,878144,20570.472.173.773.873.8
Public31,49131,98531,79733,53037,13818.618.117.217.619.0
Gross investment35,14935,43343,49748,66141,70920.720.123.525.521.4
Gross fixed capital formation28,02730,65432,18933,98234,94916.517.417.417.817.9
Changes in inventories7,1224,77911,30814,6796,7604.22.76.17.73.5
Foreign balance−16,500−18,228−26,663−32,242−27,769−9.7−10.3−14.4−16.9−14.2
Exports of goods and services55,92349,77068,24577,49981,02933.028.236.940.641.5
Imports of goods and services72,42367,99894,908109,741108,79742.738.551.357.555.7
(In millions of dcnars, at constant 1995 prices)(Annual percent change)
Gross domestic product, at constant 1995 prices169,521171,530174,000179,120183,908−1.11.21.42.92.7
Total domestic demand186,021189,011196,627205,121205,4613.81.64.04.30.2
Consumption150,872154,472157,525163,133170,409−2.32.42.03.64.5
Private 1/119,381122,927126,737131,077135,118−4.33.03.13.43.1
Public31,49131,54530,78832,05635,2905.70.2−2.44.110.1
Gross investment 2/35,14934,54039,10141,98835,05337.3−1.713.27.4−16.5
Gross fixed capital formation28,02729,85428,57029,00129,33710.26.5−4,31.51.2
Changes in inventories7,1224,68610,53112,9875,7163,649.7−34.2124.7233−56.0
Foreign balance 2/−16,500−17,481−22,627−26,001−21,55390.65.929.414.9−17.1
Exports of goods and services55,92348,79463,01770,04971,803−3.3−12.729.111.22.5
Imports of goods and services72,42366,27585,64396,05193,3578.9−8.529.212.2−2.8
Memorandum items:
GDP per capita (in US$)2,2762,2261,8521,7441,699
Gross domestic saving (as percent of GDP)11.09.89.18.67.4
Implicit GDP deflator (annual percentage change)17.12.93.40.2−0.3
Source: Data provided by the Statistical Office and IMF staff estimates.
Table 20.FYRM: Price Indices, 1995–99(Year-on-year percent change)
Consumer Price IndexRetailIndustrialAgricultural
TotalFoodTobacco,Clothing,HousingHygiene,Education,Transport,PricesProducerProducer
BeveragesFootwearHealthCultureTelecomPricesPrices
199515.88.63.912.529.314.118.09.715.84.81.2
19962.3-0.11.40.14.41.95.63.32.9-0.30.3
19972.64.2-4.0-1.53.7-0.5-8.619.44.44.273.2
1998-0.1-0.23.62.40.50.1-10.32.40.84.0-14.6
1999-0.4-0.70.21.20.3-1.4-2.2-0.8-1.1-0.1-5.2
1997 January0.5-5.71.2-0.23.7-0.73.124.64.50.7-4.3
February-0.1-5.5-5.9-1.93.2-0.23.224.94.12.2-0.4
March0.0-5.5-5.6-2.73.3-0.33.625.13.61.9-14.3
April-2.1-8.3-5.7-2.90.8-1.62.625.12.21.49.4
May-0.1-1.1-6.3-2.90.6-3.3-10.024.93.10.6-31.8
June1.73.0-6.4-3.20.9-1.1-10.124.93.40.826.6
July3.37.4-3.3-3.30.9-3.9-16.125.25.11.8137.9
August4.48.9-2.7-2.31.80.7-16.427.06.47.1186.6
September3.86.9-2.2-1.01.71.3-15.426.06.58.728.9
October3.36.2-2.0-0.91.11.8-15.625.36.18.3126.1
November3.56.4-3.30.91.41.6-16.125.46.08.3161.5
December3.26.1-3.50.60.82.3-16.224.65.98.3154.2
1998 January1.55.7-1.50.90.81.1-16.72.52.17.491.7
February2.26.26.81.30.80.5-16.12.73.05.691.9
March2.36.66.62.20.80.8-18.12.73.06.079.7
April3.38.56.32.81.01.2-18.03.23.66.196.2
May4.28.26.73.00.62.3-6.23.34.46.8-46.0
June0.3-1.06.33.20.63.5-6.23.32.76.8-19.6
July-1.3-5.33.04.10.53.0-1.33.31.06.8-28.2
August-2.3-5.42.42.3-0.5-1.7-6.11.90.11.9-49.1
September-2.3-5.22.22.7-0.3-1.5-7.91.6-0.42.0-0.6
October-2.1-4.91.02.30.1-2.4-7.71.6-0.4-0.1-4.4
November-3.1-7.12.11.50.1-2.1-7.51.6-0.9-0.1-56.8
December-3.1-7.52.42.40.1-2.5-6.82.2-0.8-0.1-57.2
1999 January-3.3-6.6-1.42.00.2-1.8-6.4-2.1-2.5-2.3-58.9
February-3.2-6.4-2.03.30.2-1.1-6.5-2.8-3.1-1.5-59.4
March-2.9-5.9-2.32.70.0-1.0-3.6-2.5-2.5-2.2-60.2
April-3.9-7.9-2.12.6-0.1-1.0-1.1-2.9-3.2-1.8-60.2
May-4.1-8.3-2.12.40.1-1.3-4.5-3.1-3.3-2.0-4.9
June-2.0-3.2-1.61.7-0.2-1.9-5.0-3.2-2.4-2.020.5
July-1.6-2.0-1.10.6-0.3-1.8-5.0-3.2-2.20.2-33.1
August0.81.22.40.60.6-1.30.3-0.1-0.5-0.1-6.0
September0.70.32.6-0.31.0-1.42.21.0-0.10.15.4
October0.90.53.7-0.10.9-1.22.11.30.12.6-8.5
November1.31.73.7-0.50.8-1.82.41.40.62.9-12.8
December2.43.13.4-0.80.8-1.22.47.0234.1-12.0
Source: Data provided by the Statistical Office.
Table 21.FYRM: Employment, According to Administrative Sources and the Labor Force Survey (LFS), 1996–98
1996 (April)1997 (April)1998 (April)1999 (April)
Adm.LFSAdm.LFSAdm.LFSAdm.LFS
Total employment348,984537,591331,525512,301315,525539,762313,647545,222
Economic Activities263,618436,323247,411409,625230,980435,141226,581440,341
Industry and mining131,050155,453123,598140,413117,792152,096116,341151,063
Agriculture and fisheries22,28495,26920,60290,40317,639102.20116,181111,701
Forestry3,3984,7983,8104,5293,5025,0483,2803,660
Water management2,3392,7462,5292,2192,5922,7802,4132,923
Construction31,18935,77630,21232,02026,58335,79825,29031,297
Transport and communications20,87526,69619,90724,80019,04326,79219,26727,515
Trade21,65062,45519,10455,21217,74553,57117,22255,270
Catering and tourism7,57914,8676,34316,6025,36514,8015,77914,563
Crafts and personal services4,26014,3003,65816,7453,72818,5823,67815,768
Utilities and services8,1849,1018,16410,0468,1528,8408,1199,555
Financial and other services10,82714,8629,50216,6368,85714,6329,02917,026
Noneconomic activities85,366101,26784,114102,67584,545103,91687,066103,948
Education36,49742,98536,72341,44235,66841,63636,49140,526
Health and social welfare33,44730,35632,68533,13933,22931,86233,41431,191
Administration and defense15,40527,92614,68828,09415,63030,41817,14332,231
Percent change
Total employment−5.0−4.7−4.85.4−0.61.0
Economic Activities−6.1−6.1−6.66.2−1.91.2
Industry and mining−5.7−9.7−4.78.3−1.2−0.7
Agriculture and fisheries−7.5−5.1−14.413.1−8.39.3
Forestry12.1−5.6-8.111.5−6.3−27.5
Water management8.1−19.22.525.3−6.95.1
Construction−3.1−10.5−12.011.8−4.9−12.6
Transport and communications−4.6−7.1−4.38.01.22.7
Trade−11.8−11.6−7.1−3.0−2.93.2
Catering and tourism−16.311.7−15.4−10.87.7−1.6
Crafts and personal services−14.117.11.911.0−1.3−15.1
Utilities and services−0.210.4−0.1−12.0−0.48.1
Financial and other services−12.211.9−6.8−12.01.916.4
Noneconomic activities−1.51.40.51.23.00.0
Education0.6−3.6−2.90.52.3−2.7
Health and social welfare−2.39.21.7−3.90.6−2.1
Administration and defense-4.70.66.48.39.76.0
Ratio of LFS employment to administrative employment
Total1.541.551.711.74
Economic Activities1.661.661.881.94
Industry and mining1.191.141.291.30
Agriculture and fisheries4.284.395.796.90
Forestry1.411.191.441.12
Water management1.170.881.071.21
Construction1.151.061.351.24
Transport and communications1.281.251.411.43
Trade2.882.893.023.21
Catering and tourism1.962.622.762.52
Crafts and personal services3.364.584.984.29
Utilities and services1.111.231.081.18
Financial, technical and other services1.371.751.651.89
Non-economic activities1.191.221.231.19
Education1.181.131.171.11
Health and social welfare0.911.010.960.93
Administration and defense1.811.911.951.88
Source: Data provided by the FYRM authorities.
Table 22.FYRM: Nominal and Real Net Average Wages by Sector, 1995–99
1995199619971998199919951996199719981999
Prel.Prel.
Nominal net average wage (denars)(In denars)(Percent change)
Total8,5818,8179,0639,3949,66410.72.82.83.72.9
Economic activities8,3028,5698,8889,2889,62012.33.23.74.53.6
Industry and mining8,2868,5888,7829,0579,19211.13.62.33.11.5
Agriculture and fisheries6,8767,2567,7207,9588,49814.25.56.43.16.8
Forestry7,4617,8158,0297,9489,9452.94.72,7−1.012.5
Water management8,3258,4968,1828,4628,71625.82.1−3.73.43.0
Construction6,3886,5296,5526,8517,23211.52.20.44.65.6
Transport and communications9,6049,95710,23010,20810,8748.93.72.7−0.26.5
Trade9,0349,90310,71611,88611,89921.29.68.210.90.1
Catering and tourism6,9487,5157,7708,4348,8735.88.23.48.55.2
Crafts and services7,7107,7737,8578,0518,92914.80.81.12.510.9
Housing-communal services9,3619,6869,7409,97210,61315.83.50.62.46.4
Financial and other services13,22912,12813,16714,63115,5436.6−8.38.611.16.2
Noneconomic activities9,3739,4459,4699,6239,7544.00.80.31.61.4
Education9,2179,2419,2319,4069,4344.30.3−0.11.90.3
Health and social care9,3339,4239,3779,5039,6714.31.0−0.51.31.8
State administration9,7609,90010,12610,25410,5423.01.42.31.32.8
Real net average wage (in 1998 prices)
Total8,9959,0349,0549,3949,703−4.40.40.23.83.3
Economic activities8,7028,7808,8799,2889,659−3.00.91.14.64.0
Industry and mining8,6868,7998,7739,0579,229−4.01.3−0.33.21.9
Agriculture and fisheries7,2097,4347,7127,9588,532−1.43.13.73.27.2
Forestry7,8218,0078,0217,9488,981−11.12.40.2−0.913.0
Water management8,7268,7058,1748,4628,7518.6−0.2−6.13.53.4
Construction6,6966,6906,5456,8517,261−3.7−0.1−2.24.76.0
Transport and communications10,06710,20210,22010,20810,918−5.91.30.2−0.17.0
Trade9,47010,14710,70511,88611,9474.77.15.511.00.5
Catering and tourism7,2837,7007,7628,4348,909−8.65.70.88.75.6
Crafts and services8,0827,9647,8498,0518,965−0.8−1.5−1.42.611.4
Housing-communal services9,8129,9249,7309,97210,6560.01.1−2.02.56.9
Financial and other services13,86612,42613,15414,63115,605−7.9−10.45.911.26.7
Noneconomic activities9,8259,6789,4609,6239,793−10.1−1.5−2.31.71.8
Education9,6619,4689,2229,4069,472−10.0−2.0−2.62.00.7
Health and social can9,7839,6559,3689,5039,710−9.9−13−3.01.42.2
State administration10,23110,14310,11610,25410,584−11.1−0.9−0.31.43.2
Source: Data provided by the FYRM authorities.
Table 23.FYRM: Monetary survey, 1995–99 1/(In millions of denars, end of period)
19951996199719981999
Dec.Dec.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.
Net foreign assets15,29712,11116,50015,25215,68815,58216,77215,97819,58527,22730,377
National Bank 2/8,8418,34210,90310,71812,08911,56812,22712,92115,32319,40421,812
Assets10,73211,27415,78515,66517,63916,75917,53518,31120,63525,61027,949
Liabilities1,8912,9324,8824,9475,5505,1915,3085,3905,3126,2066,137
Domestic money banks6,4563,7695,5974,5343,5994,0144,5453,0574,2627,8238,565
Assets9,6709,51215,89214,56114,07213,72217,50714,77517,28022,99024,390
Liabilities3,2145,74310,29510,02710,4739,70812,96211,71813,01815,16715,625
Net domestic assets8,07510,87311,58811,40510,50714,29115,26214,35312,98211,44111,259
Domestic credit59,08252,30355,87254,30850,83733,33438,13339,53838,77038,66543,014
of which to government7,3765,0364,9195,2283,1972,7233,2833,3501,366-2376,429
Domestic money banks59,64553,57352,73450,73249,15031,95336,13437,39138,45139,84945,156
Denar52,91949,94146,27743,81041,65724,37729,16529,77629,81730,82929,730
Government4,9586,3061,7811,6521,5101,3421,2841,2031,0479471,285
Credit4,9246,2911,7681,6401,4961,3251,2651,1801,0259241,260
Accrued interest3415131214171923222325
Social and private47,96143,63544,49642,15840,14723,03527,86128,57328,77029,88228,445
New credit16,79220,64819,70319,19216,59718,26424,50224,39123,95824,46123,834
Accured interest31,16922,78724,79322,96621,5504,7713,3794,1824,8125,4214,611
Foreign currency6,7263,6326,4576,9227,4937,5766,9697,6158,6349,02015,426
Government2,9810000000007,286
Nongovernment3,7453,6326,4576,9227,4937,5766,9697,6158,6349,0208,140
NBM credit to government, net-563-1,2703,1383,5761,6871,3811,9992,147319-1,184-2,142
Other assets, net-51,007-41,430-44,284-42,903-40,330-19,043-22,871-25,185-25,788-27,224-31,755
Accrued interest-31,203-22,802-24,806-22,978-21,564-4,788-3,39811,205-4,834-5,444-4,636
Claims for frozen FOREX00000000000
Other-19,804-18,628-19,478-19,925-18,766-14,255-19,473-20,980-20,954-21,780-27,119
M112,53312,17814,25713,10812,84714,82815,82115,47816,73519,55220,620
M1, nongovernment12,53312,14313,98512,79512,45514,37915,17814,96916,05718,63919,694
Currency in circulation5,9656,6987,1306,0266,2206,6357,1377,3116,7807,3038,169
Demand deposits6,5685,4807,1277,0826,6276,1938,6848,1679,95512,24912,451
Banks5,6774,9476,5526,3395,7597,3167,9797,3529,04310,85211,385
Nongovernment5,6774,9126,2806,0265,3676,8677,3366,6438,3659,93910,459
Government035272313392449643509678913926
Demand deposits with NBM8915335757438688777053159121,3971,066
M218,78518,76123,36021,90621,36724,48926,93025,48127,23532,56935,247
M2, nongovemmcnt18,78518,49022,72621,24320,69523,86626,00324,68926,16531,10433,720
Quasi moncy-nongovernment6,2526,3458,7418,4488,2409,48710,8259,72010,10812,46514,026
Denar3,1873,6393,8873,8783,8834,7194,6834,4574,7135,3926,815
Foreign currency3,0652,7064,8544,5704,3574,7686,1425,2635,3957,0737,211
Government0236362350300174284283392552601
Denar0131351338286174271257365519570
Foreign currency010511121201326273331
NBM quasi deposits02000000000
M323,37223,48426,08826,65826,19629,87132,03430,33132,56738,66841,636
M3, private sector22,65422,43926,70725,23824,74028,46930,27328,69730,59536,22539,227
Nonmonetary deposits4,5874,7234,7284,7524,8095,3825,1044,8505,3326,0996,389
Domestic banks4,4734,7224,7264,7514,8085,3815,1044,8505,3326,0996,389
Denar3,4183,5923,6403,6463,6864,0123,8103,8524,0474,3404,698
Social and private2,7002,8182,8932,8892,9223,2332,9763,0103,1453,3623,816
Government718774747757764779834842902978882
Foreign currency1,0551,1301,0861,1051,1221,3691,2949981,2651,7591,691
NBM (nongovernment)1141211100000
Denar11211100000
Foreign currency1130000000000
Source: Data provided by the National Bank of Macedonia (NBM).
Table 24.FYRM: National Banck Accounts, 1995–99 1/(In millions of denars, end of period)
19951996199719981999
Dec.Dec.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.
Net foreign assets8,8418,34210,90310,71812,08911,56812,22712,92115,32319,40421,812
Net domestic assets−2,571−1,227−3,348−4,309−5,500−4,590−4,568−5,217−8,059−11,648−13,297
Banks2,6904,299942957274755261,18634−1,693−2,858
Credit4,0454,8602,7201,8612,2611,9982,5572,7751,9181,132984
Instruments 2/−1,355−561−1,778−1,766−1,534−1,523−2,031−1,589−1,884−2,825−3,842
Government−563−1,2703,1383,5761,6871,3811,9992,147319−1,184−2,142
Credit1,8602,3486,0106,0185,9575,6425,5925,5565,5295,1785,219
Deposit−2,083−3,828−5,077−4,799−6,102−6,869−6,152−7,144−8,609−9,300−9,734
Credit for external operations−3402102,2052,3571,8322,6082,5593,7353,3992,9382,373
Other, net 3/−4,698−4,256−7,428−7,980−7,914−6,446−7,093−8,550−8,412−8,771−8,297
Reserve money6,2717,1157,5566,4106,5906,9797,6597,7047,2647,7568,515
Currency5,9656,6987,1306,0266,2206,6357,1377,3116,7807,3038,169
Other 4/306417426384370344522393484453346
Source: Data provided by the National Bank of Macedonia (NBM).
Table 25.FYRM: Deposit Money Bank Accounts, 1995–99 1/(In millions denars, end of period)
19951996199719981999
Dec.Dec.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.
Net foreign assets6,4563,7695,5974,5343,5994,0144,5453,0574,2627,8238,565
Assets9,6709,51215,89214,56114,07213,72217,50714,77517,26022,99024,390
Liabilities3,2145,74310,29510,02710,4739,70812,96211,71813,01815,16715,825
Net domestic assets9,94512,48114,78415,35315,50818,34419,64719,14820,61322,14523,837
In denar52,91949,94146,27743,81041,65724,37729,16529,77628,77930,82929,731
1. Govemment4,9586,3061,7811,6521,5101,3421,2841,2031,0479471,286
Credits4,9246,2911,7681,6401,4961,3251,2651,1801,0259241,261
Of which: overdue claims04000000000
Accrued interest3415131214171923222325
2. Social and private sector47,96143,63544,49642,15840,14723,03527,88126,57327,73229,88228,445
Credits16,79220,84819,70319,19218,59718,26424,50224,39123,95824,46123,834
Of which: overdue claims4,2194,6805,9106,1855,4343,4232,9973,1213,7744,8615,606
Accrued interest31,16922,78724,79322,96621,5504,7713,3794,1823,7745,4214,611
In foreign currency6,7263,6326,4576,9227,4937,5766,9697,6159,6349,02015,426
1. Government2,9810000000007,286
Of which overdue claims00000000000
2. Social and private sector3,7453,6326,4576,9227,4937,5766,9697,6158,6349,0208,140
Of which: overdue claims1,7443546336624014643437491,3851,5541,594
Other item, net-49,700-41,092−37,950−35,379−33,642-13,609−16,487−18,243−16,800−17,704−21,320
Total liabilities16,40116,25020,38119,98719,10722,35824,19222,20524,97529,96832,401
Demand deposits5,6774,9476,5526,3395,7597,3167,9797,3529,04310,85211,385
Social and private5,6774,9126,2806,0265,3676,8677,3366,9438,3659.93910,459
Of which: self-management funds990000000000
Government deposits035272313392449643509678913926
Sight and short-term time deposits6,2516,5819,1038,7988,5409,66111,10910,00310,50013,01714,627
Denar3,1963,6393,8873,8783,8834,7194,6834,4574,7135,3926,815
Foreign currency3,0652,7064,8544,5704,3574,7686,1425,2635,3957,0737,211
New3,0652,7064,8544,5704,3574,7686,1425,2635,3957,0137,211
Frozen00000000000
Government0236362350300174284283392552601
Nonmonetary deposits4,4734,7224,7264,7504,8085,3815,1044,8505,3326,0996,399
Denar2,7002,8182,8932,8882,9223,2332,9763,0103,1453,3623,816
Foreign currency1,0551.1301,0861,1051,1221,3691,2949981,2851,7591,691
New1,0551,1301,0861,1051,1221,3691,2949981,2851,7591,691
Frozen00000000000
Government718774747757764779834842902978882
Source: Data provided by the National Bank of Macedonia (NBM).
Table 26.FYRM: Interest Rates, 1995–99 1/(In percent, monthly average)
19951996199719981999
Dec.Dec.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.
NBM interest rates:
Discount rate15.09.28.98.98.98.98.98.98.98.98.9
Interest on Lombard credit14.414.414.414.414.418.518.518.518.518.5
Default interest rate27.627.626.726.726.726.726.726.726.726.726.7
Interest on central hank bills8.88.28.28.28.210.010.010.010.010.0
Interest on required reserves 1/3.63.63.43.46.26.26.26.26.26.26.2
Commercial bank interest rates:
Deposit rates
Household sight deposits2-53-63-6.13-6.13-6.13-6.13-6.33-6.33-73-73-7
Household time deposits (3-6 months)9-219-219-20.59-20.59-20.59-20.59-20.59-209-19.29-19.29-19.2
Enterprise sight deposits2-54-72.5-82.5-82.5-82.5-82.5-82.5-82.5-82.5-82.5-7
Enterprise time deposits (3-6 months)9-215-215-20.55-19.25-19.25-19.25-19.25-165-165-165-15
Lending rates:
Short-term rates25-3019-3017-4717-4716-4716-4716-4716-58.916-58.916-58.912-47
Long-term working capital25-3019-309-279-279-279-279-279-299-41.69-41.69-31.9
Small-scale industry25-3020-3020-3620-26.720-26.719.1-3617-26.717-26.718-26.718-26.712.9-26
Source: Data provided by the National Bank (NBM).
Table 27.FYRM: Privatization by Model of Transformation, 1995–99 1/
Model of Transformation1995199619971998199919951996199719981999
Number of firms(As percent of total)
Old Law59656667669.87.15.84.74.4
Buy-outs26751164976478044.255.957.353.252.4
Employee buy-out21030133136338434.832.929.225.325.8
Management buy-out421231902532477.013.516.817.616.6
Other buy-out15871281481492.59.511.310.310.0
Sale of ideal participation12233559672.02.53.14.14.5
Leasing344440.50.40.40.30.3
Additional capital5141619200.81.51.41.31.3
Residual11352726281.83.82,41.81.9
Debt/equity conversion1153663750.21.63.24.45.0
Foreign equity15315415615615625316.813.810.910.5
Private equity605595113128996.08.47.98.6
Liquidations3338481641645.54.24.211.411.0
Total6049141,1321,4351,488100.0100.0100.0100.0100.0
Number of employees
Old law9,75011,54511,54811,54811,52216.38.06.25.45.3
Buy-outs30,95292,952127,048141,495140,04351.664.368.266.464.8
Employee buy-out8,43012,23916,52017,89417,73914.18.58.98.48.2
Management buy-out16,40644,66066,34974,35872,72027.430.935.634.933.7
Other buy-out6,11636,05344,17949,24349,58510.224.923.723.123.0
Sale of ideal participation6,2917,26611,01614,97915,81210.55.05.97.07.3
Leasing02172172172170.00.20.10.10.1
Additional capital1,1453,8924,9935,6136,9241.92.72.72.63.2
Residual4,66913,98915,51914,66314,7177.89.78.36.96.8
Debt/equity conversion1208,2699,51916,58718,6560.25.75.17.88.6
Foreign equity1,8061,9221,9331,9331,9333.01.31.00.90.9
Private equity3,1931,8693,3704,9945,1435.31.31.82.32.4
Liquidations2,0402,6181,0969849843.41.80.60.50.5
Total59,966144,539186,259213,013215,951100.0100.0100.0100.0100.0
Equity (in millions of DM)
Old law681121141141147.34.13.22.92.8
Buy-outs5561,3792,3592,5992,55159.750.566.765.161.6
Employee buy-out731241451571557.94.54.13.93.8
Management buy-out4068821,3121,4331,39143.632.337.135.933.6
Other buy-out773729021,0091,0058.213.625.525.324.3
Sale of ideal participation13014219223936413.95.25.16.08.8
Leasing122220.10.10.10.00.0
Additional capital14415871031371.515.22.52.63.3
Residual9829529529530710.510.88.37.47.4
Debt/equity conversion23174015295520.211.611.313.313.3
Foreign equity11525353531.21.91.5131.3
Private equity53114558585.60.41.31.41.4
Liquidations060000.00.20.00.00.0
Total9332,7313,5373,9914,138100.0100.0100.0100.0100.0
Source: Data provided by the Privatization Agency.
Table 28.FYRM: Main Indicators of Enterprise Sector Activity by Type of Ownership, 1996–98
199619971998199619971998199619971996199619971998
PrivateTransformedState and Socially-ownedTotal enterprises
Number of firms (as percent of all fern in each sector)
Loss-makers54.750.446.747.345.545.057.047.651.654.650.246.8
Profit-makers45.349.653.352.754.555.043.052.448.445.449.853.2
Employment (as percent of employment in all firms in each sector)
lass-makers14.412.112.040.835.937.755.142.343.833.825.926.2
profit-makers85.687.988.059.264.162.344.957.756.266.274.173.8
Average number of workers per firm
Loss-makers1121271251251067256767
Profit makers1011111641861691159077171817
Wage bill (as percent of total sales in loss/profit makers)
Loss-makers12.612.814.123.722.824.226.726.026.022.120.722.0
Profit-makers4.74.54.715.014.513.421.618.019.712.311.210.4
Average monthly wages (in denar/month)
Loss-makers8,6966,9938,86810,6509,77911,76011,31812,41912,5058,8958,6579,078
Profit-market2,2362,2922,81614,67714,79815,15916,01916,31317,5788,0148,0248,284
Wage arrears (as percent of wage bill in loss (profit makers)
Loss-makers42.530.130.569.768.566.663.551.759.162.354.858.0
Profit-makers14.411.811.311.614.917.010.39.07.511.512.513.4
Sales (as percent of total sales)
Loss-makers7.26.15.18.17.78.912.06.14.827.419.918.7
profit-makers29.831.835.825.832.534.217.115.711.372.680.181.3
Operational balance
(as percent of loss/profit-makers’ sales in each sector)
Loss-makers−11.5−11.5−11.6−13.6−16.6−16.9−23.9−20.1−14.7−17.6−16.1−14.9
Profit-makers2.02.22.1−0.21.61.21.64.010.51.12.32.9
(as percent of GDP)
Loss-makers−1.4−1.3−1.1−1.9−2.3−2.8−4.8−2.2−1.3−8.1−5.7−5.3
Profit-makers1.01.31-4−0.10.90.80.51.12.31.43.34.5
Memorandum item
Number of enterprices33,58332,57031,2407478729811,1501,0261,02635,48034,46833,247
Loss-makers18,35916,41414,58835339744165648852919,36817,29915,558
Profit-makers15,22416,15616,65239447554049453849716,11217,16917,689
Number of workers179,242196,236203,788109,367138,064146,258126,49183,54668,178415,100419,846418,224
Loss-makers25,89123,95324,38544,66849,59555,20869,65935,31129,841140,218108,859109,434
Profit-makers153,351174,283179,40364,69988,46991,05056,83248,23538,337274,882310,987308,790
Sources: Data provided by the Payments Bureau (ZPP) and IMF staff calculations.
Table 29.FYRM: Summary of Central Government Operations. 1996–2000
19961997199819991999199920001996199719981999199919992000
BudgetKesovoActualBudgetBudgetKesovoActualBudget
ScenarioScenario
(In millions of denars)(In percent of GDP)
Total revenues and grants40,18938,50139,81941,39338,57147,20146,96122.820.820.920.220.424.222.0
Tax revenues37,71535,50036,86138,05335,57241,85143.39621.419.219.318.618.821.420.3
lndividual income tax9,1618,7539,1779,4258,66010,23310,0333.24.74.84.64.63.24.7
Profit tax2,0301,2951,7321,8711,6502,5591,6131.20.70.90.90.91.31.2
Sales tax/VAT8,7778,8168,8049,1278,6059,9599,7005.04.94.64.54.45.14.5
Excises11,10011,05210,23710,0209,97510,67312,3996.36.03.45.35.35.55.8
Import duties6,6475,5254,8106,8106,5578,3038,6003.83.03.63.33.54.34.0
Other taxes059810951241410.00.00.00.00.10.10.1
Nondtax revenues2,3692 9642,8691,2412,9051,7223,2601.31.61.51.61.51.41.5
Captial revenue6378899941543050.00.00.0O.00.00.10.1
Grants9900002,55400.10.00.00.00.01.30.0
Total expenditures41,39640,79241,51841,76849,19745,58147,17423.522.121.820.426.123.322.1
Current expenditure36,89138,16939,72938,00446,70643,00039,90620.920.620.318.1924.722.118.2
Goods and services19,97019,92921,54220,95720,95422,94721,50011.310.811.310.211.111.810.1
Wages and solaries15,24515,14815,94015,06016,05417,75715,9558.68.28.47.78.59.17.3
Goods and nonlabor services4,7254,7815,6025,0974,9005,1905,5492.72.62.92.52.62.72.6
Refuges-related expenditure3123244056,2982,4561480.0O.00.00.23.31.30.1
Transfers13,68114,26013,86213,95916,09014,62114,1787.87.77.36.88.57.56.6
Pension Fund3,4194,0663,6183,2504,1451,3023,8901.92.21.91.62.21.71.8
Social programs6,6547,1017,7028,5489,6748,9117,5123.83.04.04.25.14.63.5
Social assistance program2,6612,8222,5502,6252,9532,9903,1871.51.51.31.31.61.51.5
Employment Funds2,8852,9813,2633,1003,9083.0993,0501.61.61.71.52.11.61.4
Program for Employment005971,0911,0911,2871100.00.09.30.50.60.70.1
Other social programs1,1081,2981,2931,7321,7221,5361,2250.60.70.70.80.90.80.6
Subsidies1,175475167781882701220.70.30.10.00.10.10.1
Other transfers2,4332,6182,3752,0832,0832,1372,5941.41.41.21.01.11.11.2
Interest3,2123,9563,3023,4833,3643,0563,0761.82.11.71.71.81.61.4
Capital expenditure4,3382,5052,6163,3112,7662,9574,8972.51.41.41.61.5l.52.3
Reserves95981001001001077340.10.10.10.00.10.10.3
Arrears (increase +’ repayment -)18555-289-447-374-49400.10.0-0.2-0.2-0.2-0.30.0
Allocation for structural reforms0000001,6170.00.00.00.00.00.00.8
Allocation for administrative reforms0000001,0200.00.00.00.00.00.00.5
Discrepency-116-3436200-680-0.10.00.30.00.00.00.0
Balance-1,207-2,291-1,700-375-10,6251,700-213-0.7-1.2-0.9-0.2-1.60.9-0.1
Cash balance278-1,076-1,153131-10,0462,159-2130.2-0.6-0.60.1-5.31.1-0.l
Financing1,2072,2911,70037510,626-1,7002130.71.20.90.2-0.9-0.90.1
Domestic financing5821,6317752-706-4,117-2,3110.30.90.00.0-0.4-1.1-1.1
Arrears1,4851,21554750657945900.80.70.30.20.30.20.0
Interest frozen foreign currency deposits1,3001,16083695395395300.70.60.40.50.50.50.0
Other arrears18555-289-447-374-49400.10.0-0.3-0.2-0.2-0.30.0
National Bank of Macedonia, net-1,0134,061-869-268-1,013-4,331-2,167-0.62.2-0.5-0.1-0.5-2.2-1.0
Commercial banks, net-212-4,180-476-186-272-595-144-0.1-2.3-0.2-0.1-0.1-0.3-0.1
Other domestic financing3225358750035000.20.30.50.00.00.20.0
Foreign financing, net625660l,62332311,3322,4182,5230.40.40.90.26.01.21.2
Disbursements11,9903,3371,4746.41.70.7
Rescheduling1,2921,3911,1950.70.70.6
Amortization-1,950-2,311-2,424-1.0-1.2-1.1
Privatization receipts002,2780.00.01.1
Memorandum items:
Government debt73,19188,95717,140103,913113,97141.548.145.753.253.3
Deference expenditure3,8553,7083,8393,8094.6522.22.02.01.92.2
Deference and security expenditure8,0177,8508,3578,5609,5244.54.24.44.24.5
Nominal GDP176,444184,982199.827204,839188,800195,284213,833
Source: Ministry of Finance; National Bank of Macedonia (NBM); and IMF staff estimates.
Table 30.FYRM: Summary of General Government Operations, 1996–2000
19961997199819991999199920001996199719981999199919992000
BudgetKosovoActualBudgetBudgetKosovoActualBudget
ScenarioScenario
(In millions of denars)(In percent of GDP)
Total revenues and grants63,01464,64964,90868,57963,71973,53475,54235.734.934.033.533.737.135.3
Total revenue67,91564,64964,90867,55663,27670.98073,54235.734,934.033.033,536335.3
Current revenue62,90964,56464,77067,40463,13270,76675,18735.734.933.932.933.436.2352
Tax revenue59.68859,97660,23762,41938,5686614869,64633232.431.630.531.033.932.7
Taxes on income and profits11,19110,04810,92911,29610,34012,79212,646635.45.75.55.56.65.9
Social insurance contributions20,78522,70121,67522,56221,31222,72024,57211.812.311.411.011.311.611.5
Local taxes4119441,0061,0679839831,0500.20.50.50.50.5030.5
Sales tax/VAT and excises taxes20,65420,59919,73620,68419,28021,22622,83711.711.110.310.110.210.910.7
Import duties6,6475,5256,8106,6106,55783038,6003.83.03.63.33.5434.0
Other taxes059810951241410.00.00.00.00.10.10.1
Nontax revenue3,2214,6884,5334,9844,5654,6185,3411.82.52.42,42.42.42.5
Capital revenue6851381521442143350.00.00.10.10.10.10.2
Foreign grants99001,0244432,55400.10.00.00.50.31.30.0
Total expenditures65,51565,35268,28973,93378,32673,61778,25537.135.335.835.641.537.736.6
Current expenditure60,16463,32264,64165,74771,91869,30867,50334.134.233.932.138.135.531.6
Goods and services21,08021,16622,87622,27822,28024,18422,79911.911.412.010.911.812.410.7
Wages and salaries15,60815,60316,47616,40116,59518,22516,4898.88.48.68.08.89.37.7
Goods and nonlabor services5,4725,5636,4005,8775.6855,9586,3103.13.03.42.93.03.13.0
Refugee-related expenditure3123244056,2982,4561480.00.00.00.23.31.30.1
Transfers25,61926,84826,44026,29427,22826,61527,92714.514.513.912.814.413.613.1
Subsidies1,175475167781882701220.70.30.10.00.10.10.1
Social programs6,0406,2346,0066,2717,1216,2806,0323.43.43.13.13.81.21.8
Pensions and disability payments15,98917,53317,90817,87417,84817,92719,1799.19.39.48.79.59.29.0
Other2,4152,6062,3602,0712,0712,1372,5941.41.41.21.01.11.11.3
Interest3,5204,0203,5664,1343,4373,1613,1962.02.21.92.01.81.61.5
Other and unclassified9,91411,26511,73712,63512,67712,89313,4335.66.16.26.26.16.66.3
Capital expenditure3,8892,6493,5617,5346,6815,0067,38102.21.41.93.73.32.63.5
Arrears (increase + /repayment -)1,449-677-379-447-374-49400.8-0.4-0.2-0.2-0.2-0.30.0
Reserves9598100l001001077340.10.10.10.00.10.00.10.3
Allocation for structural reforms0000001,6170.00.00.00.00.00.00.8
Allocation for administrative reforms0000001,0200.00.00.00.00.00.00.5
Discrepancy-82-4136500-31100.00.00.20.00.0-0.20.0
Balance-2.501-703-3,381-4,354-14,606-83-2,713-1.4-0.4-1.8-2.1-7.70.0-1.3
Cash balance248-220-2,924-3,848-14,028376-2,7130.1-0.1-1.5-1.9-7.40.3-1.3
Financing2,5017033,3814,35414,606832,7131.40.4l.82.17.70.01.3
Domestic2,021217847345-413-4,319-2,3111.10.10.40.2-0.2-2.3-1.1
Arrears2,74948345750657945901.60.30.20.20.30.20.0
Interest on frozen foreign currency deposits1,3001,16083695395395300.70.60.40.50.50.50.0
Other arrears1,449-677-379-447-374-49400.8-0.4-0.2-0.2-0.2-0.30.0
National Bank of Macedonia, net-1,0134,061-869-268-1,139-4,499-2,1674.62.3-0.5-0.1-0.4-1.3-1.0
Commercial banks, net-37-4.862-1857-146-629-1440.0-2.6-0.10.0-0.1-0.3-0.1
Other domestic financing3225351,44410029335000.20.30.80.00.20.20.0
Foreign financing, net4804862,5344,00915,0194,4025,0230.30.31.32.08.02.32.3
Disbursements15,6775,1493,8748.31.61.8
Rescheduling1,2921,3911,1930.70.70.6
Amortization (-)-1,950-2,311-2,424-1.0-1.21.1
Privatization receipts01732,3780.00.11.3
Memorandum items:
Nominal GDP176,444184,982190,827204,839188,800195,284213,833
Sources: Ministry of Finance; National Bank of Macedonia (NBM); and IMF staff estimates.
Table 31.FYRM: Summary of Special Fund Operations. 1996-2000
19961997199819991999199920001996199719981999199919992000
BudgetKosovoActualBudgetBudgetKosovoActualBudget
ScenarioScenario
(In millions of denars)(In percent of GDP)
Pension Fund
Revenue18,50220,68619,91220.46420,56120,51122,00810.511.210,410.910.910.510.3
Current revenue18,50220,63819,86220,41120,51120,45121,95810.511.210.410.010.910.510.3
Capital Revenue04850535060500.00.00.00.00.00.00.0
Expenditure18,77119,51620,53420,56420,66120,68922,10810.610.610.910.010.910.6103
Pensions16,05916,69417,73417,69617.63817,73918,9859.19.09.38.69.39.18.9
Other2,7122,8222,8002,8683,0232,9503,1231.51.61.51.41.61.51.5
Balance−2691,170−622−100−100−178−100−0.20.6-0.30.0-0.1−0.10.0
Health Fund
Revenue9,14310,49210,74711,32111,29911,93512,300525756356.06.15.8
Revenue before transfers6,2997,3147,1397,4357,0717,6908,3203.64.03.73.63.73.93.9
Transfers2,8443,1783,6083,8864,2234,2373,9801.61.71.91.92.22.21.9
Expenditure10,31210,32010,97711,314l1,49211,93513,3005.85.65.85.66.16.15.8
Expenditure excl additional measures10,31211,13811,90611,98911,98911,37712,3005.86.06.25.96.45.95.8
Additional measures0-819-929-475-49735800.0-0.4-0.5-02-0.30.20.0
Balance-1,169172-230-191-19300-0.70.1-0.1-0.1-0.l0.00.0
Employment fund
Reverse3,8013,9814,2634,1354,8634,1294,1152.21.11.21.02.62.11.9
Reverse before transfers9301,0019779849051,0151,0650.50.50.50.50.50.50.3
Transfers from budget2,8712,9803,2843,1513,9583,1143,0601.61.61.71.52.11.61.4
Expenditure3,3793,9904,1734,1354,8634,1354,125101.11.11.01.63.11.9
Expenditure excl transfers and additional measures2,1832,2752,2532,0943,6261,9201,8181.21.21.11.01.41.00.9
Transfers1,3951,7151,1162,1792,4732,2162,3070.80.91.11.11.31.11.1
Additional measures00-198-138-23600000.0-0.1-0.1-0.10.00.0
Balance222-99000-600.10.00.00.00.00.00.0
Road fund
Revenue and grants1,4501,6431,7413,1413,1411,9402,6150.80.90.91.51.41.01.2
Revenue and grants before transfers6331,0981,0732,1412,1411,0761,1150.40.60.61.00.80.60.5
Transfers from budget8185456681,0001,000S641,5000.50.30.30.50.50.40.7
Expenditure1,5581,3972,6606,8276,9163,7525,0150.90.81.43.33.41.92.3
Balance-78246-919-3,686-3,775-1,812-2,4000.00.1-0.5-IS-2.0-0.9-1.1
Memorandum item:
Nominal GDP176,444184,982190,827204,839188,800195,284213,833
Sources: Ministry of Finance; National Bank of Macedonia (NBM); and IMF staff estimates.
Table 32.FYRM: Special Revenue Accounts and Expenditure Financed from Special Revenue Accounts, 1998–99 1/
1998199919981999199919981999199819991999
RevenueExpenditure
(In millions of denars(In percent of total revenue)(Percent change)(In millions of denars)(In percent of total expenditure)(Percent change)
Common services unit37.371.80.70.892.526.058.40.70.7124.6
Ministry of defense414.81,318.18.314.5217.8340.11,275.78.515.7275.1
Ministry of interior356.31,730.17.119.0385.6293.51,654.07.320.4463.5
Ministry of finance72.5187.61.42.1158.859.5145.41.51.8144.4
Customs22.9243.30.52.7962.420.070.20.50.9251.0
Ministry of economy38.1170.10.81.9346.526.242.50.70.562.2
Ministry of transportation219.7248.94.42.713.3184.9246.24.63.033.2
Air traffic control217.5439.64.34.8102.1173.1275.54.33.459.2
Ministry of agriculture157.9208.83.12.332.2132.0227.43.32.872.3
Social protection of children201.8289.84.03.243.6181.4293.14.53.661.6
Ministry of education524.1556.010.46.16.1299.223.67.50.3−92.1
Ministry of athletics444.60.08.90.0−100.0401.0147.410.01.8−63.2
Elementary and high school education624.61,162.612.512.886.1645.81,356.816.216.7110.1
Ministry of post-secondary education756.5785.715.18.63.9611.0872.315.310.7428
Sports clubs0.0472.20.05.20.0348.90.04.3
Scientific institutes170.7311.33.43.482.4273.6330.76.84.120.9
Cultural activities108.0158.02.21.746.372.388.71.81.122.7
Ministry of health25.262.60.50.7148.417.058.80.40.7245.9
Geodesics institute49.567.01.00.735.438.454.51.00.741.9
Agency for economic development51.425.41.00.3−50.642.525.51.10.3−40.0
Courts, prosecutors, and prisons95.6168.21.91.875.981.5164.32.02.0101.6
Others427.4428.28.54.70.277.3354.71.94.4358.9
Total5,016.49,105.3100.0100.081.53,996.38,114.6100.0100.0103.1
Memorandum items:
Strategic Reserve Fund1,140.63,588.81,060.12,391.1
Expenditure economic category
Current expenditure3,712.77,660.292.994.4106.3
Wages and contributions395.62,865.09.935.3624.2
Goods and services3,301.94,791.882.659.145.1
Interest payments15.23.40.40.0−77.6-
Capital expenditure283.6454.47.15.660.2
Sources: Payments Bureau (ZPP); and IMF staff estimates.
Table 33.FYRM: Expenditure Financed from Special Revenue Accounts by Agency and Economic Category, 1998–991/
Wages and contributionsGoods and servicesInterestcapitalTotal
1998199919981999199819991998199919981999
Common services wait0.019.825.538.60.00.00.50.026.058.4
Ministry of defense23.9276.3309.8870.70.00.06.4128.7340.11,275.7
Ministry of interior16.31,063.5276.9590.10.00.00.30.4293.51,654.0
Ministry of finance0.048.931.872.60.00.027.723.959.5145.4
Customs0.643.119.427.10.00.00.00.020.070.2
Ministry of economy0.01.520.037.90.00.06.23.126.242.5
Ministry of transportation1.76.1183.2240.10.00.00.00.0184.9246.2
Air traffic control36.367.585.5161.53.90.047.446.5173.1275.5
Ministry of agriculture0.05.6117.8187.80.00.014.234.0132.0227.4
Social protection of children10.653.6162.0226.70.00.08.812.8181.4293.1
Ministry of education0.92.1297.021.50.00.01.30.0299.223.6
Ministry of athletics33.811.2350.1132.97.30.09.83.3401.0147.4
Elementary and high school education54.6674.1541.9593.40.00.049.389.3645.81,356.8
Ministry of post-secondary education109.3241.4448.3573.60.00.053.457.3611.0872.3
Sports clubs0.031.40.0315.10.00.00.02.40.0348.9
Scientific institutes71.5105.2197.3216.93.93.30.95.3273.6330.7
Cultural activities15.734.453.252.90.10.13.31.372.388.7
Ministry of health0.02.117.055.70.00.00.01.017.058.8
Geodesics institute0.02.337.052.00.00.01.40.238.454.5
Agency for economic development0.00.50.40.50.00.042.124.542.525.5
Courts, prosecutors, and prisons6.874.369.886.30.00.04.93.781.5164.3
Others13.6100.158.0237.90.00.05.716.777.3354.7
Total395.62,865.03,301.94,791.815.23.4283.6454.43,996.38,114.6
Memorandum item:
Strategic Reserve Fund1,060.12,391.1
Sources: Payments Bureau (ZPP); and IMF staff estimates.
Table 34.FYRM: General Government Debt, by Instrument and Creditor, 1996–99 1/(In millions of dents, and of period)
1996199719981999
Total domestic debt41,13946,39541,06546,119
By instrument
Bonds7,5776,4335,46912,235
National Bank5,3375,0304,7234,416
Commercial banks2,2401,4037467,819
Domestic credit and accrued interest01,8341,3231,318
National Bank0533933
Commercial banks01,7811,2841,285
Frozen foreign currency deposits32,83437,34533,78032,566
Domestic payments arrears7287834940
By Creditor
National Bank5,3375,0834,7624,449
Bonds5,3375,0304,7234,416
Big bonds 2/4,2983,9913,6843,377
BRA bond 3/1,0391,0391,0391,039
Credit to government533933
Commercial banks2,2403,1842,0309,104
Bonds2,2401,4037467,819
Big bonds 3/280260241223
Short bonds 4/1,9601,143504315
New Stopanska Banks bond 5/0007,282
Credit1,7681,2651,260
Budget and line ministries1,274513259
Funds494746996
Central government institutions (e.g. courts)065
Accrued interest131925
Frozen foreign currency deposits32,83437,34533,78032,566
Domestic payments arrears7287834940
Suppliers7287834940
Other
Total external debt 6/32,05242,56146,07557,795,
Total debt73,19188,95787,140103,913
Memorandum items:
Total domestic debt (as percent of GDP)23.325.121.523.8
Total external debt (as percent of GDP)18.223.024.129.6
Total government debt (as percent of GDP)41.548.145.753.2
Sources: Ministry of Finance; National Bank of Macedonia; and IMF Staff estimates.
Table 35.FYRM: Balance of Payments, 1995–99(In millions of U.S. dollars)
19951996199719981999
Prel.
Current account-222-288-277-309-137
Trade balance (fob)-221-317-386-419-408
Exports1,2041,1471,2371,2921,192
Imports1,4251,4641,6231,71 11,601
Services-200-155-147-173-75
Receipts185154128131248
Payments385309275304324
Income-29-30-55-44-43
Receipts374617240
Payments6676726843
Transfers (net)228213311327392
Official275272865
Private201161304299327
Capital account651089829946
Disbursements133122156228165
Public133122146120118
Private001010847
Amortization103864774106
Direct and portfolio investment (net)12121817527
Commercial banks’ position (net)2361-29-31-40
Errors and omissions and short-term capital 1/1238419554188
Overall balance-34-96164497
Financing3496-16-44-97
Net foreign assets (increase, -)-722110-44-123
Of which: IMF (net change)371422102
Change in arrears-22637-10601
New arrears8469801
Repayment of arrears3103211400
Rescheduling3333880024
Memorandum items:
Current account (In percent of GDP)-5.0-6.5-7.4-8.8-4.0
Debt-service ratio10.411.18.710.113.0
Debt-to-GDP ratio23.825.431.541.143.3
Gross reserves (In months of c.i.f. imports)1.92.0192.13.1
Source: Data provided by the National Bank of Macedonia (NBM).
Table 36.FYRM: Commodity Composition of Exports and Imports, 1995-Nov. 99 1/
1995199619971998199919951996199719981999
Jan.-Nov.Jan.-Nov.
(In millions of U.S. dollars)(In percent of total exports)
Total exports1,204.01,147.41,236.81,322.11,082.2100.0100.0100.0100.0100.0
Food and live animals131.986.070.966.261.711.07.55.75.05.7
Beverages and tobacco88.8154.4177.1143.8146.77.413.514.310.913.6
Crude materials, inedible, except fuels92.766.569.056.445.97.75.85.64.34.2
Mineral fuels, lubricants and related materials4.79.55.610.518.70.40.80.50.81.7
Animal and vegetable oils and fats0.30.00.30.20.50.00.00.00.00.0
Chemicals66.968.372.765.450.55.66.05.94.94.7
Manufactured goods425.1348.5422.7448.5315.835.330.434.233.929.2
Machinery and transport equipment156.687.695.998.481.113.07.67.87.47.5
Miscellaneous manufactured articles220.7317.5321.3430.3338.318.327.726.032.531.3
Unclassified16.39.01.42.323.31.40.80.10.22.2
(In percent of total imports)
Total imports, c.i.f.1,716.11,626.31,778.51,913.51,566.5100.0100.0100.0100.0100.0
Food and live animals280.8216.9243.1255.6182.016.413.313.713.411.6
Beverages and tobacco16.917.119.725.927.81.01.11.11.41.8
Crude materials, inedible, except fuels78.977.169.267.249.74.64.73.93.53.2
Mineral fuels, lubricants, and related materials199.0148.1197.0162.5137.111.69.111.18.58.8
Animal and vegetable oils, and fats4.019.215.525.620.80.21.20.91.31.3
Chemicals205.0169.9192.2203.1163.711.910.410.810.610.5
Manufactured goods268.8305.0343.8277.4243.815.718.819.314.515.6
Machinery and transport equipment331.7361.2302.0365.2319.619.322.217.019.120.4
Miscellaneous manufactured articles155.0171.9213.893.766.59.010.612.04.94.2
Unclassified176.0139.9182.2437.3355.510.38.610.222.922.7
Source: Data provided by the Statistical Office.
Table 37.FYRM: Destination of Merchandise Exports, 1995–Nov. 99 1/(In millions of U.S. dollars)
19951996199719981999
Jan-Nov.
Total exports1,204.01,147.41,236.81,322.11,082.2
Industrial countries523.3616.5681.1822.1651.1
European Union407.8490.2462.0584.5485.6
France23.56.05.717.711.8
Italy118.451.442.596.866.2
Netherlands29.747.941.343.736.7
Germany153.1214.6194.8283.0232.1
United Kingdom21.130.630.223.422.8
Greece14.2102.497.483.379.1
Austria30.320.418.59.95.5
Other17.516.931.626.731.4
EFTA37.133.280.645.327.2
Switzerland36.733.164.440.325.2
Other0.40.116.25.02.0
Other industrial countries78.493.1138.5192.3138.3
Japan1.12.41.32.11.7
United States35.670.7114.5175.1123.4
Turkey38.318.222.79.17.8
Other3.41.80.06.05.4
Former CMEA area446.2134.9116.0109.570.8
Bulgaria256.038.231.742.629.4
Russia87.238.625.526.115.0
Albania24.732.630.113.314.0
Ukraine29.24.91.93.71.5
Other49.120.626.823.810.9
Developing countries44.011.320.932.832.3
Republics of the former SFRY190.0380.0387.4355.2314.8
SR Yugoslavia84.8245.8273.9240.2222.0
Croatia32.134.037.854.130.7
Slovenia72.482.155.541.344.4
Bosnia and Herzegovina0.718.120.219.617.7
Other countries0.54.731.42.513.2
Source: Data provided by the Statistical Office.
Table 38.FYRM: Origin of Merchandise Imports, 1995–Nov. 99 1/(In millions of U.S. dollars)
Countries19951996199719981999
Jan-Nov.
Total imports, c.i.f.1,716.11,626.31,778.51,913.51,566.5
Industrial countries860.8806.2827.4927.0777.7
European Union689.6629.8658.5693.9626.1
France36.148.635.336.634.3
Italy179.3109.894.7109.182.2
Netherlands43.439.839.842.235.4
Germany283.0239.9233.4255.0215.2
United Kingdom20.222.522.230.329.7
Greece28.977.4127.1113.3135.6
Austria44.938.243.453.538.2
Other53.853.662.653.955.5
EFTA20.024.927.835.720.7
Switzerland19.123.222.527.718.7
Other0.91.75.38.02.0
Other industrial countries151.2151.5141.1197.4130.9
Japan14.615.511.716.615.9
United States57.867.880.1101.647.5
Turkey55.244.349.351.447.6
Other23.623.90.027.819.9
Former CMEA area434.7344.0357.4400.1340.6
Bulgaria255.9107.598.286.282.9
Russia62.8122.368.591.088.0
Albania8.25.13.92.02.9
Ukraine37.331.491.7118.995.9
Other70.577.795.1102.070.9
Developing countries85.997.5110.4114.085.7
Republics of the former SFRY334.7342.1413.2465.4362.4
SR Yugoslavia161.1165.6202.3244.6160.2
Croatia56.348.968.564.456.2
Slovenia116.5124.3135.5148.8138.7
Bosnia and Herzegovina0.83.36.97.67.3
Other countries0.036.570.17.00.1
Source: Data provided by the Statistical Office.
Table 39.FYRM: Exports and Imports by Final Use, 1995–Nov. 99 1/
19951996199719981999
Jan-Nov.
(In millions of U.S. dollars)
Exports1,204.01,147.41,236.81,322.11,082.2
Industrial supplies651.5567.6650.0645.9508.2
Investment goods and We parts50.438.542.152.938.9
Consumption goods446.6540.3543.3621.7512.6
Other55.51.01.41.622.5
Imports, c.i.f.1,716.11,626.31,778.51,913.51,566.5
Industrial supplies989.9904.91,087.71,242.5993.6
Investment goods and spare parts181.2218.0188.5247.3210.2
Consumption goods527.9492.4491.6412.1355.1
Other17.111.010.711.67.6
(In percent of total exports)
Exports100.0100.0100.0100.0100.0
Industrial supplies54.149.552.648.947.0
Investment goods and spare parts4.23.43.44.03,6
Consumption goods37.147.143.947.047.4
Other4.60.10.10.12.1
(In percent of total imports)
Imports, c.i.f.100.0100.0100.0100.0100.0
Industrial supplies57.755.661.264.963.4
Investment goods and spare parts10.613.410.612.913.4
Consumption goods30.830.327.621.522.7
Other1.00.70.60.60.5
Source: Data provided by the Statistical Office.
Table 40.FYRM: Services Account, 1995–99(In millions of U.S. dollars)
19951996199719981999
Prel.
Total services-200-155-147-173-75
Receipts185154128131249
Payments-385-309-275-304-324
Travel, (net)-8-6-13-165
Receipts1921141537
Payments-27-26-27-31-32
Transportation (net)-138-100-79-83-66
Receipts5448546187
Payments-192-149-133-144-153
Other services (net)-54-49-55-74-15
Receipts112856055124
Payments-166-134-115-129139
Source: Data provided by the National Bank of Macedonia (NBM).
Table 41.FYRM: External Debt Disbursements, 1995–99(In millions of U.S. dollars)
19951996199719981999
Prel.
Total142124153228186
Multilateral128116131112108
IMF3814221219
IBRD/IDA6246484956
EBRD135432145
EUROFIMA151001
EIB0001824
IFAD00011
IFC00012
EU0029160
Official bilateral286026
Commercial creditors501611650
Commercial banks00683
Other501010847
Other70000
Source: Data provided by the National Bank of Macedonia (NBM).
Table 42.FYRM: External Debt-Service Obligations, 1995–99 1/(In millions of U.S. dollars)
19951996199719981999
Prel.
By creditor
Principal32475387123
Multilateral institutions2829263045
IMF110217
IBRD/IDA1915663
1FC83101
EIB02822
EBRD0181416
EUROFIMA07254
Council of Europe00111
EU00001
IFAD00000
Bilateral creditors013183027
Paris Club00172623
Other00144
Commercial creditors4592751
London Club00000
Other4592751
Interest1232715660
Multilateral institutionsl118421925
IMF23333
IBRD/IDA87656
IFC11005
EIB042834
EBRD02454
EUROFIMA01111
Council of Europe00000
EU00022
IFAD00000
Bilateral creditors013282117
Paris Club00272017
Other00111
Commercial creditors1111618
London club000108
Other111610
Total debt service4479124143183
By debtor
Principal87123
Central government4242
Special funds00
Other4581
Interest5660
Central government4134
Special funds00
Other1526
Source: Data provided by 1he National Bank of Macedonia (NBM).
Table 43:FYRM: External Debt Stock, 1995–99 1/(In millions of U.S. dollars, end of period)
19951996199719981999
Est.
Total external debt1,0621,1181,1391,4371,484
By debtor
Public sector1,0121,0071,2221,300
Government774775890963
Central government766767864921
Road fund1833
Health fund1113
Other7777
National hank8099114113
Public enterprises158133218224
Private sector 1/106132214184
Commercial banks849211094
Nonbank private sector224010590
By maturity and creditor
Medium- and long-term debt1,0621,1181,1391,3801,434
Multilateral398468490687709
IMF6980103114113
IBRD/IDA178206237296327
IFC5205660
EIB8276375468
EBRD1569839076
EUROFIMA4029252317
Council of Europe106555
EU0004841
IFAD00012
Bilateral creditors 2/412402377289318
Commercial creditors251248272404407
Commercial bank creditors229229241243250
Other221931161157
Short-term debt5750
Memorandum items:
(In percent of total)
Medium- and long-term external debt99.9100.0100.0100.0100.0
Multilateral37.541.843.149.849.4
Bilateral39.836.033.120.922.2
Commercial23.622.223.829.328.4
(In percent of GDP)
External debt2425324143
Source: Data provided by the National Bank of Macedonia (NBM).
Table 44.FYRM: Official Gold and Convertible Foreign Exchange, 1995–99(In millions of US. dollars, end of period)
Reserve
SDRPositionForeign
Gold 1/Holdingsin the FundExchangeTotal
1995Q116.41.00.0161.5178.9
Q216.41.40.0192.1209.9
Q316.40.70.0222.6239.7
Q417.60.20.0257.0274.9
1996Q119.70.40.0229.4249.5
Q222.21.30.0232.0255.5
Q324.20.50.0224.8249.5
Q428.00.00.0239.5267.5
1997Q126.60.10.0209.6236.3
Q225.42.20.0228.2255.8
Q325.91.30.0248.1275.3
Q423.50.40.0256.2280.1
1998Q123.80.10.0247.5271.4
Q224.44.20.0281.4310.0
Q325.01.70.0291.9318.6
Q428.51.10.0303.9333.5
1999Ql28.30.20.0290.4318.8
Q226.31.10.0310.9338.4
Q332.21.00.0408.2441.5
Q429.71.00.0427.7458.4
Source: Data provided by the National Bank of Macedonia (NBM).
Table 45.FYRM: Exchange Rate Developments, 1995–99 1/(Period average)
Real Effective Exchange Rate Indices 2/
Official Exchange RatesDeflated by RelativeDeflated by Relative Unit
Denar/US$Denar/DMConsumer PricesLabor Costs
199538.126.5100.0100.0
199639.926.696.386.3
199749.728.982.271.5
199854.531.072.363.6
199956.931.073.2
1997
January42.626.6100.376.5
February44.526.698.080.0
March45.226.689.180.9
April45.526.685.482.9
May45.426.684.485.7
June46.126.787.075.3
July53.129.776.666.8
August55.930.973.062.4
September54.530.972.364.5
October54.430.973.561.1
November54.530.972.962.4
December54.930.973.659.6
1998
January56.130.973.556.9
February56.130.972.858.5
March56.430.972.861.8
April56.230.971.461.4
May54.930.970.661.5
June55.431.069.766.3
July55.731.069.364.7
August55.431.069.063.3
September52.831.072.565.3
October50.731.075.459.2
November52.031.075.074.2
December51.831.075.770.4
1999
January52.231.075.475.8
February54.031.075.472.2
March55.631.074.966.6
April56.631.072.767.2
May57.031.073.173.5
June58.431.072.161.5
July58.731.070358.1
August57.231.071.458.3
September57.831.071.064.9
October56.531.073.474.8
November58.531.073.368.3
December60.031.075.0
Sources: Data provided by the National Bank of Macedonia (NBM), and IMF staff estimates.

Prepared by Toshitaka Sekine.

Signed in November 1997. The agreement simplified the customs clearance system between FYRM and the EU and provided financial assistance in the development of the FYRM’s transportation system through the European Investment Bank.

This also reflected the resumption of operations of a major iron and steel factory from the latter half of 1997 after its sale to a Swiss company.

Foreign cash exchange records purchases and sales of foreign currencies through foreign exchange bureaus. Although some inflows may represent genuine transfer payments (for instance, workers’ remittances received by cash), this item may also include some transactions in goods and services, such as travel, government services, and unrecorded trade.

Convertible bonds amounting to US$50 million were issued for the pre-privatization of Telecom by IFC and ING Bank. These bonds are treated as FDI on the assumption that the bonds will be converted to shares when the privatization process is completed.

Macedonian pharmaceutical products were removed from the approved list of medicine. Up-front foreign exchange deposits equivalent to 50 percent of the value of FRY imports were required from importers for consumption goods.

Because of the difficulty of directly monitoring these expenditures, in FYRM’s balance of payments statistics, these inflows appeared as either private transfers (because an increase in foreign cash exchanged through exchange bureaus was recorded under private transfers) or errors and omissions (if those who received foreign exchanges from these sources used them to finance their imports or transferred them to foreign countries, then it widened the gap between current/capital accounts and a change in official reserves).

The UN Interim Administration Mission in Kosovo (UNMIK) did not collect customs duties from Macedonian products until it established customs controls at key crossing points in September.

The form of the deferral included five years’ maturity including one year’s grace, and the capitalization of moratorium interest on the same terms.

Since banking activities were not established in Kosovo, Kosovars transferred foreign exchange to Macedonian banks. This, in addition to domestic payments by humanitarian agencies and NATO forces, contributed to increases in private transfers as well as errors and omissions.

For 1999, as a whole, the capital account surplus narrowed mainly because of the slow recovery of FDI. This also reflected that FDI in 1998 was exceptionally high owing to the Telecom privatization.

As noted in Paragraph 11, Paris Club agreed in May 1999 to a noncessional deferred of all debt-service payments due during April 1999-March 2000.

An increase in the external debt burden in terms of GDP ratios from 1996 to 1997 is attributable to the 1997 devaluation, since the debt outstanding in U. S. dollar terms increased little during the period.

Since the freeze implied blockage of withdrawal of interests on the deposits by foreign entities, it constituted an exchange restriction under Article VIII.

The Fund’s overall trade restrictiveness index of the current trade regime of FYRM is calculated as 3, where 1 is the most open and 10 is the most restrictive.

At the same time, some of tax exemptions were repealed. However, most of exemptions (such as those due to free trade agreements, diplomatic reasons, etc) remained.

Effective from 4/10/99, imports of the following goods became subject to the import approvals: pork; milk; vegetables (tomatoes, onions, cucumbers, peppers); cooking oil; processed meat products; mineral waters; shoes; and batteries. Import duties on the following goods were raised: pork; processed meat products; milk; cooking oil; margarine; chocolate; pasta; sweet biscuits; fruit juices; mayonnaise; and soups.

In the agreement with Bulgaria, both FYRM and Bulgaria will progressively reduce tariff rates to zero until 2005. In the agreement with Turkey, Turkey will immediately cut tariff rates to zero subject to certain quota, while FYRM will progressively reduce tariff rates to zero until 2008.

Prepared by Aliona Cebotari.

The LFS has been conducted annually in April since 1996. The short time-series provided by the LFS is not sufficient to infer the factors that led to the high rate of unemployment (especially that 1996-99 are the years when positive economic growth was experienced). A second source of unemployment data-the Employment Bureau (EB)-tends to significantly overestimate unemployment (by about 30 percent), as many workers not registered by their. employers register with the EB as unemployed in order to take advantage of the health insurance benefits.

Another feature of unemployment is its concentration among some minority groups. The unemployment rates are highest among the Roma (76 percent in 1998), Albanians (about 60 percent), and Turks (about 43 percent), even though their shares in the total number of unemployed is small (5, 22, and 3 percent, respectively). This may reflect the traditionally lower access to good education among these ethnic groups and perhaps other, non-educationrelated, difficulties in securing jobs.

The Statistical Yearbook, Government of Macedonia, 1998. The figures refer to end-1997, as more recent data are not available.

The LFS questionnaire was modified in 1999 to allow respondents not to indicate the duration of their unemployment, which impairs comparison of 1999 duration data with previous years; the most recent references to duration are, therefore, made to 1998.

The rate of inflow into unemployment - the ratio of those unemployed for less than 30 days to the labor force - was 0.6 percent in 1998, down from 1 percent in 1996. The outflow rate, proxied by the ratio of the newly (within 30 days) hired to total unemployment, is similarly small and has ranged from 1 to 3 percent during 1996-98.

The high rates of unemployment among the young and those with relatively low skills suggest that a mismatch of skills is probably another important cause of unemployment; data, however, are not readily available to support such an analysis.

The maximum amount of severance is 12 monthly wages (as compared with only 3 in Poland, for example) and was based, until recently, on workers employment with all previous firms (rather than the firing firm).

For example, if the worker is reinstituted with the firm by court decision, the firm has to compensate him for his forgone earnings. Given the lengthy court procedures and the high probability of courts ruling in favor of the workers, firing can turn out to be a very costly undertaking for the employer.

Apart from being relatively high, the wage floor is based on wage estimates that are likely to have a strong upward bias. This is because the surveys on which wage estimates are based cover mainly large, state or partially-privatized, firms that pay higher wages, but cover poorly small private firms that pay relatively lower wages.

For example, unemployment benefits are paid for as long as 18 months, or even indefinitely for some groups, compared to at most 12 months in virtually all countries in the region; and the replacement ratio is 50 percent for the benefits of up to 12 months and 40 percent thereafter, also among the highest in the region.

The amendments included, among other things, (i) establishing severance pay on the basis of length of service with the terminating employer only, rather than with all previous employers; and (ii) allowing employers to hire workers without a medical examination or a public announcement through the Employment Bureau.

According to press reports, firms hired over 41 thousand employees following the introduction of the law, but most of these were suspected to be workers whose employment status was simply legalized, rather than new hires. 8 thousand of these were subsequently laid off after the law was repealed, as firms were reluctant to start paying payroll taxes for these employees.

Prepared by Aliona Cebotari.

This new system was intended to pave the way for the privatization of the Okta refinery, the largest refinery in the country. It should be noted, however, that while the pricing mechanism described was legislated in January 1999, it was not implemented until July 1999, after the sale of the Okta refinery to the strategic investor.

Producer prices cover all the costs of the oil refinery associated with the import and transportation of crude oil, the production of oil derivatives and the profit margin of the refinery (8 percent after the sale of the oil refinery Okta to foreign investors).

Only the retail price of mazut has been increased several times between end-June and end August.

Prepared by Rachel Glennerster.

ZPP data is based on a subset of firms and is therefore not fully consistent with that provided by the Statistical Office.

To the extent that the valuation was based on the value of assets there would be less incentive for managers to depress reported profits prior to privatization.

Given that firms have considerable discretion about the level of depreciation they declare, profits before depreciation has been deducted is likely to contain more information than profits after depreciation.

Comparing changes in profitability against change in ownership status will correct for endogeneity in the timing of privatization with respect to the level of profits. However, it is still possible that there is selection bias due to the endogeneity in the timing of privatization with respect to the change in profits. In other words those enterprises which were more likely to see an increase in profitability may have been privatized early in the process. This would create an upward bias in the difference estimator.

The result is strengthened by the fact that any bias resulting from endogeneity in the timing of privatization with respect to change in profits would likely create an upward bias in the difference estimator, i.e. make it less likely that the estimator would be insignificantly different from zero.

A regression using dummies for different methods of privatization did not show a significant coefficient on insider privatization but given the relatively small number of time sold to outsiders this may not be conclusive.

Under Article 290 of the Law on the Transformation of Social Capital, it was legal for companies which were not fully private (i.e. where share installment plans had not been completed) to restrict sale of their shares. As the majority of shares had been sold through installment plans that lasted several years, most privatized enterprises were able to restrict the sale of shares in 1998.

Shares in FYRM are de-materialized and ownership is determined by the share register. If the company has control over the register, it can exercise control over the transfer of shares.

Other Resources Citing This Publication