Journal Issue
Share
Article

Former Yugoslav Republic of Macedonia: Staff Report for the 2008 Article IV Consultation Information Annexes

Author(s):
International Monetary Fund
Published Date:
February 2009
Share
  • ShareShare
Show Summary Details
Annex I—FYR Macedonia: Statistical Issues

1. Data provision has some shortcomings, but is broadly adequate for surveillance. The most affected areas are: national accounts, government finance statistics, and balance of payments. Macedonia’s plans for improving its statistical system are posted in the Fund’s DSBB website in line with the General Data Dissemination System (GDDS) framework. A data ROSC was prepared and published in 2004.

Real Sector Statistics

2. Despite recent improvements, GDP statistics continue to be affected by large discrepancies between the official quarterly and annual GDP estimates, and between these and the behavior of a variety of indirect economic indicators. Further improvements in production and expenditure GDP estimates are needed to better inform policy makers and markets about economic developments. The State Statistics Office (SSO) implementation of STA recommendations has been slow mainly due to a heavy work load, capacity constraints, and lack of appropriate data. An STA peripatetic statistical advisor made several visits in 2008 to provide hands-on assistance to improve the methodology used by the SSO. A new quarterly GDP series by production and expenditure, based on an improved methodology, was published in June 2008. These data are now available from the first quarter of 2006 although there are plans to compile backward revisions for a longer series.

3. Employment data from the company survey continue to be unreliable, but the timeliness of unemployment and labor force data has been improved as the labor force survey is now conducted on a quarterly basis (compared to annual surveys in the past). Wage data suffer from the volatility of wage arrears payments.

External Sector Statistics

4. The compilation and coverage of balance of payments statistics have improved in recent years. Following the 2004 data ROSC mission and the STA mission in late 2006 most recommendations were implemented. One important weakness in the BOP statistics relates to private transfers. The weaknesses have stemmed from the assumption that most of the foreign currency exchanged into denars in the foreign exchange bureaus reflects private transfers by migrants. The 2006 STA mission utilized a 2002 private survey of migrants to estimate private transfers and allocated them to the current and capital accounts. The National Bank of the Republic of Macedonia (NBRM) is currently completing a more comprehensive follow-up survey, which will form the basis of new adjustments (the mission recommended that such surveys be conducted every five years going forward, to ensure that the main assumptions remained valid).

Government Finance Statistics

5. The consolidated central government data are affected by unreliable source data on extra-budgetary funds, hospital arrears, and special revenue accounts, including foreign financed projects. In addition, the consolidated general government data are affected by unreliable source data on local governments. Macedonia does not report government finance statistics to the Fund for publication in either the Government Finance Statistics Yearbook (GFSMY) or the International Financial Statistics (IFS). The October–November 2007 government finance statistics (GFS) pilot study mission to promote the methodology of the GFSM 2001 focused on bridging the statistics reported to the European Department to the analytical framework of the GFSM 2001 and producing a financial balance sheet for the central government. The mission identified serious data gaps in the government accounts.

Monetary and Financial Statistics

6. Monetary and financial statistics are reported to the Fund on a regular basis, although in the past they have been subject to concerns regarding inconsistencies, accuracy and reliability. To address these issues, STA provided technical assistance in April 2005 based on the findings of the 2004 data ROSC. The mission recommendations include: (i) improved institutional coverage of monetary statistics through the inclusion of savings houses in the reporting of other depository corporations; (ii) the collection of more disaggregated data in both the NBRM and commercial banks’ balance sheets to improve the classification of accounts by economic sector; (iii) improved data consistency through reconciliation of loan data among various sectors; (iv) the publication of improved interest rate data in IFS; and (v) the establishment of a well-defined policy on data revisions in line with best international practice. The NBRM has since begun to implement these improvements. The regular publication of lending and deposit interest rates of various maturities and currency-type has been an important step forward. In early 2008, the NBRM began reporting monetary data to the Fund using the Standardized Report Forms.

FYR Macedonia: Table of Common Indicators Required for Surveillance(as of October 29, 2008)
Date of latest observationDate receivedFrequency of Data7Frequency of Reporting7Frequency of publication7Memo Items:
Data Quality–Methodological soundness8Data Quality–Accuracy and 9 reliability
Exchange RatesSept. 0810/17/08Dand MWand MDand M
International Reserve Assets and Reserve Liabilities of the Monetary Authorities107/31/0808/20/08MMM
Reserve/Base MoneyAug. 0810/01/08Dand MWand MMO, LO, LO, OO, LO, O , O, O
Broad MoneyAug. 0810/01/08MMM
Central Bank Balance SheetAug. 0810/01/08MMM
Consolidated Balance Sheet of the Banking SystemAug. 0810/01/08MMM
Interest Rates2Aug. 0810/01/08MMM
Consumer Price IndexSept. 200810/22/08MMMO, O, O, LOLO, O, LNO, O, LO
Revenue, Expenditure, Balance and Composition of Financing3–General Government406/30/0808/15/08QQQLO, LNO, LO, OLO, LO, LO, LO, LNO
Revenue, Expenditure, Balance and Composition of Financing3–Central Government06/30/0808/15/08QQQ
Stocks of Central Government and Central Government-Guaranteed Debt506/30/0808/15/08MMI
External Current Account BalanceMay 200808/19/08MMMO, LO, O, LOLO, O, LO, O, LO
Exports and Imports of Goods and ServicesJun 200808/14/08MMM
GDP/GNPMar 200806/24/08QQQO, LO, O, LOLO, O, LNO, O, O
Gross External Debt12/30/0703/31/08QQQ
International Investment Position6200605/23/08AAA

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Currency and maturity composition is reported only on request.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC or the Substantive Update (published on September 29, 2004, and based on the findings of the mission that took place during February 18–March 3, 2004) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 8, except referring to international standards concerning source data, assessment and validation of source data,, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Currency and maturity composition is reported only on request.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC or the Substantive Update (published on September 29, 2004, and based on the findings of the mission that took place during February 18–March 3, 2004) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 8, except referring to international standards concerning source data, assessment and validation of source data,, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Annex II—FYR Macedonia: Fund Relations

(as of September 30, 2008)

Mission. Skopje, September 10–22, 2008. Press statement is available at: www.imf.org/external/np/sec/pr/2008/pr08214.htm

Staff team. Mark Griffiths (head), Pablo Lopez-Murphy and Chuling Chen (all EUR), Salim Darbar (MCM), Peter Dohlman (PDR), and Bert van Selm (Resident Representative).

Discussions. The staff team met Deputy Prime Minister Stavreski, Finance Minister Slaveski, National Bank of the Republic of Macedonia Governor Gošev, other senior officials, and representatives of the banking, business, political and international communities.

Stand-By Arrangement. The Fund had supported FYR Macedonia’s economic program with a three-year SDR 51.68 million Stand-By arrangement (75 percent of quota). SDR 10.5 million was purchased initially but this, and earlier outstanding amounts, have been repaid. The program expired in August 2008.

Publication. The Macedonian authorities have not yet decided on the publication of this staff report.

I. Membership Status: Joined 12/14/92; Article VIII

II. General Resources Account:

SDR MillionPercent of Quota
Quota68.90100.00
Fund holdings of currency68.90100.00
Reserve Position0.000.00

III. SDR Department:

SDR MillionPercent of Allocation
Net cumulative allocation8.38100.00
Holdings0.9411.19

IV. Outstanding Purchases and Loans: None

V. Latest Financial Arrangements:

ApprovalExpirationAmount ApprovedAmount Drawn
TypeDateDate(SDR Million)(SDR Million)
Stand-By08/31/200508/30/200851.6810.50
Stand-By04/30/200308/15/200420.0020.00
EFF11/29/200011/22/200124.121.15

VI. Projected Payments to the Fund (Expectations Basis)1

(SDR million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20082009201020112012
Principal
Charges/Interest0.050.190.190.190.19
Total0.050.190.190.190.19

VII. Safeguards Assessments:

An update was completed on February 28, 2006 with respect to the current Stand-By Arrangement. The previous assessment was completed in April 2003. The update found that the NBRM had taken steps to strengthen its safeguards framework and recommendations from the earlier assessment had been implemented. Notwithstanding this progress, the report made recommendations in the reporting and audit areas, including: (i) review by the NBRM internal audit function of processes for compiling monetary data reported to the Fund under the program; and (ii) completion of annual external audits on a timely basis as prescribed by the central bank law. The NBRM has started to conduct internal audit reviews on the processes for compiling monetary data reported to the Fund.

VIII. Exchange Arrangement:

The currency of the FYR Macedonia is the denar. The FYR Macedonia maintains a managed floating exchange rate system with a de facto peg to the Euro. Households can transact only through commercial banks or through foreign exchange bureaus that act as agents of banks; enterprises can transact through the banking system. The reserve requirement on all foreign currency deposits is set at 10 percent.

At end-September 2008, the official exchange rate was 42.63 denars per U.S. dollar and 61.17 denars per euro. The FYR Macedonia has accepted the obligations of Article VIII, Sections 2, 3, and 4 with effect from June 19, 1998.

The FYR Macedonia had maintained an exchange restriction subject to the Fund’s approval under Article VIII, Section 2(a) arising from restrictions imposed on the transferability of proceeds from current international transactions contained in former frozen foreign currency saving deposits. Retention of this restriction was approved by the Board on December 21, 2006 until December 31, 2007, but it has now been lifted.

IX. Article IV Consultations:

The first consultation with the FYR Macedonia was concluded in August 1993. The last consultation was concluded on July 28, 2006. The FYR Macedonia is on the standard consultation cycle.

X. Technical Assistance (since 2005):

PurposeDepartmentDate
Government Finance StatisticsSTAOctober 2008
Balance of Payments StatisticsSTAOctober 2008
National Accounts StatisticsSTAApril 2007,

January, May,

September 2008
Export and Import DeflatorsSTADecember 2007
GFS 2001STANovember 2007
Expenditure RationalizationFADJuly 2007
Central Bank LawMCMJuly 2007
Tax PolicyFADJune 2007
National Accounts StatisticsSTAApril 2007
Liquidity, Cash and Debt ManagementMCMApril 2007
Tax AdministrationFADOctober 2006
Balance of Payments StatisticsSTAOctober 2006
Tax PolicyFADSeptember 2006
Government Finance StatisticsSTAJune 2006
Banking LawLEG, MCMJune 2006
Banking ReformMCMNovember 2005
Credit GrowthMCMOctober 2005
National AccountsSTAJuly 2005
BOP StatisticsSTAJuly 2005
Tax AdministrationFADMay 2005
Reserve ManagementMCMMay 2005
Monetary StatisticsSTAApril 2005
Resident Experts
Banking SupervisionMCMMay 2006-present
Tax AdministrationFADOctober 2006-present
Monetary PoliciesMCMOctober 2004-April 2005

XI. FSAP Participation and ROSCs (since 2003)

PurposeDepartmentDate
FSAP updateMCM/WBMarch 2008
Fiscal ROSCFADFebruary 2005
Data ROSCSTAFebruary 2004
FSAPMCM/WBMay 2003 and June 2003

XII. Resident Representative

The Fund has had a resident representative in Skopje since 1995. Mr. Bert van Selm has held this position since August 2006.

Notes

This schedule presents all currently scheduled payments to the IMF, including repayment expectations and repayment obligations. The IMF Executive Board can extend repayment expectations (within predetermined limits) upon request by the debtor country if its external payments position is not strong enough to meet the expectations without undue hardship or risk.

Annex III—FYR Macedonia: World Bank Relations1

A. Partnership in FYR Macedonia’s Development Strategy

1. The country has made considerable progress since independence, amid a highly unfavorable regional outlook during most of the 1990’s and a domestic conflict in 2001. The Ohrid Framework Agreement, which ended the 2001 insurgency, brought a reasonable measure of stability to the country, despite continuing political tensions. The strategic priorities of the Government have included EU and NATO accession, implementation of the Ohrid Agreement and promoting growth and reducing unemployment and poverty. FYR Macedonia’s progress is reflected perhaps most prominently in its candidacy for membership in the European Union.

2. Macroeconomic stability has been maintained since the mid-1990s. Fiscal discipline and the peg to the Euro helped maintain inflation at low levels for a decade. Government spending as a proportion of GDP has increased in the last two years, albeit from relatively low levels compared to the region. This, together with intensified structural reforms in recent years, has resulted in growth rates of around 4 percent since 2004. Stronger growth has been constrained by structural impediments and continuation of reforms is crucial if the country is to attract the investment needed to underpin more rapid growth and job creation.

3. The modest growth has been insufficient to trigger a more substantial reduction in the unemployment rate. In the second quarter of 2007, the unemployment rate was 35 percent, compared to 36.1 percent in the same period of 2006. At the same time, absolute poverty continues to affect around 20 percent of the population.

B. World Bank Supported Reform

4. Since FYR Macedonia joined the World Bank in 1993, 44 loans have been approved with a total value of approximately US$840 million, out of which around 44 percent on concessional IDA terms. FYR Macedonia graduated fully from IDA in 2003 reflecting improved economic performance and credit-worthiness. In June 2007 the authorities pre-paid slightly less than half of the disbursed IBRD portfolio.

5. The World Bank’s current program of assistance to FYR Macedonia is outlined in a Country Partnership Strategy discussed by the Board on March 27, 2007. Reflecting Government priorities, the CPS aims to accelerate FYR Macedonia’s perspective to join the European Union by focusing on two pillars: (i) fostering job-creating economic growth, and increasing living standards for all, and (ii) improving public sector delivery and good governance. The CPS will employ a selected mix of investment and policy lending (up to a total high case lending scenario of US$280 million over 4 years), along with a robust program of Analytical and Advisory Activities (AAA) work to support the CPS goals.

6. Over the last five years, World Bank support gradually shifted from support to the governance reforms agenda (Public Sector Management Adjustment Credit approved in 2002, and Public Sector Management Adjustment Loan II approved in 2004) towards reforms to improve the investment climate and promote growth and employment. Bank support for Government reform efforts is centered on a series of Programmatic Development Policy Loans (PDPLs), the first of which was approved by the Board in October 2005, shortly after IMF Board approval of the current Stand-By Arrangement (SBA). The second PDPL was approved by the Board on March 27, 2007 and the third and final PDPL is planned for the first half of 2008. The PDPLs support Government efforts to undertake judicial reform, labor market reform, financial sector reform, and business regulatory reform. Efforts to further strengthen public sector governance include an emphasis on further reform to improve transparency and efficiency in health sector spending, building the capacity of the civil service to permit more effective strategic prioritization, and support for the decentralization program being conducted under the umbrella of the Ohrid Framework Agreement.

8. The Development policy lending is supported by a series of specific investments to build capacity to implement priority reforms. On the governance and public administration side, a Health Sector Management Improvement project provides technical assistance and investment support to the broader health sector reform program; a Social Protection project supports reform in pension and social assistance reforms; and an Education project assists Government efforts to improve access and introduce stronger performance and equity measures in primary and secondary education financing. On the investment climate side, a Business Environment Reform and Institutional Strengthening (BERIS) project approved in June 2005 concentrates on building capacity to improve business entry, operations, and exit; as well as enhancing the competitiveness of the enterprise sector; and a Real Estate Cadastre and Registration project approved in early 2005 strengthens land markets and the use of real property as collateral for business investment by providing more secure title. A Legal and Judicial Reform project approved in mid May 2006 supports critical reforms in this area. Adjustment and investment lending has also been backed up by a comprehensive program of analytical work.

9. The Bank is also providing support to other sectors, including railways (Railways Reform project), energy sector (Energy Community in Southeast Europe project and Sustainable Energy GEF), agriculture (Agriculture Strengthening and Accession project) and trade facilitation (Trade and Transport Facilitation in Southeast Europe 2).

C. IMF–World Bank Collaboration in Specific Areas

9. World Bank and IMF engagement in FYR Macedonia in recent years has been marked by a spirit of collaboration and close cooperation between the two institutions at all levels, as well as with the Government. Synergies between the Bank and IMF programs during the implementation of reforms reflect a strong degree of consensus between both institutions and the Government in regard to reform priorities. This close coordination has ensured that the SBA and the Bank program are mutually reinforcing.

10. Judicial reform is central to improving the business environment in FYR Macedonia and firmly establishing protection of creditor, contract and property rights. IMF SBA benchmarks to analyze and budget for the fiscal effects of judicial reform, enact amendments to the Bankruptcy Law, and amend the Law on Misdemeanors to allow administrative bodies to impose sanctions without prior court involvement complemented Bank supported reform efforts. Under the PDPL and the Legal and Judicial Reform project, the Bank is focusing on: reducing backlog and delays in court proceedings; improving the enforcement of court judgments; improving the regulatory and implementation framework for bankruptcy cases; and increasing the speed, transparency and fairness of administrative decisions.

11. Support for labor market reform also requires close coordination. A very rigid legislative framework governing labor relations as well as a high tax wedge contributed to a stagnant formal labor market, exceptionally high unemployment rate and a large informal sector. The Bank took the lead in supporting the new Law on Labor Relations adopted in July 2005 which eliminated the most burdensome features of the old law while the IMF has provided support in reducing the tax wedge and streamlining procedures.

12. Judicial and labor market reforms are being complemented by a range of other measures to strengthen the framework for business activity. The enactment and implementation of a new Business Registration Law and associated regulations has significantly reduced the costs and time of business entry. This has led to a 50 percent increase in new business registration in 2006. The Government is also focusing on reforms to reduce the burden of unnecessary regulations on businesses. This reform will streamline business licensing, permits and inspections. These continuing reforms are supported by the Bank’s PDPL program as well as the BERIS project. Further actions to implement corporate governance and accounting and auditing reports on standards and codes (ROSCs) have been undertaken, including amendments to the Company Law and Securities Law, and the passage of a new Audit Law. The Bank and IMF have cooperated closely in supporting the capacity of the National Bank (NBRM) to supervise and regulate the banking sector, and to strengthen compliance with anti-money laundering and counter-terrorist financing requirements.

13. Reform of health sector financing is a key element of both the Bank and IMF programs. Health sector spending makes up 15 percent of Government expenditure and has historically been an area with significant fiduciary risks associated with pharmaceutical procurement and less than fully transparent operation of the Health Insurance Fund (HIF) and Health Care Institutions (HCIs). Prior actions and performance criteria in the SBA have reinforced the Bank’s programs, which support efforts to further prioritize spending, improve cost-effectiveness, and strengthen mechanisms for pharmaceutical procurement.

15. Bank support for civil service reform, including strengthening institutional arrangements for strategic prioritization, complement IMF efforts to improve fiscal and budget management. Extending the principles underpinning civil service reform to the majority of Government employees will further strengthen meritocratic principles and the professionalism of the public sector. This would need to occur within the framework of the Ohrid Framework Agreement, and the associated provisions for the representation of minorities.

16. Substantial progress has been made in adopting the framework for decentralization, most recently with the graduation of more than half of the municipalities to the second phase as well as adoption of formulas for distribution of earmarked and block grants. While not directly involved in the design, the World Bank’s and IMF’s involvement ensured a fiscally sustainable progress in decentralization but further coordination will be required.

17. Most recently, the Bank and the Fund have cooperated closely on the energy sector dialogue. The Bank is assisting the counterparts in designing a plan that would ensure stable and affordable energy supply in the future, and the IMF SBA has supported this.

D. Summary

17. FYR Macedonia has made considerable progress in macroeconomic management and improving the transparency and operations of the public sector. Although continuing governance and macroeconomic challenges remain, there is broad consensus that a strong focus on structural reform must be sustained to overcome key impediments to growth and employment. This is reflected in both the IMF and Bank programs. The strong similarities between aspects of the IMF SBA and the Bank’s proposed adjustment and investment lending program have considerable potential to generate synergies and complementarities. This, however, requires continuing strong collaboration between the Macedonian Government, the Bank and the IMF.

Prepared by World Bank staff.

Other Resources Citing This Publication