Front Matter

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© 2007 International Monetary Fund

July 2007

IMF Country Report No. 07/257

Former Yugoslav Republic of Macedonia: Second Review Under the Stand-By Arrangement and Request for Waiver of Performance Criteria and Rephasing of the Program—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the former Yugoslav Republic of Macedonia

In the context of the second review under the Stand-By Arrangement with the former Yugoslav Republic of Macedonia and its request for a waiver of performance criteria and rephasing of the program, the following documents have been released and are included in this package:

  • The staff report for the Second Review Under the Stand-By Arrangement and Request for Waiver of Performance Criteria and Rephasing of the Program, prepared by a staff team of the IMF, following discussions that ended on February 5, 2007, with the officials of the former Yugoslav Republic of Macedonia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on April 10, 2007. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • A staff statement of April 27, 2007 updating information on recent developments.

  • A Press Release (PR) summarizing the views of the Executive Board as expressed during its April 27, 2007 discussion of the staff report that concluded the review.

  • A statement by the Executive Director for the former Yugoslav Republic of Macedonia.

The documents listed below have been or will be separately released.

  • Letter of Intent sent to the IMF by the authorities of the former Yugoslav Republic of Macedonia*

  • Technical Memorandum of Understanding*

  • *Also included in Staff Report

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.

Copies of this report are available to the public from

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International Monetary Fund

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INTERNATIONAL MONETARY FUND

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

Second Review Under the Stand-By Arrangement and Request for Waiver of Performance Criteria and Rephasing of the Program

Prepared by the European Department

(In consultation with other departments)

Approved by Juha Kähkönen and Scott Brown

April 10, 2007

Executive Summary

Economic performance is improving. Growth is around 4 percent, reserves are strengthening, fiscal targets met, and interest rates have fallen.

Delays in completing the review reflect extensive discussions, as staff sought to incorporate the new government’s economic initiatives—raising growth through tax reform and investment incentives—in a manner consistent with the Fund-supported program.

The 2007 fiscal deficit target increases modestly to 1 percent of GDP. Taxes are cut and budget quality improves, but there are also fiscal risks, in particular in delivering the planned reduction in transfers and subsidies. Over the medium term, the government aims to keep the fiscal deficit below 1½ percent of GDP, cutting overall government spending by 2 percent of GDP while raising public investment.

Structural reforms aim at raising growth. The draft banking law will strengthen banking supervision, while social security base harmonization will simplify tax administration.

All quantitative performance criteria and most structural conditionality have been met, though the latter with some delay due to the elections (LOI Tables 1 and 2). The authorities request waivers for non-observance of two structural performance criteria relating to creation of a large contributor office and sale of the government’s remaining shares in the telecom monopoly (Table 1). In light of the delay, they also request a rephasing of remaining purchases (LOI Table 5). Given the authorities’ commitments to new measures to meet the goals of these performance criteria, and strong performance under the program, the staff recommends completion of the Second Review.

Contents

  • Executive Summary

  • I. Introduction

  • II. Recent Developments

  • III. Program Discussions

    • A. Macroeconomic Outlook

    • B. Fiscal Policy

    • C. Structural Reform

  • IV. Staff Appraisal

  • Text Boxes

  • 1. Fiscal Risks in the Electricity Sector

  • Figures

  • 1. Real Sector Indicators, 2002–06

  • 2. External Sector Indicators, 2000–06

  • 3. Exchange Rate Indicators, 2000–06

  • 4. Financial Market Developments, 2004–06

  • 5. Money and Credit Developments, 2001–06

  • 6. Banking Sector Developments, 2002–06

  • 7. Indicators of Institutional Quality and Reform, 2006

  • Tables

  • 1. Performance Criteria and Prior Actions in the Program

  • 2. Selected Economic Indicators, 2003–07

  • 3. Macroeconomic Framework, 2003–12

  • 4. Medium-Term Balance of Payments, 2005–12

  • 5. Central Government Operations, 2004–07

  • 6. Central Bank Accounts, 2004–07

  • 7. Monetary Survey, 2004–07

  • 8. Financial Soundness Indicators, 2001–06

  • 9. Fiscal Debt Sustainability Framework, 2002–12

  • 10. External Debt Sustainability Framework, 2002–12

  • 11. Indicators of Capacity to Repay the Fund, 2005–12

  • 12. External Financing Requirements and Sources, 2004–10

  • Annexes

  • I. Statistical Issues

  • II. Fund Relations

  • III. World Bank Relations

  • Attachments

  • I. Letter of Intent

  • II. Technical Memorandum of Understanding

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Press Release No. 07/81

FOR IMMEDIATE RELEASE

April 27, 2007

International Monetary Fund

Washington, D.C. 20431 USA

Former Yugoslav Republic of Macedonia: Second Review Under the Stand-By Arrangement and Request for Waiver of Performance Criteria and Rephasing of the Program: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the former Yugoslav Republic of Macedonia
Author: International Monetary Fund