Statement by the IMF Staff Representative

This paper discusses the Former Yugoslav Republic of Macedonia’s Second Review Under the Stand-By Arrangement and Request for Waiver of Performance Criteria and Rephasing of the Program. The 2007 fiscal deficit target increased modestly to 1 percent of GDP. Taxes were cut and budget quality improved, but there remain 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.

Abstract

This paper discusses the Former Yugoslav Republic of Macedonia’s Second Review Under the Stand-By Arrangement and Request for Waiver of Performance Criteria and Rephasing of the Program. The 2007 fiscal deficit target increased modestly to 1 percent of GDP. Taxes were cut and budget quality improved, but there remain 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.

April 27, 2007

This statement provides information on developments since the issuance of the staff report for the Former Yugoslav Republic of Macedonia’s Request for the Second Review Under the Stand-By Arrangement, and Request for Waiver of Performance Criteria and Rephasing of the Program. It does not change the thrust of the staff appraisal.

Last week, the authorities submitted to Parliament a new Banking Law consistent with the objectives set out in paragraph 20 of the Letter of Intent, and with technical assistance provided by Fund staff, meeting the prior action that had been established.

Economic and financial data remain broadly consistent with the program. Inflation has fallen below 1 percent, while industrial production has recovered strongly, increasing by almost 13 percent year on year in January and February. The sale of a domestic bank to a major foreign bank seems to have been successfully completed, auguring well for increased competition and efficiency in this sector.

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