Statement by the IMF Staff Representative on Former Yugoslav Republic of Macedonia Executive Board Meeting December 11, 2009

This 2009 Article IV Consultation highlights that the Former Yugoslav Republic of Macedonia’s vulnerability at the outset of the global crisis was its large current account deficit in the context of the exchange rate peg to the euro. At the same time, it benefited from a small fiscal deficit, modest public debt, and significant international reserve buffers. Executive Directors have praised the Macedonian authorities for the conduct of macroeconomic policies, which contributed to a modest downturn in Macedonia’s economy relative to other countries in the region.

Abstract

This 2009 Article IV Consultation highlights that the Former Yugoslav Republic of Macedonia’s vulnerability at the outset of the global crisis was its large current account deficit in the context of the exchange rate peg to the euro. At the same time, it benefited from a small fiscal deficit, modest public debt, and significant international reserve buffers. Executive Directors have praised the Macedonian authorities for the conduct of macroeconomic policies, which contributed to a modest downturn in Macedonia’s economy relative to other countries in the region.

Statement by the IMF Staff Representative on Former Yugoslav Republic of Macedonia Executive Board Meeting December 11, 2009

1. This statement provides information that has become available since the staff report for the 2009 Article IV Consultation was issued. The thrust of the staff appraisal remains unchanged.

2. On November 30 the National Bank of the Republic of Macedonia (NBRM) announced a reduction in its reference rate from 9 to 8½ percent. In explaining this decision, Governor Goshev cited favorable developments in international reserves and faster than expected external adjustment. Reserves were €1.6 billion on December 2, up from €1.55 billion at end-October, while the NBRM now expects the 2009 current account deficit to be 8 percent of GDP, compared to its projection in October of 9.1 percent of GDP.

3. The staff report advised that further evidence of external stabilization would be desirable before easing. Based on the most recent data, reserves are likely to be higher at end-2009 than the €1.4 billion projected in the staff report, which suggests more favorable balance of payments developments over the past two months than projected by staff. In staff’s view, the 50 basis point cut by the NBRM is justified based on the improved outlook. However, in light of continued uncertainties, staff would recommend that further easing should be cautious and conditioned on the continuation of favorable trends in reserves and the balance of payments.

4. The NBRM also announced on November 30 that the mandatory reserve requirement imposed when a bank’s consumer loan portfolio grows by more than a prescribed rate would be allowed to expire on January 1, 2010. This requirement, which the 2008 Article IV staff report had recommended eliminating, had limited impact in light of the slow credit growth over the past year.

Former Yugoslav Republic of Macedonia: Staff Report for the 2009 Article IV Consultation: Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Former Yugoslav Republic of Macedonia
Author: International Monetary Fund