Statement by the IMF Staff Representative on the Former Yugoslav Republic of Macedonia

In this study, economic recovery and growth of Macedonia are discussed. In the financial sector, nonperforming loans (NPLs) rose, and bank profitability declined as a result of the crisis. Executive Directors agreed with the thrust of the staff appraisal. Directors were encouraged by the overall healthy condition of the financial system. The need to accelerate structural reforms and strengthen public infrastructure to raise productivity and help reduce high unemployment is encouraged. Macedonia met the Precautionary Credit Line (PCL) qualification requirements.

Abstract

In this study, economic recovery and growth of Macedonia are discussed. In the financial sector, nonperforming loans (NPLs) rose, and bank profitability declined as a result of the crisis. Executive Directors agreed with the thrust of the staff appraisal. Directors were encouraged by the overall healthy condition of the financial system. The need to accelerate structural reforms and strengthen public infrastructure to raise productivity and help reduce high unemployment is encouraged. Macedonia met the Precautionary Credit Line (PCL) qualification requirements.

This statement provides information that has become available since the issuance of the staff report (EBS/11/3). The new information does not alter the thrust of the staff appraisal.

1. The cumulative fiscal outturn through November 2010 was 2.1 percent of projected annual GDP. This suggests the budget was on-track to meet the 2010 deficit target of 2.5 percent of GDP.

2. Average inflation in 2010 was 1.6 percent, while December year-end inflation was 3.0 percent. These figures are close to the staff report projections of 1.5 percent (average) and 2.8 percent (end-year). The December uptick is mainly due to jumps in food and energy prices.

3. GDP grew 1.3 percent year-on-year in the third quarter. This is broadly consistent with the staff projection of annual growth in 2010 of 1.2 percent.

4. Gross international reserves were €1.71 billion (99 percent of short-term debt by residual maturity) on December 31. This is higher than the €1.65 billion projected in the staff report and suggests balance of payments trends were somewhat more favorable in December than expected by staff.

5. Macedonian government Eurobond spreads have not been notably affected by sovereign debt market pressures in the Eurozone thus far. The spread on Macedonia’s five-year Eurobond was 414 basis points on January 5 (a yield of 5.93 percent), similar to levels of mid-October.