Statement by the Staff Representative on the Former Yugoslav Republic of Macedonia Executive Board Meeting

The report says that Macedonia continues to pursue sound economic policies that are consistent with the program supported by the Precautionary Credit Line (PCL) arrangement. The authorities strengthened debt management policies and improved access to external funding and developed a domestic public debt market. This will help Macedonia to meet its financing needs from private market sources in future. The PCL plays a valuable role in supporting market confidence by signaling Macedonia’s commitment to prudent policies and strengthening its reserve buffers.

Abstract

The report says that Macedonia continues to pursue sound economic policies that are consistent with the program supported by the Precautionary Credit Line (PCL) arrangement. The authorities strengthened debt management policies and improved access to external funding and developed a domestic public debt market. This will help Macedonia to meet its financing needs from private market sources in future. The PCL plays a valuable role in supporting market confidence by signaling Macedonia’s commitment to prudent policies and strengthening its reserve buffers.

This statement provides information that has become available since the issuance of the staff report (EBS/11/126). The new information does not alter the thrust of the staff appraisal.

1. The cumulative fiscal outturn through July 2011 was 1.9 percent of projected annual GDP. This suggests that the authorities may need increased restraint on discretionary spending for the remainder of the year to meet their 2011 budget deficit target of 2.5 percent of GDP.

2. Inflation in July 2011 was 3.8 percent. This figure is consistent with the staff report projections of 4.4 (average) and 3.7 percent (end-year).

3. GDP grew 5.1 percent year-on-year in the first quarter of 2011. This is broadly consistent with the staff projection of annual growth in 2011 of 3 percent.

4. Gross international reserves were €1.86 billion (about 107 percent of end-2010 short-term debt at residual maturity) on August 19. Net international reserves (under the program exchange rate) were €1.37 billion on August 19, about €65 million above the new end-November target (assuming no official borrowing from private external markets by then). The trade deficit in June remained stable at about €130 million, with both year-on-year export and import growth declining, possibly reflecting the easing of metal and fuel prices.

5. Macedonian government Eurobond yields have not been notably affected by sovereign debt market pressures in the Eurozone thus far. The yield on Macedonia’s Eurobond maturing in 2015 was 5.5 percent on August 25, similar to the average in June and July and lower than the average for the previous months of the year. Spreads over German bunds have increased by almost 1 percentage point during the last month, as German yields have fallen with investor flight to safe havens.