Washington, DC : The Executive Board of the International Monetary Fund (IMF) approved on November 21 North Macedonia’s request for a two-year arrangement under the PLL for SDR 406.87 million (290 percent of North Macedonia’s quota, equivalent to about €530 million). The authorities intend to draw the amounts available in the first year of the arrangement (SDR 203.44 million, or about €265 million), while treating the amounts available during the second year of the arrangement as precautionary.
North Macedonia has been hit by two consecutive global shocks. While recovering from the pandemic, the outlook deteriorated again following Russia’s invasion of Ukraine and sharply rising global commodity prices. Given high dependence on energy imports, the external financing need has increased, while at the same time, global financial conditions have tightened, increasing the cost of market financing.
The authorities’ policy priorities under the PLL arrangement include safeguarding public finances, reducing energy subsidies and improving energy efficiency while protecting the vulnerable, tackling high inflation, and preserving financial stability. The arrangement will help meet external financing needs in the next 12 months and provide insurance against downside risks in the following year.
The PLL was introduced in 2011 to meet more flexibly the liquidity needs of member countries with sound economic fundamentals and strong records of policy implementation but with some remaining vulnerabilities.
Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Chair, made the following statement:
“Prior to the pandemic, North Macedonia’s sound policy framework fostered solid and broad-based growth, with moderate public debt and external current account deficits. However, the macroeconomic situation deteriorated substantially due to the pandemic and the commodity price shock following Russia’s invasion of Ukraine. The two-year PLL arrangement of SDR 406.87 million (290 percent of North Macedonia’s quota, equivalent to about €530 million), will support the authorities’ policies and boost international reserves, and can also serve as catalyst to obtain other external financing.
“North Macedonia qualifies under the PLL because it has sound economic fundamentals and institutional policy frameworks, is implementing―and has a track record of implementing―sound policies, and remains committed to maintaining such policies.
“The government has taken action to limit the fiscal deficit in 2022 and consolidate public finances in 2023, while protecting those most affected by the commodity price shock. The authorities have introduced block tariffs for electricity and hiked electricity tariffs to mitigate the fiscal and external impact of the shock. They are committed to containing wage and pension benefit increases, given the limited fiscal space and the risks to inflation. To prevent high inflation from becoming entrenched, the National Bank of the Republic of North Macedonia (NBRNM) is tightening monetary policy.
“The authorities’ policy agenda under the arrangement focuses on continued deficit reduction over the medium term, underpinned by the newly introduced fiscal rules. They will scale up public investment, while carefully managing associated fiscal risks. To reduce the fiscal and external vulnerabilities to energy price shocks, they plan to phase out untargeted energy subsidies, while strengthening the targeted support for the vulnerable, and improve energy efficiency. The NBRNM is committed to continued tightening to address any persistent inflation differential with the euro area. These policies would strengthen fiscal and reserves buffers, allowing the country to exit from the PLL arrangement when it expires in 2024.”