Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1]with North Macedonia.
Forceful policy support has cushioned the economic impact of the pandemic. Fiscal lifelines helped prevent large job losses and protect the most vulnerable, while monetary and financial measures kept credit flowing to the economy.
After a 6 percent drop in real GDP in 2020, the economy recovered by an estimated 4 percent in 2021, driven by domestic consumption, reflecting improved mobility, a return of the diaspora, and continued policy support. Private investment continues to lag, and while external trade has recovered, certain export-oriented sectors remain negatively impacted by global supply disruptions, which, along with rising energy and food prices, weakened the external position and pushed up inflation to 3.2 percent in 2021.
The recovery is expected to continue in 2022, although the year starts out on a weaker footing than previously anticipated due to the global resurgence of the pandemic. Real GDP is expected to grow by 4 percent. The sharp rise in Covid-19 cases, combined with low vaccination rates, pose downside risks to the near-term outlook. Inflation is expected to rise to 4.3 percent in 2022, before stabilizing around 2 percent in 2023.
Fiscal policy remains supportive. As fiscal lifelines were gradually unwound and revenues performed strongly, the fiscal deficit was reduced from 8.2 percent of GDP in 2020 to 5.5 percent of GDP in 2021. Private sector credit growth is solid, helped by an accommodative monetary policy stance. The banking system remains well-capitalized, with a low rate of non-performing loans.
Executive Board Assessment[2]
Executive Directors welcomed the rebound in the economy reflecting improved mobility and continued policy support. Looking ahead, Directors stressed the importance of increasing vaccine coverage and limiting scarring from the pandemic while making progress on long-standing reform priorities.
Directors agreed that fiscal support should be targeted and gradually scaled down while maintaining its flexibility given still high pandemic-related uncertainty. They emphasized that a credible medium-term fiscal strategy will help anchor efforts to rebuild buffers and create room for more priority investment. In this context, they recommended focusing consolidation on tax policy and revenue administration. Further improvement in public financial management is also needed to support the authorities’ investment plan and limit fiscal risks. Directors looked forward to the adoption of the Organic Budget Law and further progress in strengthening the transparency and accountability of public spending.
Directors noted that the de facto exchange rate peg has served the country well. They encouraged the central bank to stand ready to tighten monetary policy if inflation is expected to become persistently higher than in the euro area, or sustained pressures on foreign currency reserves materialize. Directors underscored the importance of preserving the operational autonomy of the central bank.
Directors noted that the banking system is well-capitalized but emphasized the need for continued vigilance. They welcomed the authorities’ efforts to ensure that banks recognize problem assets in a timely manner. The growth in foreign currency lending should also be closely monitored. Directors highlighted the need to continue strengthening the macroprudential policy framework and the financial safety net, including the bank resolution framework and deposit insurance. Completing the legislative process is important in this regard.
Directors encouraged policies to facilitate resource reallocation, improve education outcomes, and strengthen the social safety net. Efforts to reduce informality and raise labor participation of women and youth are also important. To preserve employment and competitiveness, Directors considered that minimum wage increases should also be guided by productivity trends. They welcomed the Growth Acceleration Plan, noting that its implementation can boost growth and spur a green and digital transformation.
[1]Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:https://www.IMF.org/external/np/sec/misc/qualifiers.htm.
North Macedonia: Selected Economic Indicators 2019-2023 (Year-on-year percentage change, unless otherwise indicated) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||