Interview with Vice Prime Minister Zoran Stavreski for Radio Slobodna Evropa

Supplementary Budgets are very common. There will be need for Supplementary Budget in the course of the third quarter this year, however, such need is not urgent. My estimates are that there is not need for such large expenditure cuts.

Do you now see as necessary the urgent Supplementary Budget and the recommendations for expenditure cuts in the amount of EUR 100 million pointed out by your predecessor Slaveski?

Supplementary Budgets are very common in the other countries, and in Macedonia as well, in the years showing good economic performance and in this year too. Probably the initial analyses we have carried out show the need for Supplementary Budget in the course of the third quarter this year, however, such need is not urgent, meaning the initial data for July show that revenues gradually stabilize. We should wait and see whether this is a tendency, whether it will continue, and afterward we will inform the Government on when the Supplementary Budget will be prepared, the size of it in terms of making expenditure cuts to match the revenue side. Since, as I have already said, all countries prepare Supplementary Budgets this year so as for the fiscal policy to be in line with the trends in the real sector. Size of the Supplementary Budget will depend on the revenues realized in July, August and up to the moment we propose it to the Government. Thus, it is then that we will know the exact amount of funds necessary for the expenditure cuts. In the meantime, I have already had meetings with certain institutions, discussing the percentage of expenditure execution, the realization of capital projects and all other expenditures, so as to see the size of the possible savings to be made.

Slaveski pointed out that it was necessary to make cuts in the amount of EUR 100 million so as to maintain macroeconomic stability. What are your analyses? What should the size of the Supplementary Budget be?

As I have already pointed out, the exact amount cannot be determined now. My estimates are that there is no need for such large expenditure cuts. However, it depends on the analyses to be made on both the expenditure and the revenue side, and it is too early to comment on the Supplementary Budget size. As much cuts will be done as necessary to maintain the macroeconomic stability and the stability of the exchange rate.

For how long will the funds from the Eurobond keep the foreign currency reserves stable? Have the funds from the Eurobond already started to be used for current expenditures, such as salaries?

Funds from the Eurobond help regain a stable level of foreign currency reserves, which sends signal to the companies and to the private sector that they should not worry about the stability of the exchange rate. At the moment, our estimates, which are similar to the ones of the IMF when it visited Macedonia, are that these funds should be sufficient for this calendar year.

There are concerns that if funds are not used for development purposes, they will only lead to deepening of the current account deficit, which will, on the other hand, make it necessary for Macedonia to ask for assistance from the IMF?

I agree that it is necessary to be careful in spending these funds, and when used, to be intended mainly for support to capital projects and infrastructure projects. Current expenditures for salaries, pensions and similar to be covered with the current revenues. This will be my intention as a Minister of Finance, not to use the funds from the Eurobond to cover the current expenditures. On the contrary, through improved collection and better coordination with the PRO and the Customs Administration to provide for better revenue collection and to use such revenues to cover the current expenditures. As I have said, to use the funds from the Eurobond for foreign currency reserves, Denar exchange rate stability, as well as for infrastructure projects.

Will it be necessary to ask for assistance from the IMF?

A reasonable attitude in times of crisis by the Government is not to close the doors. So, let’s leave all doors open. For the time being, our estimates are that there will be no direct need for financial resources from the IMF having in mind the Eurobond and the stabilization of the revenues. However, the situation can change in the course of the year, depending on the developments in the real sector and the course of the global economic crisis. In any case, if necessary, as an IMF member, we, as Government, have the right to ask for financial resources, and should any such need arises, we will do so.

What are the risks of borrowing? How will funds be repaid if there are no investments in the production?

Macedonia, with the early repayment of the debt in the previous good economic years, has created room to be one of the rare countries in SEE that can afford to borrow without jeopardizing the total level of external debt of the country, without falling in the group of highly indebted countries. Meaning, in times of crisis, it is good to bring funds from abroad, if you can find them, so as to increased the total amount of available resources. Of course, these funds should be reasonably spent, for productive expenditures, infrastructure and similar, in order to create sufficient revenues later on to repay the debts in the coming years.

Can one expect GDP growth in times of crisis? What are your forecasts for possible growth and in which sectors? Latest NBRM report confirms IMF forecasts on GDP decline by two percentages?

In such times of crisis, in such global economic crisis, everything close to zero is a success, such as GDP. Forecasts are ungrateful, because the first signs of recovery of the global economy are evident, showing that the recession in some countries is nearing the end, but it is difficult to forecast how the year will end. Most important thing is crisis is for the businesses to survive, as fewer companies as possible to feel the consequences and for they to be as milder as possible. The same applies for the workers in the companies, and we base our policies on this. I expect to regain better economic growth rates next and the years to come.

Key issue is whether exchange rate stability will be defended at any price and what are the moves to be undertaken by the Government to prevent devaluation?

The exchange rate is the most important issues of a small country like Macedonia, where large number of citizens and companies borrow in foreign currency or are extended credits with foreign currency clause. Thus, we are strongly committed to defend the exchange rate stability with the funds from the Eurobond, the adjustment of the fiscal policy playing its role here, and certainly the monetary policy will remain oriented to maintaining the exchange rate stability.

Is it possible for the budget deficit to be larger than the Government projections?

Well, in large number of countries and in those having concluded an arrangement with the IMF, it happens for the deficit to exceed the initial projections. However, my focus as a Minister of Finance will be for the budget deficit to be kept within the projections of 3% of GDP. I am confident that by setting the policies reasonably by the end of the year, with better revenue collection, we will succeed in remaining within this framework.

What will happen with the foreign direct investments? For illustration purposes, we have the free economic zone near Skopje, which remained almost investment free this year?

International standards on foreign direct investments include not only green investments, such as the ones in the Bunargik zone, but also so called brown-field investments, meaning acquisitions, purchasing banks, companies, etc. It is the same in Bulgaria. Large number of investments are in the real sector, in real estate, while in Croatia, large number of the investments are in the financial sector. Therefore, I would like to point out that it is wrong to say that only investments in Bunargik are the ones we need to count in order to see the level of investments in Macedonia. In order to compare the figures in Macedonia with any other country, we have to apply the international methodology and the methodology applied by the NBRM. Investments, according to the latest information we have for the last four months, are in the amount of EUR 89 million. If we take into account that four-five years ago, when the world experienced real investment boom, there were investments worth EUR 100 million in average annually in that period in Macedonia, we believe that investments in the amount of EUR 89 million in four months is a decent performance. We want for larger number of investments to be realized in the Bunargik zone, and we are negotiating. As you are aware, this autumn we expect for Johnson Metty to open the factory, we expect for a factory for production of LCD televisions to be opened in the zone, and there are several other companies announcing that immediately after the crisis is over, they will open their capacities.