IMF: the economy is stable, the growth is achievable

Skopje, 16th April 2013 (MIA) – Macedonia is a country with stable economy and stable macroeconomic performance in conditions of troubled circumstances. Projected 2% growth is achievable although there are still risks.

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This is the estimate of the International Monetary Fund Mission, which stayed in Macedonia in the past two weeks, which was announced today by the IMF Chief of Mission Ivanna Vladkova Hollar and Vice Prime Minister and Minister of Finance, Zoran Stavreski at joint press conference.

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Economy in Macedonia, as well as the growth are very well positioned. A track record of conservative fiscal, monetary and financial policies gave the Macedonian authorities policy space to confront the spillovers from the global crisis. As a result, Macedonia avoided large declines in output and disruptive capital outflows, being well-positioned to return to growth when the recovery in Europe sets in. Moderate economic growth of 25 is still achievable, but subject to substantial downside risks, Hollar said.

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She welcomed the clearance of public sector payment arrears, which started in September 2-12 and ended in February this year, emphasizing that in future, it is important to avoid creating cash pressures on business again. - Reoccurrences of such payment delays would jeopardize the recovery since it impedes proper cash management by firms.

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Strong connection with the Eurozone and the developments therein, according to Hollar, reflects on the Macedonian economy as a whole. With respect to external financing, she believes that a number of factors limit the direct channels of transmission of shocks and that banks are mainly funded by domestic deposits and do not depend on external financing and that the Government's external financing needs for 2013 have been met through the borrowing in January. Foreign currency reserve levels are adequate, however the external environment remains volatile and uncertain, thus she recommends to the authorities to remain vigilant and ready to react to all shocks.

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- One very important precondition for growth is maintaining macroeconomic stability, and that requires ensuring sustainable fiscal policy by gradually reducing the deficit and debt over time. Another precondition giving proper space in the Budget for investments in the field of infrastructure, energy, education, labour market policies so as to fight against unemployment. This requires careful prioritization of expenditures, which will be carried out with the help of multi-annual fiscal strategy and multi-annual budgeting framework, Hollar said, adding that by addressing these precondition, we well as maintaining the cost competitiveness of the economy should durably boost growth.

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According to Vice Prime Minister Stavreski, IMF estimate is encouraging. - Total assessment is that our position in relation to the debt and the budget deficit is adequate given the present circumstances and that Macedonia has good outlook, as soon as the conditions in Europe stabilize, to experience recovery of the economic growth and to return to the track of higher growth rates, Stavreski said.

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According to the information of the first months this year, according to him, there is outlook for the projected growth of the economy of 2% to be realized, which would be based on solid performance of companies, working in the free economic zones, the national companies and the public investments in several key areas, such as the road infrastructure, utility infrastructure, energy, etc.

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He pointed out that there are still risks since the developments in Europe are still sensible and it faces problems, thus the performance of Macedonian economy will depend to a great extent on the developments and trends of European economy.

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Removal of arrears towards the business sector and the promise that they will no longer happen, both IMF and the Government believe that ate the best manner to help the private sector in times when the general credit activity of banks is reduced and when the companies faces other challenges. He stressed that there are systemic measures that will prevent reoccurrence of arrears and several changes in the both the treasury system and the guidelines on treasury operations of budget users were made so as for them not to be able to accumulate too many arrears if they have no sufficient funds within their budgets.

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- Looking forward, budget deficit and budget framework will be determined within the 3-year fiscal strategy, being under preparation. We share the IMF opinion about Macedonia, i.e. as soon as the developments in the European economy stabilize and we return to positive growth rates, it would be appropriate for the budget deficit to be gradually reduced so to maintain the debt at moderate level as is today and in this respect Macedonia is well-positioned, since we are one of the rare countries in Europe, facing the crisis with low level of total debt and we experienced more stable conditions than many other countries, Minister of Finance said.

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Assessment for the banking sector is that it remains stable and that Denar exchange rate, through the monetary policy, will remain stable.

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When asked about the blaming of the opposition that Greek scenario is possible, he said that there is no economic logic since it is only a result of political speculations, not being based upon any argument. If we see any figures as regards the public debt level, Macedonia has by six times lower level than Greece, which is totally incomparable. Budget deficit is multiply lower. Macedonia experienced growth in the several last yeas, while Greece experienced economic decline, being higher by 25% on cumulative basis, Stavreski said.

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According to Hollar, public debt level is not alarming and any comparison with Greece would be exaggeration. Public debt level is within both the capacity of Macedonian economy and the medium-term fiscal strategy, Hollar pointed out.

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She added that the growth rate is in line with the fiscal and monetary policies, being well-positioned so as to prevent all spillovers from the crisis that occurred in Europe. - As a result of the medium-term fiscal strategy, the debt level in Macedonia is at very low level since the very first start of the crisis. Fiscal policy is very important and its anchoring will be one of the key priorities for the debt growth rate to maintain at stable level, which given all economic shocks and trends in Europe is at totally normal and stabilized level Hollar said.

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Vice Prime Minister pointed out that in the past years, the profile of Macedonian debt is adequate to the capacities and possibilities of the country to make repayments and that the department for public debt management considers all aspects, including the repayment period, repayment deadlines, level of interest rates and level of guaranteed debt. - Given the projected economic growth rates and the trends of budget revenues in general, there is no any problem with the settlement of liabilities in the coming years, Minister said.

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According to him, crisis-related experience showed that the countries that balanced the budget deficit and debt realized higher growth rates through the possibilities they had when crisis affected the private sector so as to realize capital investments and to temporary support the economic growth. This is what Macedonia did, which was also underpinned by the early repayment of the debt in 2007 and 2008, when we reduced the level by 10%.