Angelovska: Our most valuable asset - the human capital was neglected for a long time, we are changing this with the 2020 Budget

Skopje, 17th November 2019 (MIA) - 2020 Draft Budget, which the Government adopted this week, is the topic of the interview with the Minister of Finance, Nina Angelovska. In the interview with MIA, she underlines the investments in human capital, which are the focal point in the 2020 Draft Budget. Indicating the data as regards the Human Capital Index in the country, compared to the developed countries and the countries in the region, she said that our most valuable asset - the human capital were neglected for a long time.

-We are changing this by invesing the most funds so far, Denar 154 billion, in human capital, Angelovska pointed out.

In the interview, she also talks about the projects to be invested in, higher wages and pensions, …

Government has set out the Draft Budget for the next year. The Budget will amount to EUR 3.9 billion. How will citizens’ money be spent?

-Investments in human capital are the focal point in the 2020 Draft Budget. It means that we will invest in better health, better education, better social care and better living conditions in general for all our citizens.

World Bank Human Capital Index measures the potential productivity of a country, in line with the conditions offered today, i.e. the health system, the education and the social care. Human Capital Index in the Republic of North Macedonia is 0.53. It means that today’s children will use only 53% of their potential when they grow up, according to the conditions offered to them. If we analyze the most developed economies globally, the USA, Germany, Switzerland, Norway, the Netherlands, their potential productivity is around 80%. EU Member States are not significantly lagging behind, with their potential productivity of around 75%, while it ranges to around 65% in the region. These data show that earlier the most valuable asset - the human capital was neglected for a long time.

We are changing this, hence under the 2020 Draft Budget, funds in the amount of Denar 154 billion, the highest amount so far, will be invested in human capital, accounting for 64% of the total expenditures. This includes the health sector, the education sector and the social care. By investing in human capital and in improving their productivity we are directly contributing to a stronger economic growth and development.

In addition, for a labour force to be productive, physical capital, as well as infrastructure and equipment, are also needed. 2020 Draft Budget targets them as well.

The third component supported by the Draft Budget is support to the private sector, since it generates the economic growth.

In addition to wage increase, how do you plan to enhance health and education sectors? Which are the specific projects in 2020 Budget you are going to implement so as to improve the conditions in these key sectors?

- Key to proper functioning of these sectors is the good workers. Good public health system requires, above all, the best doctors in the public health and the best medical staff. We do have quality doctors, excellent experts in their area, and we need to keep them in the country, in the public health. In order to motivate part of the quality students to seek for a job in the education sector after their graduation, decent wages need to be offered to them. Therefore, wage increase in February by 25% for the medical specialists, by 15% for the general practitioners, by 10% for the nurses and by 5% for the health workers is envisaged in the 2020 Budget. Starting 1st January, on the other hand, wages of education workers will be increased by 10%.

In addition to ensuring or retaining quality workers in these areas, it is necessary to provide equipment which the workers can use to work, as well as programs which they can use to provide better services.

Denar 1.5 billion is projected in the 2020 Draft Budget for capital investments in the health sector. This item also envisages funds for launching the construction of the clinical center in Skopje, clinical center in Stip, as well as for reconstruction and extension of public health institutions throughout the country and procurement of medical eduaipment.

Further on, funds for “full medical insurance” measure are also projected in the amount of Denar 2.9 billion. This measure will provide for health insurance of 240,000 citizens being insured under no basis. Funds are also projected for the rare diseases treatment program, compulsary immunization, as well as other programs aimed at improving the health services provided to the citizens.

Denar 1.4 billion is allocated for capital investments in education, reconstruction and construction of school buildings, sports and school facilities, dormitories. Funds are also allocated, for the first time next year, for commencement of the inclusive education program, under which disabled persons will be assigned a personal assistant.

When presenting the 2020 Budget, you assessed it as real budget with real projections. How feasible do you think they are, considering the elections next year?

As regards economic growth projection in particular - 3.8% growth is projected in 2020, which is in line with the National Bank projection. It is based on, first - growth of private consumption, which we have projected on the basis of employment growth, increase of wages and activating and strengthening the social care for the vulnerable groups; second - investment growth, projected at 8%, as a result of increased confidence of the investers following the country's NATO accession, as well as the measures aimed at supporting the private sector; and third - the export, which will remain solid with aprojected real growth of 8.3% as a result of the new export-oriented industrial capacities.

We have also based our expectations on the positive trends in the economy in the first half this year, when broad-based growth of 3.6% was generated. What does broad-based mean - it means that each sector, i.e. industry, construction, agriculture, services, … experienced growth.

Projections of the IFIs also add to this. In fact, although the IMF, the World Bank, EBRD have decreased the global projections for this year, they increased the prospects for our country’s economic growth.

How much of a development budget is the one for next year with Denar 23.6 billion being projected therefore? It is a matter of continuing the already commenced projects, are there any new one and can a better execution be expected?

- We have projected the capital expenditures at a level lower than the initial 2019 Budget, but slightly higher than the capital expenditures projected in the Supplementary Budget. When these budget expenditures were projected, the budget users were pointed out to give proposals corresponding to their real capacities and the real pace of project realization. Their previous realization was also taken into account.

In addition to being cautious with the capital expenditure projections, we have also published a tool for the citizens to contribute to their better execution. That is the fiscal transparency tool, which the citizens can use to track the execution of capital expenditures by budget user. Thus, they will have information on the performance of each institution, and can have influence, through public opinion, for accelerated realization of capital investments.

The Budget also includes new projects, as well as projects which are in their final stage of implementation. Funds are allocated for construction of the primary gasification network, construction of social flats, local roads in the municipalities, watersupply system and sewerage system under the project support by the European Investment Bank, construction of wasterwater treatment plants, … As for the health sector, funds are envisaged for the clinical centers in Stip and Skopje, construction or reconstruction of public health institutions. With respect to the education sector, funds are projected for construction or reconstruction of schools, sports facilities and dormitories, while regarding the social care sector, funds are allocated for construction or reconstruction of kindergartens, day care facilities, etc.

Increase of wages and pensions has been announced. How much can it actually be financed and where will the money be provided from? Revenueas are projected at EUR 3.6 billion, increasing by 5.6%, what do you base these expectations on?

-Funds for inreasting wages and pensions have been provided and their settlemnt will be timely and smooth during the next year, as same as this one.

Revenues are projected to be higher by 5.6%, on the basis of the slight easing of tax policy, at the same adjusting certain tax rates, which is expected to cause multiple effect, i.e. - it is envisaged to provide greater tax coverage, fair and streamlined administrative procedures, as well as support to the private sector, which would result in reducing the tax evasion.

The mechanisms for preventing the gray economy will provide for better revenue collection, and above all a fair system, whereby everyone pays their duties.

When projecting the budget revenes, the effects from the minimum wage increase, the wage increase in the private sector as a result of the measure for subsidizing the contributions and the increase of employment, were taken into account.

Next year's deficit was lower than this year's one, accounting for 2.3%. How will it be financed and how much will the country borrow on the domestic and foreign markets?

-Budget deficit projection for next year is within the Fiscal Strategy and the Governmnt's commitment to gradual fiscal consolidation. What does it mean? To gradually decrease the difference between collected budget revenues and executed budget expenditures, thereby not adverselty affecting the investments and the consumption, i.e. the development component. Thus, next year's deficit has been narrowed compared to this year's projection from 2.5% to 2.3%, to be reduced to 2% in 2021 and 2022.

By reducing the deficit, the need for its financing, i.e. borrowing, is also decreased.

Another thing worth mentioning is financing due liabilities. EUR 439 million on the basis of old debts incurred in 2013 are to be repaid next year. That is PBG loan from Deutsche Bank - guaranteed by the World Bank, which is to be repaid in January, amounting to EUR 155 million. Another large repayment is in December, in the amount of EUR 178 million on the basis of the Eurobond issued in 2015. Interest rates on these two loans account for 3.9% and 4.9%, respectively.

These old debts have to be refinanced - and what is the good thing in the whole story is the fact that as a result of conducting policy aimed at debt stabilization, as well as the current favorable conditions on the capital market, the debts will be refinanced at significantly lower interest rates. This means lower costs for the country and debt reduction.

So when we talk about the needs for financing the deficit and the old debts for next year, we are talking about the projected deficit for 2020, amounting to Denar 17.4 billion denars, repayment on the basis of external debt principal, amounting to Denar 26.9 billion and the domestic debt repayment, which amounts to Denar 16.3 billion. This amount will also be financed through foreign borrowing on the domestic government securities market.

You said public debt has stabilized. How much will it cost at the end of this year and next year?

- Public debt has stabilized as a result of conducting prudent public debt policy. Investors’ confidence in the economy has led to lower interest rates for financing the deficit and refinancing old debt. In addition, by gradual deficit reduction, which previously accounted for around 4%, the financing gaps were narrowed. As for domestic market, frequency of acutions on the government securities market decreased from four to two auctions per month, whereby issuance of securities aims to refince debt on the basis of government securities. Maturity of acuctions also increased, thus providing for greater fiscasl room for their refinancing.

According to the latest data, public debt accounted for 47.7% of GDP, being by 1.1. percentage point lower than in 2016. It is worth mentionintg that this year's amount - for the purpose of fiscal transparency and the recommendations of the international financial institutions, also includes the non-guaranteed debt, accounting for around 0.3 percenatge points. At the end of this year, public debt is expected to account for 49.4%, being significantly lower than the 51.7% in the 2020-2022 Fiscal Strategy. The Fiscal Strategy is being updated, wherein, the projected 2020 public debt being revised downwards, will be published.

What type of support can the private sector expect next year?

Private sector is the one generating economic growth, and therefore, the Government remains committed to creating appropriate policies, by which support about the challenges it faces, will be provided thereto.

Next year's budget envisages Denar 2.4 billion for support of the measure for subsidizing wage allowances for those companies that will increase the wages from Denar 600 to Denar 6000. This measure will address the problem of attracting, retaining and motivating quality staff. The measure is designed in a systemic and sustainable manner, since contributions on increased wages wuill be collected directly into the pension funds.

In addition, Denar 3 billion is allocated for enhancing the private sector competitiveness through measures for new investments, measures aimed at supporting the export and conquering new markets, supporting job creation, SMEs support, innovative activity, technological development and research, as well as foreign investments in the technological industrial development zones.

Active employment measures projected in the amount of Denar 1.3 billion will support the business, since they provide for retraining and additional professional education of the personnel so as to meet the private sector needs.

Support to the real sector is also provded trhough capital expenditures, i.e. public procurement, projects, which provide for creating jobs for domestic companies.

By the end of December, first refund should be repaid via “MyVAT”, when will the prize game that should join the respective measure, as you said, start?

 “MyVAT” has yielded results for its intended purpose, i.e. more than 150,000 people actively scan fiscal receipts, thus helping in resolving a significant problem - grey economy.

-We would like for this scope to be even greater. Therefore, as of the middle of December “MyVAT#MyPrize” will be launched. The rewards will include half a million euros, monetary awards on daily, monthly basis, as well as two main premiums.

In addition to the refund, which will be realized by citizens by scanning their fiscal receipts, they will also be able to become winners of prize award. Thus, citizens will have an even greater incentive to contribute to addressing the grey economy, i.e. every scanned fiscal receipt is potentially prize winning, i.e. we are talking about win-win prize game, since we all win only when the grey economy loses. Upgraded mobile application will also include educational elements.