News Column

IMF sees Macedonia's GDP growth speeding up to 3% in 2014

February 27, 2014



The IMF said on Feb 26 it sees the Macedonian economic growth quickening to 3% this year from an estimated 2.5% in 2012, boosted by rising domestic consumption and public and foreign investments.

The GDP growth is expected to strengthen to 4% in the medium term with domestic demand remaining its main driver, the Fund said in a statement, adding consumption is expected to recover to some 3-3.5% growth.

The rebound in both private consumption and foreign direct investment will move up imports, therefore the contribution of net exports to growth will be somewhat limited. Yet, the weak credit growth, among others, could impede the rebound in private consumption and investment, the statement said. The broader risks institutions and investment, on the other hand, could arise from the continued uncertainty regarding the start of EU accession talks.

The growth estimates were made as part of a staff report, prepared by the Fund's stuff following discussions on economic policies with the Macedonian government that ended in November 2013. The report was prepared for the IMF executive board's consideration on Jan 29 - when the board also concluded the second post programme monitoring (PPM) discussions with the authorities in Skopje. The main goal of PPM is closer monitoring of the policies of member countries that have substantial IMF debt outstanding after the expiration of their arrangements.

The IMF said in a statement that the board discussed as well the ex-post evaluation (EPE) of exceptional access under the 2011 precautionary and liquidity line arrangement (PLL).

Here is how the IMF has summarised the highlights of the staff report:



Context. Growth continues to strengthen, although the recovery is not yet broad-based. External and fiscal vulnerabilities have risen: private non-debt creating capital flows have slowed, and could leave the reserve path increasingly driven by an accumulation of external public debt; central government debt—although still moderate at a projected 36 percent of GDP—has increased by about 15 percentage points since the beginning of the global financial crisis, in the context of growing broader public sector operations.

Fiscal Policy. The newly re-established medium-term strategy is welcome, as it highlights the government's policy priorities and helps shape stakeholder expectations. The targets are consistent with a gradual withdrawal of stimulus, and would produce stable baseline debt dynamics. However, should private demand recover faster than expected, frontloading the consolidation would stave off the emergence of imbalances and would boost policy credibility. Ensuring adequate fiscal space for priority infrastructure remains key.

Monetary and Financial Policies.Looser monetary policy in the second half of 2013 has not resulted in the hoped for pickup in private credit growth. Nonetheless, the strong recovery in H1 2013, high bank liquidity, and the decline in reserves (albeit not indicative of pressures on the peg) suggest an end to the easing cycle would be in order.

External Position. Capacity to service outstanding external debt obligations, including to the IMF, remains adequate. Despite still weak net FDI flows, increased activity in large foreign-owned companies is contributing to stronger exports. However, backward linkages will likely develop only slowly. In the absence of domestic spillovers, the structural improvement in the trade deficit will be gradual and growth could be uneven. 



                         

  Economic, debt indicators



 



2012



2013



2014



2015



2016



Real GDP growth



-0.4



2.5



3.0



3.6



3.9



Nominal gross public debt (%/GDP)



34.1



36.1



36.2



37.5



37.4



Public gross financing needs (%GDP)



8.7



15.0



11.1



10.7



9.4



Central govt balance (%/GDP)



-3.9



-3.9



-3.6



-3.1



-2.6



CPI (end-period)



4.7



2.2



2.3



2.3



2.3



C/A balance (%/GDP)



-3.0



-3.4



-4.4



-5.7



-5.1



Public sector gross debt (%/GDP)



39.0



41.6



43.2



46.4



47.0



FDI (%/GDP)



1.0



3.3



3.8



3.8



3.8



Nominal GDP (EUR bn)



7.456



7.946



8.435



8.898



9.519



Source: IMF - Second PPM, Jan 2014



 



 



 



 



 


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Source: IntelliNews - Weekly Reports


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