22nd April 2020, Skopje (MIA) – Increase of excise duty on fuels is a temporary measure, which will apply during the state of emergency and seven months afterwards. The amount of the excise duty will be conditional on the oil price on the global stock exchanges. This means that throughout the state of emergency, the present excise duty will be charged by additional Denar 3, Denar 2 or Denar 0 in line with the trends of the oil price on the global stock exchanges, Minister of Finance Nina Angelovska said in an Interview for MIA.
She emphasized that no increase on other duties is planned, and that the Budget revenues, as of the beginning of April until the middle of the month, compared to the same period last year, have decreased by 20.7 percent, while with respect to taxes and contributions, 20.1% decrease has been recorded. Their performance, as she said in April, was under the first out of the three scenarios, i.e. the more favourable one.
Regarding the economic growth this year, she points out that the Ministry of Finance is monitoring the situation, preparing new projections, which, as she said, according to the initial preliminary estimates, were in line with the projections of the International Monetary Fund.
Angelovska pointed out that the procedure for issuing Eurobond has started, which, as she said, is expected to be finalized at the end of May.
What is the purpose of increasing the excise duty, is it related to the budget scenarios and would there be any increase in some other duties or taxes?
-This is a temporary and conditional increase of the excise duty on fuels by Denar 3 in the country during the state of emergency and seven months afterwards. This is an anti-crisis measure and in case of oil price increase, the excise duty will be reduced or returned to the previous level.
The amount of excise duty will be conditional on the oil price on global stock markets. This means that throughout the state of emergency, the current excise duty will be charged by additional Denar 3, Denar 2 or Denar 0 according to the trends of the oil price on the foreign stock markets. In line with the Decree, in case the oil price is below US$ 400 per ton, Mediterranean cargoes FOB (Italy)“, as at is now, the existing excise duty will be charged by additional Denar 3. If the price ranges between US$ 400 and US$ 600 per ton, the excise duty will be higher by Denar 2. If the price returns to the level of more than US$ 600 per ton, as it was at the beginning of the year, then the excise duty will record no increase, i.e. it will amount to Denar 0.
In practice, this would mean that if the retail price of fuels increases by Denar 10, the basic excise duty will increase by Denar 2. If the retail price of fuels increases by more than Denar 20, i.e. the excise duty will be as it was before, i.e. Denar 0 will be charged thereon.<0}
Given that it is a matter of temporary increase, being conditioned by the oil price on the global stock markets, there will not be any price implications therefrom. Since the beginning of the year, the retail price has been reduced by Denar 20, and according to the global developments, it is still decreasing. In addition, the temporary nature and conditionality of the excise duty on the oil price on the global stock markets, should also be taken into account, i.e. if it increases, the excise duty will decrease.
The price of crude oil on global stock markets went negative, i.e. the day before yesterday, oil producers paid $ 30 per barrel to the buyers to take the oil quantities off their hands, when the supply is multiply higher than the demand. Producers simply have no place to store the produced oil, and given that most of the flights are grounded, movement is limited all around the world, the oil demand will remain low, significantly lower than the supply, in the next period as well.
The purpose of this measure is to reduce the effects on the Budget from the reduced oil consumption and the reduction of its price. In 2019,
EUR 240 million were collected in the Budget of North Macedonia, on the basis of excise duty on diesel fuel, unleaded fuel and extra light household fuel. According to the projected scenarios, upon the beginning of the crisis, the annual decline of revenues on the basis of excise duty on these oil derivatives amid a significantly reduced consumption, would account for 12 percent compared to 2019 or about EUR 30 million with the basic price of the excise duty. The conditional increase of excise duties by Denar 3 would offset this decline, thus reaching the same level as in 2019, in case the prices of oil derivatives remain low until the end of the year. The amount that would be offset surely depends on the price trends, as I already said.
Anyway, our country has by far the lowest prices of oil derivatives in the region. Thus, the price of unleaded gasoline Euro-super amounted to Denar 48 per liter on 20th April in the country, while it was Denar 73.23 per liter in Serbia, amounting to Denar 74.6 per liter in Kosovo, Denar 82.46 in Albania, and Denar 85.54 in Greece. Accordingly, these prices are higher by 50%, 60%, and even 70% percent than in our country. As from out neighborhood, only in Bulgaria, the price is closer to ours, amounting to Denar 57.85 liter or being higher by almost Denar 10 per liter than in our country.
It is the same case with the Eurodiesel. It amounts to Denar 45 per liter in our country, while it is Denar 72.62 in Kosovo, Denar 73.23 in Greece, Denar 78.16 in Serbia and Denar 82.46 in Albania. With respect to our neighborhood, the price in Bulgaria is again closes to ours, amounting to Denar 60.92 per liter or by one third more compared to the price in our country. As for our country, the excise duty on Eurodiesel is by far the lowest compared to all countries, while together with Bosnia and Kosovo, we have the lowest excise duties on Eurosuper.
No increase is planned for any other duties. I would also like to once again underline that this measure is temporary and conditional – i.e. if the price starts to increase, the excise duty will be the same as before.
There have been remarks as to why the excise duty on extra light household fuel has not been equaled and how long wills this measure be applied?
-The conditional and temporary increase of the excise duty is an anti-crisis measure, which should provide for preventing an uncontrolled decline of the revenues on this basis, due to the reduced consumption and the drop of oil price. The solution of an equal increase by Denar 3 is proposed for all derivatives, with the only difference at the extra light household fuel, which is not conditioned by the price, i.e. the increase is to be kept regardless of the price trends, which is actually a step forward in addressing the issue related to extra light household fuel.
This does not mean that we are not working on a permanent solution about the extra light household fuel. In cooperation with the Ministry of Economy and the Customs Administration, we are working on draft solution, which would be substantiated and systemic. Of course, the solution about this issue is in the interest of the environment, contributing to reduced pollution. However, as I said, we are in a state of emergency and the conditional increase of the excise duty on oil derivatives by Denar 3 is in the form of an anti-crisis measure in conditions when that opportunity is open due to large declines in oil prices, all to the end of offsetting the reduction of revenues on the basis of excise duty on oil derivatives, resulting from the reduced demand.
So these are two different questions and that is how we should treat and approach them.
As for the extra light household fuel, the approach is not an anti-crisis measure but it is rather a systemic and long-term solution, including numerous analyzes and coordination and agreeing on all aspects in order to reach the right decisions that will provide for resolving this issue in the long run.
The international institutions have come up with projections for this year and the projected GDP drop. The latest is from the IMF, projecting a 4 percent drop of Macedonian economy but expecting a 7 percent growth next year. As for the Ministry of Finance, you announced that analyzes are being made for the growth projections, are they ready and what do they indicate?
-The current global health and economic crisis is the biggest crisis since the Great Depression onwards. No countries will be spared therefrom. Almost all projections on the economic performance projections are negative. It is projected that the global GDP will decrease by 3%, whereby it is projected to decline by 7.1% in the European Union, by which the German economy is projected to experience 7% drop as well. As for Macedonian economy, the International Monetary Fund expects a 4 percent decline. Compared to other countries in the region, this is among the lowest underperformance in the region – a drop of 5% is projected for Bosnia and Herzegovina, Kosovo and Albania, while Montenegro and Croatia are expected to experience 9% drop. Higher growth is projected for 2021, when the global GDP is expected to grow by 5.8 percent, while the GDP in the European Union is expected to record 4.8% increase. As for the region, it is projected that most economies will experience a growth higher than 5%, such as the following: 7.5 % growth in Serbia, 7 % growth in the Republic of North Macedonia, 6% growth in Bulgaria, growth of 7.5% in Kosovo and 8% growth in Albania, except for Croatia, where 4.9% growth is projected and Bosnia and Herzegovina the growth of which is projected at 3.5%.
The situation is being monitored in the Ministry of Finance, the new projections are being prepared, which according to the initial preliminary estimates are in line with the projections of the International Monetary Fund. Greatest contraction is expected in the second quarter, to be followed by significantly lower contraction in the third quarter and stabilization and positive performance is already expected in the fourth quarter. In other words, a decline is expected, which will be slightly weaker in relation to the surrounding, as a result of the sound macroeconomic fundamentals, to be followed by higher growth next year for the purpose of retuning the Macedonian economy to the positive trajectory. Measures the Government undertakes so as to mitigate the blow from the economic crisis, which are in the form of tax relief, liquidity injections and soft measures for assisting the business sector and the citizens, will contribute to improving the economic outcome, as well as faster recovery.
You recently announced three scenarios for dealing with the consequences on the economy from the Coronavirus crisis. The first month of the second quarter is almost over, in which the biggest blow is expected. According to the so-far data at your disposal, which of these scenarios would occur?
April and May are the months in which the biggest blow is expected, i.e. the weakest performance in terms of revenue collection, according to the slowed down economic activity. What is the situation at present? If one compares the period from the beginning of April until mid-April with the same period last year, the revenue collection is lower by 20.7%, whilе with respect to taxes and contributions, collection is lower by 20.1%. The performance in April is within the first of the three scenarios, i.e. the more favorable one, although the revenue collection projections in the three scenarios are mainly similar given that each of them forecasts for the biggest blow to occur in the second quarter. Whether the most favourable or the second scenario is to occur, will primarily depend on the developments after April, i.e. mainly the developments in the third quarter, the recovery period – how quickly things will return to normal. Therefore, new measures will be created and new activities will be undertaken, so as for the economy to quickly return to the growth path.
What are the Budget revenues?
-As of the beginning of the year until mid-April, total revenues declined by 3.1% compared to the same period last year, whereby tax revenues reduced by 6.9%, and the contributions increased by 10.4% on a cumulative basis.
The expenditures are within the projections, however, significant reallocations have been made among the budget users and almost all budget users experienced cuts, for the purpose of streamlining the funds, the wages of the officials, the costs for procurement of goods and services, as well the capital expenditures and other expenses not being aimed at the fight against Covid-19, have been reduced. The funds from these cuts will be used for to the first and the second set of measures аs a support to the business sector and the citizens facing the consequences from the crisis in the healthcare system and the economy caused by Coronavirus.
For the purpose of financing the deficit and the liquidity needs, IMF provided financial support in the amount of EUR 176 million. During the next month, around EUR 140 million are also expected to be provided from the World Bank, as well as resources from the EU funds aimed at overcoming the crisis. Last week, we sent a formal request for using the EU macro-financial assistance package. Today, the European Commission officially announced the information about the macro-financial assistance package in the amount of EUR 3 billion, whereby according to the preliminary assessment, EUR 160 million will be made available to the Republic of North Macedonia. We also commenced the procedure for issuing the Eurobond, which is expected to be finalized by the end of May.