6th September 2020, Skopje – Fatmir Besimi, in his first interview as Minister of Finance, says there are funds for the Budget to be executed smoothly on regular basis, i.e. for regular payment of wages, pensions, social assistance, liabilities towards the business sector, the creditors, as well as funds for the anti-crisis measures to help the economy and accelerate its revitalization. Fourth set of anti-crisis measures will be aimed at economic recovery – stimulating the private consumption, as well as encouraging investments in the business sector. He announced a system of smart public finances, to be based on clear strategy, maintainable, accountable, reform-oriented and transparent.
1. You sat down in one of the hottest seats in the Government amid global economic crisis. What are the expectations for the economy and what will be the priorities?
– Ministry of Finance, as a sector, is a challenge even in times when the economy is doing well, and it certainly bears even greater responsibility in times of the worst global economic crisis since the Great Depression onwards – even worse than the 2008 Global Financial Crisis. Covid-19 crisis has affected all economies globally. On one hand, there are the internal threats through the health protection measures affecting the activity of the business capacities, on the other, there are the external threats posed by the disrupted global supply chains. However, what makes the Covid-19 crises a crisis of such large proportions is the uncertainty arising from the direct link with the health crisis, its intensity, i.e. the number of newly infected patients, and its duration. Just look at the projections of the international financial institutions. International Monetary Fund (IMF) revised its projections on the global economic outlook for this year at several occasions. Autumn projection in October 2019 on global growth in 2020 was 3.4%. Spring projections in April are revised, forecasting economic contraction of -3%, while in July, it was revised downward to -4.9%. Other two scenarios have been considered as well – an optimistic one, envisaging fast recovery of the economy and growth in 2021, and a pessimistic one, envisaging second COVID-19 outbreak in early 2021, whereby unfavourable trends will continue next year as well. Hence, taking the IMF projection as a starting point, which was made before the awareness of the health crisis first detected in China in December 2019, projection on the global economic growth was reduced by 8.3 percentage points. For the first time, all regions are projected to experience negative growth in 2020, although with different intensity across the economies. This is due to the different evolution (impact and vulnerability) of the pandemic, as well as the effectiveness of the containment strategies. As an economy, we are not an exception to the global developments. Ministry of Finance’s projections on the growth of the Macedonian economy prior to the beginning of the crisis was 3.8%, while they were revised under the Supplementary Budget in May this year and economic contraction of 3.4% is expected in 2020, i.e. downward revision by 7.2 percentage points compared to the initial projections. According to June projections of the World Bank, GDP is expected to drop by 4%. This, like in the case of the other countries, is due to: first, closure of part of the production and hospitality industry capacities as a result of the health protection measures, and second, disruption to the global supply chains. Let’s have a look at this example – our major trading partner is the Federal Republic of Germany, where we market more than 50% of the total export, whereby more than 80% thereof are automotive parts. German economy is projected to experience a decline of more than 6% this year, while the automotive industry is still facing difficulties due to the Covid-19 crisis. The biggest blow is expected in the second quarter. Slight recovery is expected in the third quarter, followed by a positive outcome in the fourth quarter, all this from the point of view of the optimistic scenario.
Since the beginning of the crisis, three sets of economic measures were adopted in the country, with different effects, adopted depending on the period of the crisis the country was going through. They were aimed at improving the liquidity of the business sector and assisting to maintaining the economic activity, in times when most of the capacities were closed. When the economy started to slowly reopen, they were targeted at accelerating the economic activity by increasing private consumption and investments. Altogether, I believe that a realistic and open approach should be taken when dealing with matters. There is no need to look at things through rose-coloured glasses and we should always speak with facts substantiated by numbers. Yes – this Covid-19 crisis is a reality and no economy is an exception thereto, and yes – measures are being undertaken and, I underline, measures are yet to be undertaken, so as for the economy to be back on the right track. Measures are to be aimed at supporting the private sector by targeting the sectors to act upon, as well as at direct and indirect support to the investment activity of the private sector, boosting their competitiveness, improving the realization of public investments which bring about business to the companies and stimulating private consumption. The set of measures will certainly include the socially vulnerable categories in the society.
Despite the threats, each crisis also brings opportunities. In what sense? For the “new normal”, which will inevitably follow after the crisis, to be better than the one before the crisis – both activities are to be undertaken and foundations are to be laid starting even now. What does it mean? – We have a historic opportunity, with the start of the negotiations for EU membership, to make essential changes in the system functioning: more functional institutions, rule of law, better and more predictable business climate, fight against grey economy, human capital investments, green economy and series of other structural reforms, which are tasks to be fulfilled so as to become part of the European family. In addition, with the Covid-19 crisis, the world has literally become dependent on technologies. What I have in mind here is the digital economy, and the information society in general. We expect new opportunities from the point of view of both creating new values and distribution channels. The crisis might be a threat for some sectors, but it is an opportunity for others and it should be taken. We will aim at creating an innovative and competitive economy. Hence, in parallel to the measures we are to undertake now so as to heal the economy, we should also work on both measures and reforms which are to further improve our performance after the crisis. If GDP growth in the previous ten years was 2.6% in average, I believe that, if the policies are successfully implemented, also supported by the Euro-Atlantic integrations which have the effect of a catalyst for growth, average growth will double in the next ten years, meaning that the psychological barrier for growth of more than 4% can be overcome in the most successful years.
2. Yes, but how?
They say that finances are the bloodstream of the economy, which is absolutely true. I would also add that they are the bloodstream of the society, because all processes are related to finances. New innovative approaches are the best way to contribute to improving the economy. During this term of office, I will personally be committed to establishing the “SMART” finances concept.
3. What is the “SMART” finances concept?
– SMART finances will be a public finances system based on clear strategy, which will be maintainable, accountable, reform-oriented and transparent (S – strategical, M – mantainable, A – accountable, R – reform-oriented, T – transparent). Under this system of SMART finances, public finances reforms will be implemented in terms of longer-term and better quality planning of the budget programs and the budgets, it will be continuous, i.e. maintainable, and will continuously be aimed at improving the transparency. From the point of view of economic philosophy or political economy, this will mean aiming at more just model of public finances from the point of view of revenues, expenditures and the manner of financing, i.e. in other words how the funds are collected in the Budget and how citizens’ money is spent.
Traditional budgeting, based on the incremental levels of financing, should be re-oriented to performance-based budgeting, i.e. to see the performance of the institutions and, accordingly to determine the amount of funds to be allocated to the budget institutions for projects as per the results of such investments. Thus, we can overcome the unrealistic planning we see years back, even decades back, when capital expenditures were unrealistically planned which, later on, actually underperformed. Fiscal year-to-year planning should be oriented towards longer-term planning. Most of the strategic and capital projects are not realized in the course of one fiscal year, but rather in the course of several years, and the ability to determine the right project pace on the medium term can be of crucial importance for the project realization itself.
One of the main pillars of this system has to be transparency and accountability of public finances. In the past years, transparency has been the “key word” in the politics, but its real value for public finances is that it is the highest level of fiscal control. You provide information to the public in a simple and understandable manner – the public judges and decides whether it is a right or justified or legal decision. The citizens are those who elect the MPs, the ministers and the other officials, the citizens are those who make value judgments about their work, as well as the direction in which the institutions are to act. When designing the policies and the measures, we will be led by the principle of accountability and measuring the performance in attaining the goals via the so-called SMART Key Performance Indicators (S – specific goal, M – measurable, A – attainable, R – relevant, T – time frame), i.e. the objectives to be well specified, measurable, attainable, relevant and with implementation time frame.
4. What is the current state of public finances, i.e. the Budget? Is there a need for Supplementary Budget?
– Before the start of COVID-19 crisis in the first two months of 2020, budget revenue collection was solid, whereby total revenues experienced 4.6% growth in January, picking up by 4% in February compared to last year, out of which, taxes and contributions surged by 10.7% in January, while recording 6.1% growth in February.
However, the economic shutdown, due to the undertaking of health measures, affected the further budget execution. Undertaking measures to prevent the spreading of COVID-19, and putting the health of the citizens first, reduced the economic activity, which expectedly started to reflect on the Budget. In March, when undertaking of the health measures aimed at preventing the spread of the Coronavirus started, total tax revenues dropped by 11% compared to the previous year. In April, revenues declined by 20% compared to last year, experiencing 24% drop in May. Upon the reopening of the economy, the performance for June and July improved, given the 9.6% drop, whereby, in June and in July, the total revenues recorded the first monthly growth compared to last year since the beginning of the crisis, accounting for 1.4%. In August, the drop of revenues again slowed down, accounting for 13.9%, compared to the same month last year. On cumulative basis, the drop of revenues accounted for 8.2% in the January-August 2020 period. In line with the Supplementary Budget prepared in May, revenues were cut by 11.5% in relation to the initial Budget.
At the beginning of the crisis, the team in the Ministry of Finance prepared several scenarios on the outcomes of the Coronavirus crisis, i.e. how this crisis would affect the budget revenue performance in 2020. As for the first scenario or the favourable one – 20% decline of revenue collection in the consolidated budget is forecasted in relation to the projections, which would mean revenues would decrease by around EUR 700 million. As regards the second scenario – the unfavourable, decline in budget revenues would be around 30%, the deficit financing need would thus increase by around EUR 1 billion. And the third scenario, least favourable – should the revenue collection drop by 40%, the additional deficit financing need would amount to around EUR 1.3 billion. According to the present results, revenues are within the forecasts, and given the funds disbursed under the Eurobond amounting to EUR 700 million, the IMF Rapid Financing Instrument in the amount of EUR 176.5 million, as well as the announced EUR 160 million from the European Commission and the grant of EUR 50 million therefrom, along with the World Bank funds being at our disposal, and if necessary, finding other sources, I would like to clearly convey a reassuring message that financing of the deficit and the loans falling due by the end of the year, will be provided, whereby even buffer will be put into place, in case of any potential new pandemic shocks. We will provide sufficient funds for financing the following packages of economic measures aimed at mitigating the effects from the crisis, as well as economic recovery in the post-crisis period, thus adapting to the “New Normal”. Priority will be given to considering the budget-related opportunities, given the high-probability of not fully realizing some of the programs and projects by the end of the year being known, to be followed by attracting sources of external financing in our country, as well as considering the opportunities for mobilization of the free financial resources from the domestic financial market, and thus in coordination with NBRNM, preserving the financial and the monetary stability in the country. We will follow the suit of other developed countries, particularly the way they apply the new unconventional measures aimed at supporting the economy.
Since the very first day, I have been in close coordination with the team of the Ministry of Finance, so as to monitor the condition of budget revenues and expenditures on a daily basis, as well as to take timely actions should a need arises therefor. The business sector and the citizens will be timely and clearly informed about out economic policies and measures, in fact, they will be tailored in cooperation with all stakeholders in the economy and the society, as well as by having consultations with our development partners, such as the World Bank, the IMF and other international financial institutions.
5. You mentioned the Eurobond and the loans from the IMF and the EC. Will there be new borrowing by the end of the year?
– Liquid funds have been provided, thus ensuring smooth Budget execution in line with the projections by the end of the year, i.e. regular payment of wages to the employees, pensions to the retired persons, social welfare, regular settlement of the liabilities to the business sector, liabilities to the creditors, as well as funds for anti-crisis measures so as to assist the economy and accelerate its revitalization. Buffer has also been put in place, depending on the developments, in case of potential second shock or for the purpose of settling the repayments falling due in 2021. The 2020 budget deficit is projected at 6.8% of GDP or EUR 751.2 million (Denar 46.2 billion), while the old debts falling due in 2020 include the World Bank’s PBG loan, amounting to EUR 155 million, being repaid on 29th January, followed by the Eurobond issued in 2015, amounting to EUR 178.3 million, the loan for Gasification of North Macedonia in the amount of EUR 13.5 million and a short-term loan from the commercial banks in the amount of EUR 132.9 million – all of them should be repaid in December. The total significant repayments falling due at the end of the year, more precisely in December, amount to EUR 324.7 million. The remaining debt liabilities are loans with amounts of lesser volume as a result of the long period of loan amortization.
In June, Eurobond in the amount of EUR 700 million has been issued, furthermore, cheap funds were provided from the IMF, amounting to EUR 176.5 million, whereby by end-September, the first tranche of EUR 80 million should be disbursed from the loan under the Macro-Financial Assistance from the European Commission, the total amount of which is EUR 160 million. We also received grant funds from the EU amounting to EUR 50 million. As for the domestic market, net issuance of government securities has been projected at EUR 250 million at the most, according to the needs. The option to disburse funds from the World Bank under the Emergency COVID–19 Response Project, remains open.
In terms of whether we are becoming over-indebted, the prudent public debt management policy in the last years, as well as the debt stabilization, which was previously rising, provided for a fiscal space to disburse funds in times of crisis. It is worth mentioning that the public debt is below the level set under the Maastricht criterion, as well as that the regional countries (except for Bulgaria and Kosovo), as well as the EU countries have much higher, even twice higher debt than our country. However, it must be closely monitored, thereby proceeding with the consolidation of the budget deficit, i.e. its gradual narrowing in the medium run.
6. Fourth set of economic measures has already been announced. What will the fourth set include, what are the effects from the first three sets, on the economy and what is going on with the “Autumn Measures” under the third set – such as the guarantee scheme and the interest-free loans with a 30% grant?
– The fourth set of measures will be aimed at economic recovery, i.e. stimulating private consumption, as well as encouraging investments in the business sector. These measures will complement the previous ones, and they should provide for injecting liquidity in the business sector. These days, the Government had continuous meetings with the stakeholders, i.e. the chambers of commerce, whereby meetings with trade unions’ representatives will also be held. What is important is to maintain a dialogue with them on continuous basis, especially in times of crisis, as well as to exchange views and ideas on the upcoming steps.
So far, the Government has adopted three sets of measures, amounting to around EUR 550 million or around 5% of GDP. Some of the measures have already been implemented, the realization of certain measures is still ongoing, some of them will be realized throughout the year, while the positive effects from certain measures are expected on the long run. Each of these three sets corresponds to the stages Macedonian economy has gone through during the crisis. The first one included the initial assistance provided to the business sector, during the election period when no legal changes can be made; the second one – being adopted very soon after the first one – intended for overcoming the closure period and the third package, in May, being aimed at supporting the start of the revitalization of the economy upon its opening and the restart of the operations by the respective entities. The third set of measures also includes a new interest-free credit line in the amount of EUR 31 million through the Development Bank, which will also have a 30% grant component financed by the European Union, being part of the first tranche amounting to EUR 80 million, for which Agreement should be signed by the end of the month, thus, this measure is expected in October. The grant would be awarded to companies founded or managed by women, or employing young people, being export-oriented or introducing innovations, digitalization or e-commerce in their operations. State guarantee scheme is also envisaged to be implemented through the Development Bank. The purpose is for the state, under the state loan guarantees, to offer additional possibility for easier access to financial resources for support to the private sector by undertaking part of the credit risk, while the funds will be made available through the commercial loans. To sum up, well-designed policies and measures based on records, must be put into place, the outcome of which has to be assessed. In this respect, the focus is already placed on designing the fourth set of measures, including redesigning or improving some of the existing measures, having potential to support the economic recovery.
7. Finally, what can we expect to be your initial activities and priority commitments in the Ministry of Finance?
I must say that it is a great challenge, there are always urgent things waiting to be done, however, what is extremely important is to set priorities, without thereby omitting the important matters, i.e. the reality is that we will have to work on achieving several objectives at the same time. Among the first activities to predominate on my work agenda will be the preparatory activities for the fourth set of measures, whereby we, as representatives of the Government, met the representatives of the chambers of commerce already at the very first day. Thus, my first official meeting, as a Minister of Finance, was with the EU Ambassador, the focus of which was disbursing the first tranche of EUR 80 million from the EU, being intended to support the overcoming of COVID 19 crisis. Intensive meetings with the World Bank, the IMF, the EBRD, as well as the online meeting with the World Bank’s President within the WB and IMF Annual Meetings, will follow next week. All preparatory activities have already been undertaken in the Ministry of Finance, pertaining to the upcoming 2021 Budget preparation process. I believe that in addition to the capacities in the Ministry, and for the purpose of appropriate long-term and strategic planning, especially in times of crisis, what is extremely important is to also engage experts outside the Ministry, i.e. establish a Fiscal Council composed of renowned and reputable experts, where the situation will be analyzed and suggestions for improvements of the public finances will be made.
The main priority will be mitigating the effects from the COVID 19 crisis and providing a solid basis for economic recovery and enabling intensified growth in the post-crisis period, which should be thereby felt by large number of citizens by having their living standard and quality of life improved. I will also focus on strengthening the capacities of the Ministry of Finance, having a crucial role and responsibility in shaping the Government’s economic policies.