7th March 2021, Skopje – When issuing government securities, the cost should be lower than the benefit to be generated therefrom, i.e. the future GDP growth rates should be sufficient for financing the debt, Minister of Finance, Fatmir Besimi wrote in his newspaper column. He points out that fiscal consolidation is needed and planned, which will provide for reducing the budget deficit, as well as the public debt below the Maastricht Criteria in the medium term, also stating that the borrowing is justified only if it generates higher economic growth rates.
The 2021 Eurobond we have now issued, is economically justified. It will be used for refinancing the Eurobond issued in 2014, amounting to EUR 500 million, the interest rate of which accounted for 3.975%. At present, the interest rate accounts for 1.625%, meaning that interest savings worth EUR 82.25 million will be generated in seven years. Furthermore, real GDP growth is projected at 4.1% (or 5.6% growth in nominal terms), i.e. by 3.5 times higher compared to the interest arte on the Eurobond. This means that the remaining funds from the Eurobond, amounting to EUR 200 million, to be used as budget support, will generate several times the amount of the cost to be paid therefor. Anyway, when making comparison with the projected real GDP growth rate, if one takes into account the inflation in the EU, as well as in our country, accounting for 1.5% in line with the rate projected for 2021, it can be easily calculated that the real interest rate on the eighth Eurobond accounts for 0.125%, i.e. the nominal rate accounts for 1.625%, being reduced by the projected 1.5% inflation, as Besimi indicated.
What he also stated in his newspaper column was that as of the onset of COVID-19 crisis, the increase in the budget deficit and the government debt over the past year featured almost all economies throughout the world. Increased debt derives from the decline of revenues, due to the disruption of global supply chains and increase of expenditures due to the financing costs related to COVID-19 crisis.
As for the region, in addition to Greece, Albania recorded highest government debt increase by 15.6 percentage points, which government debt accounted for 83.3% of GDP, followed by Slovenia, which government debt increased by 14.9 percentage points, with government debt accounting for 81% of GDP and Croatia recording increase in the government debt by 14.5 percentage points with a government debt accounting for 87.7% of GDP. Out of 38 countries, Republic of North Macedonia recorded lower government debt than 24 countries, as well as lower increase in the government debt in 2020 than 22 countries. What is particularly important is for the debt to be sustainable, which according to IMF estimations in its Report on Macedonian economy, as of April 2020, should not exceed 70% of GDP. Economic growth may be boosted through public debt (debt-fueled growth), however the public debt cannot be the main driving force of growth, Besimi indicated.
In his newspaper column, Minister of Finance also mentioned the plans for gradual fiscal consolidation, by which public debt will be reduced to 58.8% or below the Maastricht Criteria by 2025.
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