10th April 2021, Skopje – Growth Acceleration Financing Plan should tackle the newly occurred crisis induced by the COVID-19 pandemic. The objective is to boost overall investments in the country, as well as recovery and growth acceleration, thereby maintaining the fiscal consolidation plan through new forms of financing so as to mobilize the private capital. Support is also provided by the international financial institutions, which actually encourage new sources and instruments of financing geared towards maintaining public debt sustainability.
As the Minister said in his interview for MIA, the essence of the Plan is to produce a multiplying effect by creating and using new mechanisms, instruments, funds and sources of financing, i.e. in addition to the planned public investments amounting to EUR 4 billion for the period 2021-2025, much more funds and investments from the private sector will be mobilized.
— Accordingly, total investments in the economy will experience multifold increase, thus contributing to additional acceleration of GDP growth, as well as boosted job creation. This Plan will, in particular, underpin environmental and climate projects, innovations, as well as initiatives for a more just society.
He also talked about the performance of capital investments following the end of the first quarter and the effects from the new CAPEF (capital expenditure efficiency) mechanism, according to which those showing better investment performance are rewarded, while restrictions are envisaged for those showing investment underperformance.
– For the first time this year, a mechanism measuring capital project implementation and envisaging corrective actions is prescribed in the Law on Budget Execution. Under the CAPEF mechanism, capital investments by budget user are monitored and those showing underperformance are imposed restrictions by being withdrawn the funds they have not used. This mechanism specifies thresholds for the execution of the projected capital expenditures by budget user as follows: 15% for the first quarter, 40% for the second quarter and 65% for the third quarter. Budget users showing performance below the respective thresholds are being withdrawn the funds and they cannot use them, Minister of Finance pointed out.
According to Besimi, analysed by execution of capital expenditures in Q1 2021, this mechanism yields results. As he indicated, execution of capital expenditures in Q1 was 16.6%, being by 1.6 p.p. higher in relation to the CAPEF threshold.
He also talked about the economic results, indicating that, according to the economic trends in the first quarter, the performance and the execution are as per the baseline scenario, i.e. the expectations are that 2021 will be a year of recovery and getting back to the economic growth trajectory.
The Minister announces that, as part of the tax reform, Tax Compliance Calendar will be presented in the course of next week, a new tool for tax transparency and tax certainty, thus making the legal amendments or new laws to be adopted in the course of the year as regards tax regulation available to the general public.
-We are commencing a process of creating increased certainty, hence all amendments to the tax regulation will come into force starting 1st January or, optionally, 1st June, so as to provide for at least 6-month period between the adoption of the respective laws by the Government and their application, Minister Besimi underlined.
Spring Meetings are over. You have presented the Growth Acceleration Financing Plan. What is its essence and when is it expected to be put into operation?
Growth Acceleration Financing Plan should tackle the newly occurred crisis induced by the COVID-19 pandemic. In fact, as a result of the crisis, almost all economies worldwide have registered widening of the budget deficit and debt increasing. At this time, when they should focus on recovery and acceleration of the economic growth, they face a limited fiscal room, and new sources of financing are required to be found, i.e. capital to be multiplied and geared towards investments and boosting the economic activity.
Our Growth Acceleration Financing Plan is aimed in view of this. Our objective is to boost overall investments in the country, as well as recovery and growth acceleration, thereby maintaining the fiscal consolidation plan through new forms of financing so as to mobilize the private capital.
The essence of the Plan is to produce a multiplying effect by creating and using new mechanisms, instruments, funds and sources of financing, i.e. in addition to the planned public investments amounting to EUR 4 billion for the period 2021-2025, much more funds and investments from the private sector will be mobilized. Accordingly, total investments in the economy will experience multifold increase, thus contributing to additional acceleration of GDP growth, as well as boosted job creation. This Plan will, in particular, underpin environmental and climate projects, innovations, as well as initiatives for a more just society.
It is planned to establish development funds, innovation support funds, Guarantee Fund, equity funds, Venture Capital Fund and similar instruments for support of export-oriented companies, small- and medium-sized enterprises, as well as social enterprises. Public-private partnerships, concessions and other instruments for financing public capital projects are also planned to be put into place, to be coupled with financing private sector projects. These will be projects indicated within the National Investment Committee, also including new projects that may result as initiatives of the public or the private sector.
The Plan was discussed with representatives of the World Bank and the IMF at the Spring Meetings, both institutions extending their support. International financial institutions encourage new sources and instruments of financing to the end of maintaining the public debt sustainability. Following thorough elaboration of the instruments and public presentation and discussions, implementation of the Plan can commence.
First quarter of this year ended. You have announced changes as regards the capital investments and their performance by the budget users. Are data for the first three months available in terms of which institutions have and which have not performed in line with the projections for capital expenditures and, according to the adopted methodology, which of them will be withdrawn the funds and which of them will be rewarded?
– For the first time this year, a mechanism measuring capital project implementation and envisaging corrective actions is prescribed in the Law on Budget Execution. Under the CAPEF mechanism, capital investments by budget user are monitored and those showing underperformance are imposed restrictions by being withdrawn the funds they have not used. This mechanism specifies thresholds for the execution of the projected capital expenditures by budget user, as follows: 15% for the first quarter, 40% for the second quarter and 65% for the third quarter. Budget users showing performance below the respective thresholds are being withdrawn the funds and they cannot use them.
Analysed by execution of capital expenditures in Q1 2021, this mechanism yields results. Execution of capital expenditures in Q1 was 16.6%, being by 1.6 p.p. higher compared to the CAPEF threshold. Execution of capital expenditures increased by 97.9% or by around Denar 2 billion compared to 2020, and their execution was higher by 146.4% or by around Denar 2.4 billion compared to 2019. Should one analyze the execution of capital expenditures projected in the Core Budget alone, i.e. the budgets of the ministries and the institutions, this percentage is even higher, accounting for 24% of the projections.
Execution of capital expenditures by budget user is available on the MoF’ website through the transparency tool, with these data being published on monthly basis. In the first quarter, for instance, there is a budget user executing even 88% of the projected capital expenditures, as well as many budget users showing above or around 40% and 30% execution. There are also budget users having executed no capital expenditures as per the projections. Such budget users are being restricted the funds and, should they continue showing poor performance, the funds will be withdrawn and allocated to more productive budget positions. However, should they accelerate their performance in capital expenditures in the next quarter, they will be refunded the withdrawn funds for the purpose of their execution.
What is the current status of the Macedonian economy and can it withstand the blow of the crisis?
– Positive economic results have been registered globally, as well as in our country. IMF revised the global growth projection upward by 0.5 p.p. in relation to January, expecting for growth to reach 6% in 2021. G20 Finance and Economy Ministers and Central Bank Governors have confirmed that global economic outlook has improved.
Positive trends were also observed in Q1 2021 in our country. It can be best detected through the revenue side of the Budget in the first quarter, with 4.4% revenue increase compared to the same period last year, i.e. higher revenues than before COVID-19 outbreak.
Export of goods in the first two months experienced 9.8% growth in nominal terms annually, with the positive trends in this segment continuing with stronger pace. Import of goods grew by 4.4% in nominal terms, contributing to 11% decline of the trade deficit. Crediting also registered increase of 4.4% in the total credits in February, with credits to household and credits to enterprises picking up by 7.1% and 1.4% respectively. Total deposit potential in February grew by 7.1% on annual basis.
According to the latest macroeconomic and fiscal trends and expectations with respect to the international economic environment, domestic economy is envisaged to get back to the economic growth trajectory, overcoming the pandemic-induced shocks. Thus, it is expected for the recovery of the external demand, which strongly affects our export, as well as the domestic consumption growing, also supported by the anti-crisis economic measures, to be the driving force of the economic growth.
However, uncertainty and challenges surely remain and they are linked with the new wave of the health crisis, i.e. the impact it will have on our trading partners and the economic activity in certain sectors.
As for the crisis, mass immunization has been launched after batches of vaccines were delivered. Which scenario will hold good and whether the performance in the first quarter leads to achieving the projected GDP growth this year?
– In line with the baseline scenario or the most realistic scenario, 4.1% economic growth is expected this year. Expectations of the international financial institutions and the National Bank are much the same as the government projections, with 3.8% and 3.9% growth for this year projected by the IMF and the National Bank respectively.
Such projection was made on the basis of the assumptions that an intensified immunization process will commence in the second quarter this year. According to the baseline scenario, investors’ and consumers’ confidence is expected to increase, which will result in a recovery as regards investments and private consumption.
According to the latest IMF World Economic Outlook, April 2021, economic growth in the Eurozone is projected at 4.4% in 2021, being an upward revision in relation to January projections. Recovery of our trading partners will undoubtedly lead to increase of the external demand as well.
However, there are risks related to the health crisis, i.e. the protraction of COVID-19 pandemic. This would result in having containment measures in place, repercussions on global supply chains and external demand, deteriorated expectations of businesses and households, reduced inflow of both investments and foreign pecuniary remittances.
Amid occurrence of the risks related to the international environment, i.e. reduction of the external demand growth by half, recovery of the domestic economy can be slowed down, however, this year would end with a positive economic growth rate.
According to the economic trends in the first quarter, the performance and the execution are as per the baseline scenario, i.e. the expectations are that 2021 will be a year of recovery and getting back to the economic growth trajectory.
What is the budget revenue performance? Funds are already secured with the issued Eurobond. Is there any surprising effect at the moment that may induce any changes?
Budget revenues are higher even compared to the pre-crisis period In Q1 2021, total revenues overperformed by 4.4% in relation to the same period last year, before COVID-19 outbreak.
Tax revenues and revenues on the basis of contributions were higher by 5% compared to the same period last year, whereby collected tax revenues amounted to Denar 27.8 billion, being by 6.2% higher in relation to the same period in 2020. Increased tax revenues were registered at almost all taxes. VAT collection in Q1 amounted to Denar 13.1 billion, being higher by even 11.4% compared to Q1 2020. CIT collection amounted to Denar 3.1 billion, experiencing 5% increase in relation to 2020. Revenues collected on the basis of import duties amounted to Denar 1.9 billion, picking up by 10.4% compared to Q1 last year. PIT collection was almost at the same level as last year, surging by 0.8% and amounting to Denar 4.4 billion. Revenues collected on the basis of contributions amounted to Denar 16.3 billion, increasing by 3.3% compared to Q1 last year.
Expenditures were executed on regular basis and within the projections, however, it is to be mentioned that early payments were made on several basis, such as early payment of pensions for the elderly for the purpose of their health protection.
As regards capital expenditures, their execution amounted to around Denar 4 billion in Q1, accounting for 16.6% of the projections. Execution of capital expenditures increased by 97.9% or by around Denar 2 billion compared to 2020, and when compared to 2019, their execution surged by Denar 2.4 billion.
Budget deficit is as per the projections, while in relation to last year, it dropped by 7.4% during the same period. The deficit accounts for 1% of GDP, whereby the primary deficit (excluding interest payments) accounts for 0.7% of GDP. When the 2021 Budget was adopted, we pointed out that Supplementary Budget will be adopted towards mid-year, as we do every year, when the budget balance will be adjusted as per the needs and the ongoing trends. For the time being, we can say with certainty that budget revenues are collected as per the projections and the expectations, while the liabilities are settled seamlessly and in a timely manner.
You have announced anti-crisis measures aimed at mitigating the impact of the containment measures to the hospitality industry. When can be such measures and the fifth set of measures expected, given that some of them are already past their envisaged deadlines?
-Both sets of measures can be expected very soon, it is a matter of days. We always make every effort for the business sector and the citizens to feel the benefits from the measures as soon as possible, although it cannot always be attained considering the legal amendments procedures.
With respect to the anti-crisis measures aimed at the hospitality industry, the gyms and the sports centers and the betting houses, the measures, i.e. the support model, will be announced in the coming week. As the Prime Minister announced, the support will reflect a percentage of the revenues collected in the first quarter.
Before long, the above-mentioned activities, as well as other businesses affected by the crisis and the citizens too can expect the fifth set of measures, which is pending parliamentary procedure. Some of the deadlines are passed, however, adjustments will be made on the basis of amendments so as for the measures to be of use. For instance, wage financial support measure will allow the employers to apply for February and March wages at once. Deadline for the measure – financial support for vulnerable groups will be shifted by the end of this month.
The goal of the measures is to bring benefits for both the citizens and the business sector and to provide for an economic and social effect, the reason why they are adopted in the first place. The measures yield results, as it is witnessed by the implementation of the previous four sets of measures. Government stimulus cushioned the decline of the economic activity reducing it by twice last year, in particular, according to the estimations of the Ministry of Finance, it was mitigated by 4.2 p.p., i.e. it would have reached even 8.7% should no measures be undertaken.
Since COVID-19 outbreak, Government of the Republic of North Macedonia has been strongly committed to tackling with the negative consequences the economy has suffered. Within the four sets of measures, subject to analysis, around 70 different measures have been adopted, covering and supporting the companies and the individuals affected by the pandemic. Funds employed for the implemented measures, i.e. the measures available to the citizens and the business sector, amount to EUR 860 million, accounting for 82% of the overall amount projected for the measures. Observed by set of measures, implementation of the first set of anti–crisis measures accounts for 91%, with the second set of measure being fully implemented, while the implementation of the third and the fourth sets accounts for 75.4% and 72.7% respectively. It has to be emphasized that implementation of some of the measures under the third and the fourth sets continues in the course of this year, hence, the overall implementation of the measures, in relation to the projections, can increase, reaching even 99%.
You have started discussions with the Chambers of Commerce on the tax system reform. When can we expect for the tax reform to commence and are the discussions aimed at reinstating the progressive taxation or keeping the flat tax?
-This week I have had meetings with representatives from all chambers of commerce – the Chamber of Commerce of North Macedonia, the Macedonian Chambers of Commerce, the Chamber of Commerce of North-West Macedonia, the Foreign Investments Council, the Association of Foreign Companies with Technologically Advanced Production, MASIT, MATTO, the German Industry and Commerce and the Macedonian E-Commerce Association.
The objective was to inform them about the current situation and the structure of the tax system, where we stand on the matter and what we are to achieve. We want a tax system that is efficient, just, transparent, modern, simple and understandable. The model and the reforms will arise out of the discussions with the stakeholders. Following the meeting with the business community, a meeting will be also held with the academicians and expert community, the NGOs, etc. More discussions will certainly follow. What is important is for all changes to be adopted through an inclusive process which will bring about most benefits to the citizens, the companies and the economy in general. The reform is to be launched this year.
I would like to point out that to the end of increasing the tax certainty in terms of the tax regulation, we have created a new tool for tax transparency and tax certainty – Tax Compliance Calendar, to be made available to the public next week. Under the tool, legal amendments or new laws to be adopted in the course of the year as regards tax regulation will be made available to the general public. Moreover, the request by the Chamber of Commerce of North-West Macedonia for “Tax Calendar” will be thus addressed, i.e. six-month grace period will be provided from the adoption of a law as regards tax regulation until its coming into force.
We are commencing a process of creating increased tax certainty, hence all amendments to the tax regulation will come into force starting 1st January or, optionally, 1st June, so as to provide for at least 6-month period between the adoption of the respective laws by the Government and their application.