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13th November 2021, Skopje – It is important the budget to be adopted within the deadline regulated by the law because it ensures uninterrupted financing of the state institutions, strong financial support for economic recovery and accelerated, inclusive and sustainable economic development, Finance Minister Fatmir Besimi has said in an interview with MIA, which is available in full below.

The government adopted the draft 2022 Budget before it was sent to Parliament, where discussions about the draft document began on November 15 at the Financing and Budget Committee. Was it a constructive debate?

The Budget is a strategic document in which the government focuses on the priorities throughout the year, and it needs to be adopted in Parliament because it enables uninterrupted funding for the state’s functions, strong financial support for economic recovery, and a speedy, inclusive and sustainable economic development.

It’s important to note that the Budget also enables the timely delivery of paychecks, pensions, social compensation, subsidies, capital investments – planned at a level of MKD 37.8 billion for 2022, higher than the budget deficit. This honors the golden rule of public finance – planning more funds for the funding of investment project than the planned debt.

That’s why it’s important that the Budget is adopted within its legal timeframe. Namely, the preparation and implementation of a state’s budget is prescribed by law which lists precise deadlines that should be honored. In accordance to these deadlines, the budget should be adopted by December 31, 2021 the latest.

Capital investments have been projected at a level of MKD 37.8 billion, 27% higher than the 2021 Budget. These investments are higher than the budget deficit for the first time. What made you decide to take this step?

The government is focused on achieving higher economic growth and better quality of life for the people. To achieve this, it’s clear that there need to be higher capital investments which will need to be poured into key infrastructural areas that will generate growth. It’s also our goal to motivate a more even local and regional development, which will make our economy more competitive on foreign markets, as well as attracting foreign direct investments in our country, hence why good infrastructural connection is key in the decision-making process for investments in a municipality or country.

The focuses of the capital investment are the green agenda, digitization, innovation and technological development, physical infrastructure development etc. We’re also continuing to support companies through Covid programs, for which we have allocated MKD 4.6 billion.

The main goal of the policy for improvement of the structure and realization of capital expenses is to increase the potential for growth of the local economy, increasing competitiveness, attracting investments through increasing the level, quality and dynamic of realization of the capital expenses.

It’s important to note that we will go by the “value for money” principle, which means that the citizens’ money will be used where there are the biggest effects in realizing the goals for higher quality of life.

Through the result-based budgeting, higher effectiveness and efficiency will be achieved for the public expenses, though linking public sector expenses to the achieved results. Budgeting can’t be regarded as an isolated initiative, it’s a part of wider institutional reforms which aim to increase the quality of life for current and future generations.

The capital expenses in the draft Budget for 2022 are meant to intensify the realization of infrastructural projects, i.e., investments in road, railroad, energy and communal infrastructure, as well as investments to improve conditions in healthcare, education, the social system, agriculture, culture, sport, environmental protection, and the judiciary.

I would set aside a few projects as being quite significant: the Tetovo-Gostivar section of Corridor VIII, the construction of a new highway to connect Trebenishta, Struga and Kjafasan, the Gostivar-Bukojchani and Bukojchani-Kichevo sections, as well as the Prilep-Bitola section of Corridor X. Through the Public Enterprise for State Roads, a feasibility study will be conducted concerning the construction of the Tetovo-Prizren road.

The Corridor X railroad reconstruction should be done in 2022, funded via EBDR loan. There are also funds planned to continue the realization of phase 1 and 2 of the project to build and rehabilitate the eastern part of the Corridor VIII railroad, the Kumanovo-Beljakovce-Kriva Palanka section, also funded by the EBDR. Alongside this loan and a grant by the Investment Frame for the Western Balkans grant, there will be other activities within the project such as improving the railroad’s technical characteristic, building and rehabilitating bridges, railroad stations, underpasses and overpasses.

A World Bank loan in 2022 will secure the continuation of activities related to realizing the project for local roads, which will improve the municipalities’ roadside infrastructure in North Macedonia.

IPA funds will help implement projects to build the Gradsko-Drenovo road section as part of Corridor X, as well as rehabilitate, reconstruct and improve the existing road infrastructure.

In terms of the energy and communal infrastructure and waste management, the construction of sewer and water supply systems in municipalities with their own funding, as well as funding from the EIB, will continue more intensely.

The municipal services improvement project, funded by the World Bank, will enable municipalities and public communal enterprises to fund investments in accordance to their water supply and wastewater management priorities, managing hard waste and other investments in municipal services which the municipalities prioritize and which have the potential to generate income and save money.

The energy efficiency in the public sector project will begin in 2022 with a WB loan, which will fund energy efficient projects in municipalities, as well as public healthcare facilities of the central government.

The EIB and EBDR loans and the EIB grant will fund one of the bigger capital projects in North Macedonia – the purification station for wastewater in Skopje.

The IPA funds will support the rehabilitation and improvement of the collector system in Skopje, rehabilitating and improving the sewer network and constructing purification stations in Kichevo, Bitola and Tetovo, as well as implementing the regional system for waste management and closing landfills in the eastern and northeastern regions.

The draft Budget also stipulates the improvement of the technological-industrial development zones through building the necessary infrastructure, facilities and geo-mechanical research.

The healthcare sector will receive investments meant to build and reconstruct public healthcare facilities, as well as purchasing medical equipment and reconstructing the Kichevo General Hospital. The Regional Clinical Hospital in Shtip project will also continue in 2022, which has been funded by the CEB.

Capital investments to build and reconstruct primary and high schools, building school and sport halls, reconstructing dorms, equipping and reconstructing universities and investments in sports infrastructure, have also been allocated for education, child protection and sports.

A KFV loan will enable the beginning of the dorm reconstruction project, as well as the continuation of the realization of the project to build gyms in elementary schools, and to rehabilitate elementary and high schools through CEB loans and national co-financing.

To improve learning conditions in elementary education in the country, a WB loan will continue the realization of the elementary education improvement project.

Significant capital investments meant for rural development are planned to support agriculture, such as building hydro-systems, and investments to improve the competitiveness and modernization of agricultural economies.

There will also be a reconstruction of prisons in 2022.

In terms of public finance reforms, improving the fiscal framework, strengthening the process of planning and executing the budget of North Macedonia, improving the income payments, strengthening the system of public procurements, external and internal control and transparent reporting, activities related to the preparation to implement an integrated IT system to manage finances and an integrated tax IT system which will be funded through the WB and donations will continue. The overall reform process in public finance will mean implementing the concept of SMART finance – strategic, sustainable, responsible, reforming and transparent, i.e., public finance that will support a faster economic growth in the short and long term within fiscal sustainability and macroeconomic and financial stability (Smart Finance for SmartER Growth).

Some experts agree that the development component of the budget are capital investments, but they remark that the projected 4.3% deficit is high, and they’re concerned about the public debt. What do you have to say about this?

The proposed budget for 2022 is a development budget according to its characteristics, which can be seen through the predicted, historically highest amount of capital investments in overall expenses, which is 14%. Even more significantly, they’ve been projected onto an amount higher than the budget deficit – MKD 33.5 billion for 2022, mind you, or 4.3% of the planned GDP, whereas capital expenses have been projected at MKD 37.8 billion, or 4.9% of the GDP. That means that the only loans in 2022 will be meant to realize investment projects.

The planned deficit is in accordance with projections determined in the 2022-2026 Fiscal Strategy and the fiscal consolidation, confirming the projections’ sustainability, budget disciple, redesign of the budget expenditure through increased participation of capital infrastructure projects in overall expenses.

The projected budget for 2022 is 2.2% lower than the GDP in regards to the projected budget deficit for 2021 due to increased capital expenses in comparison to 2021 and the still present influence of the Covid crisis, which makes high budget deficit necessary to sustain affected companies and vulnerable categories.

The Covid-19 pandemic and the response to the crisis has created a need for additional funds which affected the budget deficit and the public debt, not only in our country, but globally as well.

To mitigate the economic shock, the government reacted on time with the implementation of multiple economic measure packages, through targeted and timely support in order to protect company liquidity, job preservation and securing social projection for the unemployed and vulnerable households. These economic measures have caused an increase in the country’s expenses, which in turn increased deficits.

It’s important to note than in times of crisis, in a year in which we had to pay off a bond of EUR 500 million which was issued in 2014, as well as loans for the realization of certain projects, we managed to reduce the public debt and get it down to 59.3% of the GDP, which is under the Maastricht criteria – 60% of the GDP. This shows the well placed fiscal policy and the good management of public finances during a pandemic.

The Ministry of Finance firmly stands by our efforts to stabilize the debt and position it at a level of up to 60% of the GDP. In the medium term, up until 2026, the projections in the public debt management strategy are that it will stabilize and get down to 57.7%, whereas the state debt will go down to 50.7%. to realize this, we have prepared the fiscal sustainability plan which will enable a slow tightening of the overall budget deficit of 6.5% in 2021 to 2.2% in 2026, which can be achieved through improving the payment of budget income, reducing and restructuring budget expenses and changes in the sources of financing of the budget deficit.

This is all in favor of a quicker economic growth, which, in accordance to the plan for quicker economic growth, is meant to contribute to the twofold increase of the GDP in terms of the 10-year average, and to make our annual growth jump from 2.5% to over 5% until 2026, as well as investments estimated to over EUR 12 billion. EUR 4 billion are public sector investments which will generate additional EUR 8 billion in private capital. The concept is set up so that it doesn’t generate additional debts and tax burdens for the citizens.


You’ve announced that the deficit and debt payoff will be funded with a combination of local and foreign debts, but that you will also try to optimize the loan expenses. How will you do this?

The key in securing the necessary funds and the funding selection is to secure the funds through good conditions and lessened costs. We achieved this with the March 2021 Eurobond when we achieved the lowest interest rate of 1.625% in March 2021. In order to prudently manage public finances, we will look into the possibility to actively manage the debt portfolio through operations of temporary debt buyouts.

The payment of the principal based on the external debt amounting to MKD 6.1 billion includes regular servicing of obligations to foreign creditors: MKD 1.5 billion to EBOR, MKD 1.1 to Deutsche Bank, MKD 1 billion to IDA, MKD 0.7 billion to EIB, MKD 0.4 billion to CEB, MKD 0.2 billion to the Japanese Bank of International Support, and MKD 0.2 billion to other bilateral creditors such as IFAD, KFV etc.

Foreign borrowing can be realized through reopening the existing Eurobonds on the international market capital and through taking back funds from credits from foreign financial institutions and credit lines meant to finance separate projects.

Principal payments based on local debts amounts to MKD 5.5 billion, relating to paying two and three-year state bonds amounting to MKD 5.1 billion and paying denationalization bonds amounting to MKD 0.4 billion. Long-term bonds of 5, 7, 10, 15 and 30 years are not part of 2022. Local borrowing, predicted to reach MKD 26.6 billion, will be secured through borrowing from DHV and local loans in order to optimize the DHV portfolio and reduce the risk of refinancing. The basic commitment will be to increase the DHV’s portfolio maturity.

Through the financing sources, the Ministry of Finance is adding new types of financial instruments: development, green, project bonds and bonds indexed with the inflation, which are all part of the plan of quicker economic growth.

In the next medium term, fiscal policy will continue towards further consolidation of public expenses, motivating economic activity through capital expenses and infrastructural investments, improving business leading conditions and opening new jobs. The efforts to implement a discipline budget expenditure with an accent on restrictiveness and control of less productive expenses in order to increase investments in capital projects will continue. The determined basic postulates of the fiscal policy over the upcoming period are meant to secure fiscal consolidation with a gradual decrease of the deficit level.

Tax revenues are planned at a level of MKD 136.5 billion, having increased by 10.2% in regards to 2021. Where will this money come from?

For 2022, the total revenues with the draft budget are planned at the level of MKD 238.9 billion and they are 7.4 percent higher than the estimated revenues this year. The projections for the revenues of the Budget for 2022 are based on the realization of the revenues in 2021, the expectations for the economic growth, as well as the activities for improvement of the efficiency and effectiveness of the system for collection of the public revenues.

As you point out, the tax revenues for 2022, which are planned in the amount of MKD 136.5 billion, have increased by 10.2 percent compared to 2021. The largest share in the structure of planned tax revenues has VAT of 45.6 percent, and the excise tax accounts make up for 21.2 percent. I would like to emphasize that this increase is foreseen, despite the fact that we have introduced a second preferential rate of 10 percent for catering services, preferential VAT rate for household electricity, as well as the transfer of part of the share of oil derivatives to the Public Enterprise for State Roads of 30% instead of the current 20%.

The projected increased revenues will be achieved by improving the existing tax regulations, reducing tax evasion, introducing advanced technologies, modernization and automation of work processes, strengthening the capacity of revenue collection institutions, increased and more efficient collection of tax revenues, and strengthening institutional coordination.

The main goal of the tax policy is to ensure sustainable economic growth and development, while ensuring legal certainty for taxpayers and regular collection of public revenues.

Also, in the Draft Budget for 2022, it is planned to realize about 19.2 billion denars on the basis of non-tax revenues and 3.3 billion denars as capital revenues on the basis of sale of agricultural land and social housing, as well as on the basis of planned dividend from AD Makedonski Telekom.

Social contributions as source revenues of the funds for pension and disability insurance, health insurance and the Employment Agency are planned in the amount of MKD 74.4 billion or 7.5 percent higher than in 2021. On the basis of donations, MKD 5.6 billion are envisaged, which the budget users are planned to realize on their own revenue accounts for specific projects, as well as the withdrawals from the EU pre-accession funds.

Inflation is projected at 2.4%. What are these expectations based on, keeping in mind the global energy crisis and the growth of prices on world stock markets?

The inflation rate in the first nine months of 2021 is 2.8 percent. The growth of consumer prices was registered in almost all categories of products, with more significant growth in food by 2.4%, tobacco products by 6.4%, fuels by 13% and electricity by 5.7%, although energy prices in the last 2 months have seen slower growth due to the exhaustion of the transmission effect of the price increase by decision of the Energy Regulatory Commission (ERC). It is crucial that inflation is driven mainly by rising food and energy prices, due to price pressures caused by external factors.

Appropriate steps are being taken to alleviate the consequences of this energy crisis, which is on a larger scale and does not only cover North Macedonia. A crisis situation in the electricity supply has already been declared and measures and activities are being taken, aimed at providing additional quantities of electricity, including balance energy and reserve of active power in accordance with the established crisis situation in accordance with the Law on Energy and the Decree on the criteria and conditions for declaring a state of crisis in cases of weather and natural disasters, accidents and disturbances in the electricity markets, the manner of electricity supply in a state of crisis, the measures taken in case of crisis, as well as the rights and the obligations of the license holders for performing electricity activities.

Accordingly, MKD 4 billion have already been allocated from the Budget in 2021 and transferred to AD Power Plants of North Macedonia, to provide additional quantities of electricity, including balance energy and reserves of active power. Additionally, for protection of the most vulnerable categories, the Ministry of Labor and Social Policy, in coordination with the Ministry of Economy, is in charge of preparing measures to support the socially vulnerable categories in order to use additional funds for protection from energy poverty. This measure is already being implemented and we have 45,622 users from vulnerable categories who receive MKD 1,000 allowance to cover heating costs. A measure that we have also adopted and are already implementing, and was aimed at protecting the standard of living of citizens, is the reduction of VAT on electricity from 18 to 5 percent for households.

The situation is being monitored and it is important that everything that is done is aimed at providing sufficient quantities of electricity and mitigating the price effect. In the following period, stabilization of the price movements of the primary food products and electricity on the world stock exchanges is expected. The increase in the prices of primary products and energy is expected to stabilize by the middle of next year at the latest, so that the inflation rate is projected at 2.4%.

New instruments that will be applied for the first time are development, project and green bonds, as well as bonds indexed with inflation. These are the instruments contained in the Accelerated Economic Growth Plan. What are the expectations from these bonds?

Development or bonds indexed with inflation, green and project bonds aim at continuous improvement of the financial market of government securities, where we follow global practices

These are innovative mechanisms and instruments that can provide funding and improve efficiency in project implementation.

One of these instruments is a bond indexed with inflation, the issuance of which is expected to attract the available funds of the citizens.

Inflation-indexed bonds will be a new type of long-term government securities issued by the Ministry of Finance. They will be indexed to the inflation rate in order to protect investors from a decline in the purchasing power of invested funds. If the inflation rate rises, the price of the bonds adjusts to maintain their value.

These development bonds also aim at advancing the government securities market, which will encourage the financing of development projects in the country, and thus will enable the movement of the financial markets in the Republic of North Macedonia. This type of financial instrument, which will be related to inflation, will carry a certain coupon and will be initially intended for the population, i.e., for individuals, with the possibility of being available to banks, pension funds and other participants in the financial market.

The “Green Bonds” will be intended to encourage and support projects for the improvement and protection of the environment and are specifically intended to finance environmental projects. Unlike existing bonds, green bonds will only be used for investment projects or green development and will be for capital expenditures. The introduction of this instrument in the medium term will help the development of the financial market.

“Project bonds”, on the other hand, will be an alternative way of financing infrastructure-related projects. They will offer the opportunity for institutional investors to participate in infrastructure projects through listed securities that can be traded and that can offer superior risk-adjusted returns.

The new instruments and mechanisms that will be introduced aim at mobilizing private capital and increasing investments in the country, which will result in accelerated economic growth.

It is crucial that these instruments will give an opportunity to our citizens from the diaspora who keep their money in banks in developed countries where the interest rate is almost zero, to invest it in a bond related to a project. With that, they will be able to invest in the development of their country, and at the same time their money is guaranteed and they receive income higher than the one given by the banks in developed countries.

With the Plan for Accelerated Economic Growth 2022-2026, you plan economic growth of up to 5% and reduction of public debt below 60 % of GDP by 2026. The investments are about 12 billion, of which four billion are public money and they should generate an additional eight billion from private investors. How do you plan to do that?

Facing the new reality as a result of the challenges of the pandemic, in order to recover and make renewed progress, in this time of major change, we, as the government, are focused on the realization of the Growth Acceleration Plan, as a general framework consisting of all the elements that could contribute to better utilization and increase of growth potential in the medium term. In addition to the ongoing activities we have identified, we propose innovative ways to finance investments, to use all available funds from official creditors and, finally, to use all opportunities to mobilize private investment.

Private sources of funding will be fueled by public sources of funding and a wide range of conventional and innovative funding mechanisms and instruments. Encouraging private investment will be facilitated through public-private partnerships (PPPs), privatization of non-core segments of public enterprises, newly established investment funds, re-use of funds, better realization of capital expenditures through the KAPEF mechanism, etc.

The estimated combined effects of the Accelerated Economic Growth Plan are EUR 12 billion invested in projects designed and implemented by both the public and private sectors. The plan will in particular support environmental and climate projects, innovations and initiatives for a fairer society, thus facilitating the transition to a low-carbon, competitive, circular and sustainable economy. We will also strive for as many citizens as possible to enjoy the benefits of that growth, meaning, for it to be inclusive.

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