16th February 2022, Skopje – Upon the economic activity drop recorded in 2020, according to IMF, GDP growth is forecast at 4% in 2022, as in 2022, driven mainly by improved consumption, extension of the respective launched reforms, scaled up public and private investments, as well as diaspora travel boosted remittances. IMF representatives welcomed the expected positive effects of the Growth Acceleration Plan, noting that its implementation can further contribute to higher demand and boosted growth. In addition, renewed push for reforms, possibly coupled with improved EU accession prospects, could boost capital inflows and confidence in the economy. These are part of the main conclusions upon the consultations under Article IV of the IMF’s Articles of Agreement, held in November and December 2021.
IMF representatives noted that the policy support cushioned the economic activity drop, contributing to economic recovery and job preservation.
“The Government and the National Bank of the Republic of North Macedonia have staged a timely and strong economic policy response to the pandemic crisis, initially supported by a disbursement under the Rapid Financing Instrument in April 2020. While policy support has been scaled down and become more targeted over time, it has helped the economic rebound and prevented large job losses” – as IMF noted.
They indicated that fiscal balance improved in 2021 thanks to a rebound in revenues. Investments are expected to pick up significantly, driven by public sector initiatives. The gradual unwinding of fiscal support comes in response to improving economic prospects, which should dampen the effect on growth.
What is noted in the Report is the need for gradual fiscal consolidation, which would help rebuild fiscal buffers, thus creating fiscal space to respond to future shocks and address investment needs. These recommendations are successfully anticipated under the Fiscal Sustainability and Economic Growth Plan of the Ministry of Finance.
If domestic demand surprises on the upside, the consolidation should be faster; this would also help dampen potential inflationary pressures.
IMF stressed the need for credible and comprehensive medium-term fiscal strategy, focused on revenue mobilization, which can help anchor the consolidation. Tax policy measures could focus on increasing vertical and horizontal equity, reducing preferential treatments as appropriate, and making more and better use of property and environmental taxes. This should go hand in hand with improved revenue collection. Expenditure measures could include rationalization of agricultural subsidies and re-organization of public administration.
On the short run, the immediate policy challenge is to sustain the recovery given the still elevated level of uncertainty about the pandemic and the global risks. Fiscal policies should enable higher, more inclusive and greener growth and limiting fiscal risks.
According to IMF, the 2022 Budget appropriately scales back pandemic-related spending, while allowing some flexibility to address contingencies. Budget targets a headline deficit of 4.3% of GDP, in line with staff’s baseline. It provides for higher health spending, including for vaccines. The Budget also includes an envelope of 0.6 percent of GDP of non-earmarked funds to allow a flexible response to pandemic-related spending needs, IMF noted.
By recognizing the so-far progress, IMF representatives believe that the further improvements in public financial management would support the government’s investment plan, whereby it is essential to fully implement the Action Plan formulated in response to the Public Financial Management Reform Programme in the Ministry of Finance. IMF representatives also indicated the significance of the draft Organic Budget Law, which is expected to be adopted in 2022, in line with the EU framework, which will introduce important changes as regards the making of fiscal policies, the fiscal reporting, the fiscal rules, as well as the budget preparation and execution process.
Ministry of Finance and the Government of the Republic of North Macedonia continue their successful cooperation with the International Monetary Fund, as one of the key partners in implementing the reforms and attaining the goals, that being: economic recovery, growth acceleration and improved fiscal sustainability.
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