11th March 2023, Skopje – This past week was of exceptional importance for the country’s economic growth. We have launched a major investment cycle, a project of historic significance, which one would not be wrong in indicating it as one of the most important and crucial infrastructure projects in our country – construction of 4 road sections, a new modern motorway with six lanes, along Corridors 8 and 10-d, i.e. road sections Tetovo – Gostivar, Gostivar – Bukojchani, Trebenishte – Struga – Kjafasan and Prilep – Bitola. This investment, in particular building 110 km long new, modern, quality and safe road network, or 22 km to 25 km long new highway every year in the next five years, is of exceptional economic and geopolitical importance for us and the region, given the country’s position at the crossroads of two main European corridors. Our country thus gets a comparative advantage, which is a good background for boosting the competitiveness of our economy and GDP growth.

This substantial investment amounts to total of EUR 1.3 billion which, coupled with related road infrastructure investments, accounts for 10% of country’s GDP. Part of the funds for the respective investment are already allocated in the 2023 Budget, with funds also being projected for the coming years.  2023 Budget is based on the golden rule in public finance – capital expenditures higher than the budget deficit, i.e. borrowing will be made only for the purpose of financing investment projects. This year’s capital investments are projected in the amount of EUR 800 million, being by EUR 100 million higher than the budget deficit. They account for 5.3% of the projected GDP, amounting to 5.1% of GDP in the next five years, unlike in the past two decades, when they accounted for around 3% of GDP in average. Projecting more funds encourages scaled-up public investments on one hand, boosting the economic growth on the other. Higher GDP growth allows for greater fiscal sustainability.

Our commitment as a Government is to ensure long-term fiscal sustainability, since only stable public finances can provide for a long-term growth and development, geared towards improving the living standard of the citizens. Hence, we gradually reduce the gap between budget revenues and expenditures, i.e. the budget deficit, so as to reduce any new needs for financing, i.e. borrowing. At the same time, we take caution not to jeopardize the development component, because slowing down the growth equally produces negative effect on fiscal sustainability. We also undertake activities aimed at reducing the stock of debt (total amount of debt accumulated over the years) by refinancing it with lower costs, including new types of instruments and creating an optimal portfolio taking into account the costs and the maturity.


2023 Eurobond will be Used for Refinancing the One Issued in 2016

2016 Eurobond will be refinanced through an optimal combination of two instruments, newly issued Eurobond and instrument for micro-financial assistance awarded by the European Commission, with the prior debt falling due being repaid at lower costs. Although the amount borrowed with the 2016 Eurobond is lower, as well as is the interest rate by around one percentage point, the interest cost is higher due to its longer maturity.

I would briefly turn to the ninth Eurobond auction. Bidding by more than 100 investors was more than four times the offering, which is a clear vote of investors’ confidence in our economy and the policies the country conducts. As regards the disbursement of the planned amount of EUR 600 million, by combining issuance of a Eurobond in the amount of EUR 500 million and micro-financial assistance in the amount of EUR 100 million, same terms and conditions as on the initial auction of the ninth Eurobond, worth EUR 600 million, were obtained, with the annual interest cost remaining the same, i.e. around EUR 37.5 million.


Real Interest was Negative for the Last Two Eurobonds Issued

We come again to the golden rule of finances – the interest, i.e. the cost we pay for the borrowed capital, should be lower than the benefit produced. The economic benefit in particular is the growth of gross domestic product, adjusted for the annual inflation (since inflation reduces the capital value).

Economists can easily calculate the real interest rate of Eurobonds by subtracting inflation rate from the coupon rate. Hence, if we analyze the real interest rate for all nine Eurobonds the years they were issued, it was 4.1% in 2005, 10.76% in 2009, 4.29% in 2014, 5.19% in 2015, 5.84% in 2016, 1.23% in 2018, 2.45% in 2020, being negative (-1.53%) in 2021, while in line with the 2023 projections and the most recent ninth Eurobond, issued on March 2023, the real interest rate was -0.14%. Cost for the last two issued Eurobonds was lower than the benefit produced – real economic growth, i.e. their issuance were economically justified. If compared with the real GDP growth rate, real interest rate for the Eurobonds issued in 2021 and 2023 was lower by 5.4 and 3.1 percentage points respectively. In addition, cumulatively observed, this ratio throughout the whole maturity period of the respective Eurobonds is in favour of the economic growth as per the macroeconomic projections, i.e. higher real economic growth in relation to real interest rate on borrowing provides for a sustainable development and public debt decline.


Financial Close to Finance the Budget Deficit and the Debt, Falling Due in 2023

This year’s financing needs pertain to financing the budget deficit, amounting to Denar 42.7 billion (EUR 694 million, which, as per the projections, is to be reduced as a result of the higher inflows from the solidarity tax), as well as the repayment of the debt, falling due, totaling Denar 52.1 billion (EUR 847 million), Denar 36.5 billion (EUR 593 million) out of which as foreign debt and Denar 15.6 billion (EUR 254 million) as domestic debt.

In addition to the issued Eurobond, along with the Macro-Financial Assistance, amounting to total of EUR 600 million, the foreign borrowing will be provided via disbursement of a new tranche under the IMF Precautionary and Liquidity Line, as well as by disbursing funds from loans under favourable terms and conditions, extended by foreign financial institutions, as well as credit lines intended for project and budget financing. This is all coupled by the EU grant, amounting to EUR 80 million, which will be used for financing anti-crisis measures targeting the citizens and the companies, being also intended for investments in renewable energy sources.

Domestic borrowing will comprise issuance of government securities and borrowing a loan from a domestic bank. Borrowing on the domestic market will provide for optimizing the public debt portfolio from the aspect of the interest rates and the lengthened maturity, whereby the projected ratio with respect to the foreign borrowing will have no crowding out effect on the private sector as regards the access to capital on the domestic market. As a result of the prudent public debt management policies last year, amount of EUR 160 million remained as a deposit to be used this year, coupled by putting buffers in place, which provide for greater flexibility as regards the capital market trends.

Over One Billion Euros as Capital Expenditures and Anti-Crisis Measures This Year

As for the 2023 Budget expenditures, I would like to hereby indicate that in addition to EUR 800 million as capital expenditures, EUR 225 million are also projected as anti-crisis measures, i.e. these two purposes alone exceed the budget deficit by EUR 330 million. For the purpose of accelerating the economic growth, thus fully recovering from all consecutive crises occurring over the past period, our ambitious investment agenda must be pursued.

Capital expenditure execution was also improved during the past years. Capital expenditure execution accounted for approximately 90% of the projections, as a result of the introduced mechanisms aimed at boosting investments, such as CAPEF. However, by allocating higher budget funds as capital investments, pressure is also exerted in terms of spending higher nominal amounts at the end of the year. This implies injecting funds in the economy, job creation and economic growth acceleration.

This year, capital expenditure projections are by even 70% higher compared to the execution in 2022. As I mentioned above, massive investments are planned, in particular in the field of road and railway infrastructure, energy and utilities infrastructure, as well as capital investments aimed at improving the conditions in the health, education and social sectors, agriculture, culture, sports, environment protection and judiciary.

In addition to the four new highways along Corridor VIII and Corridor Xd, funds are also allocated for the Feasibility Study, pertaining to the construction of Tetovo-Prizren road section. Construction of the Eastern part of Road Corridor 8 via the sections Rankovce – Kriva Palanka and Kriva Palanka – Bulgarian border, as well as the Western part of Road Corridor VIII, will also continue. Construction of Skopje-Blace highway section will be financed with EBRD loan.

It is envisaged for the reconstruction of Railway Corridor X to be completed in 2023, whereby funds are also projected for continuation of the first and the second phase of the Project for Construction and Reconstruction of Eastern Part of Railway Corridor VIII – Kumanovo-Beljakovce-Kriva Palanka Section. In the medium term, EBRD and EIB have confirmed the financing of Kichevo – Lin (Alabania) railway section.

Budget funds are projected for a number of capital projects related to the environment. Moreover, implementation of the Municipal Services Improvement Project, intended for financing capital projects in the municipalities, will continue, as will the implementation of the Public Sector Energy Efficiency Project, aimed at financing energy efficient projects in the municipalities. Loans under favourable terms and conditions are provided for financing solid waste management projects throughout the country, whereby the construction of the gas pipeline network and the Greece – North Macedonia Gas Interconnector, will also go forward.

As regards the health sector, investments are projected for construction and reconstruction of public health institutions and procurement of medical equipment.

In the field of education, childcare and sports, capital investments are projected, being intended for construction and reconstruction of primary and secondary schools, kindergartens, construction of schools and sports halls, reconstruction of pupils’ and students’ dormitories, equipping and reconstruction of universities and investments in sports infrastructure. Implementation of the Energy Efficient Rehabilitation of Student Dormitories in North Macedonia Project, as well as the Project for Construction of Physical Education Facilities in Primary Schools and Rehabilitation of Primary and Secondary Schools, will continue.

To the end of improving the access to social rights and services, as well as expanding the capacities for preschool care and upbringing through construction of new facilities and repurposing/upgrading the existing infrastructure of preschool institutions, implementation of the Social Services Improvement Project will carry on in 2023.

Substantial capital investments are also envisaged, being geared towards rural development, construction of hydro systems and investments aimed at boosting the competitiveness and modernizing the agricultural holdings.


Mobilization of Private Capital in Support of Growth

All this will contribute to creating value added, boosting the economic growth, higher GDP growth, and hence fiscal sustainability, thus increasing the country’s capacity to settle its liabilities. At the same time, we are working on fiscal consolidation via continuous budget deficit reduction, all to the end of attaining the targets set under the Maastricht Rules in the medium run.

Thus, I would like to take this opportunity to point out the Growth Acceleration Plan, which will, via private capital mobilization, public-private partnerships and new types of financial instruments, provide for multiple intensification of both the public and the private investments. European Investment Bank provided EUR 100 million as loans with favourable terms and conditions, intended for small- and medium-sized enterprises in support of their green transition and liquidity, with the commercial banks also contributing with additional EUR 100-200 million thereto. Our long-term goal is to ensure better living conditions and a higher living standard for our citizens, as well as boosted competitiveness of our economy, which is feasible only by implementing a sound accelerated growth strategy. Therefore, additional EUR 50 million will also be provided from the Council of Europe Development Bank.


New Types of Instruments for Financing the Development: Green Bonds, Development Bonds for the Citizens and Development Bonds for the Diaspora

Under the 2023 Budget, possibility for introducing new types of instruments for financing the budget in support of the development, was announced, such as: green bonds, development and project bonds, development bonds for the citizens and development bonds for the diaspora. Under these bonds, funds will be provided for development projects, in particular projects for green development, thus offering more favourable financing conditions, coupled by the opportunity for being extended additional grants by the European Commission and other development international institutions. For the purpose of developing the capital market in our country, as well as accomplishing financial emancipation of the wider public, so-called development bonds for the citizens, as well as development bonds for the diaspora, will be issued, by which funds will be mobilized for development projects and budget support.


Оваа вест е достапна и на: Macedonian Albanian

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