27th May 2023, Skopje – Domestic securities market will be diversified by introducing a new instrument – development bonds for citizens next month already. I am immensely pleased with the fact that this news caught the public eye last week, hence I will dedicate this column to development bonds for citizens, as well as the intentions to further develop the capital market in the country.

Development bonds for the citizens are long-term government securities intended for the citizens, aimed at encouraging the citizens to invest, boosting further development of the capital market in the country and, most importantly, generating earnings for the bondholders. Moreover, the citizens can invest their cash savings in development bonds for citizens, with the banking system mobilizing, i.e. reducing the cash in circulation, which is one of the ways to eradicate grey economy, thereby completely adhering to the existing regal regulations and the international standards on protection against money laundering. Benefits for the economy and the citizens, especially for the citizens, are manifold, since they will, in times of high inflation, keep the value of their money by earning a solid interest paid by the Government. Government securities are considered to be risk-free financial instruments, also considered by the investors as the safest investments. These securities’ maturity will be two years, with a minimum amount to invest of Denar 10,000, while the interest rate will be additionally set reflecting the conditions on the financial market.


Issuance of Development Bonds for Citizens is a Well-Devised Strategic Decision

Decision to issue development bonds for citizens is neither an immediate nor a periodic decision, it is rather a strategic one. Such decision is adopted as part of multi-annual strategies, such as the Financial Market Development Strategy and the Public Debt Management Strategy, but it is also part of the Growth Acceleration Plan. Broadening the capital market, in particular diversifying the securities market by introducing new financial instruments, is aimed, above all, at increasing the national capacities to mobilize funds, as well as encourage investments and accelerate economic growth. I have written about the “Junker Plan” in several occasions, as well as about boosting the economic activity in the EU following the recession, induced by the Global Financial Crisis, by mobilizing private and public funds. Mobilizing private funds through new financial instruments, aimed at financing the public needs, is also what the World Bank recommends, emphasizing the need to diversify the sources of financing.

Role of financial markets in every country is crucial for the economic growth. They are venues where funds are exchanged between investors and those who seek capital and multiply the existing capital by creating new values in the economy. To better understand the need for introduction of new financial instruments and the diversification of the capital market, I will briefly elaborate on the financial market in the country, i.e. the platform where supply and demand meet in terms of raising capital.


Capital Market Characteristic for Developing Economy

Our economy is not an exception to the most of the developing economies where the financial sector is bank-centric, i.e. the access to capital is only available through the banks, while the capital market is still insufficiently developed. Banks’ assets account for more than 80% of the total assets in the financial sector, while the activities of the other segments of the financial sector, except for the mandatory fully funded pension funds, are relatively scarce. Substantial concentration of turnover with shares of only few companies is registered on the Macedonian Stock Exchange. During the global and the regional economic expansion (2005-2007), the stock market experienced boom for a short while, but the Global Financial Crisis took its toll, which led to drastic bust.

Government bonds dominate the bond market in our country, while the demand is concentrated on the institutional investors, above all due to limited offer of instruments and insufficiently informed public. In fact, hardly any individual invests in government securities. Secondary market is also underdeveloped, due to the dominance of the financial institutions. Corporate bond market is very narrow, while no municipal bonds have been issued so far (despite the attempts to do so).


Development of Government Securities Market

Since the country’s independence, structural and continuous bonds are introduced on the government securities market. Structural bonds are issued to compensate individuals and legal entities on various basis, such as denationalization bonds, bond for old foreign exchange savings, bond for selective credits and Stopanska Banka privatization bond. Continuous bonds, on the other hand, are intended for mobilizing funds from the private sector, i.e. they are domestic source of financing the public needs. As part of the then Strategy for Development of Government Securities Market, first government securities were issued in January 2002 by issuing 3-month treasury bills on the domestic market. Auction mechanism was applied for the issues of these government securities, as the most transparent and marketable one, all to the end of minimizing the costs for financing the budget deficit.

Auction of the first issued treasury bills stirred strong interest among the investors, which was expected considering that a new risk-free instrument was introduced on the market. Soon afterwards, 6-month treasury bills were issued, with 12-month treasury bills and 2-year bond being issued in 2005. All this set the stage for establishing the domestic primary government securities market. Thus, the primary market is of great significance for the ongoing servicing of the budget liquidity needs, being at the same time yet another prompt, transparent and high-quality source for financing the budgetary needs through access to capital.

As regards government securities issued on the international market, in December 2005, Macedonian authorities appeared on the international capital market for the first time by issuing the debut Eurobond, putting the country on the map for institutional investors

In the past 18 years, domestic securities market was developing by offering short- and long-term instruments, from one-month bills to 30-year bonds, issuing total of nine Eurobonds on the international market.


Creating New Opportunities on the Financial Market for the Domestic Investors

To the end of developing the financial market in our country and creating more opportunities for both the investors and the companies to access capital for the purpose of financing projects, thus encouraging the creation of new value and fostering innovations, the Government, upon proposal by the Ministry of Finance, has adopted Financial Market Development Strategy. The Strategy has been prepared through an inclusive process of exchanging ideas and consultations within the Capital Market Development Council chaired by the Ministry of Finance.

Key objectives of the Strategy are increased contribution of the securities market to country’s GDP, strengthening and maintaining financial system’s stability and security, supporting both the development and the implementation of digital solutions to the end of increasing the availability of instruments on the capital market, as well as improving the efficiency of the processes taking place therein. The Strategy envisages expanding the offer of various types of bonds, as well as encouraging the demand by introducing instruments under favourable terms and conditions: expanding the offer of equity securities by stimulating initial public offering and full or partial privatization through the stock exchange in order to develop the primary stock market; increasing the use of the potential of the institutional investors to the end of developing the capital market; changing the architecture of the non-banking financial regulation, organized (institutional) approach to improving the financial education in the field of capital market.

Prompt revival of the capital market and approaching the EU average is expected with the implementations of the Strategy.

Interest of the domestic investors in investing is obvious. The most self-evident example is the fast-growing cryptocurrency investing, which are high-risk investments. Hence, introduction of new financial instruments on the domestic market is inevitable, instruments which are regulated and bear no risk (what is even more important when citizens’ money is in question) so as to absorb this investment capacity. We have adopted a strategic approach to developing the financial markets by increasing the participation of individual and institutional investors by expanding the demand for domestic securities; broadening the investment alternatives by expanding the offer of equity securities and debt securities; strengthening the regulations by harmonizing them with the EU Directives, and raising the awareness and advancing the financial education of both the corporate sector and the households.

It is envisaged for the demand to be encouraged through generating higher returns as a result of the measures aimed at reducing transaction, information and tax costs, as well as changes to the regulatory limitations on availability of important information. As for the offer, as I have mentioned before, issuance of new instruments by the Government is envisaged in line with the Growth Acceleration Plan, as well as streamlining the procedure, coupled with introducing significant regulatory and tax incentives and stimulations to increase the number of companies listed on the Stock Exchange, initial public offering including the ones of state-owned companies. Considerable number of legal amendments and new legal solutions are planned as well (some of them being already implemented), to the end of facilitating the market functioning, such as the Financial Instruments Law, Law on Securities Prospects and Transparency Obligations for Issuers, Law on Investment Funds, legal solutions in the area of alternative investment funds, Law on Payment Services and Payment Systems, Law on Financial Undertakings, Law on Financial Stability, etc.


New Instruments Among the Government Securities

As aforementioned, diversification of the market and the government securities portfolio is also in support of prudent public debt management, which is part of the Public Debt Management Strategy. Development bond for citizens is just one of the new models of bonds introduced in the Strategy. In fact, Ministry of Finance works on introducing new type of financial instruments, to be differently applied, such as development bonds, green bonds and project bonds.

Goal of the development bonds is to stimulate the financing of development projects in the country. They will be indexed and will bear a certain coupon and will be intended for the banks, the pension funds and other institutional investors and businesses, as well as the individuals.

Green bonds will be intended to stimulate and support environment protection projects, designed specifically to support eco projects. Unlike the existing bonds, green bonds will be used solely for green development investment projects.

Project bonds will be an alternative way of financing infrastructure-related projects. They will offer an opportunity for institutional investors to participate in infrastructure projects through listed, tradable securities that can offer superior risk-adjusted returns.

Development bonds for citizens, as mentioned at the beginning of this column, will be intended solely for the citizens, the issuance of which will be aimed at mobilizing capital in the form of citizens’ cash savings, as well as deposits kept with the banks. They will provide for attaining triple effect, i.e. lower amount of cash as one of the measures aimed at reducing informal economy, citizens generating yields from their savings, with these funds being geared towards economic development. In other words, value of citizens’ savings will be protected and country’s development will be underpinned.



In conclusion, let me summarize the benefits yielded by the new instruments and the Financial Market Development Strategy as a whole.

Risk-free investments and earnings – government securities holders earn respective interest, as a compensation for their investment. Moreover, government securities are recognized to be the safest financial instruments.

Coping with inflationary pressures – by investing in the new government financial instruments, the citizens will protect the value of their savings. Furthermore, pressures on consumption, hence inflationary pressures, will be thus reduced.

Economic growth – investments are an integral part of economic growth. New investment instruments will boost investments, both public and private, thus accelerating the growth and the benefits it brings along, such as job creation and better living standard.

Major capital projects – most of the new instruments are related to the implementation of major infrastructure projects, contributing to creating better living conditions in the country.

Prudent public debt management – strategy for prudent public debt management is for the portfolio to be diversified by maturity, costs and instruments to provide for the lowest risk in terms of debt sustainability and servicing. Interest-related expenditures for the Budget will be lower with the development bonds for citizens compared to the issuance on the international financial market. This is also in support of the Government’s commitment to fiscal consolidation by reducing the financing costs and introducing other financing requirements.

Reducing the cash in circulation in support of eradicating informal economy – cash is one of the drivers of informal economy. By investing cash in these instruments, this risk is also being dealt with. Thereby, all existing legal regulations and international standards for protection against money laundering will be applied.

The benefits are multiple, and there is a lot of room for innovations on the financial market. I am confident that a sound and well-devised strategy will be a solid basis to discuss the results and the benefits of these measures.

Оваа вест е достапна и на: Macedonian Albanian

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