27th June 2023, Skopje – Economy is recovering, whereby public finances are on track. Tax policy reform and solidarity tax should be urgently adopted. Public sector wage restraint is needed to avoid a large burden on public finances, and to avoid fueling already high inflation. These are the brief conclusions about the fiscal policy under the IMF mission, led by Jacques Miniane, considering the recent economic developments and policies in our country in the context of the IMF’s Precautionary and Liquidity Line (PLL), taking place at the beginning of June.
As stated under the IMF’s press release, an economic recovery is underway, with real GDP growth projected at 2.1 percent this year, followed by 3.4 percent in 2024. Inflation has also started to decline, with consumer prices being expected to rise by 9.2% on average this year and by 3.5% in 2024, and to return to 2% by 2026.
IMF staff also stated that public finances are on track to meet the deficit target sett out in the adopted 2023 Budget. Yet, as they stressed, delays in passing the tax policy reform and the solidarity tax may compromise tax revenues. In this context, they urge for the tax reform, whose design has benefitted from IMF input, to be adopted without delay given the long period allowed for public consultation, and so should the solidarity tax. Efforts at improving tax collection need to be sustained and accelerated.
As regards public sector wages, IMF staff pointed out that there already is room in the central government budget to accommodate an increase in the wage bill of close to 10%, also including the minimum wage harmonization this year. However, anything above this magnitude would create a large and permanent burden on the budget and would also risk squeezing out other essential spending. Large public sector wage increases would also risk turning temporarily high inflation into persistently high inflation.
As per IMF staff, electricity block-tariff reform was a significant step in the right direction. However, electricity prices for most households remain heavily subsidized in our country and among the lowest in Europe. They indicated that it will be important to continue to move ahead with electricity tariff reforms that gradually phase-out subsidies and strengthen energy efficiency.
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