19th January 2019, Skopje – Fitch Agency announced that it affirmed Macedonia’s credit rating at BB, with a positive outlook. Macedonia’s ratings are supported by a track record of coherent macroeconomic and financial policy, which underpins its long-standing exchange rate peg to the euro. The positive outlook reflects the stabilization of the political environment, resulting in a material progress towards accession to the EU and increased economic confidence.
Fitch report also states the significant progress made in resolving the name issue with Greece, the adoption of the constitutional changes in Macedonia and the expected adoption of the agreement by Greece. According to Fitch, this would pave the way for Macedonia’s membership of NATO and would support the start of formal negotiations on EU accession. Thereby, the name change process also highlights the improvement in the domestic political environment, i.e. the whole process proceeded without any adverse impact on political stability, with a broad support by the international community.
Fitch states that improved political stability has supported a revival in the economic activity. It is forecasted that GDP growth will strengthen from 2.3% in 2018 to 3.2% in 2019 and 3.6% in 2020. According to the Agency, deficit is narrowed to 1.8% of GDP in 2018 from 2.7% in 2017, reflecting the higher tax revenues, stemming from the strengthening local economy, and a significant underspending of the capital budget, as the government re-examined projects and tightened the procurement process. Fitch expects that a rebound in capex will push the deficit to 2.7% of GDP in 2019, while stronger growth and fiscal reforms will narrow the deficit to 2.5% in 2020. In addition, improvements to public finance management are being pursued under a program agreed with the EU. Further on, Fitch states that general government debt, officially estimated at 40.8% of GDP at the end of 2018, is below the current peer median (47%), while government guarantees account for 8% of GDP.
Fitch assesses that risks to political stability are still assessed to be higher than in the current ‘BB’ peer group following the extended 2014-2017 political crisis. Furthermore, what could lead to the rating upgrade is an improvement in governance standards and further reduction in political risk, as well as implementation of medium-term fiscal consolidation program consistent with a stabilisation of the public debt/GDP ratio. Contrary to this, what could lower the ratings is adverse political developments which could affect the governance standards and the economy, fiscal slippage or the contingent liabilities, as well as widening in the current account deficit.
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