19th November 2018, Skopje – Wrap-up meeting with the IMF mission, visiting the country as part of the regular consultations under Article IV, was held at the Ministry of Finance. Ministry of Finance team, headed by Minister Dragan Tevdovski, as well as NBRM Governor, Anita Angelovska – Bezhoska, attended the meeting.
IMF Concluding Statement indicates that return of political stability and progress towards resolving the name dispute have tangibly raised prospects for opening EU accession negotiations more than twelve years after gaining the candidate status. Structural reforms to address longstanding weaknesses in the labor market, judiciary and public administration are critical to seize this opportunity and ensure a brighter future through higher productivity and faster income convergence.
Real GDP is projected at 2% in 2018, amid favourable macroeconomic conditions, i.e. low inflation, a declining current account deficit and positive trends in the foreign exchange market. As investment recovers, real GDP growth is expected to pick up to 2.8% of GDP in 2019, and to gradually approach 3.5% over the medium term, driven by infrastructure investment and stronger exports.
According to IMF mission, public finances have weakened in the past decade, limiting policy space to counter shocks. In particular, recurring primary deficits, driven by declining tax revenues and rising current spending, have doubled public debt over the last decade. In 2018, fiscal deficit and public debt are expected to reach 2.6% and 50.5% of GDP, respectively.
IMF mission indicates that 2019 draft budget rightly intends to address pension sustainability, promote social equity and support employment. Changes in personal income taxation increase the tax rate on capital income and rebalance labor tax burden between the highest and lowest income segments. IMF mission also notes that, in order to improve coverage and targeting of social assistance programs, the Budget proposes to consolidate and replace existing benefits, including removal of parental allowance for the third child, with a means-tested guaranteed minimum income and social pension scheme. Further on, according to IMF mission, proposed pension reforms will reduce the pension deficit in the medium term. According to mission’s preliminary assessment, these measures, along with support for employment and investment, will temporarily increase the fiscal deficit to 3% of GDP in 2019 before narrowing to 2.4% over the medium-term. Under the baseline projection, public debt will peak at 54.7% of GDP in 2021.
The mission recommends achieving a zero-primary balance over the medium term to put public debt on a clear downward trajectory. Further measures, such as tightening conditions for early retirement and raising statutory retirement age, should be considered to ensure long-term sustainability of the pension system. According to IMF mission, recent reforms to strengthen public financial management and increase fiscal transparency are encouraging and should continue. In addition, measures to strengthen the framework for monitoring of arrears in the public sector and proposed changes to link the municipality budget to realized revenues are steps in the right direction.
You can find the text of the IMF Concluding Statement, with the preliminary conclusions, at the following link.
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