Negotiations with the IMF mission for new Precautionary Credit Line (PCL) were concluded successfully. It was agreed to use EUR 480 million in the next two years. The decision is to be confirmed by IMF Board of Directors in January next year.
 
This was announced Wednesday by Vice Prime Minister and Minister of Finance Zoran Stavreski, IMF Chief of Mission Wes McGrew and the Governor of the National Bank of the Republic of Macedonia Petar Gosev at the joint press conference following the conclusion of the negotiations with the IMF Mission.
 
Macedonia is the first IMF member to take advantage of the new instrument designed for countries with sound policies that do not have actual financing needs but face risks that could give rise to such needs. The credit line provides security to the countries that in the event of adverse developments they will have deep reservoir to draw on to preserve stability. Having a PCL in place helps to strengthen confidence and facilitates better access to private capital markets.
 
The PCL would have a term of two years, providing access to EUR 400 million in the first year, with additional EUR 80 million. Under PCL framework, a review is required every 6 months to renew the credit line. The purpose of such reviews is to confirm the continued soundness of the authorities’ policies. There are no performance criteria or structural benchmarks such as exist in stand-by arrangements. It is designed to provide insurance.
 
– We had successful negotiations about such credit line and we will recommend for the country’ request for PCL to be approved by IMF Board of Directors, McGrew said, adding that the precautionary credit line is a new IMF instrument for countries with sound economic fundamentals and policies, and Macedonia would be the first country to use it.
 
All this, as he explained, reflects history of sound macroeconomic policies, including low level of public debt and low inflation.
 
– The PCL would be based on the economic program of the authorities, in particular a fiscal deficit of 2.5% of GDP next year and commitment to follow policies that support the exchange rate peg to the Euro. The mission believes that the authorities’ policies in these areas are sound and provide a strong basis for the proposed credit line, IMF Chief of Mission said.
 
According to him, if things go as expected, Macedonia would not need to draw on the PCL. It should be viewed, as he explained, rather as a back-up source to draw on if needed.
 
He emphasized that this is especially valuable in light of the continued volatility and risks coming from other countries in Europe, and it is a kind of insurance in event of deterioration of the external conditions.
 
As for how much Macedonia would withdraw from the credit line, Minister Stavreski said that it is a back-up option when the country would have financing needs and has no other source to ensure such financing.
 
– From that point of view, we believe that the approval of the credit line would provide Macedonia a better access to capital market and would have no need to draw on the funds. The concept of the credit line is to be able to withdraw funds if necessary, and if such need arises we will decide on the amount needed, which can be used for all budget needs, Stavreski pointed out.
 
He expressed his contentment with the agreement reached on the use of the open credit line, saying that the benefit is manifold. However, the most important is that an insurance is provided, i.e. financing in case it cannot be ensured from other sources, as well as a strong signal is sent to the investors that IMF believes in the quality of the economic policies and it can help in the process of issuance of the Eurobond, i.e. lower its price. Stavreski underlined that the Government remains on its orientation, should there be favourable conditions on the capital market, to issue Eurobond. The decision, as he said, will be made after the credit line is approved and after the effects thereof on the price are analyzed.
 
Minister Stavreski believes that it is a significant amount of funds from the credit line, an amount which the Republic of Macedonia has not received cumulatively in the past 15 years. This was why they were committed to obtaining consent by all relevant entities in the country, with which consultations were made.
 
– I believe the fact that Macedonia is the first country in the world to which the IMF approves this credit line, which is based on sound economic policies, is confirmation that, in the past period, the economic policies in Macedonia were quality and sound ones and set appropriately, as well as confirmation that IMF believes Macedonia will keep the same level of quality and sound economic policies in all areas in future, in particular fiscal policy with a moderate level of fiscal deficit, projected to 2.5% next year, as well as total level of public debt, stability of foreign currency reserves, maintenance of stable Denar exchange rate and implementation of structural reforms to ensure improvement of competitiveness of the Macedonian economy and better economic performance in future, Stavreski underlined.
 
Governor of the National Bank of the Republic of Macedonia, Petar Gosev, considers the agreement reached on the use of funds under the credit line as a good and a positive event for Macedonia, since, as he pointed out, challenges in the world economy still exist, they are still high and Macedonia received, with this credit line, one more confirmation so as to continue conducting sound macroeconomic policies.
 
– This decision is direct signal to the foreign investors and creditors that Macedonia has been support once again in securing against possible risks that might arise from the surrounding, Gosev said.
 
According to him, this is a good for the monetary policy, since one more alternative for external financing of its fiscal needs is obtained. – We have obtained, as he added, one more alternative for secure entrance of additional foreign currency funds in Macedonia, meaning much safer and higher level of foreign currency reserves, more room to continue conducting the monetary policy and for its maintenance and further easing.
 
When posed a question, he said that the credit line is not designed to finance capital projects.
 
– Macedonian cannot spent huge amount of funds in a year. We have to take care of the size of the budget deficit and to fit into such deficit, since this builds our credibility. We have to employ a reasonable approach and use the credit line in a manner envisaged by IMF acts, Gosev explained.
 
When asked why IMF credit line is accepted now, Stavreski explained that this international institution has a new instrument now, and should such instrument not existed, no stand-by arrangement would have been concluded, since, as Finance Minister said, we believe we can manage the challenges with the economic policies and our own efforts and strengths.(MIA)
