28 May 2019, Skopje – The Fiscal Strategy is adopted for a three year period and contains the medium term directions and goals of fiscal policy, the key macroeconomic projections, the amounts of the main categories of estimated revenues and expenditures, as well as the deficit and debt projections. The Fiscal Strategy reflects the medium term fiscal goals and strategic priorities of the Government of North Macedonia.
The continuous intensification of growth during 2018 and the positive developments in the first quarter of 2019 provide the grounds for an upward revision of the projection of economic growth in 2019 to 3,5%. GDP growth is expected to strengthen to 4,2% in 2020, and then to further intensify in the following two years to 5%. Private consumption will have a considerable contribution to economic growth over the medium term, with an average real growth of 2,8% per year. The growth of private consumption is related to the increase in employment in the private sector, also supported by active employment measures, the increase of wages in the economy, as well as the measures for improvement of social protection, which will result in higher household disposable income, with an additional impulse by the rise in crediting. The projection for the growth of gross investments for 2020-22 equals an average of 6,1% per year, in real terms. The higher confidence of economic subjects, the more favourable business climate, the improved Euro-Atlantic prospects, the inflow of foreign direct investment and the government measures for investment stimulation will have a considerable effect on investment growth, whereas a positive impulse is also expected by the planned public sector investments. In this period, net exports are expected to have a positive and increased contribution to economic growth. Exports of goods and services is projected to grow by an average 9,1% per year, in real terms. The positive movements of consumption, investments and exports will result in an average real growth of imports of goods and services of 6,8% per year.
In order to strengthen fiscal discipline, the medium term Fiscal Strategy applies limits on budget expenditures, both aggregate limits and limits by budgetary users. In this direction, the annual growth rate of total expenditures of the central government budget will gradually decline from 14,2% in 2019 to 5,2% in 2022. In combination with the expected collection of revenues, this will ensure a gradual narrowing of the budget deficit from 2,5% of GDP in 2019 to 2,3% in 2020 and then to 2% of GDP in 2021 and 2022. Moreover, the limits for the budget deficit as a key indicator for the stance of fiscal policy are maintained on an almost unchanged absolute amount, as well as on an unchanged share of GDP as in the previous Fiscal Strategy. The maintenance of the path of gradual consolidation confirms the course of fiscal discipline, with unchanged projections for the budget deficit additionally strengthening the predictability of fiscal policy. The primary budget deficit will also fall from 1,2% of GDP in 2019 and 2020 to 0,8% of GDP in 2021 and further to 0,5% of GDP in 2022.
The movement of public debt in the following period will reflect the medium term budgetary framework, the implementation of capital projects as well as the repayment of maturing debt (around EUR 2,3 billion of principal in the 2019-2022 period). The realisation so far, as well as the revised projections for the economic growth and the maintained course of fiscal discipline result in a considerable downward revision of the debt projection. Namely, the Revised Fiscal Strategy was projecting a public debt of 49,8% of GDP in 2018, as opposed to the actual considerably lower public debt of 48,5% of GDP. The disciplined fiscal policy, with a gradual tightening of the overall budget deficit and almost balanced primary deficit in the medium term (2% and 0,5% of GDP in 2022, respectively), is the key factor for the downward path of general government debt, i.e. its fall from the projected 42,2% of GDP in 2019 to 39% of GDP in 2022. In addition, due to the implementation of projects mainly in the road infrastructure with loans guaranteed by the government, the guaranteed debt will increase slightly to 11,1% of GDP in 2021, and then fall to 10,1% of GDP in 2022. The downward path of general government debt and the moderate rise of guaranteed debt because of infrastructure projects and then its fall, will result in a moderate increase of the total public debt to 51,7% of GDP in 2019 and 52,3% of GDP in 2020, and then decline to 50,8% of GDP in 2021 and further to 49,1% of GDP in 2022. This is considerably below the public debt limit of 60% of GDP, implying that the public debt in the following period will not threaten the sustainability of fiscal policy. In addition, the new projections for public debt are considerably lower than before (for around 2 percentage points, on average), pointing to the effectiveness of the undertaken measures and the planned policies for stabilization and then decline of public debt over the medium term.
The English translation of the full Fiscal Strategy will be provided additionally.