Press Release No. 21/135

IMF Staff Concludes Virtual Visit to North Macedonia

May 19, 2021

• A rebound in economic activity is underway, and is expected to be supported by growing vaccine coverage.
• Supportive and well targeted fiscal policy can help secure the recovery and prepare for the post-pandemic world.
• Monetary policy should remain accommodative. The recent increase in inflation reflects mostly global factors and is projected to be temporary.

Washington, DC – May 19, 2021: An International Monetary Fund (IMF) mission, led by Bergljot Barkbu, conducted a virtual staff visit with the authorities of North Macedonia during May 6-17, to discuss recent economic developments and policies. At the conclusion of the visit, Ms. Barkbu issued the following statement:

“The COVID-19 pandemic has inflicted significant human and economic costs, but supportive macroeconomic and financial policies have mitigated the impact on economic activity in North Macedonia.

“An economic rebound is underway, with real GDP growth projected to reach 3.8 percent in 2021, supported by growing vaccine coverage, following a shortage of supply earlier in the year. Faster-than-expected vaccine rollout and take-up could lift the forecast, while the emergence of new virus variants could lead to lower growth. In recent months, spikes in global energy and food prices have pushed up inflation. While there will likely be some second-round effects, inflation is expected to come down in the second half of the year, against the backdrop of appreciable spare capacity. Consumer prices are projected to rise at a still moderate pace of 2.2 percent on average in 2021.

“In the near term, resolving the health crisis remains the top priority. Fiscal policy should remain supportive to help revive growth, spur job creation, and protect the vulnerable. The government has legislated an extension of the support measures into 2021, including the wage subsidy, investment incentives, and liquidity support to firms. On this basis, staff project the deficit to reach 5.4 percent of GDP in 2021. If necessary, further targeted support to households most in need and to viable firms in the form of temporary investment credits and hiring subsidies could help secure the recovery.

“A credible medium-term fiscal strategy can help tackle the country’s investment needs while rebuilding room for fiscal maneuver. The government’s investment plan is ambitious, and should be accompanied by further improvements in public investment management to resolve bottlenecks, improve the efficiency of spending, and limit fiscal risks. Efforts to improve revenue collection would create space to scale up productive spending in areas such as healthcare, education, and infrastructure. Successful public investment would boost growth and help transform the economy, but to safeguard debt sustainability, it is essential to have a comprehensive fiscal strategy that is, among other things, built on realistic growth assumptions.

“The monetary policy stance remains appropriate. The recent increase in inflation mostly reflects global factors and is expected to be temporary. The banking system is overall well capitalized and liquid. NPLs will likely rise somewhat as regulatory flexibility is unwound and fiscal support for firms is phased out. It is important to maintain strict loan classification and provisioning rules so that banks set aside sufficient reserves to cover potential losses. Banks temporarily not distributing dividends should help to this effect.

“Preserving the operational independence of the National Bank of the Republic of North Macedonia (NBRNM) is key to enable it to continue fulfilling its mandates of maintaining price stability and protecting financial stability, which are preconditions for sustainable growth. On the NBRNM’s initiative, North Macedonia will be a pilot case for the IMF’s new Central Bank Transparency Code, which can help bolster its framework for transparency and accountability, in order to ensure effective policy outcomes and dialogues with stakeholders.

“We would like to thank our counterparts for excellent virtual discussions and hope to be able to return to North Macedonia soon to meet in person .”