IMF: Macedonia needs stronger fiscal consolidation


The International Monetary Fund (IMF) said on Wednesday that the formation of the new government is a turning point for the Macedonian economy, and underscored this as an opportunity to rebuild policy space and revive reforms.

Macedonia needs stronger fiscal consolidation due to rapid rise in public debt and high gross financing needs. On the fiscal front, the overall deficit narrowed to 2.6% in 2016, with the improvement largely due to under-execution of capital investment, spending constraints imposed during the pre-election period, and accumulation of payment arrears, the IMF said in its concluding statement on Article IV consultation with Macedonia on the country's economic performance and policies.

The IMF expects Macedonia to close 2017 with fiscal deficit equivalent to around 3% of GDP, while public debt is projected to rise to 47% of GDP, according to the statement.

"[IMF] Directors welcomed the authorities’ intention to reduce the overall deficit gradually to 2% of GDP in the medium term, but stressed that this should rely on durable measures."

The country should strengthen tax administration, and increase property and energy taxation to boost revenues, the IMF said. At the same time, it noted the importance of improving spending efficiency through subsidy rationalization and better targeting of social spending, and ensuring pension sustainability.

The IMF also urged the Macedonian authorities to intensify the pace of structural reforms to increase employment and boost productivity. To preserve competitiveness and fiscal sustainability, the country should also keep wage growth in line with productivity developments.

Macedonia's unemployment is projected to fall to 23% in 2017, from 23.6% in the previous year.

IMF expects Macedonia's economic growth to slow down to 1.9% in 2017, from 2.4% in 2016.

"Economic activity has been supported by private consumption and exports, while negative effects from the prolonged political instability have restrained investment and slowed down corporate credit growth," the statement reads.

Macedonia is seen swinging to inflation of 1.2% in 2017, from deflation of 0.2% in 2016, driven by rising increasing services prices and, to a smaller extent, food prices.

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