Friday, 21 September 2018 | News today: 18

IMF: Fiscal deficit expected to widen and public debt to rise

Macedonia’s economic growth is projected to moderate to 1.9% in 2017 following a sharp drop in investment in the first half of the year amidst political uncertainty, the International Monetary Fund (IMF) said on Monday.

‘The prolonged political uncertainty has taken a toll on economic growth, with investment suffering because of weak sentiment. The formation of a new government has been an important turning point. Policies should now focus on rebuilding fiscal policy buffers, and implementing critical reforms to rekindle growth and give EU accession prospects a new push,’ IMF says in a concluding statement of the staff mission for the 2017 Article IV consultation with Macedonia.

The medium-term outlook is favorable contingent on continued political stability and robust external demand, the IMF says.

‘Real GDP growth is expected to rebound in 2018 and gradually rise to 3.75 percent over the medium term, buoyed by improved investor sentiment, expanded export capacities, and continued labor market improvement. The risks to the outlook are mostly on the downside, the statement reads.

IMF further notifies that in the absence of durable consolidation measures, the . Despite slower growth, under-execution of capital and goods and services spending is likely to keep the fiscal deficit at around 3 percent of GDP in 2017. In the medium term, the deficit is projected to rise above 3.5 percent of GDP, reflecting clearance of unpaid claims, wage subsidies, and additional social protection support. As a result, public debt is expected to exceed 53 percent of GDP by 2022, with gross fiscal financing needs estimated to reach around 15.5 percent of GDP.

The mission welcomes the government’s intention to strengthen management of public finance s and increase fiscal transparency, qualifying the banking system as healthy.

It notifies that an improvement of Macedonia’s medium-term growth potential hinges on decisively tackling weaknesses in the judicial system and overall governance frameworks.

Finance Minister Dragan Tevdovski hosted Monday a closing meeting with the IMF staff mission for the 2017 Article IV consultation with Macedonia, also attended by National Bank Governor Dimitar Bogov.

The preliminary findings and final report of the IMF staff will be taken in serious consideration in tailoring the economic policy, Tevdovski said at the meeting, underlying the need of closer cooperation with the IMF.