Saturday, 20 October 2018 | News today: 6

WB: 1.5% economic growth in Macedonia in 2017

Macedonia’s priority is fiscal consolidation with a growing level of revenues and improved efficiency of revenues and expenditures, the World Bank says Thursday in its Western Balkans Regular Economic Report.

Due to the prolonged political crisis, economic growth in Macedonia is projected to slow to 1.5 percent in 2017, then pick up to average 3.5 percent for 2018-19 as investment and consumption recover.

“With the political crisis resolved, the main risk now is the fiscal situation, which could threaten macroeconomic stability and undermine growth prospects”, said Marco Mantovanelli, WB Country Manager for Macedonia and Kosovo at a press conference in Pristina that was aired at WB’s offices in Skopje.

The main driver of growth is likely to be private consumption, fueled by rising employment, and recovering investment, as for the construction of the two highways.

The fiscal deficit is expected to gradually decline to 2.2 percent by 2019 as the government launches reforms to build up tax collection, tighten spending controls, and make social spending more efficient. In the baseline scenario of gradual consolidation the Public and publicly guaranteed (PPG)to-GDP ratio is expected to rise to 55 percent by 2019, which underscores the need for strong and frontloaded structural reforms to stabilize debt in the medium term.

World Bank recommends enhancement of collection of tax revenues and revision of tax concessions. Initial recommendation, according to WB economist Bojan Shimbak, involves improvement of the efficiency to collect taxes. Other recommendations will follow after completing a public finances analysis.

The WB recommends Macedonia improve efficiency of social spending, rationalize subsidies – especially those in agriculture, provide sustainability of the pension system. The first recommendation to the government is to postpone ad hoc pension hikes and to follow the legislation, because it has exerted pressure on the Pension and Invalid Insurance Fund.

“At the moment, the Fund is in top form receiving transfers from the central power that are on the rise over the years. The goal is to reduce the dependency of the pension fund on these transfers”, Shimbak stated.

As regards decrease in the unemployment rate, according to the WB a bulk of the job creation in the past three years came after a fiscal stimulus through the active employment measures of the projects Macedonia Employing I and II. “No payments of social benefits, health insurance and personal tax for these jobs has created pressure on the pension and health fund”, Shimbak said noting that despite the fact that unemployment was dropping, there was no room to remain inactive considering the matter.

For the first time in 10 years, he added, there is a positive contribution to the export of domestic capacities, not from the free economic zones.

Throughout 2017, active measures on the labor market have supported job creation in the public sector. Balance of payments deficit in 2017 rose due to a reduced GDP despite decreasing the trade deficit. A drop in foreign direct investments came as a result of profit repatriation and debt payment to companies, however they had contributed to financing fully the deficit in balance of payments.