FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2011
MACEDONIAN STOCK EXCHANGE
Risks
5. The main risks come from continued
uncertainties in the economies of Macedonia’s
trading partners and in international financial
markets. Financial conditions remain unsettled
in several Eurozone countries, where negative
events could spill over to Macedonia in the
form of lower demand for Macedonian exports
and reduced access to external financing.
Such a downside scenario could undermine
the expected resumption of healthy growth
and result in new pressures on external and
fiscal financing. On the upside, faster recovery
in Eurozone and in other neighboring countries
could give a stronger boost to exports and
support a more vigorous rebound in growth.
Progress towards EU accession would
improve prospects for foreign investment and
growth.
Fiscal policy
6. The IMF mission views the government’s
deficit targets of 2.5 percent of GDP in 2010
and 2011 as appropriate in light of current
conditions. This fiscal stance will help to
support output and employment and minimize
the need for spending cuts, while maintaining
debt ratios at moderate levels. Macedonia has
benefited from a legacy of sound public
finances in recent years, which has provided
room for larger deficits during periods of
economic weakness. It will be important to
reduce deficits over the medium term to
preserve debt sustainability and keep space to
respond to future economic cycles. Moreover,
as public debt transitions from official lending
to more expensive private financing over the
medium term, lower deficits will be needed to
keep debt ratios stable at moderate levels.
7. The government faces two challenges in the
fiscal area in 2011 and over the medium term.
First, the 2011 budget relies on private external
borrowing to cover the fiscal deficit. It would
be prudent to access external markets early in
the year, provided market conditions are
favorable, to prevent the emergence of
domestic financing pressures and to avoid the
risk that external market conditions worsen
later in the year. Over the medium term, as
healthy growth resumes and risks abate, the
government should work to develop local
public debt markets, including at longer
maturities, to reduce exposure to volatility of
external financing conditions. Second, the
planned reductions in social contributions in
2012 and 2013 are beneficial from the
viewpoint of fostering formal sector
employment and attracting investment, but
they will place pressures on the budget. It will
be important to continue to contain
government consumption and transfers to
prevent higher deficits, while protecting
investment spending that is needed to raise
growth potential.
Monetary Policy and Financial Stability
8. The National Bank of the Republic of
Macedonia (NBRM) has reduced its policy
rates substantially over the past year, to 4.5
percent at present. The mission views this as
an appropriate response to the easing of
external financing pressures in a context of
weak growth and subdued inflation. As lower
interest rates gradually filter through to lower
bank lending rates, this should support the
economic recovery. Looking forward, monetary
policy should be guided foremost by the need
for consistency with the exchange rate peg to
the euro, and in particular by the need to
maintain an adequate level of official
international reserves. The scope for further
easing is limited. In this regard, one factor is
that the spread between the NBRM and
European Central Bank policy rates has
narrowed. If this spread were reduced too
much, this could lead to a shift towards
foreign assets by Macedonian residents and
create pressures on international reserves of
the NBRM.
9. The quality of banking regulation and
supervision, conducted by the independent
NBRM, has contributed to the stability of the
banking sector. Careful attention to capital
ratios, conservative practices in setting reserve
and liquidity requirements, and close
monitoring of bank balance sheets and
lending practices have been important in this
regard. The mission welcomes the submission
to parliament of the new NBRM law, which
would bring legislation fully in line with EU and
Eurozone standards. The mission also
supports the authorities’ actions to strengthen
crisis response mechanisms by making the
Financial Stability Committee operational.
NBRM initiatives in other areas such as
mechanisms for providing emergency lending
assistance in the event of liquidity shortfalls,
and measures to bolster the NBRM’s authority
to take necessary actions in the event of
financial stress, are also welcome.
Information obtained from the Exchange.
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