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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011
MACEDONIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The Internal Macedonian Revolutionary
Organisation-Democratic Party of Macedonian
National Unity (VMRO-DPMNE) of the Prime
Minister, Nikola Gruevski, is in a strong
position following its sweeping victories in the
presidential and local authority elections, held
in March and April 2009. With its latest
triumphs, the party has built on its success in
the parliamentary election of June 2008, when
it was returned to power with an increased
majority.
Relations with Greece are likely to remain in a
state of flux following the change of
government in Greece, after the local authority
elections, held in late autumn 2010. The two
countries are in dispute over Macedonia's
constitutional name, with Greece arguing that
it implies a territorial claim to its own northern
province, which bears the same name.
Macedonia has been seeking legal redress
from the International Court of Justice (ICJ) in
The Hague for Greece's decision in 2008 to
block Macedonia’s’ NATO accession. The
International Court of Justice (ICJ) is expected
to announce its decision until the end of 2011.
The name dispute also hindered Macedonia's
EU integration, despite the European
Commission's recommendation, made in
October 2009 and December 2010, that the
EU should open accession talks with
Macedonia, which has been a candidate
country since 2005. Macedonia is hoping to
get a date from the EU for starting its
membership negotiations under its provisional
name the Former Yugoslav Republic of
Macedonia with which was accepted in the
UN, but Greece decided to block the opening
of the talks, until a deal is agreed over
Macedonia's name.
The Executive Board of the International
Monetary Fund (IMF) in January 2011
approved a two-year arrangement for
Macedonia under the Precautionary Credit
Line (PCL) in the amount equivalent to SDR
413.4 million (about EUR475.6 million, 600
percent of quota). The access under the
arrangement in the first year will be equivalent
to SDR 344.5 million (about EUR396.4 million,
500 percent of quota), rising in the second
year to cumulatively SDR 413.4 million). The
arrangement for Macedonia is the first
commitment under the PCL. The PCL was
established in 2010 in the context of
expanding and enhancing the IMF’s lending
tools to help provide effective crisis prevention.
Following the Executive Board’s discussion on
Macedonia, Mr. Naoyuki Shinohara, Deputy
Managing Director and Acting Chair, made the
following statement: “Macedonia’s track
record of sound economic policies has
contributed to a solid macroeconomic
performance that includes low public debt and
inflation, and a resilient banking system. Such
strong fundamentals have cushioned the
impact of the global crisis on the Macedonian
economy. Despite the broadly favourable
outlook for growth and macroeconomic
stability, vulnerabilities to spillovers from
economic and financial volatility in the region
remain. The PCL will mitigate the risk of
contagion, including by signalling sound
policies. In light of Macedonia’s strong
fundamentals, the absence of balance of
payments pressures at present, and the
generally positive economic prospects,
Macedonia is not expected to draw upon the
resources available under the PCL.
Nevertheless, the availability of these
resources, if needed, will provide important
insurance against the possibility of adverse
external developments.”
Economic Performance
1. Economic prospects in Macedonia have
improved over the past year. Although the
recovery of growth has been slower than
expected, the improvement in external
conditions and sound balance sheets in the
banking system provide a solid platform for a
more robust upturn in 2011. External risks
remain high, in light of the unusual levels of
uncertainty regarding the economic and
financial outlook in Europe. Against this
background, the authorities’ macroeconomic
policies should strike an appropriate balance
between supporting economic recovery and
guarding against risks.
Macroeconomic and financial outlook
2. The IMF mission expects output to grow
somewhat more than 1 percent in 2010, as
activity is picking up in the second half of the
year. The consumption expected to strengthen
in the second half, adding to the rebound in
exports that has been taking place. This
outlook is consistent with the upturn that is
visible in indicators such as retail sales and
consumer credit. Inflation is expected to be
around 1.5 percent. The momentum in the
second half of the year should carry over into
next year, leading to growth in the 3-3½
percent range in 2011. Factors supporting this
outlook include the recovery in the economies
of Macedonia’s trading partners, lower interest
rates, growing bank deposits, and ample
liquidity in the banking system. Inflation in
2011 is expected to rise to around 2.5 percent,
due in part to higher food and fuel prices.
3. The IMF mission expects the current
account deficit to narrow to 3½-4 percent of
GDP in 2010, due both to a smaller trade
deficit and to strong private transfers. This is a
rapid adjustment from the large deficit of two
year ago and has supported a stabilization of
foreign exchange reserves. For 2011 and over
the medium term, the mission expects
continued growth in exports, which should be
supported by strong metals prices and higher
capacity resulting from past foreign direct
investment. Import growth is also expected
pick up as the economy recovers. The mission
expects the current account deficit to widen
modestly next year to 4½-5 percent of GDP
and to stabilize over the medium term at levels
that can be financed largely by foreign direct
investment.
4. The banking sector appears to be in sound
shape. Capital ratios have remained above 16
percent, well over the regulatory minimum,
with tier 1 capital at over 13 percent. Nonperforming
loans have risen during the past
two years but have been largely provisioned.
Loans are funded through domestic deposits,
which are a relatively stable source of
financing, and reliance on foreign financing is
low. Finally, bank liquidity is strong, which
together with ample capital and growing
deposits, puts the banking system in a good
position to increase lending to the economy.
Key Information Contacts
Central Securities Depository www.cdhv.org.mk
Securities & Exchange Commission www.sec.gov.mk
National Bank of the Republic of Macedonia www.nbrm.gov.mk
Ministry of Finance www.fin.gov.mk
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