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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007 MACEDONIAN STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Economic and Political Environment The Republic of Macedonia is a country placed in the middle of the Balkan Peninsula, with a population of just over two million. In 1991, it declared its sovereignty from Yugoslavia, and has since experienced mixed success in liberalizing its economy. The industrial sector comprises about 18% of GDP and employs about one-third of those holding jobs in the formal economy. The largest components of industrial production are metals, chemicals and food and beverage processing. The privatization process is almost finished and the country has adopted a market economy system. The President of the Republic of Macedonia is Mr. Branko Crvenkovski. The Prime Minister of the Government is Mr. Nikola Gruevski. Economic Performance After the elections held in July, a new government was formed. The program of the new government anticipates reforms in several areas, such as: introduction of flat rate taxes, fight against the corruption, more favorable climate for foreign investments etc. All reforms in the following years will be tailored towards the main goal of Macedonia: accession into the EU and NATO. Macedonia is an EU candidate country and is expected to be accepted as a NATO member in 2008. Macedonia officially joined CEFTA in February 2006 and new trading arrangements took effect from July. A “one-stop shop” for the registration of businesses came into effect in January 2006, reducing the time taken to establish a business from 48 days to 5 days. In March 2006 parliament approved new bankruptcy legislation, aiming to shorten proceedings and reduce costs. The new pension law took effect in September 2005 and contributors started to be transferred to private pension funds in January 2006. Real GDP grew by 4% in 2005. The economy was driven by exports, especially metal and textile products, while private consumption and investment increased by 0.8% and 1.5% respectively. Unemployment remained high at 36.5% at the end of 2005. Following deflation in 2004 and subdued consumer prices in 2005, inflation increased in the first half of 2006 reaching 4% in August. The rise was mainly due to tax increases and high energy prices. The exchange rate against the euro remained stable at around 61 denar, in line with the Central Bank’s exchange rate policy. The current account deficit declined from 7.8% of GDP in 2004 to 1.3% in 2005, driven by a substantial increase in net current transfers as well as a decline in the trade deficit. The amount of FDI was expected to increase substantially in 2006 as a result of energy sector privatization. In December 2005 the government issued a Eurobond in value of EUR 150 million, listed on the London Stock Exchange, which was used to retire debt owed to London Club creditors. On 1 September 2005 the IMF approved a new three-year stand-by arrangement with Macedonia, which, together with a new World Bank loan, will set the economic policy framework for the whole of the forecast period. The IMF and World Bank agreements require the authorities to push through structural reforms of the labor market and the judiciary, and to improve the functioning of the public administration. From the beginning of 2004 the Government has started issuing t-bills, and from November 2005 it started to issue government bonds. The plans for the next years are the issues of bonds to become more significant than dominant. In August 2005 Macedonia was given credit ratings by S&P of “BB” for domestic debt and “BBB+” for external debt. In November 2005 FitchRatings gave Macedonia long term credit rating in domestic and foreign currency “BB” with positive prospects, short term credit rating “B” and maximal country rating “BB.” 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 2002 2003 2004 2005 GDP (US$ millions) 3.769 4.631 5.368 5.625 GDP per capita (US$) 1.885 2.316 2.653 2.850 Real GDP growth (%) 0.9 2.8 4.1 4.0 Industrial production growth (%) -0.8 6.6 -2.1 7.0 Inflation rate (%) 1.8 1.2 -0.4 0,5 External debt (US$ millions) 1.635 1.813 2.044 2.258 Foreign currency reserves (US$ billions) 0.73 0.90 0.99 1.33 Foreign direct investments (US$ millions) 77.7 94.3 150.1 120.0 Export (US$ millions) 1.112 1.359 1.672 2.041 Import (US$ millions) 1.916 2.211 2.785 3.097 Information provided by Macedonian Stock Exchange 2004-ORIGINS OF GROSS DOMESTIC PRODUCT (%) Services Industry Agriculture, forestry, fishing & water management 2004-COMPONENTS OF GROSS DOMESTIC PRODUCT (%) Private consumption Public consumption Gross fixed investment Changes in stocks Exports of goods & services Imports of goods & services 58.9 27.8 80 70 60 77.9 60.5 50 40 40.2 13.2 30 20 20.8 17.8 10 0 3.7 PAGE 98
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007 MACEDONIAN STOCK EXCHANGE MACEDONIAN ECONOMIC CHARTS AND TABLES 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (a) GDP at market prices (Den billions) 233.8 244.0 253.5 265.3 (b) 277.3 GDP (US$ billions) 3.4 3.8 4.7 5.4 (b) 5.6 Real GDP growth (%) -4.5 0.9 2.8 4.1 (b) 4.0 Consumer price inflation (av; %) 5.2 2.3 1.1 1.1 0.0 (a) Population (millions) 2.0 2.0 2.0 (b) 2.0 (b) 2.0 Exports of goods (FOB) (US$ millions) 1,155.4 1,112.2 1,362.7 1,672.4 2,039.1 (a) Imports of goods (FOB) (US$ millions) 1,681.8 1,916.5 2,210.6 2,784.5 3,095.5 (a) Current-account balance (US$ millions) -243.6 -357.9 -149.0 -414.8 -80.6 (a) Foreign-exchange reserves excl gold (US$ millions) 745.2 722.0 897.7 905.0 1,228.5 (a) Total external debt (US$ billions) 1.5 1.7 1.9 2.0 2.2 Debt-service ratio, paid (%) 11.5 13.5 11.1 9.2 7.9 Exchange rate (av) Den:US$ 68.04 64.35 54.32 49.29 49.25 (a) (a) Actual. (b) Estimates. (c) Forecasts. ECONOMIC FORECAST SUMMARY 2004 (a) 2005 (b) 2006 (c) 2007 (c) Real GDP growth (%) 4.1 (b) 4.0 4.0 4.5 Consumer prices (% change) 1.1 0.0 3.0 2.0 Budget balance (% of GDP) 0.7 0.3 -0.6 -0.8 Merchandise exports (US$ billions) 1.67 2.04 2.31 2.51 Exchange rate (Den:US$1) 49.29 49.25 (a) 49.00 45.05 (a) Actual. (b) Estimates. (c) Forecasts. 2005-PRINCIPAL EXPORTS (%) 2005-PRINCIPAL IMPORTS (%) Iron & steel Clothing Petroleum & petroleum products Petroleum & petroleum products Road vehicles Tobacco Chemicals Industrial machinery Meat and meat preparations 24.4 15.2 26.2 7.7 5.0 4.9 4.6 4.4 2.7 32.3 72.6 2005-MAIN DESTINATIONS OF EXPORTS (%) 2005-MAIN ORIGINS OF IMPORTS (%) Serbia & Montenegro Germany Saudi Arabia China UAE Greece Italy Croatia Other USA Japan Other 17.8 13.2 22.5 15.3 51.7 10.4 9.2 40.4 4.0 8.3 7.3 8.2 The Economic Intelligence Unit Ltd., September 2006 PAGE 99
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