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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 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 2 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 economic system. The primary goals of the country are accession to the EU and NATO and on this issue is boosted by a wide consensus of all Macedonian political factors. Macedonia’s president is Branko Crvenkovski and its prime minister is Vlado Buckovski. Economic Performance In March 2004, Macedonia submitted a formal application for candidacy of accession into the EU. Fiscal, monetary, and structural actions in future will be tailored toward this goal. After the answering of the EU questionnaire, the European Commission suggested the candidate-state status for Macedonia, which was confirmed by the highest EU authorities on 16 December 2005. The current account deficit is driven by a large deficit on merchandise trade, and by service transactions with the rest of the world that result in net payments to foreigners. Macedonia's current account deficit, unlike many poorer transitioning countries, is not financed primarily by loans from multilateral agencies like the World Bank, European Development Bank and IMF. Rather, portfolio investment, associated with privatization activities, has financed the largest portion of the current account gap. On 1 September 2005 the IMF's executive board 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. These institutions and the EU will provide Macedonia with fresh external financing, although, after an initial disbursement, the IMF arrangement is intended to be merely precautionary. From the beginning of 2004 the Government has started issuing t-bills, and in November 2005 the first government bond was issued, planning more to be issued in the future. In December 2005 the Republic of Macedonia has issued its first euro bond, which is listed on the London Stock Exchange. In August 2005 Macedonia has been given credit ratings from the S&P, which are “BB” for the domestic debt and “BBB+” for the external debt. In November 2005 Fitch Ratings 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.”* Real GDP grew by a lower than expected 2.6% year on year in the first quarter of 2006, owing to weak performance in industry. A full-year forecast for 2006 of 4% growth, supported by continued growth in bank credit and the expansion of key services sectors such as transport and retailing is expected. However, the downside risks to this forecast have increased in view of Macedonia's weak first-quarter performance. The VMRO- DPMNE based its election platform on improving Macedonia's economic growth. The party's program envisages real GDP growth rates rising to 6-8% per year, several percentage points above the economy's performance in recent years. These targets look highly optimistic, even assuming that planned reforms are able to boost export growth.** * Macedonian Stock Exchange ** Economic Intelligence Unit Ltd., July 2006 2002 2003 2004 2005 Q3 Real GDP growth (%) 0.9 3.2 2.9 - Industrial production growth (%) -5.3 4.7 -2.1 8,2 Inflation rate (%) 1.8 1.2 -0.4 0,4 External debt (US$ million) 1,548 1,770 1,957 - Total public debt (US$ million) 2,025 2,311 2,505 - Foreign currency reserves (US$ million) 734 903 986 1,057 Foreign direct investments (US$ million) 78 95 150,1 - Export (US$ million) 1,113 1,359 1,672 1,499 Import (US$ million) 1,878 2,211 2,785 2,265 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 Source: Macedonian Stock Exchange 2004-ORIGINS OF GROSS DOMESTIC PRODUCT (%) Services Industry Agriculture, forestry, fishing & water management 2004-COMPONENTS OF GROSS DOMESTIC PRODUCT (%) Private consumption Imports of goods & services Exports of goods & services Public consumption Gross fixed investment Changes in stocks 80 77.9 56.4 11.9 70 60 60.5 31.8 50 40 40.2 30 20 20.8 17.8 10 0 3.7 PAGE 100
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 MACEDONIAN STOCK EXCHANGE MACEDONIAN ECONOMIC CHARTS AND TABLES 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (a) GDP at market prices (Den billions) 233.8 244.0 251.5 265.3 277.2 (b) GDP (US$ billions) 3.4 3.8 4.6 5.4 5.6 (b) Real GDP growth (%) -4.5 0.9 2.8 4.1 4.0 Consumer price inflation (av; %) 5.2 2.3 1.1 1.1 0.0 Population (millions) 2.0 2.0 2.0 (b) 2.0 (b) 2.0 (b) Exports of goods FOB (US$ millions) 1,155.4 1,112.2 1,362.7 1,672.4 2,039.8 Imports of goods FOB (US$ millions) 1,681.8 1,916.5 2,210.6 2,784.5 3,096.6 Current account balance (US$ millions) -243.6 -357.9 -149.0 -414.8 -81.1 Foreign exchange reserves excl gold (US$ millions) 745.2 722.0 897.7 905.0 1,228.5 Total external debt (US$ billions) 1.5 1.7 1.8 1.9 (b) 2.2 (b) Debt-service ratio, paid (%) 11.5 13.5 11.1 10.2 (b) 7.9 (b) Exchange rate (av) Den:US$ 68.04 64.35 54.32 49.29 49.25 (a) Actual. (b) Economist Intelligence Unit estimates. ECONOMIC FORECAST SUMMARY 2004 2005 2006 2007 Real GDP growth (%) 4.1 3.5 4.0 4.5 Consumer prices (% change) -0.4 0.5 2.0 2.0 Budget balance (% of GDP) 0.3 0.5 -0.7 -0.6 Merchandise exports (US$ millions) 1,672 2,041 2,328 2,564 Exchange rate (Den:US$1) 49.3 49.2 49.1 46.0 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 Source: Economist Intelligence Unit ViewsWire PAGE 101
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