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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT MAY 2005 MACEDONIAN STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Politic and Economic Environment: The Former Yugoslav Republic of Macedonia (FYROM) is a small, mountainous Balkan country 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. Most industry was state-owned prior to 1991, but a considerable amount of it has been privatized. The country is moving to a market economic system. On February 26, 2004, Macedonian President Boris Trajkovski was killed when his plane crashed in mountainous terrain in southern Bosnia and Herzegovina. A special election was held in April to vote on a new president. Branko Crvenkovski claimed victory over three other rivals and was inaugurated as the new president. In his inaugural speech President Crvenkovksi reiterated his commitment to Macedonian entry into the EU and NATO. Key Information Contacts Central Securities Depository www.cdhv.org.mk Macedonian Privatization Agency www.mpa.org.mk Securities Exchange Commission www.sec.gov.mk National Bank of Republic of Macedonia www.nbrm.gov.mk Ministry of Finance www.fin.gov.mk ECONOMIC RATIOS Domestic savings PAGE 96 Macedonia Lower-middle-income group Trade Indebtedness Investment In March 2004, FYROM submitted its application to join the European Union. Meanwhile, former Interior Minister Hari Kostov was approved in June 2004 by parliament as the new Macedonian head of government and prime minister. Economic Performance: Real GDP growth increased to 3.1% in 2003 from 0.9% in 2002 due to individual consumption and the reopening of a major steel exporter. Despite FYROM's many structural issues, they have successfully lowered inflation from levels of hyperinflation to approximately 1% in 2003, by sticking to a de facto exchange rate peg with the Euro. Furthermore, prudent fiscal management reduced the government debt to around 40% from high levels in the 1990s, and curtailed the deficit to 1.4% of GDP, after letting it slip to 3.5% in 2002. In March 2004, FYROM submitted a formal application for candidacy of accession into the European Union (EU), fiscal, monetary, and structural actions will be tailored toward this goal. The current account deficit strengthened in 2003, to 6.3% from 8.5% in GROWTH OF INVESTMENT AND GDP (%) 15 10 5 0 -5 -10 -15 97 GDI GDP 2002, due primarily to public tightening of the belt with regard to capital expenditures. Foreign direct investment has generally been low, only financing 25% of the deficit in 2003. 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 country's, 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. Accordingly, the country added to its holding of international reserves during the last few years, and as of year-end 2003, reserves stood in excess of US$ 900 million, or four months of import coverage. 1 1 Economic and Political Overview, County Watch Incorporated, 2005 98 99 00 01 02 03 * World Bank reports
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT MAY 2005 MACEDONIAN STOCK EXCHANGE MACEDONIA GDP/EMPLOYMENT BY SECTOR OF ORIGIN Sector % GDP % Employment Agriculture 12.0 11.5 Industry 25.0 21.1 Services 63.0 67.3 MACEDONIA MONEY SUPPLY, INTEREST RATES AND FOREIGN EXCHANGE RESERVES GROWTH OF EXPORTS AND IMPORTS (%) 30 20 10 0 -10 -20 EXPORT AND IMPORT LEVELS (US$ Millions) 2,500 2,000 1,500 1,000 500 0 97 98 99 00 01 02 03 INFLATION (%) Exports Imports GDP deflator CPI Exports 97 Imports 98 99 00 01 02 03 1998 1999 2000 2001 2002 Money Supply M1 (denars-billions) 15 20 22 11 28 Money Supply M2 (denars-billions) 29 38 46 60 69 Growth Rate M1 9.1% 32.4% 13.1% -50.1% 148.2% Growth Rate M2 13.0% 32.0% 21.4% 32.1% 14.6% Interest Rates deposit rate 8.9% 8.9% 7.9% 10.7% 10.7% lending rate 21.0% 20.5% 18.9% 19.4% 18.4% Foreign Exchange Reserves (US$ millions) 306 430 429 745 722 Exchange Rate Period Average (denars/US$) 54.462 56.902 65.904 68.037 64.350 Annual % Growth 8.92 4.48 15.82 3.24 -5.42 7 6 5 4 3 2 1 0 -1 CURRENT ACCOUNT BALANCE TO GDP (%) 0 -2 -4 -6 -8 97 97 98 99 00 01 02 03 98 99 00 01 02 03 * Economic Overview, Country Watch Incorporated, 2005 * World Bank reports PAGE 97
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