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Macedonia Rising Above European Crisis, PM Says

April 25, 2012

Macedonia’s economy is holding up well thanks to government’s policies, Prime Minister Nikola Gruevski insists.

Sinisa Jakov Marusic, Balkan Insight, 25.04.2012


Skopje | Photo by: Balkan Insight

Gruevski said Macedonia has the fourth lowest rate of indebtedness in Europe, standing at 26 per cent of GDP, below only Estonia, Bulgaria and Luxembourg.

He added that projected economic growth of about 2 per cent this year is not ideal but it is still an achievement given the minus growth rates in some European countries.

“Macedonia is among the countries that are coping best with the crisis, which is not our assessment, but that of international financial institutions”, Gruevski told the media.

After taking power in 2006 Gruevski in 2007 and 2008 started the rapid repayment of the country’s foreign debt, which then stood at nearly 40 per cent of GDP.

“This step has proved to be a strategic one, although we were not aware of the pending [European] debt crisis”, Gruevski said.

The Prime Minister’s confident claims come at a tough period for the country whose economy is largely dependent on that of the EU.

Macedonia earlier this month shaved some 5 per cent off its budget for 2012, or 120 million euro from the 2.7 billion euro budget. The government also lowered its forecast of economic growth for 2012 from 4.5 per cent to 2.5 per cent. The IMF forecasts growth of 2 per cent.

While Macedonia may be doing relatively well, experts note a recent trend towards fresh accumulation of debt. In only one year Macedonia took out or agreed to take out almost €700 million in loans from foreign banks and financial institutions.

This week the World Bank offered Macedonia $100 million [€some 75 million] to pursue economic reforms and address health, education and social welfare issues. The conditions of the arrangement are still unknown.

Earlier this month the country took a loan of €250 million from Deutsche Bank to fill the budget gap. The interest on the bank loan is 6.83 per cent and Macedonia has to return the money in five years.

Skopje | Photo by: Balkan Insight

In November 2011, Macedonia borrowed €130 million from Deutsche Bank and Citibank with a guarantee from the World Bank.

Last March, Macedonia drew €220 million from its IMF precautionary credit line.

“The latest loans reflect the government’s logic that it needs to spend much more in order to increase GDP growth in a time of crisis,” economics professor Vanco Uzunov said.

He argues that the hard part will come after a few years when the debts will have to be repaid and the country will have to raise taxes or cut spending.

“There are methods available but they might be painful for the tax payers,” he said.

This year Macedonia envisages spending some €270 million, 11 per cent of its annual budget, on capital investment that the government hopes will offset the economic slowdown gripping Europe.

Country’s Central Bank agrees with the Government on the issue of debt but also warns caution.

“There is still room for raising the public debt, however in the long term public debt needs to be sustainable” Governor of the Central Bank, Dimitar Bogov told a news conference on Tuesday dedicated to the 20th anniversary of country’s monetary independence.

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