FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
MACEDONIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The VMRO-DPMNE of the Prime Minister,
Nikola Gruevski, has a majority of seats in the
new parliament following the general election
in June. The VMRO-DPMNE is in coalition with
the DUI, the largest ethnic Albanian party, and
has renewed its mandate to govern until 2012.
However, the violence and corruption that
tarnished the election, and the worsening of
relations between the two main ethnic
Albanian parties, indicate that the government
may struggle to maintain stability.
Macedonia will continue its pursuit of closer
links with Euro-Atlantic institutions, particularly
the EU and NATO. Uncertainty over
Macedonia’s international integration has been
growing since Greece refused in April to
endorse a NATO membership invitation for its
northern neighbor because of the two
countries’ dispute over Macedonia’s official
name. NATO has promised that Macedonia
will be invited to join the alliance as soon as
the bilateral row is settled.
Macedonia has already adequately met the
benchmark criteria set by the EU, but in the
end EU accession will depend on the ongoing
name dispute, i.e. on Greece, if and when
Macedonia will start negotiations with the EU.
Greece’s stance, and what amounts to its
power of veto over Macedonia’s future
relationship with NATO and the EU, could
eventually force Macedonia to consider further
changes to its constitution, and perhaps to its
constitutional name, in order to move ahead
with Euro-Atlantic integration.
The optimistic baseline scenario envisages
settlement of the name dispute at earliest in
the first quarter of 2009 and not later than the
end of 2009, which will enable Macedonia to
join NATO and start accession talks with EU.
Macedonia’s three-year IMF stand-by
arrangement came to an end in August, and
no decision has been taken on whether to put
a successor program in place. Without
intending to draw down on this facility, the
government has set great store by the IMF’s
assessment of Macedonia’s economic
performance and has made use of the Fund’s
technical assistance. The IMF’s latest
assessment, issued in September, welcomes
the acceleration in economic growth, but
warns that the rapid widening of the current-
account deficit might require significant
tightening of fiscal and monetary policy, which
could put continued strong growth at risk.
Economic Performance
Real GDP growth in the Euro zone is forecast
to slow from 2.6% in 2007 to 1.2% in 2008 and
just 0.8% in 2009. Against this background, oil
prices increase will threaten Macedonia’s
external balance, given the economy’s heavy
dependence on imported oil.
Real GDP growth was 5.1% year on year in
2007. This was a significant acceleration
compared with previous years, and was based
on improved activity in the manufacturing,
construction and financial sectors; from an
expenditure perspective, it was based on
robust consumer spending and fixed capital
formation. The introduction of a flat-tax system
and a reduction in the bureaucratic obstacles
to running a business also seem to have given
a spur to growth. Preliminary figures indicate
real GDP growth of 5.2% in the first quarter of
2008 and 6.5% in the second quarter.
Following robust industrial output in July and
August (see Economic performance), GDP
growth of around 6% can be expected in the
third quarter.
Inflation has been moderate by regional
standards in recent years, helped by the
stability of the denar against the Euro.
However, after average consumer price
inflation of 2.2% in 2007, there has been an
inflationary surge in the first half of 2008,
owing to rising food and energy prices. By
March inflation had risen above 10% for the
first time since 2000, and year-on-year inflation
for the first eight months of 2008 remained at
9.5%.
Macedonia’s IMF agreement envisages that
the current exchange-rate regime, in which the
denar is informally pegged to the Euro, will
continue to underpin monetary policy. The
government has pledged that there will be no
change in the regime. The central bank has
decided to maintain the de facto exchange-
rate peg as part of its monetary policy
strategy, and is unlikely to make any changes
in 2009-10. Although growing foreign capital
inflows have raised the cost of the sterilization
operations of the National Bank of the
Republic of Macedonia (NBRM, the central
bank), they have brought about a strong
accumulation of foreign reserves. The real
effective exchange rate of the denar is set to
experience only a moderate appreciation in
2009-10.
As in previous years, the current account in
2008 will be subject to uncertainty concerning
possible dividend payments to Magyar
Telekom (Hungary)–the majority owner of the
dominant telecommunications operator in
Macedonia, Makedonski Telekom–and the
impact that this could have on the income
balance. A current-account deficit of around
8% of GDP is expected in 2008. Relatively high
international oil prices will keep import costs
up in 2009-10, as oil is Macedonia’s single
largest import category.*
* The Economic Intelligence Unit- October 2008
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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