maintaining macroeconomic stability in turbulent times: the case of macedonia
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Maintaining Macroeconomic Stability in Turbulent Times: The
Case of Macedonia
Dimitar Bogov Governor
National Bank of the Republic of Macedonia
Macedonia was one of the countries in Europe with the lowest fall in output
in 2009...
2008 2009 2010 2011 2012-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Serbia
Croatia
Bulgaria
Greece
Albania
B&H
Mace-donia
GDP (y-o-y, %)
Source: IMF, World Economic Outlook database , Euro stat and NBRM projections
... economy had recovered after the negative impact of the global financial crisis, but economic
downturn and financial stress in the euro area poses risks to the growth...
2004 2005 2006 2007 2008 2009 2010 2011 2012-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
4.6 4.45
6.1
4.95155855096883
-0.9000000000000
06
1.8
3.3
2.4
GDP (y-o-y, %)
Source: State Statistical Office and NBRM projections
In 2011 the surge in investments and private consumption were main growth drivers;
2012 growth is expected to driven predominantly by investments...
2004 2005 2006 2007 2008 2009 2010 2011 2012-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0 Contributions to GDP growth (p.p.)Gross investmentsGovernment consumptionPrivate consumptionNet exports
Source: State Statistical Office and NBRM projections
Inflation is expected to decline to 2 percent in 2012, as the effects of higher food and commodity prices fade and in response to
slowing demand
2006 2007 2008 2009 2010 2011 2012
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Serbia
Croatia
Albania
B&H
Kosovo
Macedonia
Source: IMF, World Economic Outlook database and NBRM projections
Policy rate (Central Bank Bills rate- CB-Bills) is remaining unchanged, at the historically low level of
4%
2006 2007 2008 2009 2010 2011 20120.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
CB-Bills interest rate%
Source: NBRM
In the post-crisis period, there is an evident external imbalances
correction...Current Account Balance (% of GDP)
2008 2009 2010 2011
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
-12.8
-6.8
-2.2 -2.8 SerbiaCroatiaBulgariaGreeceAlbaniaB&HKosovoMace-donia
Source: IMF, World Economic Outlook database and NBRM
...the trade deficit is almost fully financed by the strong private transfers inflows (net-
foreign currency purchases by exchange offices) and improved service balance ...
2004 2005 2006 2007 2008 2009 2010 2011 2012-35.0
-25.0
-15.0
-5.0
5.0
15.0
25.0
35.0
% of GDP
Transfers, netIncome, netServices balanceTrade balanceCurrent account (% GDP)
Source: NBRM
Trade deficit is largely due to energy dependence and imports by
investment
2004 2005 2006 2007 2008 2009 2010 2011 2012-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
Energy trade balance (% of GDP)Non-energy trade balance (% of GDP)
2004 2005 2006 2007 2008 2009 2010 2011-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0Trade Balance by determinants (%
GDP)
InvestmentIndustryConsumption
Source: NBRM Source: NBRM
Some positive trends are evident in the export structure; the capacity of the economy is increased
with the FDIs and there is a trend of geographical diversification of export
Germany
Kosovo
Bulgaria
Serbia
Greece
Italy
Croatia
China
Bosnia and Herzegovina
Belgium
0.0 5.0 10.0 15.0 20.0 25.0 30.0
27.9
12.1
6.9
7.5
4.8
6.5
3.1
2.9
2.1
1.4
Exports to top 10 countries (share in total %)
20112006
Food and live animals
Beverages and tobacco
Crude materials, inedible, except fuels
Mineral fuels, lubricants and related materials
Chemical Products
Manufactured goods classified by materials
Machinery and transport equipment
Miscellaneous manufactured articles
Other
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
Exports by SITC (share in total %)
20112006
Source: State Statistical Office Source: State Statistical Office
After the external shock to FDIs these inflows were recovered and with the modest external debt rise contributed for Gross Reserves increase
2004 2005 2006 2007 2008 2009 2010 20110.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
5.9
1.6
6.6
8.5
6.1
2.0 2.3
4.1
FDIs (% GDP)Capital and financial account net inflows (% GDP)
Source: NBRM
The level of Gross Reserves is adequate and protects the exchange rate peg...
I.2008 I.2009 I.2010 I.2011 I.20120
500
1000
1500
2000
0
5
10
15
20
25
30Gross Reserves (mill.euros) Gross Reserves (% GDP)
% GDPmillion Euros
Source: NBRM
... sustainability and vulnerability indicators don't show some imbalances...
2004 2005 2006 2007 2008 2009 2010 20110.0
0.5
1.0
1.5
2.0
2.5
Reserves to short-term external debt
2004 2005 2006 2007 2008 2009 2010 20110.00.51.01.52.02.53.03.54.04.55.0
Reserves to imports
2004 2005 2006 2007 2008 2009 2010 20110.05.0
10.015.020.025.030.035.040.045.0
Private external debt to GDP
2004 2005 2006 2007 2008 2009 2010 20110.0
20.040.060.080.0
100.0120.0140.0160.0
Gross external debt to exports
Source: NBRM
2004 2005 2006 2007 2008 2009 2010 Q1 2011
Q2 2011
Q3 2011-5.0
5.0
15.0
25.0
35.0
45.0
55.0
65.0
24.3
39.0
63.3
Public sector external debt to GDP (%)Private sector external debt to GDP (%)Gross External Debt to GDP (%)
2004 2005 2006 2007 2008 2009 2010 Q1 2011
Q2 2011
Q3 2011
0
10
20
30
40
50
60
70
80
90
100
68.5
31.5
Medium/long-term external debt to gross ex-ternal debt (%)Short-term external debt to gross external debt (%)
... the low level of sovereign external debt in the years before the crisis was significant buffer and the higher share of long-term debt, protects the country from capital flights
Source: NBRM Source: NBRM
Government has built significant fiscal buffers before the crisis; balanced budget
and low level of public debt...
1 2 3 4 5 6 7 80.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
21.4
6.8
External (% GDP)Domestic (% GDP)CG debt ( % of GDP)
2004 2005 2006 2007 2008 2009 2010 2011-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
0.0 0.2-0.5
0.6
-0.9
-2.7 -2.5 -2.6
Central government (CG) fiscal balance in % of GDP
Source: Ministry of Finance Source: Ministry of Finance
Macedonia is one of the countries with lowest deficit and public debt
2008 2009 2010 2011-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0 Budget Balance (% GDP)
2008 2009 2010 20110.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0 Public Debt (% GDP)
Serbia
Croatia
Bulgaria
Albania
B&H
Macedonia
Source: IMF , Country Reports and Ministry of Finance , RM
Financial sector indicators continue to suggest sound overall conditions; the capital adequacy ratio is high
and liquidity risk is low
2004 2005 2006 2007 2008 2009 2010 20110.0
5.0
10.0
15.0
20.0
25.0
30.0
16.8
14.1
Regulatory capital/risk weighted assets (%)Tier I capital/risk weighted assets (%)
Source: NBRM Source: NBRM
2004
2006Q
1
2006Q3
2007Q
1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q30.0
5.0
10.0
15.0
20.0
25.0
30.0
15.8
25.3
Highly liquid assets/total assets
NPLs rose, but remain below their post-crisis peak (10.4%) and are fully covered by bank
provisions
2004
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q30.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
6.5
10.4
9.5
NPLs / Gross loans (%)
2004 2005 2006 2007 2008 2009 2010 20110.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
104.0
Provisions to Non-Per-forming Loans (%)
Source: NBRM Source: NBRM
Loans continue to be financed predominantly by local deposits (loan-to-
deposits ratio is 0.89), with limited reliance on external financing
Jan-07Apr-
07Jul
-07Oct-
07Jan
-08Apr-
08Jul
-08Oct-
08Jan
-09Apr-
09Jul
-09Oct-
09Jan
-10Apr-
10Jul
-10Oct-
10Jan
-11Apr-
11Jul
-11Oct-
1120.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
49.9
46.1
Deposits of other sectors at banks, % of GDP Banks claims on other sectors, % of GDP
2004 2005 2006 2007 2008 2009 2010 20110.0
20.0
40.0
60.0
80.0
100.0
120.0
89.0
Banks claims on other sectors/ Deposits of other sectors at
banks
Source: NBRM Source: NBRM
Private sector is not heavily indebted, but there is a significant currency mismatch of the non-banking sector (short FX position by the companies and long
FX position by households)
2004 2005 2006 2007 2008 2009 2010 20110.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
16.9 18.2
24.9
27.8
Claims on households in % of GDPClaims on enterprises in % of GDP
2009 2010 2011-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
-12.2 -12.8 -12.3
10.312.0 12.4
Banks FX and FX indexed claims on households - household FX and FX indexed deposits, % of GDP
Banks FX and FX indexed claims on en-terprises - en-terprise FX and FX indexed de-posits, % of GDP
Source: NBRM Source: NBRM
Banks interest rate margin is increasing recently
2005 2006 2007 2008 2009 2010 20110.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
3.0
Interest rate differential between NBRM CB-Bills and ECB policy rate
(end of period)
2005 2006 2007 2008 2009 2010 20110.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
3.0
4.7
Banks Denar interest rate margin (average for the year)Banks Foreign currency interest rate margin (average for the year)
Source: NBRM Source: NBRM
Summary:
GDP growth is supported by FDIs and government investment;
Inflation is on declining path; The EU crisis imposes risks to exports, but more
diversified structure is a buffer for adjustment in a case of potential external shocks;
Banking system remains sound, with higher capital-adequacy ratios and liquidity ratios;
The public debt is sustainable; Foreign reserves are at an adequate level.
Macedonian economy is more resilient now then in 2009 crisis;
Appendix:Macro prudential Indicators –
Regional Comparison
2008 2009 2010 Q3 20110.0
5.0
10.0
15.0
20.0
25.0
16.216.8
Regulatory capital to risk-weighted assets (%)
B&H
Serbia
Bulgaria
Albania
Croatia
Tukey
Montenegro
RM
Source: National Central Banks official web sites
2008 2009 2010 Q3 20110.0
5.0
10.0
15.0
20.0
25.0
6.7
9.5
Nonperforming loans (NPLs) to total loans (%)
B&H
Serbia
Bulgaria
Albania
Croatia
Tukey
Montenegro
RM
Source: National Central Banks official web sites
2008 2009 2010 Q3 2011
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
1.4
0.7
Return on assets (ROA, %)
B&H
Serbia
Bulgaria
Albania
Croatia
Tukey
Montenegro
RM
Source: National Central Banks official web sites
2008 2009 2010 Q3 20110.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
22.9
31.3
Liquidity ratio (liquid assets to total assets)
B&H
Serbia
Bulgaria
Albania
Croatia
Tukey
Montenegro
RM
Source: National Central Banks official web sites
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