Macroeconomic Indicators and Macroeconomic Indicators and Financial Sector Developments in the Financial Sector Developments in the

Recent Crisis EnvironmentRecent Crisis Environment-The Case of the Republic of -The Case of the Republic of

Macedonia-Macedonia-

Dimitar BogovDimitar BogovVice GovernorVice Governor

April, 2010

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

ContentMacedonian economy before Lehman

bankruptcyTransmission channels of the world

economic crisisPolicy responsesBanking sector developmentsThe latest developments

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

Before “Lehman”, Macedonian economy was booming,but,imbalances were building up

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

High economic growth...

0.01.02.03.04.05.06.07.08.0

2005

:Q1

2005

:Q2

2005

:Q3

2005

:Q4

2006

:Q1

2006

:Q2

2006

:Q3

2006

:Q4

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

(real GDP growth rates -yoy)

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

...driven by domestic demand...

-15

-10

-5

0

5

10

15

20

2007:Q1 2007:Q2 2007:Q3 2007:Q4 2008:Q1 2008:Q2 2008:Q3

domestic demand

net exports

contribution to grow th

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

...which was fueled by credits to the private sector...

20.0

30.0

40.0

50.0

60.0

2007

:12

2008

:01

2008

:02

2008

:03

2008

:04

2008

:05

2008

:06

2008

:07

2008

:08

2008

:09

retail corporate total

growth rate (yoy)

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

…and procyclical fiscal policy...

23,000

25,000

27,000

29,000

31,000

33,000

35,000

2006

:Q1

2006

:Q2

2006

:Q3

2006

:Q4

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

trendline of expenditures

trendline of revenues

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

... led to deepening current account deficit...

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2005 2006 2007 2008

CAB as % of GDP

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

…but, ROW was willing to finance it

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2005

2006

2007

2008

Reserves

Other investments

FDI & PI

Current account

as % of GDP

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

Then, it happened “Lehman”

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

Export fell down...

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

Q1/

06

Q2/

06

Q3/

06

Q4/

06

Q1/

07

Q2/

07

Q3/

07

Q4/

07

Q1/

08

Q2/

08

Q3/

08

Q4/

08

Q1/

09

Q2/

09

Q3/

09

export import

growth rate (yoy)

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

…dragging down industrial production too...

-15

-10

-5

0

5

10

15

2006

:Q1

2006

:Q2

2006

:Q3

2006

:Q4

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

2008

:Q4

2009

:Q1

2009

:Q2

2009

:Q3

growth rate (yoy)

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

…however, domestic demand continued to grow...

-202468

101214161820

2007:Q1 2007:Q2 2007:Q3 2007:Q4 2008:Q1 2008:Q2 2008:Q3 2008:Q4 2009:Q1

co

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

…but, ROW was not willing to finance it anymore...

-500-400-300-200-100

0100200300400500

2008

:Q4

2009

:Q1

Reserves

Other investments

FDI & PI

Current account

in EUR mi l l ions

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

…so, the bill had to be paid by foreign reserves...

0200400600800

10001200140016001800

2006

:120

06:3

2006

:520

06:7

2006

:920

06:1

120

07:1

2007

:320

07:5

2007

:720

07:9

2007

:11

2008

:01

2008

:03

2008

:05

2008

:07

2008

:09

2008

:11

2009

:01

2009

:03

-200-150-100-50050100150200

monthly change (rhs) stock of f/x reserves (lhs)

EUR mi l l . EUR mi l l .

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

... putting pressure on the exchange rate peg

6161.05

61.161.15

61.261.25

61.361.35

61.461.45

01.01.20

08

01.02.20

08

01.03.20

08

01.04.20

08

01.05.20

08

01.06.20

08

01.07.20

08

01.08.20

08

01.09.20

08

01.10.20

08

01.11.20

08

01.12.20

08

01.01.20

09

01.02.20

09

01.03.20

09

MKD/EUR

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

Policy responses - monetaryPrudential measures (December 2008)

Policy rate increase from 7% to 9% (March 2009)

Increase of reserve requirements for f/x deposits from 10% to 13% (May 2009)

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

Policy responses - fiscalCut of discretionary expenditures in order

to meet the deficit target of 2.8% (June and September 2009)

Issue of external debt (July 2009)

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

-500-400-300-200-100

0100200300400500

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

2008

:Q4

2009

:Q1

2009

:Q2

2009

:Q3

2009

:Q4

Reserves

Other investments

FDI & PI

Current account

EUR mi l l .As a result, CAD was reduced...

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

...and exchange rate stabilised

6161.05

61.161.15

61.261.25

61.361.35

61.461.45

01.0

1.20

08

01.0

3.20

08

01.0

5.20

08

01.0

7.20

08

01.0

9.20

08

01.1

1.20

08

01.0

1.20

09

01.0

3.20

09

01.0

5.20

09

01.0

7.20

09

01.0

9.20

09

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

Financial stability indicators

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

Latest developments Export is picking up Import is still declining Weak domestic demand Industrial production is volatile Fiscal revenues are still weak Stable foreign exchange market Deposits growth rate is improving Credit growth rate still weak but positive

NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM

Thank you for the attention