Vice-governor

Anita Angelovska - Bezhoska, MSc.

April 2014

Basic facts about the World Bank and the IMF as the key international financial institutions for the Republic of Macedonia;

The role of the World Bank for the Macedonian economy;

The role of the IMF for the Macedonian economy;

Borrowing procedure and external debt statistics;

Conclusion.

Founded in 1944 as a part of the Bretton Woods system;

MISSION: assisting in post-war reconstruction and development, reducing poverty and improving the living standard in developing countries;

BY: promoting sustainable growth through loans, guarantees and analytical services;

Today, it counts 188 countries as members;

Financed on international markets;

The mandate is shared with four other closely related institutions.

• International Development Association (IDA)

• Purpose:

financing the poorest countries to reduce poverty

• By: providing interest-free loans and grants under certain eligibility criteria

• Source: donations from countries and the World Bank

• International Finance Corporation (IFC)

• Purpose:

financing of the private sector in developing countries

• By: funding projects

• providing assistance to private companies in securing funding on the international financial market

• providing technical assistance for businesses and governments

• Multilateral Investment Guarantee Agency (MIGA)

• Purpose:

encouraging FDIs in developing countries

• By: insuring investors against political or non-commercial risks

• mediating disputes between investors and governments

• providing advice to governments on attracting investments

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• International Centre for Settlement of Investment Disputes (ICSID)

• Purpose:

encouraging FDIs in developing countries

• By: resolving investment disputes between foreign investors and host countries

Established in 1944

MISSION: promotes

international monetary

cooperation, exchange

stability, balanced growth of

international trade and

provides temporary financial

assistance to member states

in order to facilitate balance

of payments adjustment and

to reduce poverty.

Today, the IMF is an organization of 188 member countries, and together with the World Bank, it contributes to establishing a stable international relations system.

Lesson learnt from the Great Depression: no trade and foreign exchange

barriers and devaluations should be allowed since they have led to

instability in the global monetary system and cooperation, decline in world

trade and unemployment growth;

The IMF as a mechanism for stable monetary system and international

cooperation;

Stability was to be provided through the Bretton Woods system: all IMF’s

members have committed to a stable parity of their currencies against the

dollar, which in turn had a stable parity to gold – change in parity only

upon approval of the IMF;

In case of pressures on exchange rates, the IMF provides foreign assets;

The collapse of the Bretton Woods system in the early 70s, with the

members being allowed to choose the exchange rate regime.

Main source of funding - the

quotas of the member

states;

The size of the quota is

dependent on GDP,

openness, economic

variability and foreign

reserves;

The size of the quota

determines the number of

votes of and the maximum

amount of funds for a

country based on various

types of arrangements.

Core activities of the IMF

Regular surveillance and advice for the macroeconomic

policies of governments and

central banks

Loans to member states to address

economic difficulties, including concessional

loans to least developed economies

Technical assistance and training to

strengthen institutional capacity

IMF - redesigning the layout for greater support to member states

Increase in financial support (record level of 250 billion in 2010)

Flexible support - tailored to the needs of beneficiary countries to deal with the crisis and avoid a new crisis;

Modernization of operations - new instruments;

Increased technical assistance, advice and analyses of the member states;

Increased collaboration with regional institutions for more coordinated approach to problem solving;

Reform of the decision-making by giving greater weight to emerging economies at the expense of developed economies.

Encourage countries to turn to the IMF when predicting the problems, rather than at their occurrence.

DOUBLING THE MAXIMUM LEVEL OF

access to financing (annual and cumulative access of 200% and

600% of quota)

NEW FLEXIBLE ARRANGEMENTS

FCL (Flexible Credit Line) PCL (Precautionary Credit Line),

now PLL

MODERNIZATION OF CRITERIA

"ex ante" instead of "ex post" Structural reforms are not followed as specific criteria

INTRODUCING NEW INSTRUMENTS TO LOW

INCOME COUNTRIES and urgent problems in the balance of payments • Rapid Credit Facility

• Stand By Credit Facility • Extended Credit Facility

safety in funding focus

flexibility

In the past 20 years, there has been a consistent improvement and strengthening of cooperation with international financial institutions;

Financial support - source of high capital inflows and support of the balance of payments position of the country,

which is particularly important given the limited and difficult access to international financial markets;

Aimed primarily at public sector;

In recent years, increased funding of private sector projects.

19.5 19.0 18.5 17.4 16.8 17.1 17.8 16.2

12.2 11.4 12.6 13.4 16.5 16.8 16.8

8.9 8.7 9.6

7.8

6.2 5.6

8.8

4.4

3.7 3.5

6.0 5.7

7.6 8.5 9.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Public debt structure, by creditor (% од БДП)

Multilateral creditors Bilateral creditors Private creditors

18.1 14.9

7.0

2.3

7.8

6.4

average 1999 - 2004

average 2005 - 2013

First Eurobond -

Second Eurobond

PCL

0.8 0.9 1.8

0.8 0.7 0.7 0.9 0.8 1.4 1.7 1.6 2.0 1.9 1.9 1.7

3.3 3.5

3.9 5.3 5.3 5.9 7.5

9.6

10.7

14.4

17.3 18.4 19.1

20.0 21.1

0.0

5.0

10.0

15.0

20.0

25.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Private debt structure, by creditor (% of GDP)

Multilateral creditors Bilateral creditors Private creditors

4.5

0.9 1.6

15.4

average

1999 - 2004

average

2005 - 2013

The IMF and the World Bank have the largest share in the public sector financing;

Especially important in the period from the independence until 2004

amid limited access to international financial markets;

Strengthening the financial support from the IMF and the World Bank in the wake of the financial crisis

in the period of difficult access to international financial markets.

11.2 11.5 11.2 10.6 10.2 10.1 10.8 9.4 6.8 6.5 6.8 7.3 7.2 7.1 7.1

2.9 2.3 2.1 1.6 1.3 1.3 1.3 1.0

0.2 0.1 1.1 1.1 4.2 4.1 3.8

5.3 5.2 5.2 5.2 5.3 5.7 5.8 5.8

5.3 4.8 4.7 5.0

5.1 5.6 5.9

0.0

5.0

10.0

15.0

20.0

25.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Public debt, by multilateral creditor

(% of GDP)

World Bank IMF Others

10.8 7.7

1.9

1.9

5.3

5.3

average

1999 - 2004

average

2005 - 2014

The dominant share of international financial institutions in the public sector financing also led to a relatively low average interest rate on borrowing.

0

2

4

6

8

10

12

14

16

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

average interest on new debt, private creditors (%)

average interest on new debt, official creditors (%)

0

5

10

15

20

25

30

35

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Debt under concessional terms (% of total external debt)

The Republic of Macedonia joined the IMF in December 1992;

A long period of arrangements with the IMF;

Arrangements with the IMF played a key role in establishing macroeconomic

stability in the early years of transition and its further maintenance;

A discipline tool for policy makers;

The cooperation with the IMF is a requirement for the financial support from

other institutions - the World Bank, multilateral development banks and

donor funding;

In the period of crisis, the new IMF's instrument (PCL) was used, which was designed for countries with sound fundamentals.

More reasons to use IMF's arrangements

1992 -1996 STF and SBA financing of balance of payments needs

1996 - 2000 ESAF, CCF,

PRGF and EFF

in the context of longer-term structural reforms

2003 -2004 SBA for macroeconomic adjustment after the

security conflict

2005 SBA

reinforced with the structural component to improve competitiveness and business

environment

2011 PCL facilitating access to international capital markets

History of arrangements with the IMF

Историја на аранжманите со ММФ

Also, in 2009, SDR 65.6 million were drawn on the basis of the net cumulative allocation of quota in the IMF.

Year of

approval Type of arrangement

Year of

drawing

Approved amount

(in mil. of SDRs)

Drawn amount

(in mil. of SDRs) Terms of arrangement

1994

Systemic Transformation

Facility 1994/1995 24.8 24.8

1995 Stand-by arrangement 1995/1996 22.3 22.3

1997

Enhanced Structural

Adjustment Facility 54.6

Three-year arrangement with 0.5% annual

interest rate and repayment period of 10

years (5 ½ -year grace period)

1997 Enhanced Structural Adjustment Facility I 1997 18.2 18.2

1998 Enhanced Structural Adjustment Facility II 1998 18.2 9.1

1999

Compensatory and

Contingency Financing

Facility 1999

13.8 13.8

Variable interest rate calculated according to

the IMF's policy rate, repayment period of 3

¼ to 5 years

2000

Extended Fund Facility

2000

24.1 1.1 Variable interest rate calculated according to

the IMF's policy rate, repayment period of 3

years and 4 ½-year grace period

2000

Poverty Reduction and

Growth Facility (PRGF) 2000 10.3 1.7

0.5% annual interest rate and repayment

period of 10 years (5 ½ -year grace period)

2003 Stand-by arrangement

2003/2004 20.0 20.0

Variable interest rate calculated according to

the IMF's policy rate

2005 Stand-by arrangement

2005 57.1 10.5

Variable interest rate calculated according to

the IMF's policy rate

2011 PCL

2011 413.4 197.0

Variable interest rate calculated according to

the IMF's policy rate

Вкупно 676.7 318.5

Total (in mil. of euros)

773.7 364.2

Currently, the Republic of Macedonia is under a Post Program Monitoring of the IMF, i.e. ...

... after drawing funds from the IMF over a certain limit in 2011 , the policy makers and the IMF work together to identify whether macroeconomic policies are consistent with external sustainability of the country and its ability to repay the debt.

The Republic of Macedonia joined the World Bank in 1993, and by 2003, it

was qualified for IDA funding

So far, the financial support totals U.S. Dollar 1.2 billion - loans and grants;

The financial and non-financial assistance contributed to implementing a wide range of structural reforms:

supporting the transition to a market economy and developing effective institutions;

improving the environment for doing business;

improving education and social protection;

building and restoring transport and energy infrastructure;

protecting natural and cultural heritage.

CURRENT STRATEGY - COUNTRY PARTNERSHIP STRATEGY 2011-2014

THREE MAIN PILLARS

RAPID GROWTH AND

COMPETITIVENESS

(infrastructure, education, business environment, judiciary system, cadastre)

INCLUSIVE GROWTH

(effective social protection, fostering labor supply)

STRATEGY TO PREPARE FOR

FASTER ACCESSION TO

THE EU

GREEN GROWTH (energy sector, agricultural sector, water resources)

NEW STRATEGY FOR MACEDONIA UNDERWAY

THREE MAIN PILLARS

GROWTH AND COMPETITIVENESS

HUMAN CAPITAL

PRELIMINARY PROJECTS

ENERGY EFFICIENCY ROAD INFRASTRUCTURE

ICT – RECRUITMENT PROJECT COMPETITIVENESS LOAN

ENVIRONMENT

INCLUSIVENESS

*Capital projects - projects to support the energy sector, construction of roads, to improve water supply, etc.

DPL / PDPL - Programmatic Development Policy Lending

FESAL - Financial and Enterprise Sector Adjustment Loan

FESAC - Financial and Enterprise Sector Adjustment Credit

PBG - Policy Based Guarantee

14.0

9.6

18.7

9.0

16.5

11.3

10.8

Approved World Bank funds, by sector and type of instruments

(share in total assets for the period 1994 - 2014, in% )

DPL/PDPL FESAL/FESAC

PBG Health, Welfare and Education

Agriculture Capital projects

Public administration and Justice Support to the private sector

Trade and Transport Financial support and economic reforms

21.3

18.3

12.8

12.9

5.9

6.0

20.0

Average share for the period 1994-2004

32.6

18.3

18.5

20.9

Average share for the period 2005-2014

RM – the first country

that used PBG (in 2011

and 2013)

Designed to support

development policies

and competitiveness

Used under

concessional terms

Focus - reforms in the

health system

Extremely important support for Macedonia in the early years of transition

(aimed to stabilize the economy and to support the structural reforms) in the

absence of alternative sources of funding (no access to private international

creditors and underdeveloped domestic market of state funding);

IDA financing is a particularly useful tool: in the period 1994-2004, financial

support of Euro 323 million under concessional terms (interest-free loans,

repayment period of 35 years, 10-year grace period);

Since 2003, the Republic of Macedonia has no access to IDA financing, which

means higher and variable costs of borrowing, shorter maturities and greater

exposure to private lenders;

2004 - the first credit rating; 2005 - the first Eurobond issue and

development of the domestic government securities market;

In the period of crisis, the Republic of Macedonia used the new WB's

instrument (Policy Based Guarantee) for borrowing on international

markets, designed for countries with sound fundamentals.

Public debt management - a responsibility of the Ministry of Finance

(MoF);

Initiative for debt negotiations: competent institutions (ministries

and other authorities) to the MoF;

Debt negotiations: upon prior approval and involvement of the MoF;

The government submits a draft law on borrowing to the Parliament;

Upon adoption of the law on borrowing, the Minister of Finance contracts for debt.

Jurisdiction of the NBRM;

All entities are required to submit credit applications for registration

of the foreign debt in the NBRM;

The NBRM disseminates quarterly statistics on the external public and private debt in the Republic of Macedonia.

International financial institutions have made a significant contribution to the Macedonian economy in terms of:

• maintenance of macroeconomic stability (particularly in the first years of transition);

• implementation of structural reforms as a prerequisite for a long-term sustainable economic growth;

By:

providing loans, largely under concessional terms,

catalyst for other financial support;

exercising discipline over policy makers,

providing technical assistance to build institutional capacity.