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News 16 Nov 15

Macedonia Borrows More Despite Europe's Concern

Macedonia is borrowing more money by issuing bonds, despite concern voiced recently in Brussels about the country's financial direction and priorities.

Sinisa Jakov Marusic
Skopje | Photo by: AP / Boris Grdanoski

By the end of this year, Macedonia will borrow another €700 million, ignoring European Commission advice contained in the recent annual progress report to stop adding to the already sizeable debt.

Days before the Commission said it was worried by Macedonia's growing debt, the government said it would issue more eurobonds worth €500 million to support the budgets this and next year.

The cash will be raised by the end of the year and the loan repaid over the next ten years.

A month earlier, parliament approved raising another €200 million in a loan to be spent on gasification, new roads and financial support for municipalities.

"Macedonia is joining the countries that spend beyond any measure," a former professor at the economics faculty in Stip, Krste Sajnoski, said.

"Japan's debt amounts to 240 per cent of it GDP, but it has a huge foreign exchange surplus, the yen is strong and much of that debt is internal. It has all the characteristics that Macedonia's [economy] does not," he added.

The total size of Macedonia’s government debt, which includes money owed by central government, municipalities, many public enterprises and the central bank, has long been a source of contention.

In the absence of official data, the IMF late last year estimated general government debt by the end of 2014 to be 44.8 per cent of GDP. In money terms, this would be around €3.5 billion.

The IMF also estimated that general government debt will rise to 55.2 per cent by 2018.

"There has been some backsliding in public finance management. The development of overall public debt remains a concern," the Commission wrote in its annual progress report issued last Tuesday.

"The budget should be more geared towards growth and employment, while its overall design, transparency and implementation should be improved," the Commission added.

Brussels recommends "fiscal consolidation" and stricter control of social transfers like the wages and pensions if the government wishes to achieve its goal of cutting the budget deficit to 2.9 per cent by 2017.

Addressing the report, Vice-Prime Minister Vladimir Peshevski said: "We could always do better." However, he said the Macedonian economy was growing and could take the load.

Prime Minister Nikola Gruevski has avoided talking about the debt and insisted that the latest report reflected Macedonia's positive economic developments.

"The report notes improvement in the economy, a field that the government focuses most of its energy. Improvement can be felt without any reports if we look at the number of new jobs, new factories and investment in capital infrastructure projects," Gruevski added.

The government will "thoroughly study and analyze" the report and will recommend "concrete additional measures" in line with it, the Prime Minister noted.

The latest half-billion-euro worth eurobond is the third eurobond issued by Gruevski's government. The first, worth €175 million, was issued in 2009. The second was in 2014 and was also worth €500 million.

"Issuing eurobonds with ten year's repayment time means some other generation, some other government, will have to return the money. That's why this government has no problem issuing them, no matter what the interest rates are," former finance minister Cevdet Hajredini commented.

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