Neglecting Regulatory Environment and Monetary Policy Operations Can Have Severe Consequences for Macedonia’s Economy

Macedonia’s regulatory environment and monetary policy operations have been alarmingly neglected, leaving the country’s economy vulnerable to shocks. Experts warn that this neglect can have severe consequences for both the budget and the real economy.

Comprehensive Medium-Term Debt Strategy Needed

According to experts, Macedonia has failed to develop a comprehensive medium-term debt strategy, which has led to a heightened risk of refinancing risk. The country’s exposure to currency risk is also considerable, with almost 90% of general government debt denominated in or linked to foreign currency.

Insufficient Efforts to Mitigate Risks

The government has taken some steps towards renewing market development, including issuing longer-term paper and pre-funding rollovers. However, these efforts are insufficient to mitigate the risks facing the economy.

Severe Consequences of Neglect

Experts warn that neglecting the regulatory environment and monetary policy operations can have severe consequences for the economy. “By not developing a comprehensive debt strategy, Macedonia is putting its economy at risk of instability,” said an expert.

Understaffed Ministry of Finance Public Debt Management Department

The government has been criticized for understaffing and lack of resources in its Ministry of Finance Public Debt Management Department. This has hindered the department’s ability to perform its tasks effectively.

Challenges in Refinancing Debt

In recent times, the country has faced challenges in refinancing its debt, with market rates spiking before a planned Eurobond issuance was canceled. The government has also been reliant on foreign borrowing, which has increased its exposure to currency risk.

Experts’ Recommendations

To mitigate these risks and achieve a more stable economy, experts recommend:

• Developing a comprehensive medium-term debt strategy
• Strengthening institutional arrangements, including the Ministry of Finance Public Debt Management Department
• Increasing domestic non-FX-denominated debt issuance
• Reducing dependence on foreign borrowing
• Prioritizing developing the domestic yield curve

Conclusion

By implementing these recommendations, Macedonia can minimize its medium-term costs and risks, and achieve a more stable economy. Failure to do so will have severe consequences for the economy, including increased instability and vulnerability to shocks.

Recommendations:

• Develop a comprehensive medium-term debt strategy
• Strengthen institutional arrangements, including the Ministry of Finance Public Debt Management Department
• Increase domestic non-FX-denominated debt issuance
• Reduce dependence on foreign borrowing
• Prioritize developing the domestic yield curve