bne IntelliNews -

The International Monetary Fund (IMF) still expects Macedonia's economy to expand by 3.2% this year, but warns of significant downside risks, related to a potential derailment of the recent political agreement between government and opposition parties and to spillover effects from a prolonged and deep crisis in neighbouring Greece.

The fund expects the country's fiscal deficit to shrink from 4.2% of GDP last year to 4.0% this year, above the government's target of 3.4%, because of the under-performance of VAT and non-tax revenues, coupled with wage increases for the police force and additional capital expenditures entailed by the worsened security situation, it said in a statement.

Given the domestic political uncertainties and regional pressures, the IMF urged the authorities to strengthen fiscal policy performance and enhance policy buffers, while promoting greater private-sector-led job growth. It stressed that further fiscal consolidation is necessary, hoping that the budget gap will be lowered to below 3% of GDP in line with the country's medium-term fiscal strategy.

The fund welcomed the planned implementation of fiscal rules and recommended intensified efforts to strengthen public finance management, improve revenue efficiency, and rationalise expenditures.

In the real economy, the IMF called for continuing structural reforms to provide for stronger job creation. It noted that additional efforts are needed to ensure “easier access to credit for firms, shorter delays in collecting payments, a more predictable legal and regulatory framework, better skills match, and streamlining of the numerous inspection bodies”.

Macedonia's GDP growth accelerated to 3.8% in 2014 from 2.7% in 2013, driven by robust growth in both private and public investment, as well as strong private consumption supported by solid credit growth and improving labour market conditions.