Fitch gives Macedonia positive outlook as politics stabilise

By bne IntelliNews January 20, 2019

Fitch Ratings has affirmed on January 18 Macedonia's its long-term foreign and local-currency issuer default ratings (IDRs) at 'BB' and kept the outlook positive.

Fitch improved Macedonia outlook from negative to positive last year.

"The positive outlook reflects the stabilisation of the political environment and, as a result, material progress towards accession to the EU and increased economic confidence," Fitch said in the statement.

Fitch confirmed that Macedonia made a significant progress in resolving the long-standing name issue with Greece as the parliament in Skopje approved constitutional changes on January 11 that will change the country’s name to North Macedonia.

If ratified by Greek parliament this will open the way for Macedonia to become a Nato member and would support the launch of EU negotiations, which would anchor Macedonia's economic and political reforms more firmly.

Improved political stability has supported a revival in economic activity.

According to Fitch estimates, Macedonia's economic growth is expected to recover to 2.3% in 2018 and to strengthen to 3.2% and 3.6% in 2019 and 2020, respectively, compared with the current peer median of 3.1% in 2019.

General government debt, officially estimated at 40.8% of GDP at end-2018, is below the current peer median (47%), but is forecast to remain on a gradual upward trend.

Fitch estimates that Macedonia recorded a rare current account surplus in 2018, of 0.2% of GDP due to a broad-based improvement, with exports jumping due to an increase in production capacity in free zones and stronger external demand.

Higher import spending is forecast to return the current account to a deficit in 2019 and 2020.

Macedonia’s net external debt is higher than peers, at an estimated 25.9% of GDP at end-2018 (current 'BB' median 13.8%) and is expected to widen to 30% in 2020.

The main risk factors that could lead to an upgrade of the ratings include an improvement in governance standards and further reduction in political risk through a continuation of political stability and progress towards EU accession as well as the implementation of a medium-term fiscal consolidation programme consistent with a stabilisation of the public debt/GDP ratio.

The main factors that could lead to a stabilisation of the outlook include adverse political developments, fiscal slippage and widening in the current account deficit.

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