Worrying current account trends
Overview:
The Macedonian economy proved resilient to the first round of effects from the global financial crisis but is now suffering a sharp growth slowdown. While considerable FDI has been attracted in recent years and the business environment improved somewhat it was always questionable whether such expansionary fiscal policy would be compatible with the fixed exchange rate regime. Now, with the current account deficit still increasing and capital inflows slowing the level of foreign exchange reserves has started to fall. The government has reacted to lower government revenues with a budget rebalance. However, this is only likely to be the first step in making fiscal policy more compatible with the exchange rate peg. An IMF agreement would improve investor confidence in the sustainability of policies.