"The downward revision in the rating outlook to stable reflects both a marked widening in the current account deficit this year at a time when financing is becoming more uncertain and adverse political events that make the prospect of Macedonia's EU accession more distant", the agency said.
The agency has also affirmed the IDRs at 'BB+', the short-term foreign currency rating at 'B' and the country ceiling at 'BBB-', the global rating agency said in a statement.
Macedonia has experienced a series of political shocks this year. Greece vetoed an invitation to Macedonia to join NATO at the alliance's summit in Bucharest in April, saying the name of the former Yugoslav republic implies a territorial claim to Greece's northernmost province of the same name. No progress has been made so far in talks between Skopje and Athens for resolving the dispute. Greece has also threatened to block Macedonia’s EU accession, if the name dispute is not resolved.
Macedonia was granted EU candidate status in December 2005, but is still awaiting a date to start membership negotiations. EU Enlargement Commissioner Olli Rehn recently said that Macedonia is not ready yet to start membership talks.
Fitch said its main concern is the rapid rise in Macedonia's current account deficit, which the rating agency projects to reach around 12% of GDP this year, compared with just 3% in 2007.
On current macroeconomic policy settings, Fitch expects only a moderate improvement in 2009 and 2010, helped by lower oil prices. On the other hand, the slowdown in the EU economy poses downside risks to exports and remittances (equivalent to around 15% of GDP), which Fitch expects to fall 3% this year.
“Foreign direct investment has remained relatively strong and could finance around half the C/A deficit this year. However, private sector external borrowing, including by the banks, is rising. The global credit crunch will make it more difficult for Macedonia to secure the capital inflows it needs to finance C/A deficit, risking downward pressure on foreign exchange reserves, which have fallen as a ratio of imports this year, and ultimately could put pressure on the exchange rate, which has been pegged to the euro for over a decade”, the rating agency said.
It also said that Macedonia's rating continues to be underpinned by its moderate and declining government debt-to-GDP ratio, which was 25% at the end of 2007, below the 'BB' category median of 35%.
”Other strengths include a moderate external debt ratio and a track record of macroeconomic stability. Economic growth has strengthened in recent years, and Fitch forecasts real GDP growth of about 6% in 2008, up from 5.1% in 2007 and 4% in 2006. However, the global economic slowdown is likely to cause a slowdown in 2009”, Fitch said in a statement.
However, the agency praised the recent governments for pursuing some reforms in the area of taxation, justice system and reduction of red tape. Macedonia rose to 71st position in the World Bank’s Doing Business Survey for 2009, up from 79th position in 2008.
