September 18 (SeeNews) - Macedonia's economic growth is projected to moderate to 1.9% in 2017 following a sharp drop in investment in the first half of the year amidst political uncertainty, the International Monetary Fund (IMF) said on Monday.
"The prolonged political uncertainty resulted in a slowdown of real GDP growth to 2.4% in 2016, the lowest since 2012. Data for the first half of 2017 point to economic contraction driven by a sharp drop in investment," IMF said in in the concluding statement of the staff mission for the 2017 Article IV consultation with Macedonia. "Nevertheless, export growth has remained robust, and private consumption has been resilient, helped by employment growth and rising wages and pensions."
The IMF said in its World Economic Outlook (WEO) report in April that Macedonia's economy is expected grow by 3.2% in 2017.
"The medium-term outlook is favorable contingent on continued political stability and robust external demand. Real GDP growth is expected to rebound in 2018 and gradually rise to 3.7% over the medium term, buoyed by improved investor sentiment, expanded export capacities, and continued labor market improvement," the IMF said in the statement.
Improving Macedonia’s medium-term growth potential hinges on decisively tackling weaknesses in the judicial system and overall governance frameworks, the mission noted. Limited progress in implementing reforms, especially in the areas of governance and competition policy, has held back foreign direct investment (FDI) inflows and hindered deeper integration with the European Union.
With public debt above 45% of GDP at end-2016, a near doubling since 2008, fiscal consolidation is urgently needed to safeguard sustainability, rebuild buffers to tackle future shocks and make space for pressing social development and infrastructure needs, IMF added.
IMF advises a reduction in the labour tax wedge at low-income levels as well as raising additional revenues through more efficient collection of Value Added Tax (VAT) and higher property and fuel taxation.
According to the IMF, Macedonia's banking system is healthy. The adoption of Basel III standards on capital adequacy earlier in 2017 further reinforces the capacity of the banking system to withstand shocks, the Fund said.