July 9, 2015 / 9:32 AM / 4 years ago

UPDATE 1-Macedonia GDP growth to slow in 2015 on political woes, Greece-IMF

(Adds detail, background)

SKOPJE, July 9 (Reuters) - Macedonia’s economic growth is expected to slow to 3.2 percent in 2015 because of a prolonged political crisis in the country and the impact of problems in neighbouring Greece, the International Monetary Fund said on Thursday.

The IMF had previously forecast this year’s growth at 3.8 percent, unchanged from 2014.

“Domestic political uncertainties and the crisis in Greece are likely to slow momentum as confidence weakens and some investors hold off investment decisions,” the IMF said in a statement after a regular review of Macedonia’s economic performance.

The conservative Prime Minister Nikola Gruevski has been under pressure since January over wiretap disclosures released by opposition leader Zoran Zaev, which the West says have raised serious questions about the state of democracy in the ex-Yugoslav republic, a candidate for EU membership.

A political impasse over allegations of widespread government abuse of power has raised fears of instability in a country that flirted with civil war in 2001.

The IMF forecast the fiscal deficit to widen to 4 percent of GDP in 2015, compared to the 3.4 percent targeted in the budget, and warned that rebuilding policy space and buffers to preserve macroeconomic and financial stability remained a priority.

The IMF said that underperformance of Value Added Tax and non-tax revenues, as well as wage increases for the police and additional capital spending entailed by the worsened security situation, were likely to widen the deficit despite a stronger than budgeted performance in profit tax revenues.

Late in June, Macedonia ordered its banks to pull their money from Greek banks and took steps to limit the outflow of capital to its neighbour. There are two Greek-owned banks in Macedonia which together hold 22 percent of banking assets.

“Spillover risks from Greece to the financial sector are being closely monitored,” said the IMF, adding that the banks, including the two Greek subsidiaries, were well-capitalized, highly liquid and increasingly funded by domestic deposits. (Reporting by Maja Zuvela; Editing by Zoran Radosavljevic)

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