SARAJEVO (Reuters) - North Macedonia is forecasting economic growth of 3.2 percent this year and 4 percent in 2020, when it expects to become a full-fledged member of NATO, Finance Minister Dragan Tevdovski said in an interview on Thursday.
But Tevdovski said the government may raise its 2019 growth projection based on good economic data after the country last year reached a deal with Athens over its name, which is similar to that of a neighboring Greek province, ending a two-decade dispute that blocked its integration into NATO and the European Union.
“We see very positive developments in the data in the first quarter. For example industrial production growth is 8.8 percent, export growth is 16.8 percent - very strong, so possibly we’ll make a revision upwards,” Tevdovski told Reuters on the sidelines of the European Bank for Reconstruction and Development’s annual summit in Sarajevo.
He said that the 4 percent growth projection for 2020 may also be revised up because it does not take into account the possible effects of NATO integration, expected in the first half of the next year, when all NATO members ratify the move.
“The experience of other countries shows that when a country becomes a member of NATO, the inflow of FDI doubles as a percentage of GDP,” Tevdovski said, adding that increases in FDI could already be seen in the last quarter of 2018 following the deal with Greece.
North Macedonia received 624 million euros ($700 million) in FDI last year, accounting for 5.9 percent of gross domestic product (GDP) and double the average rate of the previous five years, he said.
“We expect stronger inflows of FDI this year because now the political situation has stabilized,” Tevdovski said.
Financial markets have also anticipated positive political developments, Tevdovski added, which could be seen in the fall in sovereign bond yields to 2 percent from 3 percent last June, and in the bonds’ improved liquidity.
North Macedonia’s exports, which had been focused on metal and textiles in the past, are now dominated by automotive parts.
Tevdovski said bank corporate loans, which had declined during the financial crisis, recorded growth of 8.2 percent in March, the highest rate for several years, showing a “pick-up in investment activity, especially in the private sector”.
North Macedonia’s banks, which are 75 percent foreign-owned, are stable, with a non-performing loan ratio of 5 percent - the lowest rate in the region, he said.
The budget deficit has been projected at 2.5 percent of GDP and will be financed through a combination of domestic debt issues and foreign loans, Tevdovski said, adding that the government will aim for a balanced primary budget deficit in the medium term.
He said the government was in the process of gradual fiscal consolidation, taking measures on both the revenue and expenditure sides, launching tax and pension reforms, improving fiscal transparency and working to stabilize the public debt.
Inflation in 2019 and 20120 is seen at around 2 percent.
Reporting by Daria Sito-Sucic; Editing by Hugh Lawson