WASHINGTON, January 8, 2013—The World Bank Board of Executive Directors today approved a guarantee in support of a commercial loan to the Government of FYR Macedonia in the amount of EUR 155 million. The Public Expenditure Policy Based Guarantee (PEPBG) supports reforms to improve the efficiency of public expenditures and public financial management, strengthen health systems, and improve the targeting of social assistance and social inclusion. The proposed PEPBG will help FYR Macedonia access international financial markets to address an expected financing gap in 2013.
The PEPBG is the second policy based guarantee for FYR Macedonia. A first guarantee, approved in November 2011, leveraged a total of EUR 130 million from lenders in a virtually closed market environment. The Eurozone turmoil since then has adversely affected the economy of FYR Macedonia. Renewed market turbulence since May 2012 has again dimmed short-term growth prospects and access to capital markets. The PEPBG will guarantee a partial amount of a commercial loan – 62 percent of principal. This will allow the country to issue a relatively sizable commercial loan of EUR 250 million, out of which EUR 155 million would be guaranteed by the International Bank of Reconstruction and Development (IBRD).
The main focus of this second guarantee is to ensure that fiscal policy, and public expenditure policy in particular, supports an environment conducive to growth, more effective social protection, and improved service delivery. Key reforms support the gradual elimination of public payment arrears, and aim at improving financial management practices in the public sector, such as introducing safeguards to prevent future emergence of arrears. “The repayment of arrears will support economic activity and private sector development, and is in line with long-term sustainability of public finances,” said Gerard Byam, World Bank Acting Country Director for FYR Macedonia. The proposed operation also supports reforms that will help mitigate the impact of the ongoing turmoil on vulnerable groups.
In a difficult external environment with continued uncertainty for the global economy and the risk of an intensification of the Eurozone crisis, FYR Macedonia has established and maintained a strong track record on macroeconomic stability. “With the implementation of sound structural reforms, FYR Macedonia is laying the groundwork for economic recovery. Despite the current difficult environment, the growth outlook for FYR Macedonia is relatively positive,” said Birgit Hansl, World Bank Task Team Leader.
The FYR Macedonia IBRD portfolio comprises five investment projects with a net commitment of EUR 335 million.