Makedonija S&P Credit Rating
Makedonija S&P Credit Rating
DJ_SHEMA This report was reproduced from Standard & Poor's RatingsDirect, the premier source of real-time, Web-based credit ratings and research from an organization that has been a leader in objective credit analysis for more than 140 years. To preview this dynamic on-line product, visit our RatingsDirect Web site at www.standardandpoors.com/ratingsdirect. Former Yugoslav Republic of Macedonia Assigned 'BB/B' FC, 'BB+/B' LC Ratings; Outlook Positive Publication date: 30-Jul-2004 =20 Analyst(s): Kai Stukenbrock, London (44) 20-7176-7119; Konrad Reuss, London (44) 20-7176-7102 =20 Local Currency Foreign Currency=09 _____ =20 Credit Rating: BB+/Positive/B BB/Positive/B=09 =20 Rationale On July 30, 2004, Standard & Poor's Ratings Services assigned its 'BB/B' foreign currency and 'BB+/B' local currency sovereign credit ratings to t= he Republic of Macedonia. The outlook is positive. The ratings on Macedonia are constrained by the ongoing importance o= f inter-ethnic relations, structural and governance issues in the economy, = and a government expenditure structure that leaves little flexibility to rein= in spending. The ratings are supported by rapid progress toward political stabili= ty, driven by the Ohrid Framework Agreement and the prospect of EU membership. Moreover, the ratings are underpinned by macroeconomic stability and moderate levels of external indebtedness. Political stability in Macedonia has improved greatly since the inter-ethnic violence in 2001. The Ohrid Framework Agreement that ended t= he security crisis enjoys both broad political and public backing, and a rep= eat of those events looks highly unlikely. This is demonstrated by a number o= f recent stress tests such as the death of the president in an air crash an= d renewed ethnic unrest in Kosovo (both in early 2004), which the country navigated well. Inter-ethnic relations will still continue to play an important role in determining political stability, but the commitment of = the international community to stability in Macedonia remains strong, and wou= ld have a moderating influence should tensions increase again. Prudent economic policies have managed to maintain macroeconomic stability, despite the multitude of shocks hitting the economy since independence. Inflation has remained in low single digits since the mid-1990s, and growth is forecast to average 4.2% between 2004 and 2006. Serious structural imbalances in the economy--such as very high levels of unemployment--have still to be addressed, however. In addition, poor governance in both the private and public sectors, corruption, and a weak judiciary depress domestic and foreign investment and hinder economic and employment growth. Fiscal accounts are sound. Excluding the crisis years of 2001-2002, = the general government budget has been in moderate-to-low deficit since the second half of the 1990s, and is expected to register slightly less than 1.5% of GDP in the medium term. If grants are included above-the-line, th= e budget will even be broadly balanced. Continued moderate deficits will pu= sh the debt level down to 42.8% of GDP in 2006, from 47.7% in 2003. By contrast, structural rigidities on the expenditure side (where wages and transfers account for 87.0%), as well as an inefficient and costly social security system, pose risks to the maintenance of fiscal prudence. Macedonia's trade deficit is very high, at 18.3% of GDP in 2003, but this is readily financed by sizable private transfers, grants, and concessional lending. As a result, levels of net external debt have remai= ned moderate, at 30.7% of current account receipts (CARs) for the public sect= or and 6.3% of CARs for the nonfinancial private sector in 2003. The financi= al sector is a net external creditor, with net assets of 15.1% of CARs in 20= 03. Outlook The positive outlook on Macedonia reflects Standard & Poor's expectation that, in addition to the current implementation of the Ohrid Framework Agreement, the prospect of EU membership at the turn of the decade will continue to play an essential role as a driver for further reforms and ongoing political stabilization. Macedonia applied for EU membership in March 2004 and might be awarded candidacy status as early as 2005. Suppor= t for EU membership is broadly based and a large share of new legislation i= s already geared toward EU requirements. For most of the new EU members that joined the Union in May 2004, prospective EU membership served as a strong policy anchor, which in turn resulted in ratings upgrades. On the way toward EU membership, Macedonia will have to address many weaknesses such as improving and sustaining political stability, addressing the structural imbalances in the economy, and tackling governance issues. An upgrade of the ratings on Macedonia is contingent on progress in these areas. Ratings List =B7 Foreign currency sovereign credit ratings BB/Positive/B =B7 Local currency sovereign credit ratings BB+/Positive/B =20 Ratings information is available to subscribers of RatingsDirect, Standar= d & Poor's Web-based credit analysis system, at www.ratingsdirect.com. It can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar= , select Find a Rating, then Credit Ratings Search. Alternatively, call one= of the following Standard & Poor's numbers: London Ratings Desk (44) 20-7176-7400; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5916; or Moscow (7) 095-783-4017. Members of the media may also contact the Europe= an Press Office via e-mail on: [email protected] =20 Analyst E-Mail Addresses [email protected] [email protected] [email protected] =20 =20 For a complete list of ratings, please click the hyperlink provided here http://www2.standardandpoors.com/NASApp/cs/ContentServer?pagename=3Dsp/Pa= ge/Fi xedIncomeRatingActionsPg