The fiscal position continues to strengthen, international reserves are increasing, and central bank interest rates remain low. Despite higher food prices, average inflation should stay low, at around 2 pct this year and 3 pct in 2008, the IMF said.
The government's budget for 2008 will safeguard macroeconomic stability. Despite ambitious plans to cut personal and corporate income taxes, make selective cuts in VAT, increase spending on pensions, public investment in roads and education, and government wages, the budget should deliver the deficit target of 1.5 pct of GDP, the IMF said.
Many structural reforms are also being implemented. The government and central bank have submitted their revised central bank law to the European Central Bank and to the European Commission for review. The new law strengthens the financial soundness of the National Bank of the Republic of Macedonia, and reaffirms the government's commitment to safeguarding the bank's independence, the IMF said.
The energy sector's financial problems are also being addressed. Starting from January, large electricity users will purchase all their needs at market prices, which will remove the need for a budget subsidy to MEPSO, the electricity transmission company.
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