Macroeconomic Stability. The real GDP growth accelerated further and achieved annual growth in 2018 at 2.7%, up from 0.2% in 2017. The growth was driven by drastically increase in exports – 15.3% y-o-y, whereas investment grew only modestly – 1.6% in annual terms. Imports grew by 9% y-o-y. The economic growth largely benefited from the higher household spending and public consumption, which increased in particular due to higher public wages. The unemployment remains high though improved in 2018. The unemployment rate dropped to 20.7% in 2018, which is a 1.6pp decrease from the previous year. The situation of young workers (15-24years) improved. Their unemployment rate stood at 44% in fourth quarter and 45.4% for the whole year (-2.8pp) of 2018. Nevertheless, the issue of the high unemployment among women and young people needs to be addressed by the government. In 2018, total revenues grew by 4.9% y-o-y, while total expenditures were up by 1.8% y-o-y with a significantly stronger growth in the second half of the year. The revenue growth was driven by higher income from taxes and social contributions. Current expenditure increased by 6.4%, mainly due to a surge in social transfers and higher subsidies to corporates, while capital spending saw a significant drop of 38.8% y-o-y. As a result, the budget deficit was reduced to 1.8% of GDP, lower than the target of 2.7% of GDP. However, deficit calculations do not include the financing for the public enterprise for state roads which remained off-budget. General government debt achieved 40.5% of GDP in 2018, increased by 1.2 pp from a year before. The central bank's foreign currency reserves increased by 23% in 2018 representing 5.2 months of imports. Current account deficit slightly deteriorated at the end of 2018 and stood at 0.3% of GDP, which is still an improvement by 1% to the previous year (1.3% of GDP in 2017). The trade balance improved and stood at -16.2% of GDP in 2018 as a whole, compared to -17.9% in 2017. Net FDI inflows amounted to 5.8% of GDP in 2018, markedly higher than one year earlier (2.3% of GDP), and significantly larger than the current account deficit. Inflation is currently no issue in North Macedonia. Average consumer price inflation in 2018 stood at 1.5% (+0.1pp compared to 2017), mainly driven by higher food prices (+0.6%). Following a revision in December, the central bank continued to reduce the key policy rate, by 25bps on 13 March, to a new historical low of 2.25%. The Denar continued its limited fluctuat...
Macroeconomic Stability. (b) The Borrower maintains a macroeconomic policy framework consistent with the Program’s objectives and in accordance with the provisions of the Policy Letter referred to in Section 4.01 of these Special Conditions;
