Spikes in global energy and food prices have pushed up inflation in North Macedonia in recent months, the International Monetary Fund (IMF) said on May 19, after concluding a virtual staff visit with the authorities in the country.

“While there will likely be some second-round effects, inflation is expected to come down in the second half of the year, against the backdrop of appreciable spare capacity. Consumer prices are projected to rise at a still moderate pace of 2.2% on average in 2021,” Bergljot Barkbu, who led the virtual mission, said in the statement.

However, Barkbu added that the recent increase in inflation mostly reflects global factors and is expected to be temporary.

The online meetings, which were focused on recent economic developments and policies, were held during May 6-17.

According to the statistics office data, North Macedonia's average annual inflation speeded up to 2.7% in April, from 2.1% in the previous month. In the first four months of 2021, the average inflation was 2.2%.

According to the IMF statement, the COVID-19 pandemic has inflicted significant human and economic costs, but supportive macroeconomic and financial policies have mitigated the impact on economic activity in North Macedonia.

“The country’s economic recovery is underway, with real GDP growth projected to reach 3.8%, supported by growing vaccine coverage, following a shortage of supply earlier in the year. Faster-than-expected vaccine rollout and take-up could lift the forecast, while the emergence of new virus variants could lead to lower growth,” Barkbu said.

The IMF stated that fiscal policy should remain supportive to help revive growth, spur job creation and protect the vulnerable.

“A credible medium-term fiscal strategy can help tackle the country’s investment needs while rebuilding room for fiscal manoeuvre,” the IMF said.

The government was recommended to further improve public investment management and the efficiency of spending, and limit fiscal risks.

“Efforts to improve revenue collection would create space to scale up productive spending in areas such as healthcare, education, and infrastructure,” the IMF said.

The monetary policy stance remains appropriate, according to the IMF.

After meeting IMF officials, PM Zoran Zaev said on May 18 that the government’s efforts have been directed towards economic development with a focus on energy transition, investments in renewable sources and gasification

Regarding the GDP growth projection, Zaev informed IMF officials that the government expects growth of 4.1% this year, which is in line with the IMF projections of 3.8%, the central bank projection of 3.9% and that of the European Commission for 3.7% growth.

In April, the IMF cut its 2021 GDP projection for North Macedonia to 3.8% from 5.5% in October, after the country’s economy contracted by 4.5% in 2020.

For 2022, the IMF is projecting growth of 4%.