MACEDONIA MONTHLY UPDATE Issue 03/2015 Macedonia Monthly Update May 2015 IN THIS ISSUE Recent Political  The opposition continued publishing new “bombshells” featuring wire- Developments tapped conversations between government officials. Newly published conversations suggest Police action against “terrorist racketeering of the private sector group”, mass protests and counter- firms, controversial discussions on the protests, and strong involvement of name issue, PM’s secret purchase of a international community to broker a  On May 17, the opposition and civil luxury limo for almost 600,000 EUR, solution to the political crisis - marked society organizations organized and PM’s interference in every aspect the political landscape in Macedonia mass protests in front of the of decision making including deciding Government building in Skopje. One on baroque facades on buildings in during the month of May. remarkable feature of the protest was Skopje.  On May 9, the police forces its visibly inter-ethnic character. intervened against alleged “terrorist Protesters called for resignation of the  International efforts to promote group” in the small ethnically mixed PM Gruevski and the rest of the direct negotiations between the town Kumanovo. 8 police officers and Government. The protesters continue main political parties continue. an unknown number of alleged to camp outside of the Government Prime Minister Gruevski and terrorists got killed. Numerous building awaiting resignations and opposition leader Zaev met on 19 May questions surround the violence and appointment of the technical 2015 in Strasbourg as part of an the Government’s account has been Government to investigate wire- earlier-initiated mediation effort by greeted with widespread skepticism, tapping scandal, ensure freedom of three members of the European particularly given that the timing of media, independence of judiciary, and Parliament. The four leaders of the the police action coincided with an organize free and fair parliamentary biggest parties met three times, last upsurge of anti-government protests elections. one on May 26 with the EU and US and civil society activism. Ambassadors observing. Although no  The ruling party VMRO DPMNE progress was reported, negotiations  Following the incident in Kumanovo, responded swiftly and organized continue in an attempt to resolve the two ministers resigned: Gordana counter-protests in front of the political stalemate in the country. Jankuloska (Minister of Interior) and Parliament the very next day on May Next meeting will be held on June 02, Mile Janakieski (Minister of Transport 18. These protests also ended with participation of Johannes Hahn, and Communications). Controversial peacefully, with the protesters setting the EU Commissioner for director of Security and up a “counter camp” in front of the Neighborhood & Enlargement. Counterintelligence Agency, Sasho Parliament building. Mijalkov also resigned. MACEDONIA MONTHLY UPDATE | Issue 03/2015 2 Monthly Economic Developments May 2015 catalyst and electrical machinery, and more “traditional” export products like apparel and iron and steel. Nevertheless, the decline is expected to be a temporary one. Looking at imports of sectors that have a high import-content of  Industrial production growth turned their exports, such as most of the negative in April for the first time since FDI, apparel industry and to a August 2013. certain extent iron and steel,  Exports and imports growth turned exports are expected to pick-up in kept on the same level as in April negative in Q1 2015. the coming period as imports of 2014. Due to the recent increases in  Budget execution improved in April. raw-materials in these sectors have pensions, this was achieved by  been above or on average cutting spending on goods and compared to 2014. Overall imports services and capital investments  Industrial production growth declined, however, by 14.3 percent which declined by 15 and 24 turned negative in April for the y-o-y in Q1 2015 largely driven by a percent (y-o-y), respectively. first time since August 2013 as production in some industries declined. Industrial production growth declined for the second month and turned negative in April, falling by 0.9 percent (y-o-y). This decline was largely driven by a Team Visits and Missions weak performance of the tobacco industry, manufacture of non- metallic and mineral products, mining and quarrying and  Financial Management fabricated metal products. Supervision for all active Nevertheless, important industries projects- Annelise Viorela like food production, Voinea manufacturing of machinery and  Transport (RLRPSP & declining oil prices, but some equipment, electricity and gas NRRRP) - Anneliese Viorela declines were also registered in supply and pharmaceutics, which Voinea, Wei Winnie Wang, certain FDI related exports (like account for almost 30 percent of Robert Seekings, Liljana dashboards and electrical the overall production, continued Sekerinska machinery) as well as in iron and to perform well. Despite the weak  ECSEE APL3 steel. industrial performance and the Environmental safeguards – current political turmoil in the Natasa Vetma  Budget execution improved in country, business confidence  Road Upgradeing April, as revenues increased and continued to improve, as capacity &Development Project expenditures moderated. utilization and the assessment of (RUDP) - Pre-Appraisal Revenues increased by 8.9 percent future production remained strong. mission - Rakesh Tripathi, (y-o-y) in April on the back of The National Bank and Chambers Blaga Djourdjin, Liljana increasing social security of Commerce issued statements Sekerinska contributions and personal income warning that FYR Macedonia’s  Energy Efficiency Fund tax, resulting from increased economic performance is likely to for Public Buildings and employment and wages (especially deteriorate if the political crisis Supervision of ongoing in the public sector). Corporate drags on. ESMAP TA for Municipal income tax also increased substantially as the government re- Energy Efficiency Promotion -  EExports and imports growth Jas Singh, Liljana Sekerinska introduced taxation on corporate turned negative in Q1 2015 as  Conditional Cash earnings which was temporarily some FDI related exports declined Transfers - Marina Petrovic, amended in 2009 as part of the and oil prices fell resulting in Gordana Matkovic, Bojana any-crises measures. Nevertheless, lower imports value. Exports Naceva VAT as the primary income growth turned negative in Q1 2015  Municipal Services declined by 5.9 percent (y-o-y), but declining by 8.1 percent (y-o-y). A Improvement Project - has improved on a monthly bases decline in exports was registered Toshiaki Keicho, Bekim Imeri in the past two months. both in FDI related exports, such as Expenditure in nominal terms were MACEDONIA MONTHLY UPDATE | Issue 03/2015 3 The W orld Bank launched the seve nth of a new series of pu blications on recent economic devel opment s in South Ea stern Europe (SEE6: Alba nia, Bosnia and Herzegovina, Kosovo, Macedonia, Mont enegr o, and Serbia ). Portfolio at Glance  Portfolio: the Bank portfolio in Macedonia currently consists of seven investment projects. Total commitments under these seven projects amount to US$ 370.4 million. All projects are effective.  Disbursement: Current FY15 disbursement ratio is 20.2%.  Portfolio quality: No projects at risk, or problem projects in the portfolio.  ICRs & ISRs: No ICR due in FY15. No overdue ISRs  Project closings: Real Estate Cadastre & Registration Project is scheduled to close on June 30, 2015. Lending Pipeline  Operations currently under preparation include: Road Upgrading and Development Project, Digital Macedonia, Energy Efficiency Fund, Second Municipal Services Improvement Project, and a Gasification Project. In addition to these, the Local and Regional Competitiveness in Tourism Project is also under preparation and will be financed with a EUR 18 million EU IPA Trust Fund.