Skopje, 29 September, 2023 

Returning inflation to its record low rates remains a priority for central banks.  With the correct combination of policies, the Western Balkans economies can ensure low inflation and long-term acceleration of the regional convergence towards EU.  In order to deal with inflation, we should maintain a tight monetary stance, with the support of the fiscal policy. The fiscal stability is important for the price stability as well, therefore its further strengthening is necessary.  Structural policies, which need to improve the investment climate, are of key importance to the accelerated growth, through enhanced institutional governance and rule of law, investment in human capital and tackling climate changes. These are part of the messages conveyed at the opening of the 9th International research conference, organized by the National Bank, in cooperation with the Reinventing Bretton Woods Committee, which is being held today in Skopje

One of the key challenges remains inflation which, although slower, is still maintained above the target level, expected in 90% of the economies in the following year as well. Hence, the prudent monetary policy conduct to reduce inflationary pressures on permanent basis is central bankers’ priority, said the Governor of the National Bank, Anita Angelovska Bezhoska.

The tightened monetary policy can have an adverse effect on the recovery of the economies, and pose risks to the financial system, as happened in the USA.  These developments in the US banking system were not transferred to Europe. “The banking systems in Central, Eastern and Southeastern Europe (CESEE), including Western Balkans, have dealt well with the crisis so far. According to the latest data, the capital adequacy ratio in the region averaged 20%, while the liquidity ratio was close to 27%. The quality of credit portfolio remains solid, whereby non-performing loans were below 4% on average, i.e. lower compared to the pre-pandemic levels”, said Angelovska Bezhoska in her address.  However, further strengthening of the banking system resilience is necessary, which will allow more space for monetary policy reaction without having an adverse effects on financial stability. Also, it is no less important for the countries to have a solid regulatory framework and instruments to maintain financial stability, pointed out the Governor of the National Bank, Anita Angelovska Bezhoska in her introductory speech.

The President of the Republic of North Macedonia Stevo Pendarovski, in his introductory speech pointed out that the National Bank, with its policies, contributed to maintaining macroeconomic stability of the country. The resulting geopolitical and geoeconomic risks call for necessary reforms in the vital government segments crucial for the economic development, pointed out the President Pendarovski, emphasizing that human capital outflows, especially of young and expert staff, is the most pressing issue the region faces.

“In conditions of unstable external environment and rising price pressures, especially due to the war in Ukraine, our National Bank, following the example of the European central bank, has started to adjust its monetary policy. Moreover, it is a fact that the correct monetary policy contributed to maintaining macroeconomic stability of the country and partially harnessing the growing inflation” pointed out the President, in his speech.   “Reforms are necessary in the vital segments that are crucial for the economic development, such as investments, labor productivity, adjustment of education according to the labor market needs and opening quality jobs. I believe that the best way to achieve this is through enhanced reforms and accelerated integration into the EU”, President Pendarovski said.

The Director of the European Department at the IMF, Alfred Kammer emphasized the importance of policies to accelerate economic development in the Region, as well as to put the inflation crisis behind.  “If I have to convey one key message to you, it is that policies matter.  With the right choice of various policies, the Western Balkans economies can ensure low inflation and increased long-term growth trajectory” said Kammer, pointing out the meaning of structural reforms in the improvement of the economic potential of the region.  In terms of maintaining macroeconomic stability, he pointed out that monetary policy should not be loosened prematurely, since it would lead to major consequences, and that fiscal policy should support monetary policy.

Marc Uzan, the Executive Director of the Reinventing Bretton Woods Committee, pointed out that we are witnessing various structural changes in terms of labor supply, return of the multinational companies’ production in their domicile country, the new global trade, geopolitical tensions and greening of the global economy, which will be actual issues in the period ahead.  Uzan pointed out that this raises the question whether we are moving towards the new macroeconomic “normal”, where the tightened financial conditions will remain over a longer period.

The first panel discussion at the Conference was dedicated to future macroeconomic policies, was addressed by the World Bank’s Chief Economist for Europe and Central Asia, Ivailo Izvorski, who was also a moderator of the panel discussion, and the governors of central banks of Slovenia and Croatia, Bostjan Vasle and Boris Vujcic, the member of the Governing board of the Swiss National Bank Petra Garlach and the Vice Governor of the National Bank of Belgium, Steven Vanackere.  The panel discussion pointed out that although the inflation has been decreasing since late 2022, in many countries it is above the central bank’s targets. Rising oil prices have slowed down the disinflation and cause concern.  When the price stability is jeopardized, it is important for the monetary policy to act quickly and decisively, to maintain the current inflation expectations and to prevent the persistence of inflation.  It was also emphasized that, so far, the financial system in the EU has been able to withstand the monetary tightening well, yet the authorities should remain vigilant and monitor risks.