Fitch Ratings Lowers Outlook for Macedonia

Skopje | 22 May 2009 | The ratings agency Fitch Ratings has downgraded its outlook on Macedonia’s foreign currency and local currency Issuer Default Ratings, IDR, from “stable” to “negative”.

“The Negative Outlook on Macedonia’s ratings reflects the risk that the deterioration in the global economic and financial environment will impose a more costly macroeconomic adjustment on the country, given the large current account deficit,” Eral Yilmaz, associate director of Fitch’s Emerging Europe sovereigns group, said in a press release.

At the same time, the agency has stated the country’s IDRs at “BB+,” the short-term foreign currency rating at “B” and the Country Ceiling at “BBB-.”

Macedonia’s current account deficit widened to almost 13 percent of GDP last year, compared with 7.5 percent in 2007. Fitch is forecasting that the current account deficit will narrow only moderately to 10 per cent of GDP in 2009.

Fitch expects foreign direct investment, which financed half of the current account deficit in 2008, to fall sharply this year. The global credit crunch will make it more difficult for the private sector to borrow externally, increasing downward pressure on foreign exchange reserves and putting pressure on the Macedonian currency, the denar, which is de facto pegged to the euro.

The agency believes that the likely deterioration in public finances will have an impact on Macedonia’s strongpoint of maintaining a prudent fiscal policy. The government budget deficit stood at less than 0.2 percent of GDP in the five years to 2008 although this is likely to change, Fitch forecasters.

In April 2009, the government lowered its 2009 growth forecast to 1 per cent from 5.5 per cent and cut budget expenditure by 9 per cent to maintain the target government budget deficit of 2.8 per cent of GDP.

Fitch is forecasting the Macedonian economy will contract by 2 per cent in 2009. The agency is projecting a government budget deficit of 4.1per cent of GDP in 2009.

Fitch Ratings is a New York and London based global rating agency that spans across capital markets in over 150 countries. It is widely respected by investors, issuers, and bankers.
Source: Balkaninsight

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