Page 54 - SE Outlook Regions 2022

2.8.2 External environment

The current account deficit of the country is forecast at 2.1% of GDP
both in 2021 and 2022, following a gap of 3.5% of GDP in 2020,
according to the IMF.

According to the central bank, the current account deficit would still be
moderate, but at a slightly higher level than 2020 (3.8% of GDP), and in
the medium term would be around 2% of GDP, similar to the pre-crisis
level. The widening of the deficit is primarily a reflection of the higher
trade deficit with rising world food and energy prices, a temporary
stagnation in supply chains that is slowing down exports, and a gradual
recovery in domestic demand. These effects are largely offset by faster
recovery of private transfers as well as better net exports of services.
The current account deficit, as in the pre-crisis period, will be fully
financed by the inflows in the financial account, which will enable
further growth of foreign reserves in the medium term.

Fitch expects the current account deficit to equal 3.4% of GDP in 2021,
as stronger domestic demand recovery and higher energy imports will
be partly balanced by a strong export rebound and continued strength
in remittances. The deficit will ease to 3% of GDP by 2023 and expects
net FDI to recover to 3.1% of GDP by 2022, fully financing the current
account deficit.

Fitch said that the EU accession process of North Macedonia helps to
anchor policy and support exports and FDI inflows, adding that these
factors are balanced against others, including the economy's small size
and high exposure to exchange rate risk.

The government in its 2022 budget projected final consumption to
increase by 3.1% and exports by 8.3%.

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