€500 Million Loan Raises Queries in Macedonia

Newly revealed plans to raise a record €500 million through a Eurobond have caused divisions in Macedonia, with many querying official explanations for the loan.
Skopje | Photo by: Sinisa Jakov Marusic

Macedonia’s decision to borrow €500 million was revealed in the latest Official Gazette, which said the money would be borrowed in the third quarter of this year “for financing the budget needs of this year and the next”.

Prime Minister Nikola Gruevski denied that the loan has anything to do with budget deficit worries, insisting that the country does not need any loans now, but is raising money in order to refinance old debt that will be up for returning next year start.

“At the moment, we have no such urgency,” Gruevski told the media. “Our estimate is that now is the right moment to make a move, so we can raise finances under best possible conditions [on world markets], which will be used mainly for refinancing previous debt.”

However, a former Finance Minister, Nikola Popovski, said the Prime Minister was not telling the truth.

“If the money is really intended for refinancing old debt, created by the previous Eurobond from 2005, worth €150 million, then why are we raising €500 million?” he asked.

He said the real reason for the loan was that “the government has accumulated a huge [budget] deficit that annually amounts to €300 or €400 million, which must be financed from somewhere”.

According to data from the Finance Ministry, in the first four months of this year alone, Macedonia spent two-thirds of its predicted budget deficit for the whole of 2014.

The ministry report revealed that in the first four months, the government spent almost €200 million more than it gathered in taxes. This sum amounts to two-thirds of the planned €300 million budget deficit for 2014, which is set at 3.5 per cent of GDP.

Other experts blame the increase in spending on the April general and presidential elections, which saw another victory for the VMRO-DPMNE party led by Prime Minister Gruevski.

The size of Macedonia’s public debt has long been a source of contention. Earlier this year, the government and opposition expressed radically different views about the figures.

Opposition Social Democrats accused the government of hiding the real size of the public debt, which they say may have reached or exceeded 44 per cent of GDP.

The government insisted that the opposition had exaggerated the problem, saying that the state debt by the end of December 2013 was €2.7 billion on 34.3 per cent of GDP.

This is the third time in a decade that Macedonia is issuing Eurobonds. In 2005, the government this way raised €150 million at an interest rate of 4.65 per cent. The money is to be returned next year.

It issued a second Eurobond worth €175 million in 2009. This debt was repayed last year with an interest of 9.8 per cent.

In 2010, the government said it no longer planned to raise money this way, because of “unfavorable conditions” on world markets.