Fitch Ratings has today assigned the Republic of Macedonia's (Former Yugoslav Republic of Macedonia's) forthcoming 10-year euro-denominated debut eurobond, which is expected to raise EUR150 million, a 'BB' rating with a Positive Outlook.
The eurobond will serve as a new benchmark for Macedonian public external debt. Proceeds will be used primarily to buy back existing London Club debt, as well as increasing official international reserves, thereby extending the maturity of Macedonia's debt and reducing interest and exchange rate risk (in view of the peg of the denar against the euro).
"Macedonia's 'BB' rating is underpinned by its relatively high level of income, track record of macroeconomic stability, disciplined fiscal policy, moderate and declining public and external debt burdens, low debt service ratios and prospective EU membership," says Edward Parker, Senior Director in the Fitch Sovereigns Group. "However, the rating is constrained by structural weaknesses such as high unemployment and a narrow export base, sizeable current account deficits, under-developed domestic debt market and risks to political stability."
"The Positive Outlook signals that Fitch believes Macedonia's creditworthiness is currently on an improving trend on account of the country's ambitious structural reform programme, prudent fiscal policy, signs of recovery in economic growth and progress towards EU accession," says Mr. Parker.
The goal of EU accession is a vital anchor to Macedonia's political stability, institution building and economic reform. Following the European Commission's generally favourable opinion on its membership application in November, Fitch expects Macedonia to receive formal EU Candidate status from the European Council Summit in mid-December, an important step towards eventual membership of the European Union.
Macedonia's public finances are a rating strength. Budget deficits are expected to be less than 1% of GDP, after a small surplus in 2004, contributing to favourable debt dynamics. General government debt was just 41% of GDP at end-2004, below the 'BB' range median of 49%. The current account deficit, which has averaged close to 6% over the past five years, is a potential source of vulnerability in the medium term, particularly in the context of the denar exchange rate peg. However, Macedonia's overall external liquidity position is comfortable and net external debt is equivalent to just 6% of GDP - below the 'BB' range median of 16%. The political situation is currently stable, but the risk of shocks that could adversely affect stability, such as a flaring of ethnic tensions or setback to EU accession ambitions, is a constraint on the rating.
Fitch first assigned a sovereign rating to Macedonia on 1 November 2005.