After receiving three doses of vaccines, I tested positive for covidium last week, after which I spent a week in isolation at home, when I wrote this column, and thanks to technology there was no downtime and I realized all the scheduled meetings virtually. Compliments to the employees of the Ministry of Finance, who were at the level of the task all the time, as well as to the management with which we function as a team. But my point is on another aspect, we are already facing another crisis, energy and inflation and great uncertainties in the markets since the war in Ukraine, and the previous one is not over yet, ie Kovid is still present. So we have an overlap of crises, one on top of the other, which in cumulative makes the situation one of the most difficult after World War II.

Overlapping crises, one on top of the other

Aftershock - an earthquake, the effect of a previous major earthquake or rather a crisis overlap - on top of each other. This best describes what is happening to the world economy now. This is an aftershock of the crisis caused by the Covid-19 pandemic, further stimulated by the geopolitical developments that culminated in the war in Ukraine. The corona crisis is the biggest economic crisis the world has faced since the Great Depression. However, the world economy very quickly managed to get back on its feet. After the decline of the global economy in 2020 of -3,1%, in 2021 followed a rapid recovery with robust growth of gross domestic product of 6,1%. Thanks to the uncompromising, strong response of policymakers, the world has been able to overcome this crisis much faster and more effectively than the global financial crisis. It took only one year for developed and emerging economies to return to pre-crisis levels, unlike the global financial crisis, which, although weaker, lasted longer.

But as the world and the economy successfully recovered from the pandemic, a new threat emerged - aftershocks. As a result of the slowdown or complete cessation of economic activity, the supply of goods and services in world markets decreased. During the reopening of the economy, supply failed to meet the rapidly growing demand and as a result there was an increase in prices on world stock markets, especially energy and some of the primary products. Of course, there are other factors that have contributed to this. There have been a number of regional developments that have contributed to energy shortages, including the European Union's efforts to reduce CO₂.

Rising energy prices on world markets, including other primary commodities, have fueled overall price pressures, which have spilled over into international economies through international markets. These pressures culminated after the beginning of the Russian invasion of Ukraine, given the importance of Russia and Ukraine in European and world supply chains. Europe gets almost 40 percent of its natural gas and 25 percent of its oil from Russia, while a third of the world's wheat exports come from Russia and Ukraine, a fifth of its corn exports and 80 percent of its exports of sunflower edible oil.

All of this has resulted in rising inflation rates, which for many economies are breaking records set decades ago. According to the International Labor Organization (ILOSTAT), the annual inflation rate globally, measured by the price index (CPI) in March rose to 9,2%, which is an increase compared to February when the same index was 7,5%, January 6,8%, while December 2021 was 6,4%. As a reminder, in the past decade the inflation rate has been consistently low, even too low, and for some central banks it has been a challenge to reach the targets. The International Monetary Fund expects in April that in developed economies the inflation rate this year will average 5,7%, while in developing countries 8,7%, or 1,8 and 2,8 percentage points higher than projections from January this year.

Simultaneously with the growth of price pressures, driven primarily by the growth of prices of energy, food and some other primary products, the prospects for growth of the global economy are deteriorating. The IMF expects global growth to slow from 6,1% of GDP growth in 2021 to 3,6% in 2022 and 2023. This is a downward revision by 0,8 and 0,2 percentage points compared to the January projection, ie after the start of the war in Ukraine. However, the basic scenario is that this year the economy will be positive, as is the case with the aftershock, which is a smaller shock than the initial one.

The inevitable triangle for economic policy makers

The war in Ukraine has brought an important dilemma for policy makers. On the one hand, it is dealing with inflation, and on the other hand, it is not to stifle the recovery of the economy. Also, on the one hand are the measures and support of the various categories, and on the other hand are the strengthening of the fiscal buffers, consolidation and stabilization of the debt.

The International Monetary Fund and the World Bank advise that fiscal policy should be adjusted according to the degree of economic exposure to the war in Ukraine, the state of the pandemic and the course of the economic recovery. On the one hand, due to the necessary fiscal expansion in many countries during the pandemic, debt reached a record high. Also, as a result of central banks' response to price pressures by tightening monetary policy, governments are facing high interest rates in capital markets. However, the need for consolidation should not prevent governments from prioritizing appropriate measures to support the standard of vulnerable categories of citizens, particularly sensitive to price pressures and protecting the economy.

Faced with crises, one after the other, and faced with the challenge of not deviating from the set ambition for growth and development, the triangle inevitably imposes itself in achieving these three goals: coping with the crisis, maintaining growth and fiscal consolidation. At the same time, the crisis requires quick reactions and creates additional costs for the budget, while maintaining growth requires consistent policies and reforms that will have an effect in the long run and fiscal consolidation is conditio sine qua non in the medium term.

From the point of view of public finance management, achieving the goals of the inevitable triangle is approached from three sides of the budget: the expenditure side by cuts and reprioritization, the revenue side by reforms for greater efficiency and consolidation, and the financing side by sustainable instruments.

Rebalance: Funds for new measures and cuts wherever possible

Our economy, as small and open (with 140% of GDP openness), is subject to global economic developments, especially developments in the EU economy. The Russian-Ukrainian crisis, indirectly, through the European economy was reflected in our country as well. The channels through which this crisis is already being felt is the rise in the price of primary products, especially food and energy. Namely, inflation in April recorded its highest rate (10,5%) since the beginning of the nineties. The other channels through which this crisis can affect our economy are trade, declining consumer confidence, and thus consumption and the tightening of international financial markets. Accordingly, the expectations for this year's growth can not correspond to the projected GDP growth in this year's budget, which was adopted before the events in Ukraine and amounted to 4,6%. The expectations of the international financial institutions for this year for our economy are around 3% GDP growth on average (IMF with a projection of 3,2%, EBRD with a projection of 3% and World Bank with 2,7%). What the outcome will be, however, will depend solely on what happens next in Ukraine, what new sanctions will be imposed on Russia and how it will all be reflected on our largest EU trading partners.

However, one thing is clear, the budget needs to be restructured in order to adequately respond to the new situation. The Ministry of Finance is already consulting with the institutions on the level of project implementation and current expenditures. What I can say with certainty as Minister of Finance is that we will be extremely conservative, wherever we can - it will be shortened. This will make more room for new reactions and measures, which, given the situation, will probably be needed again.

Since the beginning of the crisis, the government's response has been 615m euros in measures to support the economy and citizens. This amount is among the strongest responses to the crisis in the region. Croatia has allocated about 635 million euros, Greece 500 million euros, Slovenia and Albania provide around 200 million euros each, etc. Our goal as a Government is to support the citizens, the vulnerable categories first of all, to maintain the health of the economy and to overcome this crisis, and then, to return to the path and the goal we are striving for - higher and sustainable rates of economical growth.

Deficit financing and consmediation in the medium term

I will add that our commitment to fiscal consolidation remains. In the medium term, after overcoming the crisis and complete recovery of the economy, the fiscal deficit will be narrowed gradually, so as not to stifle growth, to be reduced to the level prescribed by the Maastricht criterion.

In this direction are the announcements for the current financing of the deficit through instruments that bring the lowest cost for us. As I mentioned above, the price of capital in the markets will still rise as a result of the further tightening of monetary policy in an effort to reduce inflation expectations and stabilize inflation rates. The European Central Bank has discreetly announced an increase in the key interest rate since July, while the US Federal Reserve, the Bank of England and several central banks in Europe have already raised the key interest rate several times. Therefore, although in the initial construction it was planned for the Republic of Northern Macedonia to issue a Eurobond, given the developments in the capital market (Croatia in April issued a Eurobond of 1,25 billion euros over 10 years with a coupon interest rate of almost 3%), we go to financing through earmarked instruments of international institutions.

The IMF Credit and Liquidity Line (PLL) is aimed at securing funds at the lowest possible cost, which is also a positive signal in the financial markets. It is a recognition for our economy that it is stable and based on sound macroeconomic fundamentals, because the Fund assigns this line only to healthy economies. Namely, during the approval process of this instrument, in addition to the fact that the country should have positive assessments during the last mission of the Fund, additional assessment of monetary policy, fiscal policy, stability and supervision of the financial sector, as well as the adequacy of statistics. If the country has significant vulnerabilities in any of these categories, then it cannot gain access to this instrument.

It is also planned to provide funds through earmarked project loans from the World Bank and the EBRD. All these instruments and lines are much more favorable sources of financing, cheaper than the current conditions on the international capital market, which we will probably have to access with a Eurobond. In doing so, we carefully monitor the amount of public debt in the medium and long term, its sustainability, and of course, the purpose of the funds. Borrowed funds should be directed to the priority areas for economic development (which I am talking about below), which will generate positive multiplier effects on the domestic economy.

Improvement strategy on the revenue side of the budget as well

In order to implement fiscal consolidation, after overcoming the crisis, in addition to the expenditure side, the revenue side will also act through the implementation of the Tax Reform Strategy. The main goal of this strategy is to provide a fair, efficient, transparent and modern tax system, with modern digital technologies and innovations in taxation, in order to achieve accelerated, inclusive and sustainable economic growth.

This strategy contains five priorities. The first refers to greater fairness in taxation, in order to ensure that everyone fulfills their social obligation and pays their fair share of the tax. A newly designed model for fair taxation is expected from this. Furthermore, the second priority is greater efficiency and effectiveness of the tax system for better revenue collection, through more efficient fight against unregistered activities and tax evasion and strengthened institutional capacity, analysis and adjustment of the tax base or reduction of arrears. The third priority is increased tax transparency, which includes improving the exchange of information between tax authorities and other entities, which will be primarily based on electronic services and digitalization of processes. The fourth priority is better quality of services and the fifth priority is the introduction of environmental ("green") taxation, in order to stimulate taxpayers to reduce their behavior and / or activities that contribute to pollution.

The crisis as an opportunity: structural reforms, green transition, digitalization and human capital

Continuing structural reforms and dealing with the crisis is something that both the World Bank and the IMF recommend. Responding to the current challenges, but also building an economy that will be resilient to the future, is the only way to achieve the desired result - higher and sustainable rates of economic growth, which will contribute to the growth of the standard and economic development.

The debate on the platform for development of solutions SEFF or Skopje Economic and Financial Forum, which will be held at the end of the month, is also aimed in this direction. The topic of the SEFF discussion will be "Maintaining economic growth in times of uncertainty and beyond", and will be based on four pillars: 1. Macroeconomic challenges in times of crisis, 2. Perseverance, competitiveness and regional cooperation, 3. Energy , green transition and infrastructure and 4. After the crisis: structural reforms, human capital, financial innovation and investment.

The purpose of this Forum is to encourage all stakeholders, from policy makers, through policy makers to stakeholders - all together, with their opinion to contribute solutions that will be a good response to both the crisis and what follows.

To my great satisfaction, the main speaker of the Forum will be the winner of the Nobel Prize in Economics in 2008, the American professor Paul Krugman, who with his analysis will contribute to this very complex discussion, which will undoubtedly bring benefits.

Although this will be a really busy period of the year, given that we are working on the supplementary budget at the same time, I look forward to it, because only through a struggle of ideas and opinions can real solutions be reached.

In the end I would like to point out one more thing - only with a good strategy and a well-supported plan can results be achieved. The economic strategy we have implemented so far has successfully rescued us from the pandemic crisis, for which we have received recognition from all relevant international financial organizations. I am convinced that we will successfully overcome the aftershoot. We will build a better future!