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Fitch raises Macedonia's rating outlook to positive

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Fitch raises Macedonia's rating outlook to positive

Fitch Ratings revised the outlook on Macedonia's long-term foreign and local-currency issuer default ratings to positive from stable, citing the country's stabilizing domestic political situation and improving key international relations. The ratings were affirmed at BB.

The outlook revision reflects the progress made by Macedonia's coalition government in implementing a reform program aimed at aligning national policies toward EU accession; joining the North Atlantic Treaty Organization, or NATO; and restoring public institutions' independence and transparency, Fitch said.

"Diplomatic signals are positive, but Macedonia will need to compromise on its name in order to unlock NATO and EU accession, in Fitch's view," the rating agency said, noting that government negotiations have restarted with Greece over Macedonia's naming dispute. Greece contends that the name implies territorial claims over its own province of Macedonia.

Macedonia is expecting the European Commission to recommend to the EU Council in the coming months a date for the opening of EU accession negotiations later in 2018.

Fitch said the outlook revision also reflected the decrease in Macedonia's total public debt, which fell to 47.4% of GDP in 2017 from 48.5% in 2016, after rising for nine years from 23% in 2008.

The country's central government budget deficit in 2017 was 2.7% of GDP, in line with the shortfall in 2016 but below the government's 2.9% target. The current account deficit, meanwhile, shrank to 1.7% of GDP in 2017 from 2.8% in 2016.

After an estimated average GDP expansion of 0.5% in 2017, Fitch is expecting growth to recover to 3.1% in 2018 and 3.3% in 2019, as economic confidence improves due to the normalization of Macedonia's political situation.

Macedonia's coalition government is led by the Social Democrats, who are facing less opposition to their reforms after winning a strong mandate in the October 2017 municipal elections.