Skopje, 29 October 2022 (MIA) – Fitch agency has affirmed North Macedonia’s rating at BB+ with a negative outlook, resulting from the implementation of good governance policies, credible and coherent macroeconomic and financial policy, consistent with the longstanding peg with the euro. It is significant that the credit rating has been maintained amid a large impact of the global price and energy crisis. Fitch notes that the EU accession process helps anchor policy and support exports and FDI inflows. These factors are balanced against the economy's small size, high exposure to exchange rate risk, for example due to the banking sector's euroisation and a high share of government debt denominated in foreign currency, and high structural unemployment. The Negative Outlook reflects increased downside risks for growth, external and public finances since our April review, due to the indirect effects of the war in Ukraine on commodity prices, especially energy, potential energy supply disruptions, significant deterioration in the eurozone (70% of exports) growth prospects and tighter global financing conditions. Fitch forecasts North Macedonia's economy to expand by 2.3% in 2022 and 2.1% in 2023 before recovering to 3.2% in 2024, reflecting some easing of geopolitical risks and energy price pressures, improving external demand and gradual fiscal consolidation. It adds that although North Macedonia is working towards diversification of its energy generation sources and imports and reduced the share of electricity produced with natural gas (19.5% in August vs 32% in 2021), downside risks to the growth outlook remain significant, if a prolonged war in Ukraine maintains high energy prices or supply disruptions. Fitch forecasts net FDI to increase to 4% of GDP in 2022 and to finance the current account over the medium term, due to continued investments in the energy and auto sectors. The agency says the announced two-year EUR 530 million Precautionary and Liquidity Line (PLL) with the IMF will provide additional liquidity support, financing and could help channel additional official and external market funding. The EUR400 million repo facility with the ECB expires in January 2023. Fitch has revised down its forecast 2022 general government deficit to 5.3% from 6.5% of GDP in April. Total announced measures to mitigate the energy crisis equal EUR750 million (5.7% of GDP) and have been partly accommodated due to strong revenue growth and lower execution of capital spending. Fitch projects the general government deficit to decline to 4.8% of GDP in 2023, balancing the weaker growth outlook against removal of certain energy support measures and continued under-execution in capital spending. According to Fitch, general government debt will increase to 53.5% of GDP in 2022 and reach 55.9% by 2024, above the 54% projected median for the 'BB' category.