Corporate sector deleveraging in Macedonia in the aftermath of the crisis: Has it happened at all?

The study explores the corporate sector debt in the Macedonian economy. It starts by a narrative scrutiny of its evolution using micro and macro data, and proceeds with a further analysis of its main components. The simple data inspection provides no evidence that corporate sector in Macedonia deleveraged after the burst of the global financial and economic crisis. The inference changes somewhat, once the intercompany debt of new foreign companies is controlled for. Without this type of debt, there are signs of downward adjustment of the corporate sector debt. Given this, we proceed with a more formal investigation, to explore the link between corporate debt and GDP, and assess where the corporate debt stands in terms of its equilibrium. Our findings suggest that shocks to the corporate debt cycle affect the economic cycle. In addition, the estimates reveal that the current corporate domestic debt level exceeds the equilibrium level for a considerable period, though the deviation is not large. The findings provide two important notions for the policy makers. First, corporate debt cycle should be an important variable in the policy function, and excessive leverage/deleverage should be detected in a timely manner. Second, as the domestic corporate debt does not exceed the equilibrium level at a large magnitude, it implicitly reveals that the current policy stance is adequate. Yet, given the long time in which the debt level exceeds the fundamentals somewhat, a vigilance is needed in this respect, as well.