Overview

  • COUNTRY CONTEXT

    FYR Macedonia

    2016

    Population, million

    2.08

    GDP, current US$ billion

    10.4

    GDP per capita, current US$

    5.2

    School Enrollment, primary (% gross) (2015)

    93.2

    Life Expectancy at Birth, years (2015)

    75.5

     

     

    FYR Macedonia experienced an extended and serious political crisis in 2014–17. EU and U.S. diplomats facilitated a dialogue between the main political parties, resulting in the “Przhino Agreement,” which set a date for new parliamentary elections. Those elections were held in December 2016, resulting in the formation of a new Government in June 2017.

    The ambitious reform agenda outlined in the Government Program 2017–2020 focuses on economic growth, job creation, fair taxation, support to small and medium enterprises (SMEs), and reform of social protection for the most vulnerable.

    In addition, the Government adopted the 3-6-9 Action Plan, which includes a set of measures that will be implemented in the next three, six, and nine months to accelerate the process of EU and NATO accession, with the aim of securing a date for the start of EU accession negotiations by the next European Commission Progress Report in spring 2018.

    Growth slowed to 2.4% in 2016 and turned negative in the first half of 2017, as political uncertainty affected investment. It is expected to recover to 1.5%by the end of the year, supported by consumption and growing investor confidence after the new Government took office in June 2017.

    Unemployment eased in 2016 and early 2017, helped by public investment and employment programs, but labor force participation fell to its lowest since 2012. Poverty is expected to continue to decline, propelled by job creation.

    Last Updated: Oct 05, 2017

  • Number of Active Projects

    7
    Lending$348.9 million

    IBRD

    6 projects ($312 million)
    EU IPA 2 projects ($37.18 million)

    The 2015–18 Country Partnership Strategy (CPS), approved in October 2014, is focused on two areas:

    • Growth and Competitiveness – improvements in the business climate and trade regime are essential to attracting private investment and improving export performance in order to achieve sustained private sector–led growth and job creation.
    • Skills and Inclusion – interventions that increase skills and improve inclusion are crucial to ensure that all segments of society benefit from economic growth through greater employability and more efficient public and municipal services.

    Since the country aspires to EU membership, the World Bank Group strategy supports progress on the accession agenda as a cross-cutting theme. Bank resources are used to complement and improve absorption of the EU’s IPA funds.

    Overall, the World Bank Group is supporting the Government with a full range of financial, knowledge, and convening services and also providing assistance in several sectors, such as transport, energy efficiency, public financial management, and social protection.

    KEY ENGAGEMENT

    Skills Development and Innovation Support

    The Bank is currently finalizing a PLR of the current CPS for FYR Macedonia. The PLR proposes a six-month extension of the CPS period until December 31, 2018 to allow for the achievement of most CPS objectives and the delivery of lending and knowledge services that were delayed due to the country’s protracted political crisis. This extension will also allow sufficient time to formulate, jointly with the new Government, the new Country Partnership Framework (CPF) based on the Systematic Country Diagnostic (SCD) that is currently underway.

    The PLR confirmed the continued relevance of the CPS focus areas and their alignment with the Government’s program. Until the end of 2018, the World Bank plans to support: investments in improving energy efficiency in public buildings, public financial management reforms through a Public Finance Development Policy Operation, and social services reforms through a Social Services Improvement project.

    In addition, the new Government has expressed interest in participating in the Western Balkans Trade and Transport Facilitation, which aims to promote deeper economic integration between the Western Balkan countries and the EU by facilitating the cross-border movement of goods, enhancing transport efficiency and predictability, and improving market access for trade in services and investments.

    Public Finance Review (PFR)

    The World Bank will continue to support the Public Financial Management (PFM) reform agenda of FYR Macedonia’s Government through just-in-time analytic work.

    The Bank is currently working with the Ministry of Finance on a PFR update aimed at identifying policy options to enhance fiscal sustainability, improve the transparency and accountability of public finances, and improve the efficiency of social spending.

    More information on the previous PFR can be found here Public Finance Review: Fiscal Policy for Growth.

    Last Updated: Oct 05, 2017

  •  

    RECENT ECONOMIC DEVELOPMENTS

    Political uncertainty took a toll on growth in 2016 and early 2017, but a recovery is expected as confidence is being restored. Growth fell to 2.4% in 2016 (from 3.8% in 2015), supported mainly by household consumption linked to rising employment, wages, pensions, and credit. Concerns about the political situation had begun to affect investment, which subtracted 1.3 percentage points (pp) from growth in 2016. Net-exports added 0.7 pp, supported by foreign directive investment (FDI)-related and services exports propelled by the euro area recovery.

    The economy contracted by 0.9% in the first half of 2017, as investment declined by double digits. Private consumption growth remained positive, while net exports had a marginal negative contribution. Construction and services, traditional drivers of growth, contributed negatively in the first half of 2017, while other sectors had small positive contributions. The establishment of a new government in June is helping restore investor confidence, which is likely to support growth in the second half of the year.

    Unemployment continued to fall, helped by fiscal interventions to encourage job creation. Employment grew 2.5% year-on-year (y-o-y) in 2016 and 2.7% in the first half of 2017. A large share of the newly created jobs are linked to employment programs in trade, transport services, and manufacturing. Labor force participation stood at around 57% in 2016 and early 2017, the lowest rate since 2012. The unemployment rate fell to 22.8% in the first half of 2017, a historic low. Despite government efforts, youth unemployment and long-term unemployment remain high at 46 and 81%, respectively.

    The current account deficit (CAD) widened from 2.1% of GDP in 2015 to 3.1% in 2016 but remains manageable. The solid increase of exports was not enough to compensate for higher dividends and profit repatriation, pushing up the CAD, which narrowed back to 2.1% of GDP in the first half of 2017, helped by strong exports. Net FDI, which performed well until May (amounting to 1.5% of GDP), declined significantly in June but was partially compensated by other financial investments. Foreign reserves stood at 4.7 months of imports in July 2017. Pensions, subsidies, social assistance, and health are expected to increase, partially offsetting the savings in other items. The new budget considers lower revenues from most taxes but higher revenues from excise taxes and contributions. Public and publicly guaranteed debt increased from 46.4% of GDP in 2015 to 47.7% in 2016 and remained stable in nominal terms in the first half of 2017.

    Poverty is estimated to have declined in 2016. Using the poverty line for upper-middle-income countries (US$5.5/day at 2011 purchasing power parity [PPP]), poverty is projected to have fallen to 22.8% in 2016, continuing a decreasing trend present since 2009. Employment growth and increases in salaries, especially in the labor-intensive sectors, are expected to have contributed to poverty reduction in 2016 and early 2017.

    ECONOMIC OUTLOOK

    Affected by the political uncertainty in the first half of the year, growth is expected to decline to 1.5% in 2017 but expand to 3.2 and 3.9% in 2018 and 2019, respectively. The main drivers are expected to be consumption (fueled by growing employment) and investments, both public (as the two highways under construction should be finished by 2019) and private (which is expected to pick up as confidence is restored).

    The fiscal deficit is expected to reach 3% of GDP in 2017 but then gradually decline to 2.2% by 2019. Public and publicly guaranteed debt is expected to increase to 55% by 2019. Poverty is expected to continue its downward trend in the next several years.

    Public investment in infrastructure should sustain employment creation. Inclement weather in the summer of 2017 may have led to a slight increase in poverty among households depending mainly on agriculture income.

    Last Updated: Oct 05, 2017

  • Active Projects

    PROJECT SPOTLIGHT

    High School Students Acquire More Skills in FYR Macedonia

    The vocational education and training in agriculture and forestry in the high school “Gjorce Petrov” in Kavadarci now has a new laboratory for enology and soil science, provided through a grant from the World Bank’s Skill Development and Innovations Support Project.

    One of the project’s components provides financial incentives to encourage joint projects between technical and vocational education and training (TVET) schools and business enterprises, with the aim of improving the work-based learning of students.

    The school has used this opportunity, and in cooperation with the private company “Pro grupa Doo Bitola,” has created a school company “Agrolab.” High school students from Kavadarci now have access to quality vocational training that allows them to acquire hands-on knowledge on how to determine the chemical, physical, biological, and other parameters important for the production of high-quality wine.

    Small and medium wineries in the region also have benefited from the laboratory; instead of having to utilize more expensive product testing in the country’s capital, they now have the school do the testing at a lower price.

    So far, 10 TVET schools in the country have been provided with grants that will be used for work-based training and equipment supply. Many others have also been selected, and the implementation of those projects will start during the coming school year.

    The Skills Development and Innovation Support Project was approved in January 2014 in the amount of US$24 million. Overall, the project aims to improve the transparency of resource allocation and promote accountability in higher education, enhance the relevance of secondary TVE, and support innovation capacity in FYR Macedonia.

    The project supports interventions that foster education and skills relevant to the job market and enhance the innovation capacity and activity of firms in FYR Macedonia.

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LENDING

FYR of Macedonia: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments


PHOTO GALLERY

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Additional Resources

Country Office Contacts

Skopje, Republic of Macedonia
34 Leninova Street
1000 Skopje, Republic of Macedonia
Tel: +389 2 55 15 230
+389 2 3117 159
abozinovska@worldbank.org