The Former Yugoslav Republic (FYR) of Macedonia is an upper middle-income country that has made great strides in reforming its economy over the last decade. The country has made significant development achievements, but more efforts across a range of areas are still needed to generate economic growth that puts people to work in the country and improves living standards for all. The government and the World Bank Group are currently working on boosting competitiveness while generating an environment for local businesses that will be necessary for putting Macedonia on a sustainable growth path, create more and better jobs, and promote shared prosperity. Policies to improve educational outcomes and other public services and to remove labor market constraints will be needed to support growth and make sure that a large part of the population reaps the benefits of sustained growth.

After declining by 0.4% in 2012, real GDP grew by 3.1% in 2013 on the back of construction and exports. Real GDP growth is expected to reach 3% in 2014.

FYR Macedonia’s central government and public sector debt in terms of GDP remained moderate at 35.8% of GDP and 43.2%, respectively, in 2013. While the central government debt is projected to remain stable, public sector debt is set to rise rapidly - reaching 49% by 2016 as State Owned Enterprises will account for a significant share of investment spending.

The government published a medium-term fiscal framework in September of 2013 which foresees a decline of the government deficit in the medium term from 4.1% in 2013 to 3.5% in 2014, 3.2 in 2015, and 2.6% in 2016.  In 2013, FYR Macedonia was once again ranked among the top reformers worldwide according to the Doing Business report and accession to the European Union (EU) nonetheless continues to be an anchor for reform in nearly every area of the government. The authorities are harmonizing national legislation with the EU acquis communautaire and have made specific achievements in procurement, transport policy, customs union, taxation, and statistics.

Overall, legislation is aligning the country’s policies closer with the EU but further work is essential for the enhancement of administrative capacity for legislation implementation and enforcement. In March 2012, the country and the EU Commission initiated a High Level Accession Dialogue (HLAD) which focused on five key policy areas:

  • Freedom of expression in the media
  • Rule of law
  • Public administration reform
  • Electoral reform
  • Strengthening the market economy

In December 2013, the EU General Affairs Council adopted the conclusion for the Summit of the European Council regarding the EC’s proposal for start of accession negotiations with the country, concluding that the EU members-states will revert to the issue in 2014.

The current investment portfolio of World Bank-financed operations in FYR Macedonia consists of 6 projects, totaling $300 million.

FYR Macedonia has been a member of the World Bank Group since 1994 and currently receives funding from the International Bank for Reconstruction and Development (IBRD). The current objective of this partnership is to provide selective and targeted financing and knowledge advisory services in support of faster, more inclusive, and greener economic growth in the country.

The Country Partnership Strategy 2011-2014 for FYR Macedonia is designed to integrate the country’s EU accession goals into all development interventions. This strategy is based on three pillars, outlined below.

  • Faster growth by improving competitiveness. FYR Macedonia is building on improvements in the business climate through continued sound macroeconomic management, further efforts to reduce bottlenecks in the business environment and infrastructure, and stepped-up investments in education, including higher education.
  • More inclusive growth by strengthening employability and social protection. The CPS emphasizes continued improvement of social programs amid growing fiscal constraints.
  • Greener growth through more sustainable resource use. Key Bank Group interventions include win-win investments in clean and efficient energy. As this is an emerging area of knowledge and new subject of dialogue with the government, the Bank also collaborates with development partners on analysis of green growth and climate change to support adaptation and other climate-sensitive policymaking.

Since joining the World Bank Group in 1994, FYR Macedonia has leveraged more than $1 billion in loans to support the country’s transition to a market economy and build effective institutions, improve education, social protection and pensions, build and rehabilitate basic transport and energy infrastructure, and preserve natural and cultural heritage.  This work is complemented by the work being carried out by the International Financial Corporation (IFC), which has committed more than $92 million to FYR Macedonia since 1993.

The World Bank Group is preparing a new Country Partnership Strategy with Macedonia, which will span 4 years starting in July 2014.

Over the last 20 years, assistance from the World Bank Group has helped the country transition to a market economy while simultaneously building effective institutions, improving education, increasing social protection, and building and rehabilitating transport and energy infrastructure. In addition to lending, FYR Macedonia has also benefited from the World Bank Group’s Analytical Advisory Activities (AAA) - which have included a Green Growth assessment to help the government mainstream sustainable development and climate change issues into its planning and design, and a review of public expenditure in agriculture and labor markets.

Some areas of World Bank engagement in FYR Macedonia include:

Human Development: The global financial crisis and continuing economic downturn in the Eurozone have reduced prospects for growth, exports, foreign direct investment (FDI), and private transfers in the country over the last several years. Recognizing the role social safety nets play in the broader strategy of poverty reduction, the World Bank Group has supported the government in strengthening the effectiveness and efficiency of the country’s social safety nets through the Conditional Cash Transfers Project. Through this project, more than 9,000 beneficiaries are receiving CCT benefits, resulting in 8,000 children from poor families attending secondary school on a regular basis.

Another project from the Human Development Sector is the Skills Development and Innovation Support Project ($24 million), whose objective is to improve higher education resource allocation transparency, as well as promote accountability, enhance the relevance of secondary technical vocational education, and support innovation capacity in FYR Macedonia.

Energy: Fossil fuels account for more than 80% of energy consumption in FYR Macedonia, and an increasing amount of this is imported. In the absence of investment in new energy sources, this trend will continue as demand grows while domestic production declines. As such, the government is committed to improving the power supply and strengthening the country’s energy security through the development of energy-related projects. As part of this commitment, the government is working with the World Bank to support the Energy Community of South East Europe Project. This project provides support and technical assistance to the country’s public electric power transmission company with the aim of strengthening transmission and dispatch while improving energy efficiency. As a result of this project, the country has been able to rehabilitate 38 substations and increase power transit by almost 200%.

Transport: As a landlocked country, FYR Macedonia is particularly dependent on a well-developed road and rail network for its economic and social development. Key elements of this network are also part of the Trans-European transport network. Since its independence, the main challenges facing the government have been to reduce the economic distance to markets and costs of transportation arising from the poor condition of the transport network and lessen delays at key border crossing points. The World Bank Group is helping FYR Macedonia address these challenges by focusing on improvements of road and rail facilities and simplify the movement of traffic through key border crossings. Part of these efforts have been through the Regional and Local Roads Program Support Project, which has helped rehabilitate more than 500 kilometers of road, improve design of future roads to be more resilient to the expected impacts of climate change, and boost road safety throughout the country.


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

*Amounts include IBRD and IDA commitments