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Overview

  • COUNTRY CONTEXT

     

    2020

    Population, million

    2.08

    GDP, current US$ billion

    12.13

    GDP per capita, current US$

    5,842

    Life Expectancy at Birth, years (2017)

    75.9

     

     

    North Macedonia’s European Union (EU) accession progress remains stalled due to the ongoing dispute with Bulgaria. On March 25, 2021, the European Parliament adopted the 2019–20 European Commission Report on the Western Balkan countries. The report on North Macedonia notes steady progress made in adopting EU reforms. As a result, members of the European Parliament (MEPs) are calling on the EU to hold a first intergovernmental  conference with North Macedonia as soon as possible, which would mark the formal start of accession negotiations. MEPs note that Bulgaria and North Macedonia have yet to come to an understanding on outstanding bilateral issues and encourage them to reach a compromise on an action plan to resolve the impasse. They note also that their previous recommendations on discrimination against citizens who openly express their Bulgarian identity and/or ethnic background have not been implemented. 

    Parliament work. MEPs concluded that opposition parties have a constructive role in the proper functioning of the Parliament of North Macedonia and the adoption of key legislation related to the EU and NATO reform process. The European Parliament called on the North Macedonian Parliament to improve the legislative process by minimizing the use of fast-track procedures and increasing transparency. 

    On March 29, the leaders of the leading Social Democratic Union of Macedonia (SDSM) and the opposition Internal Macedonian Revolutionary Organization - Democratic Party for Macedonian National Unity (VMRO-DPMNE) parties agreed to:

    • Postpone the  census to September 5–30. The census of Macedonian nationals living abroad will continue until September 30. However, final adoption of the law on the census is pending, as the opposition Alliance for Albanians (AA) and Alternativa coalition do not support the postponement. 
    • Begin electoral campaigning for the forthcoming local elections on September 30, leading to the first round of voting in the second half of October. 
    • Ensure that the Electoral Code includes fingerprint scanners. 
    • Join forces on the implementation of laws related to the reform agenda, the economy, and the COVID response. 

    Last Updated: Apr 07, 2021

  • Number of Active Projects

    11
    Lending FY21$69.8 million

    IBRD 

    $522.02 million
    EU Trust Fund $17.22 million

    The ongoing World Bank Group program in North Macedonia is being implemented under the Country Partnership Framework (CPF) for 2019–23. It is based on three interconnected focus areas that will help the country to improve the environment for a dynamic private sector and enhance export-led growth, to strengthen human capital for inclusive development, and to build sustainability.

    The CPF is expected to enhance private sector growth through several projects, including the Road Upgrading and Development Project, the Local and Regional Connectivity Project, the Agriculture Modernization Project, and the Western Balkans Trade and Transport Facilitation Project. The latter two projects aim at improving the access of North Macedonian goods and exports to EU markets. 

    The CPF contributes also to North Macedonia’s efforts to boost human capital. In addition to the ongoing Skills Development and Innovation Support and Social Services Improvement projects, the new Primary Education Project will improve conditions for learning in primary education, while also mitigating and addressing learning losses generated by COVID-19. Through the Social Insurance Administration Project, the Bank aims to improve the quality of services in social insurance and strengthen the regulatory framework for people with disabilities and hazardous occupations. 

    The CPF supports sustainable growth by strengthening the country’s public financial management system and accelerating the transition to a more sustainable energy mix. The Public Sector Energy Efficiency Project will directly contribute to the reduction of CO2 emissions through the energy-efficiency retrofitting of public buildings, both at the municipal and central levels, as well as public lighting.  

    This CPF includes an Advisory Services and Analytics program to advance key reform areas and address critical knowledge gaps, such as public spending, through the Organic Budget Law, and innovation and competitiveness with technical assistance to help promote firm-level innovation through both public and private resources.  

    A Performance and Learning Review is planned to be delivered by the end of 2021 and is expected to reconfirm the CPF focus on export-oriented, inclusive, and sustainable growth. 

    KEY ENGAGEMENT

    On March 4, 2021, the World Bank approved additional financing of €37 million to replenish funds reallocated to the Local Roads Connectivity Project in May 2020 to address the unfolding COVID-19 pandemic. More specifically, funds were used to provide  financial support to private sector employers severely affected by the COVID-19 crisis and to establish an income support scheme for the months of April–June 2020. The replenished amount for the project will support the rehabilitation of local roads and related enhancements, including to bus stops, sidewalks, and bicycle facilities, improve drainage and safety features, boost economic competitiveness, support growth in beneficiary communities, and provide more and better opportunities for people around the country.  

    As part of COVID-19 response, the World Bank provided an additional €90 million through the Emergency COVID-19 Response Project, approved in April 2020. The project supports North Macedonia’s efforts to prevent, detect, and respond to the threat posed by COVID-19, strengthen national systems for public health preparedness, and help mitigate some of the social consequences of the pandemic. So far, the project has helped procure modular prefabricated containers for the establishment of 17 regional COVID centers, with outpatient and inpatient units, furniture, and non-medical equipment. Of these, nine COVID centers have been already assembled and fully furnished. The project also helped to procure essential drugs for COVID-19 patients, medical equipment, such as X-rays and ultrasound medical devices, and an MRI machine. In addition to the health component, the project provided temporary income support to eligible individuals and households economically affected by the COVID-19 containment measures. 

    At the Government’s request, the Bank will restructure this project, enabling the reallocation of an amount of roughly €8 million for the purchase of vaccines, the provision of bonuses to COVID-19 frontline health professionals, and the procurement of additional medical equipment for the regional health centers.

    Last Updated: Apr 07, 2021

  • Recent Economic Developments

    Growth declined by 4.5 percent in 2020, less than what was projected earlier as the recession sharply eased in the fourth quarter of the year. Private consumption, the main driver of growth in the past, experienced a sharp decline of 5.6 percent year-on-year (y-o-y) as a result of the containment measures. Investment also declined by more than 10 percent, even though it shortly rebounded in the third quarter. Government consumption that increased by over 10 percent partly alleviated declining domestic demand. External demand also plummeted, reflected in a 10.9-percent y-o-y decline in exports. The accompanying decline in imports alleviated the pressure on the current account deficit, which is expected to remain largely unchanged compared to 2019. 

    On the production side, agriculture, information and communications technology, and real estate activities were the only sectors to grow in 2020. Government support helped cushion the crisis’s impact on the labor market by supporting over 130,000 jobs with wage subsidies in April, declining to 60,000 toward year-end as the economy slowly recovered. The unemployment rate remained largely unchanged, but this was partly a result of people dropping out of the labor market. The activity rate dropped by 0.8 percentage points to 56.4 percent, the lowest level since 2008.

    The banking sector liquidity ratio of over 23 percent in the third quarter of 2020 remained adequate, helped by central bank measures. Credit continued to grow at 4.7 percent y-o-y by end-2020 on account of both household and firm credits, supported by strong deposit growth and crisis-support programs. Nonperforming loans declined to 3.3 percent, given the allowed suspension on credit reclassification requirements until December. However, an upward correction is expected in 2021 as this measure ends. 

    The capital adequacy ratio stood at 16.9 percent in the third quarter of 2020, double the mandatory level. Inflation remained low at 1.2 percent y-o-y, reflecting subdued output despite rising food prices in the second half of the year.

    The fiscal deficit tripled to 8.9 percent of GDP in 2020. The drop in the value added tax and excise revenues amounted to 0.9 percent of GDP and was cushioned somewhat by an increase in social contributions. Spending increased by 4.4 percent of GDP, as health expenditures and subsidy schemes, aimed at employment retention, surged. Spending on wages and pensions also increased as a result of previous policy changes, while capital spending declined. Public and publicly guaranteed debt increased to 60.2 percent of GDP as the Government ramped up borrowing to finance the soaring deficit and repay maturing obligations.

    Economic Outlook

    Economic growth is expected to rebound to 3.6 percent in 2021. This scenario assumes accelerated vaccinations by mid-2021, no further lockdowns, and increased external demand. In this scenario of a gradual recovery, after a protracted recession in the first quarter of 2021, a rebound is expected thereafter, as restored consumer and investor confidence pushes up personal consumption, private investment, and exports. 

    The fiscal deficit is planned at 4.9 percent, but given the extended government support to firms and households in early 2021 of an additional 1.4 percent of GDP, the actual deficit will likely be higher. Setting public finances back on a sustainable path will be needed over the medium term, as public and publicly guaranteed debt surpasses 64 percent of GDP in 2021. Targeting a primary balance over the medium term would be needed to stem further public debt growth and not crowd out productive spending. This is even more important in the eventuality that international financing costs rise. 

    Boosting revenues through cutting back on exemptions and strengthening compliance are priorities, along with a gradual state withdrawal from the corporate sector. Bringing people back into the labor market, as well as education and governance reforms, could help boost potential growth. Poverty is projected to resume its decline as growth gradually recovers in 2021.

    Last Updated: Apr 07, 2021

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