Washington, September 19, 2019 - North Macedonia will strengthen public finance sustainability, improve market competition, and lower the regulatory burden on businesses to improve integration with European and global markets with support from a EUR 125 million loan approved today by the World Bank’s Board of Executive Directors.
The Public Finance and Competitiveness Development Policy Loan supports the Government in reforms to improve the management and transparency of public finances and make public spending more efficient, especially spending on social protection, while also making the tax system more equitable. It supports reforms in energy by unlocking the energy sector monopoly and boosting renewables. It also improves public procurement by increasing private sector bidders’ access to public tenders, and boosts market competition, by introducing risk-based inspections that would reduce time firms spend dealing with inspections.
“Fiscal sustainability is vital to support long-term growth, in particular in the currently fragile external environment”, says Linda Van Gelder, Regional Director for the Western Balkans. “Gradual fiscal consolidation and competitiveness reforms supported by this operation aim to bolster confidence, safeguard against external shocks, and accelerate long-term growth.”
A Development Policy Loan is a World Bank instrument that supports a country's program of policy and institutional actions that promote growth and sustainable poverty reduction. Some actions taken by the government under this program include:
- Amending the Law on Pension and Disability Insurance, the Law on Compulsory Capitally Funded Pension Insurance, and the Law on Compulsory Social Insurance Contributions to introduce price indexation of benefits, harmonize the accrual rates, and introduce a higher pension contribution rate to improve fiscal and social sustainability of the multi-pillar pension system;
- Enacting the Law on Social Protection and amending the Law on Child Protection to consolidate social assistance benefits, expand the coverage of the bottom quintile, and protect the energy poor, while maintaining good targeting accuracy through the introduction of a guaranteed minimum assistance program;
- Enacting the Energy Law to deregulate electricity generation, open the electricity supply market for all customers, and introduce competitive-based support mechanism for renewable energy generation; or
- Enacting the Inspection Supervision Law to introduce: (a) risk-based inspections; (b) a provision for inspectors to issue warnings; and (c) a grace period for businesses to correct first-time infractions.
“Improving shared prosperity and reducing poverty in a fiscally sustainable manner was another objective for this operation,” says Sanja Madzarevic-Sujster, World Bank Senior Economist. “Once the social assistance, pension, and personal income tax reforms are fully implemented, the poverty rate should decline by over 5 percentage points and inequality should decline as well.”
The loan is allocated in a single withdrawal tranche Development Policy Loan in the amount of EUR125,000,000, with a final maturity of 12 years including 4 years of grace period. The interest rate is EURIBOR plus 0.50 percent, and the closing date is May 31, 2020.
Since its first loan in 1993, the World Bank Group has invested more than $2 billion in North Macedonia, implementing 66 projects in energy, roads, agriculture, health, education, social policy, innovation, and skills. IFC, a member of the World Bank concentrating on the private sector, supported the improvements in investment climate and provided around $400 million in investments in 19 projects in the financial sector, energy, telecoms, pharmaceuticals, textiles, retail, manufacturing and automotive industry.