Weekly Briefing, Vol. 26, No. 2 (ME), February 2020
Large income gap between the country and the EU bloc
No major surprises in the economic performance of the country were observed in the month of February. The announcement of PM Zoran Zaev that 2020 will be a “year of the economy”, failed to begin to materialise in the second month of 2020. At the start of the year, the European Commission and the World Bank both predicted modest growth of 3.2 per cent in 2020. The International Monetary Fund, IMF, put it a little higher, at 3.4 percent, while the government and the Central Bank were more optimistic, predicting growth of 3.8 per cent.[1] Domestic experts are very pessimistic regarding the current rate of economic growth. The current deputy Minister of Finance, Gordana Minitrieska Kocoska, stated that “if the economic growth follows this dynamic, the country will reach the european standard in 50 years”.[2] Others have considered even such forecasts to be too optimistic, and argued that at the current level of growth, the economy will not be able to reach the european standard even in 100 years.[3]
The IMF Country Economy Report for N.Macedonia for 2020 paid particular attention to the question of economic convergence between the country and the EU bloc. The report states: “Although growth has been solid in the past two decades, it has not been enough to substantially narrow N. Macedonia’s income gap with the European Union (EU). Currently, N.Macedonia’s macroeconomic indicators and regulatory quality are comparable to that of Central Eastern and Southeastern Europe (CESEE) countries at the time they started their EU accession negotiations. However, like other countries in the Western Balkans, North Macedonia’s position appears less favorable regarding the control of corruption and the rule of law. An empirical analysis shows that EU accession negotiations, and the associated improvements in the quality of institutions, rule of law and control of corruption, can significantly boost income convergence.”[4]
Specifically, the report places emphasis on the fact that Income Per Capita in N. Macedonia remains well below the EU average. Since 2000, the country’s real GDP per capita has grown from 20 to just below 30 percent of the EU-15 average. Average income per capita in the EU is around 36,000 euros annually, and in Macedonia this figure is 6,000 euros per capita, which means a difference of 30,000 euros compared to the citizens of the EU. What is more, the IMF predictions for growth OF 3,4% mean that instead of closing the gap with the EU, it will grow further. Namely, with a GDP growth of 3,4% income per capita, average income will reach 6,204 euros in 2020, while the income per capita in the EU at 1,2% growth rate will reach 36,432. In view of these figures domestic economists have suggested that the country needs to achieve a far greater rate of economic growth (of at least 10%) for there to be any progress. In their view the key lies in stimulating and building up the real economy.[5]
Another crucial factor outlined in the IMF country report is the question of EU accession and its role in the economy. It notes that the economic benefits of EU accession will depend on the ability of the country to successfully implement institutional and structural reforms. Closer integration with the EU will bring new export and investment opportunities, and EU funding can help improve the quality of infrastructure. Thus, advancement along the EU accession pathway is considered to be a positive context for stimulating the economy in the IMF report. It also lists the biggest weakness of the economy of the country to include: underutilized labor force, a large shadow economy, and systemic weaknesses in governance, the judiciary and public administration.[6]
Economic issues and pre-electoral politics
The economic trends observed in 2018 and 2019 are expected to continue in 2020, but there are also expectations that the elections in April may have a destabilising effect on the economy. Already in february, the economy entered the pre-electoral campaigns of the political parties, with the governing Social Democrats presenting a more positive and optimistic economic outlook, and the opposition parties focusing on a more negative economic outlook.
The technical Prime Minister Oliver Spasovski wrote on his Facebook page “After two and a half years of running a strong and a responsible economic policy we have achieved an economic breakthrough”. He said that the minimum wage increased to 14,500 denars (235 euros), while the average wage increased to 25,787 denars (420 euros) and the unemployment fell to 17,1 percent. He further added: “From a GDP of 1,8% , we have reached an average GDP of 3,5%.”[7] The Press Center of the Social Democrats also confirmed these positive figures and announced further improvements in a new mandate: “In the next mandate of the SDSM, salaries will continue to grow faster and will become stronger. The average salary will increase to 36,000 denars (585 euros), the minimum wage will increase to 18,000 dennars (292 euros). By the end of 2024 we will secure an average salary of 600 euros average and a minimum salary of 300 euros.”[8]
The opposition party VMRO-DPMNE opposed this narrative and claimed that “the economic turn around that SDSM is talking about, is in fact an economic collapse”[9] As part of their own party press conference they stated: “Zoran Zaev is lying about the salary of 500 euros. The average net monthly salary in the country according to the State Office for Statistics is 25,215 denars. This is by 4,785 denars less than the promised 30,000 denars, or 75 euros less on average per worker. If we take into account the fact that there are 800,000 employees in the country, that means that the employers should pay out 60 million euros more per month or 720 million euros annually to reach the average monthly net salary of 30,000 denars. This sum of money is nonexistent in the economy, nor in the indebted government of Zoran Zaev. Macedonia is one of the countries with the lowests standard of living. Health workers leave because of low salaries, agricultural workers abandon their land because of the bad agricultural politics of the SDSM while the youths continuously migrate” the VMRO-DPMNE stated. [10]
Exports-OECD Report
On the 19th of February, the Economic Chamber of Macedonia[11] organised an event in cooperation with the OECD. The event was dedicated to exploring new opportunities for trade and the various modalities for the successful attraction of investments, promotion of exports and the economic integration of the countries from the Western Balkans. The Chamber announced that “the great interest in the event further motivated us to continue working on encouraging exports in priority industries in the country, to follow and analyze developments in the foreign trade exchange of our country and of the countries in the region and to contribute towards conquering new markets”[12]
As part of the event, the OECD published a report titled: “Unleashing the Transformation Potential for Growth in the Western Balkans”[13] According to the report, which focused on the period 2006-2016, the export share of N.Macedonia amongst the six Western Balkan economies in 2016 was approximately 10%. In terms of imports, N.Macedonia accounted for 15% of the WB6 regional imports in 2016. The report describes N.Macedonia as a small, landlocked economy dominated by services, which accounted for 54% of gross domestic product (GDP) in 2016, with an important industrial sector (24% of GDP, 12% for manufacturing) and a smaller agricultural sector (9%).
In terms of the export structure of the economy, the report states that between 2006 and 2016 Macedonian exports increased from USD 2.6 billion to USD 5.3 billion and imports from USD 3.8 billion to USD 6.9 billion. The EU15 accounts for 86% of total chemical exports, 78% of textiles and garments, 85% of footwear and 81% of machinery. Looking at individual trade partners, Germany is the leading export destination market, accounting for 43% of total exports in 2016 (USD 2.3 billion), up from 16% in 2006. Germany is the primary destination market for Macedonian base metals (USD 7.7 million in 2016), textiles (USD 3.5 million) and chemicals (USD 1 million). According to the latest statistics regarding the balance of trade between Germany and 29 countries from eastern Europe, N. Macedonia is in the 14th position. “The trade in 2019 between Germany and N.Macedonia was 4,4 billion euros which is an increase of 10,8% of exports towards Germany in comparison to 2018 and 4,2% increase of imports from Germany.[14] Total exports to Italy and Greece fell from 11% each in 2006 to around 4% and 5%, respectively, in 2016 (Table 2.23). In 2016, Italy imported USD 46 million worth of footwear.
The report also identifies 230 products which are close to the economy’s technology frontier and which could contribute towards further increasing Macedonian economic sophistication. More than 40% of these products belong to the following sectors: machinery, mechanical appliances and electrical equipment; metals; and chemicals. It concludes that “Macedonian short gains are predominantly exported to nearby destinations, including the Western Balkans, Croatia, Bulgaria and Slovenia, and belong to both low-technology (e.g. agro-food and basic metals) and medium-technology sectors (e.g. machinery, processed metals and industrial components).”[15] Finally it finds that “Attracting foreign investment with the aim of latching on to European value chains has proven a correct strategy for North Macedonia to increase its level of economic complexity and penetrate EU markets. However, this trend must be continued, increasing the number of medium- to high-technology investors to diversify risk and bridge the gap between foreign and domestic enterprises.”[16]
Public debt – a new tool for financial transparency
A new platform for tracking public debt was announced by the Ministry of Finance. It was developed by the Ministry with the support of the International Republic Institute and US Aid.[17] The platform contains data on public debt owed both to domestic and foreign markets in 2020. The platform is available in macedonian, albanian and english. This is the third tool for financial transparency that has been published by the Ministry of Finance. According to the platform, the current total public debt is 48,9% of GDP, or 5.540,9 millions of euros. Government debt is 40,2% of GDP or 4.566,8 millions of euros. Debt of public enterprises and companies in dominant ownership of the state or municipalities is 8,7% of GDP, or 984,1 millions of euros. Central government debt is 40,1% of GDP or 4.545,4 millions of euros. The external debt of the central government is 2.761,4 million euros, while the internal debt of the central government is 1.784,0 million euros. The tool also lists some of the capital projects whose implementation has increased the public debt for the period 2017-2019.
[1] “North Macedonia Awaits Economic Breakthrough That Never Comes”, Available at:
https://balkaninsight.com/2020/01/08/north-macedonia-awaits-economic-breakthrough-that-never-comes/
[2] “What kind of growth of GDP is necessary to bring us closer to the living standards of the Europeans?” available at:
[3] Ibid
[4] “Republic of North Macedonia : Selected Issues” IMF Report available at: https://www.imf.org/en/Publications/CR/Issues/2020/01/24/Republic-of-North-Macedonia-Selected-Issues-48983
[5] What kind of growth of GDP is necessary to bring us closer to the living standards of the Europeans?” available at:
[6] “Republic of North Macedonia : Selected Issues” IMF Report available at: https://www.imf.org/en/Publications/CR/Issues/2020/01/24/Republic-of-North-Macedonia-Selected-Issues-48983
[7] ‘We have made an economic breakthrough in 2 and a half years” https://fokus.mk/spasovski-napravivme-ekonomski-presvrt-za-dve-ipol-godini1/
[8] “By the end of the new mandate 600 euros average salary and 300 euros minimum salary” https://www.mkd.mk/makedonija/ekonomija/sdsm-do-krajot-na-noviot-mandat-600-evra-prosechna-300-evra-mininalna-plata
[9] “The economic turn around that SDSM is talking about, is in fact an economic collapse” Available at: https://a1on.mk/economy/vmro-dpmne-presvrtot-za-koj-govori-spasovski-se-vika-ekonomski-propast/
[10] “VMRO-DPMNE- Zaev lied to the citizens about a 500 euro salary”
[11] Since December 2004 with the Law on the Economic Chamber of Macedonia, the Chamber is a business and professional association which reconciles, represents and protects the interests of its members. Members of the Chamber on a voluntary basis are legal entities seated in the Republic of Macedonia who perform economic activities and are registered in the Trade Register.
[12] “Exports- a strategic goal of the Chamber of Commerce” http://www.mchamber.org.mk/Default.aspx?mId=3&evid=37830&lng=1
[13] Unleashing the Transformation potential for Growth in WB available at: http://www.oecd.org/south-east-europe/programme/Unleashing_the_Transformation_potential_for_Growth_in_WB.pdf
[14] “Trade between Germany and Macedonia” https://izvoz.mk/%D1%82%D1%80%D0%B3%D0%BE%D0%B2%D0%B8%D1%98%D0%B0%D1%82%D0%B0-%D0%BD%D0%B0-%D0%B3%D0%B5%D1%80%D0%BC%D0%B0%D0%BD%D0%B8%D1%98%D0%B0-%D1%81%D0%BE-%D0%BC%D0%B0%D0%BA%D0%B5%D0%B4%D0%BE%D0%BD%D0%B8%D1%98/
[15] Ibid
[16] Ibid