| On May 8, Ms. Gordana Siljanovska Davkova, nominated by the VMRO-DPMNE party, was elected as the first female President of the Republic of North Macedonia. |
| On the same day, the VMRO-DPMNE-led coalition secured a legislative majority with 58 seats (out of 120). The SDSM-led coalition and the European Front coalition—led by DUI, the biggest ethnic Albanian party—won 18 seats each, while the VLEN coalition obtained 14 seats and both Levica and ZNAM won six each. |
| The new coalition government, led by Prime Minister Mickoski, including VMRO-DPMNE, VLEN, and ZNAM, was elected on June 23. It includes 20 ministries, up from 16 in the previous government, with a total of 24 government members, including the Prime Minister. |
| The World Bank's Country Partnership Framework (CPF) 2024-2028 for North Macedonia was endorsed by the Board of Directors on January 23, 2024. The CPF’s overarching objective is to accompany North Macedonia on its journey to becoming more competitive, sustainable, inclusive, and resilient, with a focus on competitiveness, human capital development, and environmental sustainability. Building on lessons from the previous CPF, the new framework focuses on three high-level objectives (HLOs): |
| HLO 1: Improve public service delivery by enhancing efficiency and transparency. This includes strengthening administrative capacity at central and municipal levels, improving infrastructure asset management, and increasing revenue-raising abilities. It also aims to make public expenditures more efficient in education, health, and social protection. |
| HLO 2: Create more productive private sector jobs by strengthening conditions for private sector-led growth and foundational skills, with digitalization as a cross-cutting theme. This involves promoting access to regional and global markets through better connectivity and trade facilitation and supporting the human capital strategy in areas like early childhood development, education, school-to-job transitions, and the care economy. |
| HLO 3: Increase climate resilience by addressing environmental constraints to ensure sustainable economic growth and quality of life. The CPF will advance energy efficiency and transition agendas, focus on decarbonization, reduce air pollution, and improve transport and connectivity infrastructure. It also commits to scaling up climate-resilient infrastructure in response to climate change adaptation and natural disaster preparedness priorities. |
| The recently published Country Climate and Development Report (CCDR) for North Macedonia highlights that the country could suffer significant economic damages from climate change, and offers recommendations for policy reforms and investments, focusing on short-term actions through 2030, to lay the groundwork for scaling up climate action in subsequent decades. |
| Recent Economic Developments |
| Output growth edged only slightly above the 2023 outturn to 1.2%in Q1 2024 solely due to domestic demand as exports dropped and imports went up marginally. Retail trade, transport and catering led growth, while agriculture and industry had a negative contribution to growth. Relative to end-2023, labour market indicators in Q2 2024 improved slightly, with the employment rate rising by a notch to 45.6%, while the participation rate remained unchanged at 52.1%. The unemployment rate dropped slightly to 12.5%, and the youth unemployment rate (15-24) remained high at 26.9%. Nominal net wage growth, driven by the public sector and minimum wage increases, spiralled up to 14.8% in June 2024, outpacing inflation by close to 12 percentage points. |
| While headline inflation eased from double-digit growth in 2022 to 3% in July 2024, core inflation remains high—at above 5%, led by wage pressures and services. The Central Bank therefore left the main policy rate unchanged at 6.3% since September 2023. The fiscal deficit (with the state roads finances included) is projected to reach 5.1% of GDP in 2024 after a July budget revision that increased spending on wages, pensions and transfers, and lowered capital spending. Public debt went up to 61.5% of GDP in Q2 2024, mostly on account of higher issuance of domestic securities. Expenditure arrears have surged to 4.7% of GDP in Q2 2024 on account of poor fiscal discipline of local utility companies, public health institutions, and state-owned enterprises. |
| Banking sector stability has been maintained in line with an increase in the capital adequacy ratio to 18.9% in Q1 2024, while the liquidity rate settled around 20%. At the same time, the NPL ratio went above 3% for the first time since 2022, suggesting that recent economic shocks have impacted corporate performance. The current account balance (CAB) returned to negative territory at 1.3% of GDP in Q1 2024 owing to a worsening of the goods trade balance, while services exports held up and remittances eased. External debt slightly declined to 81.8% of GDP, but roughly half of the total is private and mostly related to intercompany lending. |
| Economic Outlook |
| The medium-term outlook remains positive, but risks are tilted strongly to the downside. Growth is expected to step up in the medium term to an average of 2.7% during 2025-2026. This projection assumes a rebound in public investments and a gradual recovery of consumption and exports. Headline inflation is projected to remain above or close to 3% in 2024-25, but to slow thereafter to a long-term average of 2%. Poverty rates are projected to maintain a slow declining pathway, helped by real wage and employment growth, falling by a further 1.2 percentage points over the forecast period. |
| The baseline scenario is built on the assumption that the focus on the EU accession agenda remains a priority for the new administration that won the general elections in May 2024. At the same time, low productivity, inefficient capital deployment, and weak external demand, compounded by limited fiscal space and rising fiscal risks amidst high interest rates, continue to impede growth prospects and further slow the pace of income convergence with EU peers. Additional delays of decarbonization targets, along with carbon pricing, risk a loss in domestic public revenues and international competitiveness given the start of the EU Carbon Border Adjustment Mechanism. In this context, following up on the Growth Plan pledges is critical to carve out a growth-conducive economic environment. |
| For the full document click the link below: |
| The Republic of North Macedonia |
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