Brussels, 8 November 2023 (MIA) – North Macedonia has made some progress and is at a good level of preparation in developing a functioning market economy. In 2022, the economy was badly hit by the fallout from Russia’s war of aggression against Ukraine, which significantly slowed down its post-COVID recovery, states the European Commission in the economic criteria section of its 2023 Report on North Macedonia.

“The government supported households and businesses through large-scale energy subsidies, tax reductions and targeted direct income support. Owing to an inflation-driven boost to tax income and under-execution of several expenditure categories, the general government deficit remained below the revised target. Capital expenditure was raised significantly, but still fell short of the revised plan. The public debt ratio dropped, but remains significantly above pre-COVID-19 levels,” adds the Report.

The EC notes that the National Bank has tightened its policy stance further in view of still elevated inflationary pressures, which, it says, began to subside gradually towards the end of 2022 and beyond

The Report states that despite the introduction of fiscal rules which considerably strengthened fiscal sustainability, progress has been slow in the implementation of wider-ranging measures to improve the management of public investment, which, according to the Report, is vital for underpinning the government’s plans for a sizeable increase in capital expenditure.

“The banking sector was resilient throughout the crises, and financial stability was bolstered by progress on some key legislation. The labour market showed some improvement, but structural problems persist, including high youth and long-term unemployment rates and a large gender gap. The business environment continued to be impeded by the large size of the informal economy, slow progress in streamlining parafiscal charges and an opaque and inefficient State aid regime,” states the document.

According to the EC, the country has made some progress and is moderately prepared to cope with competitive pressure and market forces within the EU.

“Integration with the EU in trade and investment remained at a high level in 2022. The share of high-value products in exports increased further and trade openness surged to a record high. There was further progress towards improving vocational educational training (VET), but major skills shortages persist relative to labour market needs, entailing long school-to-work transitions. These, coupled with large gaps in transport and energy infrastructure and low investment and innovation funding, are restricting potential growth. Digitalisation of the economy is advancing, but the competitiveness of domestic businesses could be improved through a wider offering of public e-services,” notes the EC.

The Commission assesses that North Macedonia is moderately prepared to assume the obligations of membership in most of the areas covered by cluster 2 on the internal market, namely the free movement of goods, services and capital, intellectual property, competition policy, financial services and consumer and health protection.

“The country has achieved a good level of preparation on company law, although it is still at an early stage on freedom of movement for workers. North Macedonia made good progress on free movement of capital and some progress on financial services and consumer and health protection. Limited progress was made on the free movement of goods, rights of establishment to provide services. No progress was made on company law, intellectual property law and competition policy and freedom of movement for workers. Overall, more progress is needed in the coming year in the areas covered by this cluster, to feed into North Macedonia's preparations to meet the requirements of the EU’s internal market. Work on this cluster is highly relevant for the development of the Common Regional Market,” notes the Report.

The Report states that North Macedonia is moderately prepared in most of the areas covered by cluster 3 on competitiveness and inclusive growth, including digital transformation and media, taxation, social policy and employment, and enterprise and industrial policy.

“The country is in between a moderate and a good level of preparation in the area of economic and monetary policy. It has a good level of preparation in the areas of science and research and customs union. Some progress was made on taxation, economic and monetary policy, enterprise and industrial policy, science and research policy, social policy and employment. More efforts are needed, however, particularly in areas where limited progress was made, such as digital transformation and media, customs union, and education and culture,” states the document.

The Report also notes that North Macedonia has a good level of preparation on trans-European networks and some level of preparation on environment and climate change, as part of cluster 4 on the green agenda and sustainable connectivity.

“The country is moderately prepared on transport and energy policy with some progress made on energy, particularly on regional gas interconnectors and on renewables. Substantial efforts are needed in areas where limited progress was achieved, such as transport, trans-European networks and the protection of the environment. In the upcoming period, the country needs to accelerate implementation of the Economic and Investment Plan and of the Green Agenda for the Western Balkans,” states the Report.

According to the EC, the country is moderately prepared in cluster 5 on resources, agriculture and cohesion.

“It has a good level of preparation on food safety, veterinary and phytosanitary policy and is at an early stage of preparation in financial and budgetary provisions. Over the reporting period, some progress was made on agriculture and rural development, fisheries and food safety, veterinary and phytosanitary policy. However, further efforts are needed, in particular in areas where limited or no progress was made, such as regional policy and the coordination of structural instruments and financial and budgetary provisions,” assesses the EC in the Report.

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