North Macedonia flag North Macedonia: Economic and Political Overview

The economic context of North Macedonia

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

North Macedonia is the poorest of the former Yugoslav republics; however, it has made significant progress in expanding its economy over the past decade. The economy grew on average 5% annually between 2004 and 2008, driven mainly by domestic consumption and exports (notably metals and textile products). The COVID-19-induced crisis, however, prompted a GDP drop of 4.5% in 2020. However, the economy rebounded in 2021, with GDP marking a growth of 4% according to IMF estimates, supported by private consumption and foreign remittances. For 2022 and 2023, growth should stabilize around 4.2% and 3.8%, respectively, though uncertainty remains due to the unstable global conjuncture. With the ongoing restoration of global supply chains and recovery of demand from the German automotive sector, export growth is expected to accelerate sharply.

Public finances were also severely affected by the pandemic, with support measures accounting for about 9% of expected full-year GDP. The overall government deficit was thus estimated at 6.1% in 2021, with an increase of 100% in capital expenditure compared to the 2020 budget). The government plans to reduce the central government fiscal deficit to 3.5% by 2023, although the European Commission forecasts a deficit of 4.9% this year followed by 4.3% in 2023. General government debt – estimated at 53% in 2021 - is projected to rise further at least until 2023, yet to remain below 60% of GDP (at 54.8% as per the IMF latest forecast). Meanwhile, inflation accelerated in 2021 reaching 3.1%, largely due to an increase in energy, food and transportation costs. The IMF expects the rate to follow a downward trend this year (2.2%) and the next (1.5%). While EU accession talks have been blocked by Greece due to a historic dispute over the name of the country, both the EU and Greek authorities praised the decision of the North Macedonian parliament to change it to the Republic of North Macedonia. In March 2020, the General Affairs Council of the EU decided to open accession negotiations with North Macedonia, and in July 2020 the draft negotiating framework was presented to the Member States. Nevertheless, in November the Bulgarian government officially announced that it does not approve the EU negotiation framework for North Macedonia’s accession process and thus practically blocked the country’s membership process over slow progress on the implementation of the 2017 Friendship Treaty between the two countries. In 2021, the EU’s General Affairs Council stated it expects the start of long-awaited EU accession talks with Albania and North Macedonia to happen “as soon as possible”, without the indication of a possible date.

Unemployment – estimated at 15.9% in 2021 by the IMF – is still really high and was exacerbated by the COVID-19 crisis. Thanks to the firming recovery and continued government support to employers, employment growth is expected to pick up over the forecast horizon, with the unemployment rate declining to 15.6% in 2022 and 15.3% next year (IMF). However, much of the workforce is employed in the informal economy, thus the exact level of unemployment is hard to assess. According to the latest figures from Eurostat, about a third of North Macedonian citizens live below the poverty line or are at risk of poverty and social exclusion. The income ratio between the richest and poorest 20% of the population is more than eight times, the highest in the EU.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 12.5512.2913.8914.9015.91
GDP (Constant Prices, Annual % Change) 3.2-4.54.04.23.8
GDP per Capita (USD) 6,0445,939e6,7127,2047,692
General Government Gross Debt (in % of GDP) 40.651.3e53.054.054.8
Inflation Rate (%) 0.81.2e3.26.93.6
Unemployment Rate (% of the Labour Force) 17.316.415.915.615.3
Current Account (billions USD) -0.42-0.43-0.29-0.31-0.34
Current Account (in % of GDP) -3.3-3.5-2.1-2.1-2.2

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

The Republic of North Macedonia (formerly known as FYROM) has been traditionally based on agriculture. The agricultural sector represents 9.1% of the GDP and employs 13.9% of the active population (World Bank, latest data available). According to figures from the UNDP, the North Macedonian agricultural sector is a very profitable business, also due to widespread governmental subsidies (the largest portion of the agriculture budget – USD 106 million in 2021 - consists of direct payments for agriculture production and rural development). Arable agricultural land accounts for half of the total territory, of which about two-thirds is categorised as pastures and the rest as arable agricultural land. The country mainly produces grapes, tobacco, vegetables and fruits. Sheep and goat breeding is equally important. There are a few deposits of iron, copper and lead in the country. One of the limits of the sector is that parcels are very small and fragmented, with over half of parcels consisting of two to five hectares, and only 0.14% with 50 hectares or more.

The industrial sector represents 22.6% of the GDP and employs 31.1% of the active population. It includes chemical products, steel, machinery and textiles. The textile sector constitutes the main industry of the country (especially the leather industry), with the textile production output being close to an all-time high in the last two decades. The manufacturing sector alone contributes 12.5% of the GDP (World Bank). According to data from the country’s statistical office, in 2021 North Macedonia's industrial production rose by 1.4% year-on-year.

The tertiary sector represents 57% of the GDP and employs 55% of the total workforce. The main income sources come from transport, telecommunications and energy production. The North-Macedonian banking sector is self-funded and stable, and it is composed of 17 institutions (fifteen banks and two savings houses – European Banking Federation). Trade, transport and tourism were among the sectors most affected by the COVID-19 crisis. However, in 2021 the number of foreign tourists who visited North Macedonia reached 293,963, compared with 118,206 the year earlier (national statistical office).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 13.9 31.1 55.0
Value Added (in % of GDP) 9.1 22.6 57.0
Value Added (Annual % Change) 1.7 -6.8 -2.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
68,6/100
World Rank:
46
Regional Rank:
27

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Sources of General Economic Information

Ministries
Ministry of Finance
Ministry of Justice
Ministry of Economy
Ministry of Transportation and Communications
Ministry of Agriculture
Ministry of Labor and Social Affairs
Statistical Office
National Bureau of Statistics
Central Bank
National Bank
Stock Exchange
Stock Exchange
Economic Portals
 

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Latest Update: July 2022