News Image

North Macedonia

Published on: 20 May 2019

Capital Skopje
Population (million) (2017) 2.1
GDP (current USD billion) (2017) 11.3
GDP per capita (current USD) (2017) 4.9
Life expectancy (years) (2016) 75.7

History and Politics

Macedonia gained its independence peacefully from Yugoslavia in 1991.

Although Macedonia became an EU candidate in 2005, it has not opened accession negotiations. The country still faces challenges, including fully implementing reforms to overcome a decade of democratic backsliding and stimulating economic growth and development. In June 2018, Macedonia and Greece signed the Prespa Accord whereby the Republic of Macedonia agreed to change its name to the Republic of North Macedonia. Following ratification by both countries, the agreement went in to force on 12th February 2019. North Macedonia signed an accession protocol to become a NATO member state in February 2019.

Politics in North Macedonia occur within the framework of a parliamentary representative democratic republic, whereby the Prime Minister is the head of government, and of a multi-party system. Executive power is exercised by the government. Legislative power is vested in both the government and parliament. The Judiciary is independent of the executive and the legislature. The Economist Intelligence Unit has rated North Macedonia as “hybrid regime” in 2016.

Macroeconomic Environment

Since its independence in 1991, Macedonia has made progress in liberalizing its economy and improving its business environment. Its low tax rates and free economic zones have helped to attract foreign investment, which is still low relative to the rest of Europe. Corruption and weak rule of law remain significant problems.

Macedonia is working to build a country-wide natural gas pipeline and distribution network. Currently, Macedonia receives its small natural gas supplies from Russia via Bulgaria. In 2016, Macedonia signed a memorandum of understanding with Greece to build an interconnector that could connect to the Trans Adriatic Pipeline that will traverse the region once complete, or to an LNG import terminal in Greece.

Macedonia maintained macroeconomic stability through the global financial crisis by conducting prudent monetary policy, which keeps the domestic currency pegged to the euro, and inflation at a low level. However, the internal political crisis has hampered economic performance, with GDP growth slowing in 2016 and 2017, and both domestic private and public investments declining.

Labor Market

Unemployment eased in 2016 and early 2017, helped by public investment and employment programs, but labor force participation fell to its lowest since 2012. Public investment in infrastructure should sustain employment creation. Poverty is expected to continue to decline, propelled by job creation.

Employment grew 2.5% year-on-year (y-o-y) in 2016 and 2.7% in the first half of 2017. A large share of the newly created jobs are linked to employment programs in trade, transport services, and manufacturing. Labor force participation stood at around 57% in 2016 and early 2017, the lowest rate since 2012.

Macedonia’s economy is closely linked to Europe as a customer for exports and source of investment, and has suffered as a result of prolonged weakness in the euro zone. Unemployment has remained consistently high at about 23% but may be overstated based on the existence of an extensive gray market, estimated to be between 20% and 45% of GDP, which is not captured by official statistics.

Banking System

The financial system in Macedonia consists of the National Bank of the Republic of Macedonia (NBRM), commercial banks, financial companies, savings houses, exchange offices, the Deposit Insurance Fund, insurance companies, pension funds, investment funds, brokerage firms, and a stock exchange.

The banking system itself is two-tiered, based on the Banking Law and the National Bank Law. NBRM is the independent money-issuing institution responsible for price stability, stability of the national currency (denar), stability of the financial system, general liquidity of payments within the country and abroad, and the conduct of monetary policy and foreign exchange policy. The Supervision Department at NBRM serves as the main regulatory body responsible for the supervision of all banking institutions and savings houses.

The main goal of NBRM’s monetary policy is to maintain price stability. This objective is achieved by an exchange rate targeting strategy, whereby the denar is pegged against the euro as a nominal anchor for the economy. Twice a year, NBRM prepares monetary and foreign exchange projections and reports, which are publicly available.

The banking system in Macedonia consists of 14 private banks, one state-owned bank (Macedonian Bank for Development Promotion), and three savings houses.

In 2017, foreign capital was present in 14 and was dominant in 11 banks, controlling 70.3% of total banking sector assets, 78.1% of total loans, and 69.4% of total deposits. Changes in the Banking Law in 2013 allowed savings houses to transform either into a financial company, which is subject to less restrictive supervision, or into a bank. Three legal entities are operating as financial companies, which, according to legislation, do not receive deposits, and are subject to supervision by the Ministry of Finance. There is no separate legislation regulating non-bank financial institutions, and they are regulated with the provisions of the previous Banking Law and appropriate sub-laws.

The three largest banks, Komercijalna Banka, Stopanska Banka Skopje, and NLB Bank, hold 57.8% of the total assets, and collect 70% of total households’ deposits. The ten smallest banks have individual market share of less than five%, and cumulatively account for 25% of total banking assets. The savings houses’ share in total assets of deposit-taking institutions in 2017 was unchanged at 0.6%, while their share in total loans was 0.7%.

In 2017, total deposits increased by 5.1%, slightly less than in 2016. Households’ deposits grew by 6.2%, while enterprises’ deposits grew by only 2.4%. Total loans to enterprises and households grew by 5.9% on an annual basis, mostly due to higher consumer loans to households (9.7%), while loans to enterprises increased (2.9%). Banks’ liquidity ratio (liquid assets/total assets) remained high despite the slight drop from 30.9% to 29.8%. The structure of liquid assets remained the same, as banks tend to keep most of their liquidity safe by purchasing treasury bills and bonds, Central Bank bills, or keeping accounts abroad. The capital adequacy ratio of the banking sector increased from 15.2% in 2016 to 15.7% in 2017. The overall non-performing loans (NPL) ratio dropped to 6.3%, with NPL ratio of households remaining low at 2.4%, and NPL of enterprises standing at 10%, due to a few defaults in the construction sector.

In 2017 NBRM conducted different stress-test scenarios on banking sector sensitivity to increased credit risk, liquidity shocks, and insolvency shocks. All tests showed that the banking sector is healthy and resilient to such shocks, with capital adequacy ratio remaining well above the legally required minimum of 8%. Banking supervision is in full compliance with BASEL 2 recommendations, and it is currently implementing provisions of BASEL 3 standards.

In 2017, total assets of Macedonia’s banking sector reached USD8.8 billion, 3.9% more compared to 2016. All but two smaller banks were profitable in 2017, and the banking sector’s overall profitability reached USD123 million, which was 3.6% higher compared to the previous year. The profitability indicators in 2017 were almost unchanged from the previous year. The indicator ROE (return on equity) reached 13.5%, while ROA (return on assets) was 1.4%. At the end of 2017, the banking sector employed 5,929 people, which is a drop of 56 employees compared to 2016.

Although considerably improved over the past several years, Macedonia’s financial system is still relatively underdeveloped compared to Western standards. Banking is very conservative, offering traditional banking services only. Credit is available to private companies, but it is still subject to significant collateral in the form of real estate, which often is appraised by the banks at lower than market value. Overall customer service still does not meet Western standards. However, the use of credit cards is widespread and most companies and shops accept credit cards as a payment instrument.

Healthcare

Once a healthcare leader in the region, the Republic of Macedonia is now struggling to maintain its healthcare system at an average level and its once good reputation. A lot of changes have been introduced in order to reverse the effects of the loss of high quality staff and the decay of medical facilities, but such improvements are currently not or little visible.

Primary Health Care (PHC) in Macedonia is a directly accessible, free of charge contact between patients and their physicians, a system that offers diagnostic and curative health services

There have been some remedies proposed in the governmental draft programme for the period between 2017-2020. In order to keep the quality staff in the country, higher salaries (doubled by the end of the mandate) and better specialisation conditions are planned. Certain fees that are currently covered by the patients themselves, according to the programme, will be eliminated, and there will also be a reduction in administrative staff as to ensure better quality and efficiency. The Government also plans to introduce changes that will decrease check-up and appointment waiting time, as well as increase quality in that respect. The introduction of certain medical facilities like a diabetes centre, and children’s hospital has also been planned for, as well as construction of a new and well-equipped university clinical centre to pave the path to quality medical research and healthcare.

Social Welfare

The main institutions where citizens of Macedonia (F YROM) can initiate the procedure to protect and/or exercise their social rights are the Centers for Social Work, which can be found in most major municipalities. They decide on the rights related to social security, detects and determines social issues and problems, provides social assistance for vulnerable cases (including VOTs), etc.

The main structure of the national pension system in North Macedonia consists of: a statutory pension scheme (first pillar); a statutory funded pension scheme (second pillar); and a supplementary pension scheme (third pillar). The statutory pension scheme is mandatory for all economically active people. The statutory funded pension scheme is mandatory for those who started to work from 1 January 2013 onwards.

The assistance to vulnerable persons and groups falls within the scope of the Ministry of Labor and Social Policy. Together with the Centers for Social Work and other public institutions, they implement numerous programs dedicated to the especially vulnerable groups.

Sources

http://www.worldbank.org/en/country/northmacedonia/overview
https://www.cia.gov/LIBRARY/publications/the-world-factbook/geos/mk.html
https://www.export.gov/article?id=Macedonia-Banking-Systems
https://www.fomoso.org/en/mosopedia/background-knowledge/challenges-in-the-healthcare-system-of-the-republic-of-macedonia/
https://files.returningfromgermany.de/files/CFS%202018%20North%20Macedonia%20ENG.pdf
http://country.eiu.com/macedonia