IMF: Economic growth in North Macedonia will intensify, eradication of grey economy will provide for improving the business climate

18th November 2019, Skopje - Economy entered a period of solid growth and stability in this period, whereby growth is expected to intensify next year. Reforms to tackle informality will help improve the business climate and protect workers, with potential large revenue gains as well. These are some of the conclusions of the regular IMF Mission in the country.

Under the Concluding Statement of the 2019 Article IV Mission, the staff indicated that after a protracted political crisis, Macedonian economy entered a period of solid growth and stability. It is stated that growth is expected to strengthen further this year, driven by strong domestic demand and robust export growth despite the global trade slowdown. Lending activity has picked up, including the loans intended to firms. Unemployment, though still elevated, has seen a sustained decline, supported by strong job creation - the statement included.

According to IMF, economic growth is expected to accelerate to 3.4% next year, being revised upwards by 0.3 percentage points compared to the spring forecast. Lower taxes and higher pensions and wages, also including the minimum wages, are expected to provide further, albeit one-off, stimulus to consumption. Export and investment growth would remain robust but slow somewhat, reflecting weak growth in trading partners. This moderation could become more pronounced if global trade tensions worsen or investment plans are delayed due to uncertainty during the election period.  

IMF welcomes the reforms aimed at eradicating the grey economy, pointing out that they are a top priority on the Government's agenda. IMF stressed that informal economy was detrimental because formal businesses face unfair competition from the ones not paying taxes or not complying with regulations, informal workers were deprived of labor rights and public resources were reduced. The concluding statement of this Mission also include that strengthening revenue administration efficiency and compliance should be the priority, combined with measures that raise public trust in institutions and tax morale. 

Reforms to address key labor market and institutional weaknesses will help lift medium-term growth and speed up income convergence - it is stated in the Mission's Concluding Statement. Although growth has been solid in the past two decades, it has not been enough to substantially narrow North Macedonia’s large income gap with the EU. In order to accelerate income convergence, it is essential to continue reforms to improve the public administration, rule of law, and control of corruption. This should be complemented by efforts to build physical capital given infrastructure gaps and to boost human capital to address skills shortages and mis-matches, including through vocational education and training and more use of skill-enhancing active labor market policies - IMF representatives stated.

IMF assessed that minimum wages is set to increase rapidly compared to labor productivity. They said that net minimum wage has grown by 45 percent cumulatively since 2017, as well as that it will increase above 50% of the average wage, which is high by regional standards. They recommend for the minimum wage to align with productivity.