Spotlight on the Former Yugoslav Republic of Macedonia: Five Ways to Reform
IMF News, November 22, 2017
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- Published: November 22, 2017
Overview and context
- The new Macedonian government, in office since June after two years of deepening political crisis, now has the opportunity to rekindle growth.
- With growth at 2.4 percent in 2016, the lowest in four years, the country needs to move forward with tax and labor market reforms, cut untargeted subsidies, and better manage public finances.
1) Public debt and fiscal space — create budgetary room
- Public debt has almost doubled since 2008, reaching 45 percent in 2016, and could hit 53 percent by 2022.
- Proposed measures:
- More efficient collection of value added taxes.
- Higher taxes on property and energy.
- Scaled-down untargeted subsidies.
- Protect the most vulnerable through more efficient social spending: excluding pensions, only a quarter of social spending currently goes to the bottom fifth of the population.
2) Institutional and judicial quality — pursue planned reforms steadfastly
- The government’s agenda focuses on improving public institutions, the judiciary, and public finance management.
- Rationale and guidance:
- Inefficient and opaque state bureaucracies and courts have stymied investment and hindered deeper integration with the European Union.
- For reforms to work and match implementation capacity, they must be well-prioritized and gradual.
3) Unemployment and labor market — invest in skills and lower the tax burden
- The unemployment rate is 23 percent, among the highest in Europe, concentrated mostly among the young and those with few skills.
- Recommended actions:
- On-the-job training and improvement of skills.
- Ease the labor tax burden on low-earners through lower social security contributions.
- Maintain long-term investment in education and skills.
4) Minimum wage policy — align increases with productivity
- The minimum wage is currently around 60 percent of GDP per person, high relative to peers in emerging Europe.
- Risks and considerations:
- Planned further large increases could jeopardize competitiveness.
- Mandatory higher wages could push people into informal employment, disproportionately harming the young.
- The welfare impact on the poor of a higher minimum wage is questionable given that 70 percent of the poor in FYR Macedonia are either unemployed or outside the labor force.
5) Demographics, gender, and pensions — bring more women to work and reform pensions
- FYR Macedonia has one of the lowest female labor force participation rates in Europe.
- The mandatory retirement age is lower than the average for the continent.
- Policy mix to counter aging and boost labor supply:
- More affordable and accessible child care.
- Leave policies that help working mothers.
- A higher retirement age and removal of loopholes for early retirement.
Spotlight on the Former Yugoslav Republic of Macedonia: Five Ways to Reform, November 22, 2017
Content in this bundle
- Western Balkans: Increasing Women’s Role in the Economy, WP/17/194, September 2017