## North Macedonia: Staff Concluding Statement of the 2025 Article IV Mission

_IMF News, February 26, 2025_

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**Canonical URL:** [North Macedonia: Staff Concluding Statement of the 2025 Article IV Mission](https://www.imf.org/en/news/articles/2025/02/26/cs-northmacedonia-2025)

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## Bibliographic details
- Published: February 26, 2025

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### Growth outlook and dynamics
- Growth is gaining momentum: expected at 3.3 percent in 2025, driven by stronger domestic demand as public investment projects (including the Corridor 8/10d road project) intensify and consumption is supported by government transfers and real wage growth.
- External headwinds: the impact of weak external demand seen in 2024 is expected to persist in 2025, driven by structural shifts in the European automotive sector.
- Long-term potential growth: Staff now estimate potential growth at 3.0 percent, noting high emigration—especially among the young—will lower potential growth over time.

### Inflation and labor-cost dynamics
- Inflation trajectory: In January, inflation reached 4.9 percent year-on-year, up from a low of 2.2 percent in August 2024.
- Drivers: Core inflation is the main driver and remains persistent, fueled by strong wage growth. Food inflation remains high despite administrative price controls and other interventions.
- Policy implication: High real wage growth without productivity gains and increased fiscal transfers could further fuel inflation and erode competitiveness.

### Domestic and external risks
- Elevated domestic risks: weak public investment, stalled productivity reforms, emigration, and slowing activity of key trade partners threaten medium-term growth.
- External vulnerabilities: trade policy shifts and shocks to FDI may suppress exports and tighten financial conditions.
- Interaction risks: fiscal loosening (via transfers and wages) could amplify inflationary pressures and competitiveness losses.

### Fiscal stance, targets, and recommendations
- 2025 budget target and risks:
  - The 4 percent of GDP deficit envisaged in the 2025 budget will be exceeded if the authorities’ expected revenue gains (of 1½ percent of GDP) from reducing the shadow economy and increasing tax compliance fall short.
  - IMF staff agree with the authorities' goal of reducing the deficit this year, but are concerned revenue will underperform, rendering this goal out of reach.
- Short-term recommendations for any supplementary budget:
  - Avoid increasing spending.
  - Focus on reducing tax expenditures and transfers (e.g., subsidies to agriculture).
  - Ensure the full and timely transfer of contributions to the second-pillar pension system.
- Fiscal rules and debt dynamics:
  - The budget deficit has exceeded the 3 percent of GDP ceiling in the fiscal rules.
  - Public debt is on an upward trend and has surpassed 60 percent of GDP in 2024—14 percentage points above pre-pandemic levels.
  - A credible fiscal strategy is needed to bring debt on a downward path, preserve market access, create space for investment, and strengthen resilience.

### Elements of a credible fiscal consolidation strategy
- Controlling current spending:
  - Omit further pension increases in September 2025 and return to a rule-based pension system in 2026—indexing only to inflation—to support consolidation while protecting pensioners’ purchasing power.
  - Limit public wage growth to inflation in the near term.
  - Strengthen Ministry of Finance oversight to ensure public wage increases are consistent with achieving the fiscal rules.
  - Over time, unify the fragmented wage negotiating system to prevent unexpected budget pressures.
- Mobilizing revenues:
  - Tax revenue potential is estimated at 22-24 percent of GDP.
  - Tax reforms should focus on reducing tax expenditures, limiting reduced rates and exemptions, improving tax compliance, and gradually increasing property tax.
  - Accelerated digitalization efforts will enhance revenue mobilization.
- Structural fiscal reforms and fiscal governance:
  - Continue implementing the Public Investment Management decree and manual, adopt the PPP law, and conduct spending reviews to optimize budget allocation.
  - Manage fiscal risks from SOEs and major projects like the Corridor 8/10d road.
  - The inclusion of a fiscal risk assessment in the Medium Term Fiscal Strategy is noted as an achievement.
  - ESM (state-owned electricity generator) requires investments in technology and efficiency improvements to lower production costs and expand production, while gradually reducing its role in the subsidized, regulated market.
  - Operationalization of the Fiscal Council is positive; staff encourage strengthening its independent assessments.

### Monetary policy and financial stability
- Monetary policy stance:
  - Policy rates should remain on hold and liquidity tools warrant further tightening until inflation steadily declines.
  - Given renewed acceleration in headline and core inflation, the National Bank (NBRNM) should remain on hold until there is clear evidence of sustained disinflation.
  - Staff support the changes in reserve requirements implemented by the NBRNM and advise further tightening to absorb excess liquidity.
  - The NBRNM should remain vigilant to inflationary risks from domestic factors (wage and pension increases) and heightened external risks; be prepared to tighten further if risks materialize.
- Central bank credibility:
  - Robust reserves accumulation in 2024 has fostered stability in the foreign exchange market.
  - The NBRNM’s operational and financial autonomy underpin its independence and credibility—essential for maintaining price and exchange rate stability and must be safeguarded.
- Financial sector resilience and macroprudential policy:
  - Banking sector: well-capitalized, highly liquid, and profitable, with low system-wide non-performing loans.
  - Recent lending acceleration: strong balance sheets and increased deposits fueled lending growth towards end-2024.
  - Macroprudential measures: implemented loan-to-value and debt service-to-income ratios help safeguard stability.
  - Staff support gradual tightening of the countercyclical capital buffer and additional capital requirements in line with EU regulations.
  - If lending and real estate prices continue growing briskly, further tightening of macroprudential instruments may be warranted.

### Structural reforms to boost productivity and offset emigration costs
- Strategic objectives supported by IMF staff: boost productivity, raise living standards, and reduce informality to counteract the drag from high emigration and stalled convergence with the EU.
- Priority reform areas and recommendations:
  - Improving the business environment:
    - Reduce informality through streamlined business registrations and expanded digital public services.
    - Improve predictability of the legal and regulatory environment by limiting expedited parliamentary procedures, increasing stakeholder consultation, and applying regulatory requirements consistently.
    - Simplify and digitalize work permits to address skill and labor shortages.
    - Avoid ad-hoc adjustments to the minimum wage to help contain inflation and preserve competitiveness.
  - Strengthening the labor market:
    - Raise educational quality and job matching via vocational training.
    - Expand affordable childcare in municipalities.
    - Gradually raise the retirement age of women to match men to help offset workforce losses from emigration.
  - Increasing public infrastructure investment and project management:
    - Complete major infrastructure projects (Corridor 8/10d and the Kicevo-Ohrid highways) which are over budget and behind schedule.
    - Safeguard capital expenditures in the budget and strengthen public investment management to prioritize high-impact projects.
  - Strengthening rule of law and anti-corruption efforts:
    - Improve judicial independence and impartiality to strengthen contract enforcement and reduce informality.
    - Enhance prosecution of high-profile corruption cases, align the Criminal Code with international standards, and increase resources for key anti-corruption institutions.
    - Use the upcoming new national anti-corruption strategy to accelerate reforms through stronger accountability and coordination.
  - Enhancing governance:
    - Expand digital public services, reassess state aid schemes, strengthen procurement systems, and improve SOE management to increase public resource efficiency, accountability, and transparency.

### Closing note
- The IMF team thanks the authorities of North Macedonia and other counterparts for their productive collaboration and constructive policy dialogue.

*North Macedonia: Staff Concluding Statement of the 2025 Article IV Mission*

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## Content in this bundle

- **Северна Македонија: Завршна изјава на персоналот за мисијата според Член IV за 2025 година**
  - [Северна Македонија: Завршна изјава на персоналот за мисијата според Член IV за 2025 година (Markdown version)](/-/media/files/news/mission-concluding-statement/2025/north-macedonia-concludingstatement-2025-02-24-macedonian.pdf.md){rel="alternate" type="text/markdown"}
  - [Северна Македонија: Завршна изјава на персоналот за мисијата според Член IV за 2025 година (PDF)](/-/media/files/news/mission-concluding-statement/2025/north-macedonia-concludingstatement-2025-02-24-macedonian.pdf){rel="external" type="application/pdf"}

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## References

- [Republic of North Macedonia and the IMF](http://www.imf.org/external/country/MKD/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)
- [Mission Concluding Statements](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2025/02/26/cs-northmacedonia-2025_