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Quick Facts
- Population:
- GDP (PPP):
- $30.3 billion
- 3.7% growth
- 2.5% 5-year compound annual growth
- $14,597 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Macedonia’s economic freedom score is 71.3, making its economy the 33rd freest in the 2018 Index. Its overall score has increased by 0.6 point, with improvements in scores for the fiscal health and investment freedom indicators offsetting declines in government integrity and judicial effectiveness. Macedonia is ranked 18th among 44 countries in the Europe region, and its overall score is above the regional and world averages.
Macedonia maintained macroeconomic stability after the global financial crisis, but its internal political crisis has hampered economic performance. Fiscal policy has been lax, with unproductive public expenditures, including subsidies and pension increases, and rising guarantees for the debt of state-owned enterprises. The extensive gray market is estimated to be between 20 percent and 45 percent of GDP. Structural reforms are needed to address government corruption and a bloated bureaucracy. The legal framework is sound, but enforcement is slow and weak.
Background
Macedonia gained independence from the former Yugoslavia in 1991. Prime Minister Nikola Gruevski, embroiled in a wiretapping scandal, resigned in 2016 and was indicted in June 2017. His VMRO-DPMNE party failed to win a majority in the December 2016 parliamentary elections. The center-left Social Democratic Union of Macedonia assembled a coalition with two ethnic Albanian parties, but fears that the coalition might grant concessions to ethnic Albanians blocked formation of a government for six months. In June 2017, the SDSM’s Zoran Zaev became prime minister. Macedonia’s economy is closely linked to the European Union as a customer for exports and target of investment, but membership in the EU remains blocked by Greece because of a dispute over Macedonia’s name.
The government has made it harder to enforce contracts. There is a legal basis for the protection of ownership of movable, intellectual, and real property, but implementation remains incomplete. The legal framework is sound. but law enforcement is weak. The judiciary does not demonstrate independence, and judges are subject to political influence. Corruption is pervasive, and some officials engage in corruption with impunity.
The individual income and corporate tax rates are a flat 10 percent. Other taxes include value-added and property transfer taxes. The overall tax burden equals 25.2 percent of total domestic income. Over the past three years, government spending has amounted to 31.5 percent of total output (GDP), and budget deficits have averaged 3.4 percent of GDP. Public debt is equivalent to 38.7 percent of GDP.
In 2016, Macedonia made it easier to do business by improving bankruptcy provisions. Labor laws are relatively rigid. There is a high level of unemployment, and 22 percent of workers are employed in the informal sector. Almost half of government spending goes to social transfers designed in part to shore up support for the ruling parties, but subsidy payments to farmers were significantly delayed in 2017.
Trade is extremely important to Macedonia’s economy; the combined value of exports and imports equals 113 percent of GDP. The average applied tariff rate is 1.1 percent. Nontariff barriers impede some trade. Government openness to foreign investment is above average. The financial sector has strengthened, with the government’s role limited primarily to regulatory enforcement. Foreign banks account for over 90 per cent of total banking assets.