2021 Index of Economic Freedom

North Macedonia

OVERALL SCORE68.6
WORLD RANK46
Rule of Law

Property Rights62.6

Judicial Effectiveness40.4

Government Integrity41.9

Government Size

Tax Burden94.9

Government Spending71.0

Fiscal Health87.8

Regulatory Efficiency

Business Freedom77.8

Labor Freedom65.2

Monetary Freedom78.7

Open Markets

Trade Freedom77.4

Investment Freedom65.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 2.1 million
  • GDP (PPP):
    • $34.7 billion
    • 3.6% growth
    • 2.8% 5-year compound annual growth
    • $17,815 per capita
  • Unemployment:
    • 17.8%
  • Inflation (CPI):
    • 0.8%
  • FDI Inflow:
    • $365.2 million

North Macedonia’s economic freedom score is 68.6, making its economy the 46th freest in the 2021 Index. Its overall score has decreased by 0.9 point, primarily because of a decline in trade freedom. North Macedonia is ranked 27th among 45 countries in the Europe region, and its overall score is below the regional average but above the world average.

North Macedonia’s ranking fell within the moderately free category this year. To reverse course toward greater economic freedom, the first priority for the government should be to reform the judiciary, the costly and bloated public sector, and other state institutions. Achievement of another goal, promotion of foreign direct investment in export-oriented industries, would be encouraged by stronger enforcement of anticorruption statutes.

IMPACT OF COVID-19: As of December 1, 2020, 1,792 deaths had been attributed to the pandemic in North Macedonia, and the economy was forecast to contract by 5.4 percent for the year.

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Background

Newly named North Macedonia gained independence from the former Yugoslavia in 1991 and joined NATO in 2020. Zoran Zaev of the center-left Social Democratic Union resigned as prime minister in January 2020 after France blocked the start of European Union accession talks, which have since been set. His successor, Oliver Spasovski, also of the SDSM, headed a caretaker government. The SDSM won the most votes in July 2020 snap elections, followed closely by the center-right VMRO-DPMNE. After lengthy coalition talks, Zaev was reinstalled as prime minister. The EU is the country’s principal trade and investment partner, and their economies are intertwined. Whether a 2019 name-change agreement with Greece appropriately preserves Macedonia’s unique national, cultural, and linguistic identity remains a subject of controversy.

Rule of LawView Methodology

Property Rights 62.6 Create a Graph using this measurement

Judicial Effectiveness 40.4 Create a Graph using this measurement

Government Integrity 41.9 Create a Graph using this measurement

Laws recognize and protect property rights, but their implementation is inconsistent. Enforcement of contracts is uneven. Property registration procedures have improved, and nearly all real estate records have been digitized. The constitution established an independent judiciary, but it suffers from undue executive control. Underfunding of the courts contributes to lengthy and costly resolution of commercial disputes. Corruption remains a serious problem.

Government SizeView Methodology

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 17.7 percent of total domestic income. Government spending has amounted to 31.1 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.2 percent of GDP. Public debt is equivalent to 48.9 percent of GDP.

Regulatory EfficiencyView Methodology

Starting a new business now costs more, takes longer, and entails more procedures, dragging down business freedom. Reprioritization of rules for redundancies and reemployment has reduced labor freedom. Foreign investment is still low by European standards. According to a 2019 World Bank report, generous government subsidies have widened budget deficits, and misallocated and distorting agricultural subsidies have made the farming sector less efficient.

Open MarketsView Methodology

North Macedonia has five preferential trade agreements in force. The trade-weighted average tariff rate is 6.3 percent, and four nontariff measures are in effect. A streamlined regulatory framework facilitates investment, but political instability still undercuts more vibrant investment inflows. The financial system continues to evolve, and the banking sector is stable. More than 80 percent of adults have an account with a formal banking institution.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Switzerland81.9-0.1
2Ireland81.40.5
3United Kingdom78.4-0.9
4Estonia78.20.5
5Denmark77.8-0.5
6Iceland77.40.3
7Georgia77.20.1
8Lithuania76.90.2
9Netherlands76.8-0.2
10Finland76.10.4
11Luxembourg760.2
12Sweden74.7-0.2
13Austria73.90.6
14Czech Republic73.8-1.0
15Norway73.40.0
16Germany72.5-1.0
17Latvia72.30.4
18Armenia71.91.3
19Cyprus71.41.3
20Bulgaria70.40.2
21Malta70.20.7
22Belgium70.11.2
23Azerbaijan70.10.8
24Spain69.93.0
25Poland69.70.6
26Romania69.5-0.2
27North Macedonia68.6-0.9
28Slovenia68.30.5
29Portugal67.50.5
30Serbia 67.21.2
31Hungary67.20.8
32Kosovo66.5-0.9
33Slovak Republic66.3-0.5
34France65.7-0.3
35Albania65.2-1.7
36Italy64.91.1
37Turkey64-0.4
38Croatia63.61.4
39Montenegro63.41.9
40Bosnia and Herzegovina62.90.3
41Moldova62.50.5
42Russia61.50.5
43Belarus61-0.7
44Greece60.91.0
45Ukraine56.21.3
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