Economy of the Republic of Macedonia

Economy of Macedonia
Skopje
Currency	1 Macedonian denar (MKD) = 100 deni
Trade organisations	WTO, OSCE
Statistics
GDP	$10.784 billion (nominal; 2012 est.) $21.879 billion (PPP; 2012 est.)
GDP growth	3.6%
GDP per capita	$5,229 (nominal) $10,600 (PPP)
GDP by sector	agriculture: 11.9%; industry: 29.9%; services: 58.2% (2009 est.)
Inflation (CPI)	-0.8% (2009 est.)
Population below poverty line	28.7% (2008)
Gini coefficient	39 (2003)
Labour force	940,700 (2009 est.)
Labour force by occupation	agriculture: 18.6%; industry: 29.5%; services: 51.9% (September 2009)
Unemployment	29.1% (2011 est.)
Average gross salary	29,927 MKD / 678 $, monthly (Sep. 2010)
Average net salary	20,299 MKD / 460 $, monthly (Sep. 2010)
Main industries	food processing, beverages, textiles, chemicals, iron, steel, cement, energy, pharmaceuticals
Ease of Doing Business Rank	22nd
External
Exports	$4.07 billion (2011)
Export goods	food, beverages, tobacco; textiles, miscellaneous manufactures, iron and steel
Main export partners	Serbia and Montenegro 20.1%, Germany 15.1%, Greece 12.3%, Bulgaria 9.9%, Italy 8.7%, Croatia 6.4% (2008)
Imports	$6.39 billion (2011)
Import goods	machinery and equipment, automobiles, chemicals, fuels, food products
Main import partners	Germany 13.2%, Greece 12.3%, Bulgaria 9.8%, Serbia and Montenegro 6.9%, Italy 6.2%, Turkey 5.6%, Slovenia 5.2%, Poland 4.3% (2008)
FDI stock	$3.528 billion (31 October 2009 est.)
Gross external debt	$2.76 billion (26% of GDP)
Public finances
Public debt	27.3% of GDP (2012 est.)
Revenues	$6.867 billion
Expenses	$3.684 billion
Credit rating	Standard & Poor's: BB+(Domestic) BB(Foreign) BB+(T&C Assessment) Outlook: Stable Fitch: BB+ Outlook: Stable
Foreign reserves	$4.16 billion (20% of GDP)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

The breakup of Yugoslavia in 1991 deprived the Economy of the Republic of Macedonia, then its poorest republic (only 5% of the total federal output of goods and services), of its key protected markets and large transfer payments from the center. An absence of infrastructure, United Nations sanctions on its largest market Federal Republic of Yugoslavia, and a Greek economic embargo hindered economic growth until 1996.

Worker remittances and foreign aid have softened the subsequent volatile recovery period. GDP has increased each year except in 2001, rising by 5% in 2000. However, growth in 1999 was held down by the severe regional economic dislocations caused by the Kosovo war.

Successful privatization in 2000 boosted the country's reserves to over $700 million. Also, the leadership demonstrated a continuing commitment to economic reform, free trade, and regional integration. The economy can meet its basic food needs but depends on outside sources for all of its oil and gas and most of its modern machinery and parts. Inflation jumped to 11% in 2000, largely due to higher oil prices.

History

Macedonia's economy has almost always been completely agricultural in nature from the beginning of the Ottoman Empire when it was part of the District of Skopje and Province of Salonika. It concentrated on pasture farming and vineyard growing. The economy shifted from agriculture to industry during the industrial age. Macedonia was responsible for large outputs of textiles and several other goods in the Ottoman Empire. Macedonia was the economic heart of the Ottoman Empire in the Balkans throughout centuries until its fall in 1913. The stagnation of Macedonian economy began under the rulership of the Kingdom of Serbia.

When World War 2 ended, the local economy began to experience revitalization by way of subsidies from Federal Belgrade. The subsidies assisted Macedonia to redevelop its lost industry and shift its agricultural-centered economy to an industry-centered economy with new hearts of industry emerging all over the country in Veles, Bitola, Stip and Kumanovo. Previously, Skopje was the only industrial center in Macedonia, this expanded to several other cities during Socialist Yugoslavia.

After the fall of Socialist Yugoslavia, the economy experienced several shocks that damaged the local economy. Starting with the Western embargo on the Yugoslavian common market, and ending with the Greek embargo on Macedonia over the country's name. The economy began to recover in 1995 and experienced a full recovery after the 2001 insurgency by ethnic Albanians. Macedonia's GDP grew by an average of 6% on a yearly basis until the 2008 economic crisis when its economy contracted with the rest of the world. The global crisis had little impact on the country due to Macedonian banks' stringent rules. Macedonia today maintains a low debt-to-GDP ratio and is experiencing a revitalized investment interest by companies from Germany, France, Austria, and others.

Economic Activity

Macroeconomics

Real GDP in the first half of 2011 increased by 5.2%. This robust growth was mainly driven by 23.6% growth in the construction sector; 13.2% in mining, quarrying, and manufacturing; 12.4% in wholesale and retail trade; and 4.2% in transport and communication services. Industrial output in the first 8 months of 2011 was 7.5% higher than in the same period of 2010. Low public and external debt and a comfortable level of foreign exchange reserves allowed for further relaxation of monetary policy, with the reference interest rate of the Central Bank decreasing to 4%. Due to rising prices for energy, fuel, and food on international markets, inflation increased in the first half of 2011, but later decreased to an annualized rate of 3.4% at the end of September. The official unemployment rate dropped to 31.3% in the second quarter of 2011, but remained one of the highest in Europe. Many people work in the gray economy, and many experts estimate Macedonia’s actual unemployment as being somewhere between 20%-25%.

The government budget has generally kept within projections. The budget deficit at the end of August 2011 reached about 2% of GDP, and fiscal authorities seemed committed to keeping it under the projected target of 2.5% of GDP by the end of the year. In addition to 220 million euros (approx. $298 million) drawn from an IMF Precautionary Credit Line (PCL) in March, financing mostly came from domestic borrowing. However, by the end of the year a financing gap remained of about 50 million to 60 million euros (approx. $67 million to $81 million), which the government plans to cover by borrowing from international capital markets, supported by a policy-based guarantee by the World Bank. The central government's public debt remained low at 26% of GDP, but represents a gradual increase from previous years. Despite lowering the Central Bank bills rate, the Central Bank has not changed liquidity indicators for banks or the reserve requirement since 2009, curbing credit growth to 7.5% in the first three quarters of 2011.

Macedonia’s external trade struggled in 2010 due to the slow recovery from the economic crisis of its main trading partners, particularly EU members. Starting from a very low base, export growth in the first 8 months of 2011 reached 41.7%, topping import growth of 36.8%. The trade deficit has widened to 18.3% of GDP, approaching the end-year target of 21.9% of GDP. At the same time, the current account balance deficit significantly improved and the end-year projection was revised upward to 5.5% of GDP. This was due primarily to a 4.4% higher inflow of current transfers, mostly during the summer, and came despite a poor level of foreign direct investment (FDI) of only $237.2 million by end-July 2011. Foreign currency reserves remained at about $2.6 billion, a level that comfortably covers 4 months of imports and about 110% of the country's short-term debt.

In October 2010, the World Bank Board of Directors approved a new Country Partnership Strategy (CPS) with Macedonia for the period 2011-2014. This CPS will provide the country assistance of about $100 million in funding for the first 2 years to improve competitiveness, strengthen employability and social protection, and increase the use of sustainable energy. This assistance also includes a commitment of $30 million in direct budget support in the form of a policy-based guarantee by the World Bank to the government to facilitate its access to financing from international capital markets, a process that had been started as of November 2011.

Macedonia became the first country eligible for the IMF’s Precautionary Credit Line in January 2011. This program gives Macedonia a line of credit worth 475 million euros (about $675 million) over 2 years, intended to be accessed only in case of need brought about by external shocks. The credit line was approved after extensive consultations with the IMF in October and December 2010. The IMF expects that there will be no additional withdrawals from the PCL.

Macroeconomic trends

GDP
Year	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016
GDP (USD Billions)	15.5	2.3	2.5	3.3	4.4	4.4	3.7	3.5	3.6	3.5	3.4	3.7	5.0	5.9	5.7	6.9	8.6	9.1	9.7	9.1	10.1	10.7	11.4	12.2	13.0	13.8
GDP (PPP) (USD Billions)	10.7	10.3	9.7	9.7	9.8	10.1	10.5	10.9	11.6	12.4	12.1	12.4	13.0	14.3	15.4	16.7	18.3	19.6	19.6	19.9	20.8	21.8	23.0	24.3	25.7	27.2
GDP growth rate	n/a	-6.6%	-7.5%	-1.8%	-1.1%	1.2%	1.3%	3.3%	4.3%	4.5%	-4.5%	0.8%	2.8%	4.6%	4.3%	4.9%	6.1%	5.0%	0.9%	0.7%	2.9%	3.6%	4.1%	4.0%	3.9%	3.9%
GDP Per Capita (USD)	8115	1201	1315	1734	2269	2232	1883	1795	1837	1785	1704	1861	2489	2930	2801	3387	4252	4468	4749	4431	4911	5228	5525	5908	6290	6654
GDP (PPP) per capita	5617	5341	5025	5013	5031	5153	5298	5512	5811	6182	6016	6149	6443	7049	7599	8225	8962	9600	9584	9727	10112	10608	11176	11176	12430	13135
Source: IMF

Trade

Graphical depiction of Macedonia's product exports in 28 color coded categories.

Macedonia remains committed to pursuing membership in the European Union and NATO. It became a full World Trade Organization (WTO) member in April 2003. Following a 1997 cooperation agreement with the European Union (EU), Macedonia signed a Stabilization and Association Agreement with the EU in April 2001, giving Macedonia duty-free access to European markets. In December 2005, it moved a step forward, obtaining candidate country status for EU accession. Macedonia has had a foreign trade deficit since 1994, which reached a record high of $2.873 billion in 2008, or 30.2% of GDP. Total trade in 2010 (imports plus exports of goods and services) was $8.752 billion, and the trade deficit amounted to $2.149 billion, or 23.4% of GDP. In the first 8 months of 2011, total trade was $7.470 billion and the trade deficit was $1.778 billion. A significant 56.5% of Macedonia's total trade was with EU countries. Macedonia's major trading partners are Germany, Greece, Serbia, Bulgaria, Russia, and Italy. In 2010, total trade between Macedonia and the United States was $116.6 million, and in the first 8 months of 2011 it was $65 million. U.S. meat, mainly poultry, and electrical machinery and equipment have been particularly attractive to Macedonian importers. Principal Macedonian exports to the United States are tobacco, apparel, iron, and steel.

Macedonia has bilateral free trade agreements with Ukraine, Turkey, and the European Free Trade Association (EFTA—Switzerland, Norway, Iceland, and Liechtenstein). Bilateral agreements with Albania, Bosnia and Herzegovina, Croatia, Serbia, Montenegro, UN Mission in Kosovo (UNMIK), and Moldova were replaced by membership in the Central European Free Trade Agreement (CEFTA). Macedonia also has concluded an “Agreement for Promotion and Protection of Foreign Direct Investments” with Albania, Austria, Bosnia and Herzegovina, Bulgaria, Belarus, Belgium, Luxembourg, Germany, Egypt, Iran, Italy, India, Spain, Serbia, Montenegro, People’s Republic of China, Republic of Korea, Malaysia, Poland, Romania, Russia, Slovenia, Turkey, Ukraine, Hungary, Finland, France, the Netherlands, Croatia, Czech Republic, Switzerland, and Sweden.

Unemployment

Unemployment is a continuing problem in the Republic's economy where a large percentage of the Republic's qualified labor force cannot find work. Many Macedonians lost their jobs with the collapse of Yugoslavia. As a result, national unemployment continues to be above 30% averaging from 32% to 36%. Regional unemployment rates can vary from 11.5% in Southeast region and 62.8% in Northeast region.