This opinion was originally published in Macedonian by on March 4, 2024. Massimiliano Paolucci is the World Bank Country Manager for Kosovo and North Macedonia.
Since achieving independence in the early 1990s, North Macedonia has doubled its per capita income and halved poverty rates. That has come on the heels of the implementation of reforms to, among others, attract investments, better connect the country to the regional and global markets and boost human capital development. Yet, at current growth rates, it would still take three decades for North Macedonia to bridge the gap in terms of per capita income with countries in the European Union.
Evidence from other middle-income countries of comparable levels of economic and institutional development show that, to increase factor accumulation and productivity growth and, therefore, achieve its potential GDP growth and development goals, North Macedonia will need sustained investments and reforms to consolidate macro stability and fiscal prudence, as well as to strengthen human capital, infrastructure, basic governance, and decarbonize growth.
The combined impact of reforms in the broader context of the EU accession process can help promote frontier innovation and shift capital and labor to more productive sectors, such as services, to grow the supply of qualified labor, especially among women and youth, increase productivity, and incentivize private sector investments. Moreover, a smarter investment policy and a more judicious use of state aid could help shift the role of the state toward promoting higher-quality foreign investments. Reducing the costs of trading across borders can attract FDI by instilling investor confidence in national institutions, policy making, and the currency. At the same time, North Macedonia would benefit from increasing the level of market integration with the rest of the Western Balkans and with the EU to take advantage of external economies of scale, increase productivity, and provide better paid jobs to the population.
North Macedonia stands at a crucial juncture in its development journey, facing choices that require timely and innovative solutions to turn challenges into opportunities. Building on a strong 30-year long engagement aims to address these challenges and support the country's long-term development goal to create better paid jobs and to do so in a more competitive and sustainable manner. It proposes to do so by focusing on:
- Improving the quality of public service delivery. This includes strengthening administrative capacity at both central and municipal levels, addressing limitations that hinder the delivery of public services, and improving the quality of infrastructure asset management. The CPF program contributes to this objective through an ongoing project aimed at building effective, transparent, and accountable Public Financial Management and both scaled-up and new operations on municipal development, social services, and human capital development.
- Addressing the constraints to productivity growth and job creation, both from the demand and supply sides. More specifically, the World Bank Group will step up its engagement in support of the country¡¯s strategy increase access to regional and global markets through better connectivity and trade facilitation. The CPF will also support the implementation of the country's long-term human capital strategy: on the supply side, it will focus on improving foundational skills in early childhood development and will sharpen the engagement on primary and secondary education, and transition to jobs. On the demand side, the CPF will continue the engagement on the enabling conditions for private sector development, with a focus on access to credit, digitalization and market readiness of small and medium-sized enterprises. An important reform effort concerns the role and performance of state-owned enterprises, with a view to opening space for the private sector to compete and contribute to enhanced service delivery performance. Despite being limited in number and government ownership, the role, performance, and governance of the country¡¯s network SOEs remains important to the development of critical network infrastructure for private sector development.
- Meeting longstanding and emerging environmental challenges, while increasing climate resilience to safeguard economic growth and the quality of life. This includes advancing the energy efficiency and energy transition agendas, reducing air pollution, and closing infrastructure gaps.
The CPF proposes to accompany reform efforts and finance specific investments in these three macro areas through a combination of policy and investment lending, advisory services, and guarantees, with a strong role to be played by IFC in structuring PPPs and investing in renewable energy sources.
Bridging the gap with Europe is possible. However, reforming the economy requires achieving a broad consensus among all stakeholders on strategic development goals and priority reforms, closer coordination among development partners, and the mobilization of sufficient resources to implement the reform agenda. It also requires a professional, non-politicized, and competent public administration that provides high-quality services to all citizens, designs evidence-based policies, and carries forward the demanding EU accession process to bring about transformational change. ľ¹ÏÓ°Ôº will continue to work side by side with the people of North Macedonia to help them realize the country¡¯s development potential in the context of the broader EU accession process.
