North Macedonia is facing a challenge with its growing debt, according to a new report by the World Bank Group. The report, titled "North Macedonia Public Finance Review: Ensuring Stability and Boosting Resilience," suggests that the country can address this issue by improving fiscal discipline, increasing public spending efficiency, and enhancing tax collection.
The strategy of relying on economic growth to reduce fiscal imbalances has not yielded sufficient results for North Macedonia. Over the past decade, the nation has experienced higher fiscal deficits compared to its Western Balkan peers, with debt levels surpassing 62 percent of its GDP. The report emphasizes the need for increased efforts to ensure that North Macedonia continues on its path toward European Union convergence.
"To be well-prepared for the future, it is crucial for North Macedonia to tackle fiscal challenges now," said Massimiliano Paolucci, World Bank Country Manager for Kosovo and North Macedonia. "Ensuring strong macroeconomic foundations can contribute to sustained economic development and poverty reduction as North Macedonia moves toward EU membership."
In line with North Macedonia's Fiscal Strategy for 2025-2029, the report identifies significant potential in improving tax compliance and optimizing public spending. According to World Bank estimates, tax revenues could increase by 3.5 percentage points of GDP through measures such as reducing VAT exemptions, implementing progressive income taxes, and raising environmental and property taxes.
The report also highlights that by enhancing tax collection and optimizing expenditure, North Macedonia could lower borrowing costs and allocate more resources towards essential sectors like education and healthcare.
A series of recommended policy actions are outlined in the report to guide North Macedonia towards a sustainable fiscal path. These include measures to increase tax revenues, reforms to enhance public administration effectiveness, and efforts to improve public service delivery efficiency.
The World Bank Group collaborates with North Macedonia on various projects aimed at enhancing public expenditure efficiency, transparency, sustainability, improving revenue administration effectiveness across multiple sectors including education, social services, and agriculture.