FYR Macedonia is a lower middle-income country, whose landlocked position, small size, multiethnic population, and relatively high degree of economic openness make it especially vulnerable to internal and external shocks.
Despite its success in weathering the shocks and transitioning from a conflict-affected country to a candidate country for the European Union (EU) membership, FYR Macedonia is still facing formidable political, economic, and social challenges. On the political side, the resolution of the long-standing dispute with Greece over its name is blocking the EU negotiations and NATO membership.
The biggest economic challenge is to create more jobs to reduce the very high unemployment rate (currently at 32%), especially among the country's youth. Linked to this challenge is the need to maintain macroeconomic stability and increase the country's competitiveness, which is dependent on further improving the business environment and the quality of education. By seeking to transform itself into a "green economy," FYR Macedonia is pursuing an opportunistic and pragmatic path, given that it is expected to be severely affected by climate change, and also because the current energy intensity of its economy is very high. Finally, the country faces the challenges of ensuring financial sustainability of the pension system, and improving the effectiveness of the social safety net and the delivery of health services.
Since 1995, the World Bank has played a critical financial and advisory role in five key areas: (i) strengthening competitiveness for sustained economic growth; (ii) improving the business environment; (iii) investing in human capital; (iv) improving road, rail, and energy infrastructure; and (v) investing in environment.
The World Bank's approach has included a combination of investment and development policy lending, underpinned by substantive analytical and advisory work. Through more than 20 country-tailored reports delivered over the past five years, the World Bank Group's strong analytical and knowledge services have helped the country choose the appropriate mix of policies and interventions to promote economic growth and improve service delivery. Given its EU candidacy and middle-income country status, the country's demand for World Bank support focuses on complex policy reforms, institutional capacity building, multifaceted implementation issues, and critical analytical work.
The Bank support to the agriculture sector has enabled the Ministry of Agriculture to receive the EU accreditation for utilization of the EU Instrument for Pre-Accession Assistance in the area of rural development.
FYR Macedonia has improved its business climate:
- YR Macedonia has improved its ranking in the Doing Business 2012 (DB12) survey to 22 out of 185 in 2011. It ranked 83 out of 125 in 2006.
- The World Bank program has helped cut the time to register a company to four days from 48 days in 2006; business registration does not require a minimum capital and consists of three procedures that can be completed in one day. The country ranked 6th on the DB12 ranking for starting a business; their ranking on dealing with construction licenses improved significantly (61st in 2011 compared to 147th a year earlier).
- The World Bank-financed reforms in the real estate cadastre resulted in covering 99 percent of territory; tripled the number of registered transactions (120,742 in 2011, compared to 42,116 in 2005); more than tripled the number of mortgages (9,803 in 2011, compared to 2,920 in 2005); and shortened the period for transaction registration (70 percent of all transactions are registered in one day, and 30% are registered between 3-8 days, as compared to 90 days in 2005.
Judicial and legal framework was improved, including more effective organization of the court system, which resulted in:
- Reducing backlogged cases in 22 of the 27 basic courts by the end of 2011.
- Improvement of judicial infrastructure through the refurbishment of 11 courthouses.
- Improved enforcement of court judgments in 43 percent of cases in 2011 from 18 percent in 2005, due to legislation that placed the function in the hands of private bailiffs.
- As of 2011, the duration of bankruptcy procedures decreased from 43 months on average (2005 data) to 26 months, due to improved regulatory and implementation framework for bankruptcy cases through the adoption of a new bankruptcy law.
Investments in education helped:
- Poor families get cash transfers so their children receive secondary education.
- Increase secondary school transition to 95 percent in 2011 from 85 percent, and decrease dropout rates to 1.9 percent from 2.1 percent, as compared to 2010.
- World Bank support also contributed to the introduction of the State Matura (final examination at the end of secondary school) in 2011 as part of the overall Quality Assurance System, and the introduction of strategic medium- and long-term planning at both the Ministry of Education and school levels.
FYR Macedonia's competitiveness is boosted through infrastructure development:
- Since 1995, more than 500 kilometers of roads have been rehabilitated and the average border entry and exit time has decreased threefold (from 60 to 20 minutes and from 20 to 7 minutes respectively, compared to 2005).
- Railway legislation to conform with that of the EU was adopted at the end of 2010.
- As of end-2011, MEPSO (the public electric power transmission company) has increased the capacity of the transmission network through the completion of the power transmission line to Greece, and restored 38 transformer stations throughout the country.
Since the start of FYR Macedonia's membership in 1995, the World Bank invested US$ 1.4 billion through 23 IDA credits and 34 IBRD loans. The World Bank also leveraged around US$ 181 million in grant funding.
All World Bank interventions have been designed and implemented in close collaboration with other development partners, such as the European Commission (EC), the U.S. Agency for International Development (USAID) and the UN agencies. The World Bank leveraged more than US$ 180 million in grant funds from different donors through 44 separate trust funds. The main co-financing partners included the governments of the Netherlands (education sector, public policy reforms, accounting and auditing, agriculture) and Japan (preparation funds for projects in the human development, energy and business environment sectors), as well as the Global Environmental Facility. The World Bank also maintained a close partnership with the International Monetary Fund in the area of economic advice and policy-based lending.
The World Bank's Country Partnership Strategy (CPS) for 2011-2014 provides selective and targeted financing and knowledge advisory services in support of faster, more inclusive, and greener economic growth. Because FYR Macedonia's future growth and development will depend fundamentally on the pace of the EU accession, virtually every intervention in the strategy has been identified and will be designed to help prepare for EU membership.
The Bank's assistance to FYR Macedonia is designed to help the country achieve: faster growth by improving competitiveness, more inclusive growth by strengthening employability and social protection, and greener growth through increased use of sustainable resources.
"As any other citizen, I have had dealings with the cadastre agency, both privately and as a private entrepreneur for a long time. The difference is obvious, and it can be seen from the shorter time and processes for property registration to the attitude and professionalism of the employees. I am now able to turn my real estate quickly into a capital asset to finance my business, which greatly helps in a dynamic market that we work in." —Maja Dimitrievska, Businesswoman, Skopje
Valentina Pavlovic's company works with electrical equipment, installing and maintaining wiring in companies and apartment buildings, and making sure streets in a number of municipalities are never dark. "The last few years have been difficult for the private sector because we had to cope with the consequences of the global financial crisis," said Pavlovic. "But, at the same time, doing business has become much easier. A large part of the paperwork is gone, and I can do most of it from my office."