Progress in the former Yugoslav Republic of Macedonia (fYR Macedonia) over the past few years has been impressive. Successive Macedonian governments have made considerable efforts to implement the Ohrid Framework Agreement, which provided the basis for resolving the 2001 ethnic conflict.
The proposed Country Partnership Strategy (CPS) for FY07-10 builds on the experience of the World Bank Group (WBG) since the early 1990s. Overall, the CPS aims to accelerate fYR Macedonia’s perspective to join the European Union. The CPS will employ a selected mix of investment and policy lending, along with a robust program of Analytical and Advisory Activities (AAA) work to support the CPS goals.
The civil conflict in 2001 disrupted a brief period of positive economic momentum. Although direct damage from the conflict was limited, investment activity markedly dropped, and output contracted by 4.5 percent in 2001. Economic recovery gradually took hold in subsequent years as the budget deficit was quickly eliminated in 2003 and structural reforms gradually resumed. While prudent macroeconomic policies have firmly established macroeconomic stability, economic growth and formal sector job creation have been disappointing. Such growth rates place fYR Macedonia among the slowest growing economies in ECA in this period. Also, the recovery remains narrowly based on a few key sectors and unemployment remains high.
FYR Macedonia's Vision and Key Development Challenges
A new government took office with great ambitions. After four years of opposition, a new coalition was elected to office in July 2006 on a very concrete election manifesto entitled "Rebirth in 100 Steps." Building on progress made over the last few years, and in the context of overarching goals of EU accession and NATO membership, these 100 steps focus predominantly on reforms to accelerate economic growth from its current level of 3.5-4 percent to 6-8 percent in the next few years.
But challenges remain. Enterprises in fYR Macedonia have not undergone the dynamics of restructuring witnessed in other countries in the region. This is in part due to the poor corporate governance which emerged following privatization Labor and financial markets are still functioning unevenly, and the informal sector distorts the economy, resulting in unfair competition practices and weaker consumers’ protection.
Overall, the proposed CPS aims to accelerate fYR Macedonia’s perspective to join the European Union. The road to Europe will not only require the country to design and adopt EU-compatible standards and regulations, it also requires building the capacity to implement them. The CPS aims to support the government’s program around two core pillars: (i) fostering economic growth, job creation, and increasing the living standards of all; and (ii) improving the governance and transparency of public service delivery to support the market economy .
Regional instability, especially against the backdrop of the Kosovo discussions, could greatly influence the sustainability of the economic reform efforts. Domestic political tensions pose a risk to the implementation of the government’s reform program as well. Finally, lack of progress in the EU accession process could weaken the consensus on the direction of the reforms, and could consequently result in a slow down of reforms.
FYR Macedonia needs to accelerate and sustain the economic growth for the benefit of all citizens, while increasing the efficiency and transparency of the public services.
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