World Bank Report: North Macedonia Must Strengthen Fiscal Discipline to Accelerate EU Convergence

Improved fiscal management is critical for North Macedonia to align its policies with EU standards and maintain its trajectory toward convergence with the EU.

North Macedonia faces mounting fiscal challenges as its debt level rises above 62% of GDP, prompting the World Bank Group to call for urgent reforms in its new report, North Macedonia Public Finance Review: Ensuring Stability and Boosting Resilience. The report underscores the need to improve budget discipline, optimize public spending, and enhance tax collection to secure macroeconomic stability and strengthen the country's bid for European Union (EU) membership.

The Current Fiscal Landscape

Over the past decade, North Macedonia’s fiscal deficits have consistently outpaced those of its Western Balkan peers. The strategy of relying on economic growth to address fiscal imbalances has proven insufficient, highlighting the need for a more proactive approach.

"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. "Strong macroeconomic foundations are key to sustained economic growth and poverty reduction as the country moves toward EU membership."

Actionable Recommendations for Fiscal Stability

Aligned with North Macedonia's Fiscal Strategy for 2025–2029, the report identifies significant opportunities to boost fiscal health through increased tax compliance and smarter spending practices. Key measures include:

• Tax Reform: Reducing VAT exemptions, implementing progressive income taxes, and introducing higher environmental and property taxes, with the potential to increase tax revenues by 3.5 percentage points of GDP.
• Expenditure Optimization: Reducing inefficiencies in public administration and reallocating resources to critical sectors such as education and healthcare.
• Public Debt Management: Lowering borrowing costs by improving fiscal transparency and reducing reliance on external financing.

Strategic Investments for Long-Term Growth

By adopting these measures, North Macedonia can free up resources to invest in vital sectors that drive economic resilience and social welfare. The report emphasizes the importance of education and healthcare as cornerstones for sustainable development.

The World Bank Group also collaborates with North Macedonia on projects aimed at improving revenue administration, enhancing the transparency of public expenditure, and supporting reforms across sectors like agriculture, social services, and education.

Strengthening Foundations for EU Integration

Improved fiscal management is critical for North Macedonia to align its policies with EU standards and maintain its trajectory toward convergence with the EU. The report highlights that addressing fiscal inefficiencies today will better position the country to meet future economic challenges.

Through a combination of disciplined fiscal policies and strategic investments, North Macedonia has the opportunity to bolster its economic stability, enhance public trust, and achieve sustainable growth on its path to European integration.