Economy of Macedonia

The economy of North Macedonia has become more liberalized, with an improved business environment, since its independence from Yugoslavia, which deprived the country of its key protected markets and the large transfer payments from Belgrade. Prior to independence, North Macedonia was Yugoslavia's poorest republic. Worker remittances and foreign aid have softened the subsequent recovery period. Successful privatization boosted the country's reserves. Also, the leadership demonstrated a continuing commitment to economic reform, free trade, and regional integration. The economy can meet its basic needs but depends on outside sources for petroleum, natural gas, and modern machinery and parts.

Top Sectors in Macedonia

Industry in Macedonia

The role of industry in the region's economy increased during the industrial age. The geographical region of Macedonia was responsible for large outputs of textiles and several other goods in the Ottoman Empire. However, outdated techniques to produce the goods persisted. The stagnation of the regional economy began under the rule of the Kingdom of Serbia.

Energy in Macedonia

In September 2019, it was stated that "thermal power plants account for 842 MW of North Macedoniaâ€™s total power generation capacity of 1.41 GW, with hydroelectricity and wind accounting for 553.6 MW and 36.8 MW, respectively." There are 20 economically-exploitable locations for coal in the country, whose total geological reserves are estimated at 2,5 billion tons. There exist four hydroelectric reservoirs, located at: Pelagonia, KiÄevo, Mariovo and TikveÅ¡. The first two produce energy, while the latter two are speculative.

Agriculture in Macedonia

Agriculture in North Macedonia provides a livelihood for a fifth of the country's population, where half live in rural areas. Industrialization of the country was delayed due to long Ottoman domination and destruction from World War I and Serbian occupation. Massive agrarian reforms began under Socialist Federative Yugoslavia with its own communist rule. The continental and sub-Mediterranean climates allow for a great diversity of output, but the pronounced terrain creates areas that are unexploitable for farmers. Macedonian agriculture is dominated by livestock farming, especially in its mountainous regions, viticulture, and the growing of fruit and vegetables, cereals, and tobacco. Agriculture in the country is characterized by numerous small-scale family farms, but also by large businesses, left over from the socialist era. Since its independence, the country has become a market economy. Today, agriculture accounts for a significant portion of North Macedonia's GDP.

Macedonia - Key Economic Indicators

Exports and Imports

Macedonia's exports totaled approximately $5.2 billion in 2023, comprising textiles, machinery, automotive parts, food products, and minerals. Meanwhile, imports amounted to around $7.8 billion, covering raw materials, machinery, consumer goods, and energy products.

Infrastructure

Analyzing Macedonia's trade balance reveals a trade deficit of $2.6 billion in 2023. While exports contributed significantly to the economy, imports remained essential for meeting domestic demand and supporting industrial activities.

Balance of Trade

Macedonia's government spending amounted to $4.3 billion in 2023, allocated towards priority sectors such as infrastructure, education, healthcare, and social welfare programs. Tax revenues, including corporate taxes, VAT, and personal income taxes, generated approximately $3.8 billion, ensuring fiscal sustainability and public finance management

Fiscal Policy

The National Bank of the Republic of Macedonia (NBRM) implemented monetary policy measures to maintain price stability and support economic growth. Interest rates were set at 2.5%, managing the money supply at around $10 billion. The central bank's actions aimed to control inflation rates and stabilize exchange rates to foster a conducive macroeconomic environment.

Monetary Policy

Trade Agreements

Despite not being a member of NAFTA, Macedonia pursued trade agreements with various countries, enhancing market access and promoting international trade. Bilateral trade volumes with key partners such as Germany, Italy, and Bulgaria exceeded $3.5 billion, facilitated by preferential trade arrangements and reduced tariffs.

Environmental Regulations

Macedonia's environmental regulations aimed to address pollution and promote sustainable development, with investments exceeding $50 million in environmental protection initiatives. Compliance with international standards, including the Paris Agreement, was critical for mitigating environmental risks and ensuring long-term ecological sustainability.

Tax System in Macedonia

Capital Gains Tax: Macedonia imposes a capital gains tax on profits generated from investments. The tax rate varies depending on the type of asset and the duration of ownership. For example, gains from the sale of real estate are taxed at a rate of 15%, while gains from the sale of movable assets are taxed at a rate of 10%. In recent years, revenue from capital gains tax has averaged around $50 million annually.
Corporate Tax Rate: The corporate tax rate in Macedonia is set at a flat rate of 10% on business profits. This competitive rate aims to attract investment, stimulate economic growth, and foster entrepreneurship. Corporate tax revenues contribute significantly to government revenue, accounting for approximately $300 million annually.
Sales Tax: Macedonia levies a value-added tax (VAT) on goods and services consumed domestically. The standard VAT rate is 18%, with reduced rates of 5% and 0% applied to specific categories of goods and services. VAT collections constitute a substantial portion of total tax revenue, amounting to an average of $700 million per year.
Property Tax: Property owners in Macedonia are subject to a property tax based on the assessed value of their real estate holdings. The tax rate varies depending on factors such as property type, location, and use. Property tax revenues contribute to local government budgets and infrastructure development, averaging around $150 million annually.
Payroll Tax: Macedonia imposes a payroll tax on wages and salaries earned by employees, which is often used to fund social security programs and other public welfare initiatives. The tax rate is progressive, with higher-income earners subject to higher tax rates. Payroll tax collections constitute a significant portion of social security funding, totaling approximately $400 million per year.
Tax Deductions and Credits: Macedonia offers various tax deductions and credits to individuals and businesses, aimed at reducing tax liability and incentivizing certain activities. These may include deductions for education expenses, healthcare costs, charitable contributions, and investment incentives for businesses. The total value of tax deductions and credits claimed by taxpayers averages around $100 million annually.
Tax Compliance: The efficiency of tax collection and enforcement measures plays a crucial role in Macedonia's tax system. Effective tax compliance mechanisms ensure that taxpayers fulfill their obligations accurately and timely, contributing to overall revenue collection and fiscal stability. The government invests resources in tax administration and enforcement efforts, with annual expenditures on tax compliance activities amounting to approximately $50 million.
Tax Burden: The overall tax burden on individuals and businesses in Macedonia reflects the total amount of taxes paid relative to their income or profits. Monitoring the tax burden helps assess the fairness and sustainability of the tax system and its impact on economic activities and investment. The tax burden ratio, calculated as a percentage of GDP, averages around 25%.

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