By Nevena Krasteva
Nina Angelovska was the finance minister of North Macedonia from August 2019 until August 2020. She co-founded and was heading the first deal platform and leading e-commerce company in North Macedonia, Grouper.mk, launched in 2011.
Since March, North Macedonia has announced four support packages for people and businesses affected by the Covid pandemic exceeding 1 billion euro in total. Has the focus of the government’s support shifted since the onset of the crisis?
Our response was swift, time-bound, and with clear goals and expected outcomes of each of the measures tailored to the nature of our small and open economy. This is a global crisis with an unknown trajectory and each country acts locally given its fiscal space and resources – trying to adjust its sails as we cannot change or predict the wind.
During my mandate we introduced three sets of measures that included tax deferrals, wage subsidies to protect the jobs and liquidity, interest-free loans for MSMEs, financial support to the affected and most vulnerable groups of citizens to stimulate private consumption, financial support for investments to increase competitiveness and productivity, and some other soft measures. Recently, the new government adopted a fourth set of measures, most of which include extensions and replication of the previously implemented measures with certain adjustments.
The first package was designed for the most affected sectors – transport, tourism and catering, and other companies affected by the restrictive measures that the government has introduced to contain the spread of the virus. The second set of measures was broader, aiming to protect jobs and safeguard the liquidity of all companies that booked more than 30% drop in revenues. The third set was designed for the rebound/recovery phase aiming to stimulate faster recovery as we began to remove the strict social restriction measures and economic activity started to rebound. In this set, we had measures grouped in two key pillars – the first one being financial assistance to targeted groups of citizens to stimulate private consumption of domestic products and services at affected sectors and the second one being financial assistance to the private sector to increase the competitiveness, stimulate investments and faster adaptation and transformation towards new technologies. The third set of measures worth over 300 million euro also included measures that are yet to be implemented in the fourth quarter, such as the Partial Credit Guarantee Scheme, the new interest free credit line for MSMEs with 30% grant component, etc. With the measure for wage subsidies that was part of the second package, we managed to help over 20,000 companies pay their wage bills for over 130,000 employees.
With the measures from the third set aimed at stimulating private consumption to soften the decrease of GDP we introduced travel vouchers for over 120,000 citizens, domestic payment cards for over 300,000 citizens and IT vouchers for young people to increase their skills and employability.
When designing the measures we paid attention not only to “the WHAT” but also to “the WHY” and “the HOW”. For instance, the domestic payment card was designed to enable people to purchase domestic products and services in the affected sectors. In addition, with this measure, we expect to speed up the transition towards a cashless society more cashless payments, a shift in habits, more merchants with POS terminals.
Like other economies worldwide, North Macedonia may now consider a shift from emergency measures to a fully-fledged mid-term recovery plan, designed to kickstart activity as well as to reposition the economy in the global context to factor-in the lasting impact of the pandemic. Importantly, any ambitious plan should remain flexible, as the health situation remains uncertain.
By the end of June, North Macedonia’s public debt was equivalent to 59.5% of the projected GDP, while budget deficit had swelled to 26 billion denars from 7 billion denars in the same period a year earlier. How would you comment on the risks posed by rising public debt levels and the widening budget gap?
The government has appropriately factored-in its fiscal space and debt trajectory when designing its response to the crisis: we prioritised emergency reforms and opted for a phased approach with the release of each of the four packages.
In April we made cuts and reallocations in the budget in the amount of around 100 million euro to create space for swift implementation of the initially introduced measures. With the Supplementary Budget adopted in mid-May the revenues were corrected downwards by 11.5% while the expenditures were left almost the same (+1%), thus widening the deficit to 6.8% of the revised GDP that projected contraction of the economy by-3.4%. The three sets of economic measures were built in this supplementary budget and appropriate financing was secured for 2020 including the repayment of maturing debt of over 680 million euro (around 440 million euro external debt) and leaving a certain fiscal space for potential additional shock or repayment of loans for 2021 – with the Eurobond issuance, the IMF rapid instrument, the EU macro financial assistance loan and a few other smaller loans from the IFIs. Taking this into account, the projections for end 2020 yielded a public debt of 59.5% of GDP.
With the second Supplementary Budget that is yet to be adopted by the Parliament there has been an additional widening of the deficit to 8.4%, as a result of the increased expenditures while the revenues are kept the same.
Now, as the government has published a new revision of GDP projecting a 4.4% slowdown in 2020, the public debt has reached 60% and with the additional projected domestic borrowings to cover the increased expenditures the public debt is expected to reach over 60% in 2020.
In the past few years North Macedonia has practiced prudent public debt management and has made significant progress towards consolidation and stabilisation of the public debt allowing for certain buffers. However, COVID-19 crisis hit just when we were in a good position to build these fiscal buffers in “good times” and have more space for “bad times”, leaving us with limited fiscal space for maneuver. Unfortunately, the consolidation was interrupted and we will have to get back on track very quickly in 2021.
Given the nature of the crisis, the increase in public debt that acts as a shock-absorber is justified. However once the crisis is over and the recovery sets in, keeping the high-levels of public debt over medium-term is a great source of vulnerability. Therefore, we need to play smart, achieve the maximal effects with limited resources on shortterm but also use wisely this period to restructure our economy and put the focus on the digital economy as one of the key drivers for a stronger post-Covid economy.
According to the latest estimates of North Macedonia’s finance ministry, the country’s GDP is expected to fall by 3.4% in 2020 and bounce back to 4.8% growth in 2021. What do you see as the main growth drivers and where do you see the biggest risks to economic growth?
The new IMF projections for North Macedonia estimate contraction by 5.4% in 2020 and rebound in 2021 with 5.5% growth, while the new projections of the government just recently published estimate fall by 4.4% in 2020. Depending on the developments, the second wave and the effects of the upcoming measures I believe North Macedonia stands a good chance to end the year with a slowdown of below 4% and bounce back in 2021 to over 5%.
North Macedonia marked two key milestones this year that are expected to foster the economic growth in the upcoming years. For many years our country has been committed to its European accession process as well its integration in the North Atlantic Alliance. In March we became the 30th member of NATO and the EU gave its formal approval to begin accession talks. The strong commitment to stay and to accelerate the path of the reforms, along with the benefits of its integration create a solid base for boosting the long-term growth of the economy.
However, the crisis has revealed preexisting weaknesses of our societies, ranging from readiness for the digital economy to applying digital solutions quickly. Many people say that nothing will be the same after Covid. There is no better time to digitise nations and embrace technology than today. As much as I like to believe that many things will change for good, people and systems have the natural tendency to return to the usual and safe routine very quickly. This so-called “new normal” life we live today has not become the new comfort zone for the majority of nations. The adaptation curve is steeper than pre-covid in terms of people learning to do things differently but still we are not nearly exploiting the opportunity. And it is so because we were not ready and countries and systems are slow in changing and adapting.
The main driver for economic growth for our small and open economy I believe are tech and digitalisation. Without digitalisation of our nation and increasing the digital skills, we are risking to lag behind and miss the opportunity to grow faster. For instance, we have great unlocked potential in agriculture and tourism and only the synergy of these with technology can boost growth. Furthermore, increasing the share of added value products in exports can make a difference. Finally, North Macedonia should put FDI attraction at the forefront of its economic priorities. The government could capitalise on its business-friendly environment to boost investments and FDI and increase the share of higher value-added products in exports to make a difference.
It is instrumental to make the necessary efforts to increase the competitiveness of our economy and leapfrog into an innovative and smart country. Of course this is not easy, but is not infeasible if there is a unified vision, strong commitment and hard work.
I think the biggest risk to how things will turn out lies in how things will develop with the pandemic, what kind of measures will be imposed, if there will be restrictions and lockdowns, etc. And of course there are other risks associated with people, political will and commitment.
What should the government of North Macedonia do to make the country more attractive to foreign investors?
Indeed, COVID-19 brought a great challenge but also a great opportunity for new business models and urged many traditional businesses to change and adapt to survive. Some businesses will die, some will adapt and transform and become more competitive after Covid. This transformation and adaptation cannot be done without the implementation of new digital tools and technology. Speaking about SEE, e-commerce can be a great driver for growth as it opens new markets, new potential customers for local usinesses. If we take a look at e-commerce globally during Covid, over the past six months, some markets have accelerated to the level forecast for 2022-2023. However, I think this region did not manage to exploit the opportunity due to the pre-existing weaknesses that I mentioned, in particular the low digital skills.
The lack of standardisation and different regulation, rules and procedures is one of the challenges for MSMEs to expand in other markets in the region. If a company launches and can easily, hassle-free, without an administrative burden and complexity expand to other neighboring countries, the whole region will enjoy the benefits and be able to unlock the potential the digital economy holds, especially for small countries.
Regarding attracting more foreign investors, North Macedonia has the potential to be “a star” in the region, taking into account we are ranked the highest at the Doing Business Index, the location, the subsidies we offer, the tax policy and much more. We should strive to further strengthen our business environment and design a competitive FDI-attraction policy to preserve our competitiveness. However, as cheap workforce used to be one of the “selling-propositions” for foreign investors, and nowadays the demand for “skilled” over “cheap” prevails, the government has been putting more and more focus and investment into requalification
and up-skilling, hence making the country more desirable for foreign investors.