EUROPEAN COMMISSION Brussels, 10.11.2015 SWD(2015) 212 final COMMISSION STAFF WORKING DOCUMENT THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA

Report 2015 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS



EU Enlargement Strategy {COM(2015) 611 final}

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Table of Contents 1.INTRODUCTION 1.1.Context 1.2.Summary of the report 2.POLITICAL CRITERIA 2.1.Democracy 2.2.Public administration reform 2.3.Rule of law 2.4.Human rights and the protection of minorities 2.5.Regional issues and international obligations 3.ECONOMIC CRITERIA 3.1.The existence of a functioning market economy 3.2.The capacity to cope with competitive pressure and market forces within the Union 4.Ability to assume the obligations of membership 4.1.Chapter 1: Free movement of goods 4.2.Chapter 2: Freedom of movement for workers 4.3.Chapter 3: Right of establishment and freedom to provide services 4.4.Chapter 4: Free movement of capital 4.5.Chapter 5: Public procurement

4.6.Chapter 6: Company law 4.7.Chapter 7: Intellectual property law 4.8.Chapter 8: Competition policy 4.9.Chapter 9: Financial services 4.10.Chapter 10: Information society and media 4.11.Chapter 11: Agriculture and rural development 4.12.Chapter 12: Food safety, veterinary and phytosanitary policy 4.13.Chapter 13: Fisheries 4.14.Chapter 14: Transport policy 4.15.Chapter 15: Energy 4.16.Chapter 16: Taxation 4.17.Chapter 17 Economic and monetary policy 4.18.Chapter 18: Statistics 4.19.Chapter 19: Social policy and employment 4.20.Chapter 20: Enterprise and industrial policy 4.21.Chapter 21: Trans-European networks 4.22.Chapter 22: Regional policy and coordination of structural instruments 4.23.Chapter 23: Judiciary and fundamental rights 4.24.Chapter 24: Justice, freedom and security 4.25.Chapter 25: Science and research

4.26.Chapter 26: Education and culture 4.27.Chapter 27: Environment and climate change 4.28.Chapter 28: Consumer and health protection 4.29.Chapter 29: Customs union 4.30.Chapter 30: External relations 4.31.Chapter 31: Foreign, security and defence policy 4.32.Chapter 32: Financial control 4.33.Chapter 33: Financial and budgetary provisions Annex I – Relations between the EU and the Former Yugoslav Republic of Macedonia Annex II – Statistical Annex



1.INTRODUCTION 1.1. Context The European Council granted the status of candidate country to the former Yugoslav Republic of Macedonia in December 2005. The Stabilisation and Association Agreement between the former Yugoslav Republic of Macedonia and the EU entered into force in April 2004. The Commission first recommended to the Council the opening of accession negotiations with the country in 2009. The reporting period was dominated by a serious political crisis in the country. On 2 June and 15 July, the European Commission and Members of the European Parliament facilitated an agreement between political parties on ending the crisis and the European Commission presented “Urgent Reform Priorities” on the systemic institutional failings arising out of the crisis that the government and all other political actors committed to implement. 1.2. Summary of the report Concerning the political criteria, serious challenges reported in previous years have been underscored by the country's most severe political crisis since 2001 with intercepted communications, apparently involving senior government officials, suggesting breaches of fundamental rights, interference with judicial independence, media freedom and elections, as well as politicisation and corruption. Concerns about all of these issues had been signalled in previous Progress Reports. The breakdown of political dialogue and difficulties in arriving at consensus on issues highlighted once again the divisive political culture in the country. Based on an agreement facilitated by the Commissioner, with the help of three members of the European Parliament, in June/ July, Members of Parliament of the main opposition party returned to parliament on 1 September after having boycotted it for more than a year. The boycott seriously affected the oversight function of the institution over the executive branch. Other key bodies failed to exercise effective oversight. Work has begun on the implementation of the political agreement. Implementation needs to continue and much more needs to be done on the "Urgent Reform Priorities" to deliver results on these and other pre-existing agreed reform targets. The inter-ethnic situation remains fragile. The review of the Ohrid Framework Agreement, which ended the 2001 conflict and provides the framework for the inter-ethnic relations, needs to be completed.

Following a major police operation in an ethnic Albanian neighbourhood of Kumanovo that claimed 18 lives, all political leaders in the country called for restoration of calm and underlined that this incident should not be seen as inter-ethnic. Events at Kumanovo still need to be fully investigated. Civil society organisations have played a constructive role in the context of the crisis through demanding accountability from the political actors across ethnic lines. At the same time organisations continue to express their concerns about the difficult climate in which they operate and the limited government commitment to dialogue, as well as about public attacks by politicians and pro-government media. The country is moderately prepared in the area of public administration reform. There has been progress on some issues. However, concerns about politicisation have been reinforced by the content of the wiretaps, and merit based recruitment continues to be undermined. Public trust in the functioning of the institutions has further eroded. Some steps have been taken to reform public financial management, but a medium-term budgetary framework and fiscal transparency still needs to be put in place and improved. The country’s judicial system has some level of preparation. The situation has been backsliding since 2014 because the achievements of the last decade's reform process have been seriously undermined by actual and potential political interference in the work of the judiciary. Indications of wrongdoings and offences arising from the intercepted communications still need to be fully investigated. The authorities now need to demonstrate real political will to ensure the full independence of the judicial system, including allowing the newly-appointed Special Prosecutor to work unhindered in investigating the wiretaps and their content. Concerning the fight against corruption, some level of preparation has been achieved. Legislative and institutional achievements were, however, overshadowed by a lack of political will and political interference in the work of the relevant bodies, especially in high-level cases. A track record of effective prosecution, especially on high level corruption, still needs to be established. In the fight against organised crime, the country has reached some level of preparation. Sufficient capacity and expertise to carry out financial investigations and asset confiscations in a systematic manner still needs to be established. The legal framework for the protection of human rights is broadly in line with European standards. However, implementation is lacking, in particular in the areas of prison reform, Roma integration, rights of the child and persons with disabilities. The lesbian, gay, bisexual, transgender and intersex (LGBTI) community continues to suffer from discrimination and homophobic media content. The country shows some level of preparation regarding freedom of expression. Exercising this freedom, however, is a serious problem in the current media culture and political climate, and the country continued to backslide in this area. Attempts to limit media reporting on matters of public interest are worrying. The country generally maintains good relations with other enlargement countries and plays an active role in regional cooperation. Steps have been taken to improve good neighbourly relations. The 'name issue' with Greece needs to be resolved as a matter of urgency. As regards the economic criteria, the former Yugoslav Republic of Macedonia is at a good level of preparation in developing a functioning market economy. The country benefits from a stable macroeconomic environment, supported by sound monetary policy, favourable conditions for market entry, and a sound legal system. There was some backsliding in public finance management. Medium-term fiscal targets were relaxed, the composition of public spending remains tilted towards transfers and subsidies and the development of overall public debt, as well as its transparency, remain a concern. The budget should be more geared towards growth and employment, while its overall design, transparency and implementation should be improved. A high level of non-performing loans has constrained credit supply and needs to be addressed by further policy action. Unemployment remains high at 28%. The economy is moderately prepared to cope with competitive pressures and market forces within the Union. There was some progress in diversifying the export structure as a result of direct investment; trade and investment links with the EU strengthened further. However, the country needs to improve the employability of people, in particular the youth, by better aligning education with labour market needs, upgrade linkages between foreign direct investors and the domestic economy, and better prioritise investment. As regards its ability to take on the obligations of membership, the country has a relatively good level of alignment with the acquis. More focus is needed on administrative capacity and effective implementation. In most areas, the country is moderately prepared, including in the areas of public procurement, statistics and, financial control. Further efforts are needed across the board, in particular in those few areas where the country is at an early stage of preparation. Mixed-migration flows increased dramatically, creating a substantial burden on the country's asylum and migration framework. The authorities have taken measures to provide for safer passage of third country nationals over its territory and provided shelter and humanitarian supplies, with EU support as well as the support of others. 2.POLITICAL CRITERIA 2.1. Democracy This year the former Yugoslav Republic of Macedonia has faced its worst political crisis since 2001. The divisive political culture, lack of compromise and breakdown in dialogue took the form of a continuing and protracted political crisis, including a boycott of parliament by the main opposition party and further erosion of trust in public institutions. The crisis deepened further with the publication of intercepted conversations including senior government and governing party officials suggesting breaches of fundamental rights, interference with judicial independence, media freedom and elections, and politicisation and corruption in various fields. Concerns about all of these issues had been signalled in previous Progress Reports. The Macedonian government, the parliament and relevant oversight bodies failed to react adequately to the revelations. In response, the Commission issued ‘Urgent Reform Priorities’ based partly on its previous recommendations and partly on recommendations provided by a group of independent senior rule of law experts brought in to analyse the situation. The independent experts identified significant shortcomings in the areas of interception of communications, the judiciary and prosecution services, external oversight by independent bodies, elections and the media. In parallel, the Commissioner, with the help of three members of the European Parliament, facilitated a political agreement in June/ July. The leaders of the four main parties committed, inter alia, to a transitional government which will prepare early parliamentary elections in April 2016. So far, not all elements of the agreement have been implemented and a number of deadlines have been missed. The leaders also committed to implement all of the Commission’s recommendations on systemic rule of law issues (Urgent Reform Priorities); implementation of these has slowly been started, but without sufficient results to date. Elections Shortcomings regarding elections, previously signalled by OSCE/ODIHR, and other suspicions, were reflected by the content of the intercepted communications. The relevant Urgent Reform Priorities need to be implemented. These communications included discussion of manipulation of the voter list, vote buying, voter intimidation, including threats against civil servants and companies, and preventing voters from casting their votes. As set out in the ‘Urgent Reform Priorities’, the outstanding OSCE/ODIHR recommendations need to be fully implemented before early elections are held in April 2016. Despite the commitments in the political agreement, negotiations on electoral-related reforms were lengthy and difficult. Political and legal action rather than legislation is needed to address the other issues which have been brought to light.

Parliament The ongoing crisis has underlined the need for parliament to substantially improve its performance as a forum for constructive political dialogue and representation, as well as its legislative and oversight functions. This needs to include credible functional oversight of the work of the intelligence services and the capacity to monitor the protection of human rights and fundamental freedoms in the country. The absence of the main opposition party for most of the reporting period diminished the quality of reforms and hindered the operation of checks and balances. Parliament’s work continued to be seriously hampered by the political crisis, including the absence of the largest opposition party, SDSM, for 16 months before returning to parliament on 1 September. As a result, parliament failed to provide the necessary checks and balances on the executive’s power, most obviously on oversight of the intelligence services at the heart of the interception of communications. During the summer, the two relevant oversight committees were reactivated, now under opposition leadership, but an Inquiry Committee into the interception of communications still needs to be established (Urgent Reform Priorities). The recommendations made in August 2013 by the committee of inquiry into the events in parliament of 24 December 2012 were not finalised because of the withdrawal of SDSM from the relevant working group in October 2014, and work still needs to restart (Urgent Reform Priority). Implementing these recommendations would significantly improve the functioning of parliament and the scheduling of its work. Consultations on proposed legislative and constitutional changes were carried out through several public debates with the participation of civil society organisations and academia. The Committee on European Affairs reviewed 11 laws under the National Programme for EU Integration. However, frequent changes to recently adopted legislation, including its suspension, point to shortcomings in policy preparation, consultation and legislative processes. A constructive meeting of the National Council for European Integration took place on 18 September, on the occasion of a meeting of the High Level Accession Dialogue. Governance The governance of the country was strained by the ongoing political crisis and called into question by revelations of unethical behaviour, illegal activities and even potential criminal offences. Only limited political responsibility was taken through the resignation of two ministers and the head of the intelligence service. Failures of oversight by key bodies need to be addressed and all independent regulatory, supervisory and advisory bodies need to be able to carry out their functions proactively, effectively and free from political pressure. Inter-ethnic tensions underlined the need to fully implement the Ohrid Framework Agreement. The government coalition of the VMRO-DPMNE and DUI remained stable, though severely strained by the crisis. In May it lost its two-thirds majority, required for key decisions, with the defection of an MP from the DOM party from the VMRO-DPMNE coalition due to political fall-out from the revelations. The Minister of Interior and the Minister of Transport and Communications, as well as the head of the intelligence service, resigned after the intercepted communications were revealed. Since May, the opposition organised several demonstrations to protest against the lack of transparency and level of state capture by the government. There have also been an increased number of demonstrations protesting at the lack of consultation in government policy-making on laws which have been repealed or suspended. The inter-ethnic nature of the government coalition was a factor that contributed to inter-ethnic stability. The leaders of the four main political parties committed, in the 2 June political agreement, to fully implement the Ohrid Framework Agreement, which ended the conflict of 2001 and provides the framework for preserving the multi-ethnic character of the society. However, there remains a lack of trust between communities, and inter-ethnic tensions persist. Further initiatives are needed to promote good inter-community relations and an inclusive multi-ethnic society. The long-promised review of the implementation of the Ohrid Framework Agreement, including policy recommendations, needs to be urgently completed and followed up. As in previous years, the political and community leaders successfully handled potential inter-ethnic incidents. The serious events in Gošince and Kumanovo raised concerns and questions which still need to be investigated thoroughly and transparently. Constitutional changes were proposed by the government in a broad range of areas, despite the absence of the main opposition party from parliament. Neither the proposed changes, nor related implementing legislation, have been adopted by parliament as the two-thirds majority could not be reached. Although there was wide public consultation and debate on the proposals, the concerns expressed by the European Commission about their compatibility with the acquis have not all been addressed yet. The decentralisation of government is of particular importance as it is a key element of the Ohrid Framework Agreement (see also 2.4. Ohrid Framework Agreement). One municipality (Plasnica) has still not completed the second phase of fiscal decentralisation. Some progress has been made with the adoption of the strategic decentralisation programme for 2015-2020 and its action plan. However, the decentralisation process needs to be better coordinated and efforts are required to ensure that especially rural municipalities have the financial sustainability to carry out responsibilities transferred to them. Distribution of capital funds to municipalities needs to be carried out in a more transparent and coordinated manner. Multi-annual budget planning and improved collection of statistical data at local level is also needed. It is an issue of concern that some opposition-run municipalities were subject to a disproportionate number of inspections. The report by senior rule of law experts pointed to the failure of independent oversight and control bodies to follow up effectively on the interception revelations (Urgent Reform Priority). More generally, all of the independent regulatory, supervisory and advisory bodies should be able to exercise their powers in a proactive and effective manner, without external pressure and without exercising inappropriate political self-restraint or interpreting their own mandate in an excessively formal way. These bodies include the State Election Commission, the State Commission for the Prevention of Corruption, the Agency for Audio and Audiovisual Media Services, the Office of the Ombudsman, the Judicial and Prosecution Councils and the State Audit Office. Civil society Although some progress was made, civil society organisations (CSOs) have continued to express serious concerns about the difficult climate in which they operate. They report being subject to harsh criticism by politicians and pro-government media, and a limited government commitment to dialogue. During the political crisis of 2015, CSOs often played a constructive role by organising numerous peaceful protests across ethnic lines, and demanding greater accountability of politicians. Civil society also demonstrated cross-ethnic unity in the aftermath of the tragic Kumanovo events of spring 2015. At the same time, political polarisation and divide can still be observed between CSOs supporting the government and those opposing it. The national authorities should involve civil society in policy-making and legislation in a more regular and effective manner. An empowered civil society is a crucial component of any democratic system and should be recognised and treated as such by state institutions. The binding framework of rules for state financing of civil society has not been, however, adopted, and the system for allocating state funds to civil society remains ineffective and inefficient. Insufficient administrative capacity and the lack of a specific budget in the Government Unit for NGO Cooperation are hampering implementation of the 2012-2017 strategy on cooperation with civil society. The relevant 2015-2017 action plan has not yet been adopted. The working group for monitoring the law on associations and foundations has not been established by the Ministry of Justice. The Council for Cooperation between government and civil society is not yet established, and neither is the working group for monitoring the law on associations and foundations has not been established by the Ministry of Justice. The Secretariat for European Affairs continues to consult civil society, including on financial assistance-related matters, the preparation of the High Level Accession Dialogue being a good example. In general, however, CSOs’ involvement in policy-making and legislative drafting remains insufficient. The single electronic register of legislation is not used for online consultations for most draft legislation. The minimum period for consultations and the obligation to provide feedback on comments are not fully complied with. The code of good practice for CSOs’ participation in policy-making processes is implemented inconsistently. Local government lacks the capacity to ensure cooperation with CSOs is undertaken. Oversight of the intelligence services In theory, the country has a system of oversight in place, which has not functioned in practice in the case of the security and intelligence services. The parliamentary committees which are responsible for the oversight of the security and intelligence services on the one hand, and the interception of communications for intelligence and law enforcement purposes on the other, have met infrequently or not at all in recent years. They had not complied with their statutory reporting duties, had not conducted inspections (until this autumn) and had not compelled the Minister of Interior or the head of the intelligence service to appear before them. Sufficient responsibility has not been taken for the serious failings within the intelligence service to prevent the illegal interception of individuals' private communications over a significant period of time. The clear recommendations on both oversight and reform of the intelligence services in the ‘Urgent Reform Priorities’ must be implemented.

2.2. Public administration reform The country is moderately prepared with the reform of its public administration. It made some progress on legislation and improvement of service delivery to citizens and businesses. Concern about politicisation has been heightened by the content of the leaked wiretaps and delay in fully implementing the new legal framework. Strong political will is necessary to guarantee the independence of administration and respect for the principles of transparency, merit and equitable representation. In the coming year, the country should in particular: → address serious concerns about the politicisation of public service; ensure full implementation of the principles of accountability, transparency and merit (Urgent Reform Priority, including introduction of an improved human resources management information system); → suspend and review the implementation of the Law on Transformation of Temporary Positions into Permanent Contracts until the principle of merit is fully observed (Urgent Reform Priority); → adopt a public administration reform strategy and a public financial management reform programme, which will address the weaknesses identified, including budget transparency. Public service and human resources management Tailor-made, political and arbitrary recruitments took place on a large scale. The new legal framework, comprising the Law on Administrative Servants and the Law on Public Sector Employees, which entered into force in February, should combat this trend as it created uniform rules for public sector employees at both central and local level. All implementing legislation has been adopted, including the methodology on equitable representation. The laws represent an improvement by regulating merit-based recruitment, promotion and dismissal of public servants at lower positions, but they fall short in relation to senior public servants. Concerns continue over the transparency of staff mobility and possible misuse of dismissal procedures. The public sector has been further inflated with the practice of creating new posts on political or social grounds, in particular before the new laws entered into force. The Law on Transformation of Temporary Positions into Permanent Contracts was adopted in February by a fast-track procedure and without prior public consultation nationally or with the EU partners only a few days before the entry into force of the framework laws. This law circumvents the principles of merit-based recruitment by converting thousands of temporary contract staff into permanent civil servants or public employees without open competition. While recruitment from the biggest non-majority community is increasing, smaller communities remain under-represented. Efforts to meet targets for equitable representation did not always take account of institutions’ real staffing needs and the principle of merit. The number of public employees not required to turn up to work has increased. The Ministry of Information Society and Administration’s (MISA) responsibility for coordination and monitoring of human resources management has been extended to cover all public sector institutions. It is in charge of providing real-time data on the entire public service. The total numbers of permanent and temporary employees, of all types, should be made public regularly (Urgent Reform Priority). There is no uniform civil service remuneration system across the public sector, leading to inconsistent levels of pay and hindering mobility. Close monitoring of the application of the legislation is of key importance to address its shortcomings. The right to continuous professional development of civil servants is partially covered, and the use of e-learning systems increased. There is, however, no centralised database of training offered by various institutions and no cumulative data on training already provided. Legislation promoting integrity in public service has had relatively limited impact. Policy development and coordination The legal framework and institutional structures are in place to ensure a coherent policy-making system, including for European integration. However, staffing in the core coordination functions is inadequate. A system for medium-term policy planning is in place but sectoral planning is not well developed and strategies are usually not costed. Only some elements of inclusive and evidence-based policy and legislative development have been laid down. Ministries do not generally have internal rules laying down processes to draft policies and legislation. A large proportion of civil servants focus on implementation of policies, affecting negatively policy development and the administration’s capacity to draft policy and legal documents, including those needed to comply with the acquis. The obligatory inter-ministerial and public consultations process on policies and legislation is often insufficient and public participation is inconsistent. This has, for example, led to widespread protests and the eventual suspension of legislation (See Chapter 26). The obligatory regulatory impact assessments for legislative and policy proposals are not always carried out in practice or with sufficient quality. Financial impact assessments are usually not prepared, which is a significant shortcoming. Public scrutiny over government work is ensured in theory, as the government is under a legal obligation to monitor and report on implementation of its programme. Most of the reports are not made public, however. Also, the reports focus more on quantitative outputs than on qualitative assessment whether policy objectives are achieved. Accountability of the administration The organisation of the Macedonian administration does not yet ensure effective lines of accountability, neither between institutions nor within institutions. Supervision would need to be clarified, as some institutions have to report parallel both to the relevant ministry and the government. Managerial accountability is not implemented systematically, and there is little delegation of responsibility to middle management. (See Chapter 32 – Financial control) The relevant internal and external oversight mechanisms are in place to ensure the citizens' right to good administration. However, the opposition’s long-term absence from parliament undermined parliamentary oversight. The Ombudsman continues to function efficiently, and around 87 % of his 2014 recommendations were implemented by the administration. However, better follow-up by a number of central institutions is still needed. (Urgent Reform Priority / see also Governance) .The right to access public information is regulated in the Law on Free Access to Information of Public Charter but the scope of exemptions is too broad. The independent commission that reviews appeals does not have sufficient capacity to monitor compliance with proactive disclosure of information, and is not empowered to impose penalties to encourage better enforcement of legislation.

Regarding the right to administrative justice, the law on general administrative procedures ensures the right of appeal. A new body reviewing internal administrative appeals against inspection and misdemeanour proceedings was established, but has not become functional. Efficiency in the administrative courts increased but there are delays in enforcing court rulings and the appeal procedure remains too onerous. The right to seek compensation and the liability of public authorities in cases of wrongdoing is regulated, but data on compensation for damages is not available. Public financial management The medium-term budgetary framework is not yet in place. The parliament does not have the resources to monitor the use of public funds. There is also no efficient mechanism to monitor the budgetary impact of government proposals. Implementation of the public internal financial control strategy is in its initial phase. A comprehensive public financial management reform programme, addressing the identified shortcomings and linking and sequencing different areas and reform measures, is currently being developed. Budget transparency is not ensured as comprehensive, timely and reliable budgetary information is not publicly available. Moreover, the 2015-2017 fiscal strategy and the 2015 budget were adopted without adequate parliamentary discussion. Service delivery to citizens and businesses A user-oriented administration, among other things by developing e-services, is a government priority. The inter-operability framework is being developed. Equal access to public services is partially established. An increasing range of services is offered to business through one-stop-shops or online, albeit at a slow pace. However, the number of services provided to the public through the e-government portal is limited, especially those with transaction possibilities. The use of quality assurance tools is encouraged and currently 16 % of the central government institutions measure public satisfaction. A newly adopted law on general administrative procedures, to enter into force in 2017, is a good step towards simplifying administrative procedures. Substantial training at central and local level is needed to ensure it is applied uniformly. Considerable efforts are also needed to reduce the estimated 130 special administrative procedures hampering modernisation of service delivery before the new law enters in force. Strategic framework for public administration reform A comprehensive public administration reform strategy is in place but will expire at the end of 2015. It focuses mainly on outputs, not targets and indicators. The 2016-2020 strategy is yet to be developed including an action plan, linked to medium-term and annual budget planning. MISA's capacity to ensure efficient co-ordination of the strategy's implementation should be strengthened. Political support is ensured through the public administration reform committee chaired by the Prime Minister. However, the declared commitment to transparency, accountability and merit in public administration has been compromised by ad-hoc measures allowing public employment as a social measure or the mass conversion of temporary staff to permanent status. This also limits financial sustainability of a wider public administration reform agenda. 2.3. Rule of law Functioning of the judiciary The country’s judicial system has some level of preparation. However, the situation has been backsliding. Achievements of the last decade's reforms are being undermined by real and potential political interference in the work of the judiciary. Outstanding issues already identified in previous reports remain to be addressed. The ‘Urgent Reform Priorities’ set out what the country needs to do to avoid further backsliding. The legislative and institutional structures which are already in place need to be put to use, in good faith and in the spirit intended. In the coming year, the country should in particular: → depoliticise the appointment and promotion systems in practice, not only in law; → provide full support and resources to the Special Prosecutor; → reform the existing discipline and dismissal system for judges; → adopt a new Judicial Reform Strategy and action plan addressing remaining shortcomings in a sustainable manner; → improve strategic planning, needs assessment, resource management and allocation within the judiciary. Strategic documents A number of judicial reforms were already carried out under the judicial reform strategy and its accompanying action plans from 2004 to 2010. A new strategy and action plan focusing on a number of specific areas, including alternative dispute resolution and access to justice, are still at an early stage of development. Management bodies The Judicial Council, established in 2006, is composed of 15 full-time members, of whom eight are judges designated by their own ranks and five are lay members (three designated by parliament and two by the President) from the ranks of university law professors, lawyers and other eminent legal experts. The President of the Supreme Court and the Minister of Justice are ex officio members, the latter without voting rights. The President of the Judicial Council is designated by its members every three years. Four of the five lay members are elected under the ‘Badinter rule’, ensuring equitable representation of the communities. As well as carrying out core responsibilities — deciding on the appointment, evaluation, dismissal, termination, detention and immunity of judges — the Judicial Council cooperates closely with the Academy of Judges and Prosecutors and also oversees statistical data collection through the automated court case management system. It maintains an accessible website and publishes annual reports online. The Judicial Council’s sessions are public, but their records are not. The Council of Public Prosecutors, established in 2008, is still lacking its own budgetary allocations, appropriate IT support and enough staff.

Independence and impartiality The independence of judges is enshrined in law. In the large majority of ‘ordinary’ cases, courts are able to act independently. Relatively few complaints are made to the Judicial Council over bias or partiality and none have been upheld. However, there are repeated reports of selective justice and political interference in certain high-profile or politically sensitive court cases. This casts a shadow over an otherwise functioning judicial system. The random allocation of cases has been required by law since 2006 and is implemented through the electronic case management system since 2009. However, the Judicial Council does not monitor the system systematically and there are concerns that it is sometimes be circumvented in key cases. The criminal and civil procedure legislation provides clear recusal-mechanisms for judges in cases of conflicts of interest. Concerns about judges’ security of tenure still need to be addressed due to the high number of dismissals in recent years: since 2007, there have been 59 dismissal proceedings, resulting in 44 dismissals. While the numbers of dismissals have fallen drastically in the past two years, the legislative framework still needs to be revised, particularly regarding the often vague grounds for dismissal and the narrow scope for imposing less severe disciplinary measures. Accountability The codes of ethics for judges (2006) and prosecutors (2004) were both updated in 2014. Since 2010, the entrance criteria for the Academy of Judges and Prosecutors include integrity-testing. The two-year initial training programme for judges and prosecutors and the final exam also include a component on judicial and prosecutorial ethics. There are multiple complaints mechanisms for the public to use. Complaints can be lodged via, among others, the Ministry of Justice, the Office of the Ombudsman and the Supreme Court. Aside from the disciplinary framework which is in place, there have in the recent past also been criminal prosecutions against judges and prosecutors and the principle of immunity does not pose any practical obstacle, as it is revoked by the Judicial Council in such cases. The State Commission for Prevention of Corruption has also regularly sought misdemeanour fines against judges who fail to submit asset declarations or statements of interest and the system works smoothly in practice. Professionalism and competence Although the entrance criteria for the judicial profession were toughened in 2010, as were the professional experience pre-requisites for promotion to higher courts, concerns persists about how the rules are applied in practice. There are no transparent means to assess whether the objective, merit-based criteria are in fact applied in decisions on judicial appointments and promotions, especially when comparing multiple candidates. The system of professional evaluation is based almost exclusively on numerical benchmarks relating to the numbers of cases processed per month and the procedural deadlines met. It does not include any features of qualitative assessment, such as the clarity of reasoning in judgments or level of specialisation. It takes negligible account of contributions to jurisprudence, academia or teaching and it includes unjustified criteria such as the number of cases overturned on appeal. This can also have knock-on consequences for both promotions and dismissals given that they are closely linked to the results of the evaluation procedure. Despite repeated criticisms, no improvements have yet been introduced. The lack of clear reasoning in court judgments remains a significant problem still to be addressed. Quality of justice The Academy for Judges and Prosecutors was established in 2006 and has so far produced four graduating classes of 80 candidates in total, of whom 78 have been appointed as first-time judges and prosecutors. In addition to the two-year pre-service training programme, the Academy provides ongoing in-service training for all judges, prosecutors and court staff. This also covers relevant aspects of EU law and European Court of Human Rights (ECtHR) jurisprudence. It operates e-training through its web portal and decentralised training outside the capital. The Academy is financed from the state budget and by donors. It still lacks sufficient support staff. Its ability to provide high-quality training, both from experienced national professionals and international guest trainers, needs to be secured and monitored on an ongoing basis. All courts produce quarterly and annual activity reports. The Judicial Council monitors these, as well as the annual report of the Supreme Court. The Automated Court Case Management Information System (ACCMIS) allows court activities to be followed up daily, and has also been used to compile data in specific areas, such as pre-trial detentions and the identification of ‘old cases’. ICT systems are in use in all courts but some public prosecutors’ offices still lack equipment. Online access to law and jurisprudence is available in principle but is inconsistent in practice. Despite several initiatives to promote alternative dispute resolution, including under the 2009 Law on Mediation, there is a low level of uptake by the public of the options available. The country has observer status in the European Judicial Training Network. Efficiency Most courts at all levels maintain a clearance rate of 100 % or higher, meaning that they are able to process at least as many cases as they receive in one year. Backlogs have not been an issue for several years. Individual stages of court proceedings are generally concluded within the legal deadlines; however, the overall length of court proceedings from initiation to final judgment remains a concern in some categories of cases. Amendments were made to both the criminal and civil procedure legislation several years ago, addressing the problem of repeated referrals and re-examinations following appeals (so-called ‘ping pong’ appeals). However, the improvements benefit only cases started after the amendments entered into force which has created a confusing procedural landscape and a category of increasingly lengthy ongoing proceedings which still labour under the old rules. This needs to be addressed. The European Court of Human Rights has confirmed that the Supreme Court provides an effective domestic remedy for length of proceedings complaints. The 2015 budget for the courts is EUR 30.2 million and EUR 7 million for the prosecution service. In terms of budgetary spending per inhabitant, this is significantly lower than the European average. The number of both judges and court staff per 100 000 inhabitants is significantly above the European average. There is still no dedicated human resource management system or any strategy aimed at improving resource allocation. Fight against corruption The country has some level of preparation in the fight against corruption, having set up the necessary legislative and institutional framework over the last decade as well as developing a track record on both prevention and prosecution. No progress has been achieved in the past year on the outstanding issues identified. Corruption remains widespread. The capacity to effectively address it is currently being undermined by a lack of political will and political interference in the work of the relevant bodies, which is hampering their ability to act proactively and non-selectively, especially in high-level cases (Urgent Reform Priorities). In addressing the shortcomings outlined below, the country should pay particular attention in the coming year to: → demonstrating real political will in the fight against corruption in the form of autonomous and effective measures by law enforcement and supervisory bodies, notably the State Commission for Prevention of Corruption; → increasing the visibility of anti-corruption measures and the results achieved to improve public awareness and trust; → developing a credible track record on fighting high level corruption; → creating an effective framework for the protection of whistle-blowers, in line with European standards and best practices (Urgent Reform Priorities). Track record Significant efforts have been made in recent years by the state bodies involved in the fight against corruption to collect the data needed to properly monitor investigations, prosecutions and convictions in this field. Over 220 criminal proceedings have been launched in the past six years and over 30 high-level cases in the past 12 years. While the track record is strongest on combating corruption connected with serious and organised crime activity, as well as abuse of office by low to medium level officials, it is weak on high-level political corruption. Serious allegations against senior government officials have yet to trigger thorough investigations. This selective passivity raises concerns over the independence of the police, the Public Prosecutor’s Office and the State Commission for the Prevention of Corruption (SCPC).

Widespread allegations of politicisation and of political interference by the executive and the ruling political parties in the work of the law enforcement agencies and the judiciary need to be addressed. The content of the intercepted communications has implicated members of the government and senior officials in abuses of power and corruption in public procurement, urban planning, political party financing and public employment, as well as in interfering in the independence of the judiciary, the media and elections. The reluctance of the relevant law enforcement bodies, including the Public Prosecutor’s Office, to follow up on these revelations in a swift and decisive manner is of concern. The effective fight against corruption requires not only the pro-active efforts of enforcement, regulatory and oversight bodies but also the political will of all other actors to allow them to carry out their functions fully, as intended by law (see also the ‘Urgent Reform Priorities’). Financial investigations and asset confiscation are still used quite rarely in corruption cases. The track record on control of party and campaign financing indicates that the existing penalties under the Law on Prevention of Corruption and the Electoral Code need to be applied much more systematically and visibly in practice. The SCPC regularly initiates misdemeanour proceedings for failure to declare assets or submit statements of interest, with over 700 cases launched in the past five years. It also investigates potential conflicts of interest (over 680 cases in the past five years) and refers asset discrepancies to the Public Revenue Office for further investigation (over 230 cases in the past five years). Data collection and monitoring in this area is at an advanced stage. The implementation of the Law on Free Access to Public Information remains ineffective and in practice penalties are not imposed for failure to comply. Political parties are still excluded from the list of holders of information, and thus remain outside the scope of the enforcement regime. Whistleblowing does not occur in practice due to the lack of any comprehensive protection. Proposed legislation on the topic needs to be aligned with European standards. Institutional framework The SCPC is the main institution on the prevention side. It was established in 2002 and has responsibilities in the areas of political party and campaign financing, asset declaration and conflicts of interest. It carries out systematic and ad hoc verifications and acts on complaints from the public. All of its annual reports are published on its website, some also in English. The SCPC has limited enforcement powers of its own, mainly issuing public warnings. However, it regularly institutes misdemeanour proceedings before the courts (resulting in fines) for failure to comply with various reporting obligations, and also refers cases of potential corruption directly to the Public Prosecutor. Where asset discrepancies are found, the SCPC refers cases for further investigation to the Public Revenue Office, which has the power to impose a punitive 75 % tax rate on undeclared income. While it has competent staff, the SCPC still lacks the adequate human and technical resources to function effectively. Although formally independent, the SCPC is regularly criticised for its members’ lack of political will to fight corruption in a proactive, independent and non-selective manner. Public awareness of the SCPC’s activities is quite low and awareness-raising on its role should be strengthened. On the law enforcement side, most corruption cases are handled by the specialised Basic Public Prosecution Office for Organised Crime and Corruption in Skopje. Since 2007 this has special competence for public sector corruption as well as organised crime, while cases of private sector corruption are handled by the local prosecution offices around the country. The new Law on Criminal Procedure which applies since December 2013 aims at strengthening the role of the prosecutor in the pre-trial phase and improving the capacity to tackle complex organised crime and corruption cases. Despite many activities undertaken to prepare for the entry into force of the new system, the capacity of the prosecution service to lead criminal investigations and effectively direct law enforcement agencies still needs to be strengthened. The Ministry of Interior’s Sector for fighting corruption still needs to be reinforced with adequate staff and equipment. The Agency for Management of Confiscated Property does not have sufficient powers and continues to be under-resourced. Legal framework The Criminal Code penalises active and passive bribery in both the public and private sectors, active and passive trading in influence, illicit enrichment and abuse of funds for campaign financing. It provides for prison sentences ranging from six months to ten years. In practice, sentences imposed are most commonly of three to four years, but heavier sentences of seven or eight years have also been given regularly, depending on the circumstances of the case. The 2004 Law on the Financing of Political Parties and the recently amended 2006 Electoral Code contain both criminal and misdemeanour provisions on funding and election-related corruption. Fines range from EUR 500 to EUR 5 000 for breaches relating to party and campaign financing, donations, reporting and pre-election payments from the state budget. However, the enforcement regime is not being put to full use, as the penalties foreseen are not imposed on political parties in practice, despite complaints and media reports of breaches. The respective control powers and responsibilities of the State Audit Office, the SCPC and the State Election Commission are unclear under the legislation, leading to a mutual abdication of responsibility which needs to be addressed. The legal framework for prevention is provided by the 2002 Law on Prevention of Corruption (covering asset declarations), the 2007 Law on Preventing Conflicts of Interest, the 2006 Law on Free Access to Public Information and the 2008 Law on Lobbying. The first two have been amended several times, notably in response to successive rounds of GRECO (Group of States against Corruption) evaluations. There is still no comprehensive system for protecting whistle-blowers. The country is party to the UN Convention against Corruption since 2007 and the Council of Europe Criminal and Civil Law Conventions since 2002 and 2003 respectively. While legislation penalises illicit enrichment in line with Article 20 of the UN Convention against Corruption, there is no indication that the provisions are used in practice. Strategic framework The country is implementing its 2011-15 state programmes for preventing corruption and conflicts of interest and their respective action plans. However, the programmes lack visibility and the relevant state institutions do not treat implementation as a priority. Implementation costs, and how these costs are shared among the institutions, are not clearly set out. Several important anti-corruption measures have still to be implemented. Fight against organised crime The country has achieved some level of preparation in the fight against organised crime. No progress has been made. The legislative framework is broadly in line with European standards. The general capacity to deal with organised crime was increased by establishing specialised units both in the police and the public prosecution office. However, more still needs to be done to improve the effectiveness of law enforcement in this area. In addressing the shortcomings outlined below, the country should pay particular attention in the coming year to: → establishing a sound track record on combating money laundering, and improving capacity and expertise to carry out financial investigations and asset confiscations on a more systematic basis; → stepping up efforts to improve cooperation between the various law enforcement agencies by bringing the National Coordination Centre for the Fight against Organised Crime into full operation; → revising the legal and technical framework for intercepting communications, and increasing the effectiveness of special investigative measures for genuine law enforcement purposes (Urgent Reform Priorities).

Track record Significant efforts have been made by the authorities to collect data needed to monitor investigations, prosecutions and convictions in the fight against organised crime. In the past seven years, almost 500 criminal proceedings have been launched against over 2 000 defendants. The largest groups of cases concern people smuggling, human trafficking and trafficking in drugs. This also reflects the country’s position on the Balkan route for these crimes. A number of criminal networks and routes have been destroyed in recent years thanks to cooperation with neighbouring countries and EU Member States through Eurojust. Effective implementation of anti-money laundering legislation by all relevant institutions, including banks, is still needed. There are relatively few cases, and the data collection needed to track them effectively needs to be stepped up to the same level as for other areas of organised crime. This requires improved coordination among the relevant anti-money laundering institutions, and in particular the cooperation of the Financial Intelligence Unit. The use of special investigative measures is quite common in organised crime cases, but more efforts are needed to ensure both that this technique is applied more effectively by law enforcement agencies and that the appropriate oversight is carried out. The expertise of law enforcement and prosecution services and their capacity to conduct serious financial investigations should be strengthened. The precautionary freezing of assets during the initial phase of the investigation is rarely applied, which leads to poor confiscation rates at the end of criminal procedures. More systematic cooperation between the Agency for Management of Confiscated Assets and law enforcement agencies is needed. The level of sentencing by courts appears on the whole to be appropriately strict, although efforts are still needed to ensure greater consistency. The principle of presumption of innocence of the accused is not always ensured in practice. Some high-profile organised crime cases have been criticised as highly politicised, and have even led to the dismissal of judges who were not considered to have reached a ‘correct’ decision. Institutional and operational capacity A major police reform started 15 years ago and reforms continue in specific areas. The Ministry of Interior has specialised units dealing with economic organised crime, money laundering and financial investigation, corruption, drug trafficking, criminal intelligence analysis, interception of communications, witness protection, trafficking in weapons and dangerous substances, human trafficking, cybercrime investigation, digital forensics and terrorism respectively. The general level of police equipment in terms of vehicles, premises, IT and radio communication systems is relatively good (for example, TETRA communications technology is well established and in operation). The Sector for Internal Control and Professional Standards is well established and handles hundreds of police complaints effectively. However, independent, external and transparent oversight of the police needs to be established and the existing complaints mechanism must be implemented in a consistent manner. While clear criteria for recruiting and evaluating police officers exist, there are persistent allegations of politicisation. According to the most recent Eurostat figures, the country has over 500 police officers per 100 000 inhabitants. The Basic Public Prosecution Office for Organised Crime and Corruption has special competence for crimes committed by organised groups, cross-border crimes, drug trafficking, money laundering, terrorism, human trafficking and smuggling of migrants, among other things. Relations between prosecutors and police still need to be improved for the prosecution service to fully play its lead role in investigations, as provided for by the new Law on Criminal Procedure. Investigative centres are being set up within the public prosecution offices, where members of the Judicial Police, the Financial Police and the Customs Administration will work under the direction of the Public Prosecutor. There is no electronic inter-connection between the police and the Public Prosecutor’s Office, which would allow information to be shared efficiently. The National Coordination Centre for the Fight against Organised Crime, which will bring together a multi-disciplinary staff to optimise inter-agency cooperation, is established by law but not yet operational. The National Committee to Combat Human Trafficking and Illegal Migration has operated since 2001 as an inter-ministerial body coordinating various activities. Since 2003 it has included a sub-group on the trafficking of children. A National Reporter on human trafficking was appointed by the government in 2009. The Office of the National Referral Mechanism operates within the Ministry of Labour and Social Policy and provides coordinated assistance and protection to victims of human trafficking, especially women and children. The Council for Witness Protection, which includes representatives of the Supreme Court and the prosecution service, was established in 2005 and is authorised to put witnesses in the protection programme and provide changes of identity. The Ministry of Interior has several forensic units, including for biological and DNA identification. The national DNA database, established in 2007, contains around 13 000 identified and 3 500 unidentified DNA profiles. The powers and resources of the police, the Public Prosecutor’s Office, the courts and the Agency for Management of Confiscated Property still need to be strengthened so they can take measures to seize and confiscate assets more frequently. An operational agreement with Europol has been in place since 2011 and the country is the only one in the region to have a cooperation agreement with Eurojust, in force since 2010. Close cooperation in the fight against organised crime continues with international and regional bodies such as Eurojust, Europol, the Southeast European Law Enforcement Centre and the US Drug Enforcement Agency, as well as police services in several other countries. Legal framework The country’s Criminal Code is largely in line with European standards. The Law on Criminal Procedure was overhauled completely in 2010 to modernise and optimise the criminal procedure, especially for complex investigations, under the central guidance of the Public Prosecutor. It has applied since December 2013. A special Law on Witness Protection has been in place since 2005. The 2006 Law on Interception of Communications was amended in 2012 to address the potential for special investigative techniques to be abused. Nevertheless the content of the intercepted communications has brought to light serious shortcomings in the practical application of the law, which need to be addressed. The ‘Urgent Reform Priorities’ include separating the mandate, regulations and technical facilities for interception in criminal investigations, on the one hand, from those for security and intelligence purposes on the other. The police, Customs Administration and Financial Police need to be given the technical means to carry out interceptions without having to rely on the intelligence services. Legislation on the seizure and confiscation of criminal assets needs to be improved and its implementation stepped up. Extended confiscation is provided for by the law since 2010 but rarely used in practice. Strategic framework Activities are under way to draw up both national and regional threat assessments for serious and organised crime, inspired by the EU SOCTA methodology. National strategies are in place to combat human trafficking and illegal migration (2013-16), drugs (2014-20), and terrorism (2011-15). Work continues on the new cyber-security strategy. Fight against terrorism The country has been affected by the phenomenon of foreign terrorist fighters and radicalisation. A comprehensive and effective strategy is needed to prevent and counter radicalisation, in close cooperation with religious leaders and communities, social and front-line workers, the education system and youth organisations. The phenomenon of foreign terrorist fighters needs a dedicated approach by the intelligence and law enforcement community and a coherent judicial policy towards offenders. 2.4. Human rights and the protection of minorities Overall situation

The legal framework for protecting human rights is broadly in line with European standards, but more focus needs to be placed on implementing it. The various bodies involved in protecting and promoting human rights lack sufficient staff and financial resources and sometimes coordinate poorly. General weaknesses in the implementation of human rights standards affect the most vulnerable and marginalised groups in society, including children and juveniles, disabled persons, the Roma and the LGBTI community. Shortcomings particularly affect the following areas: • The prison system continues to be heavily underfunded, understaffed and mismanaged, which leads to systemic breaches of international human rights standards. • Police impunity needs to be addressed by establishing an independent oversight mechanism and investigating complaints of ill-treatment seriously and thoroughly. • Despite improvements to the legislative framework, problems in the area of the freedom of expression persist in practice. A detailed analysis of freedom of expression follows below. For a detailed analysis of developments on other human rights and the protection of minorities, see Chapter 23 — Judiciary and fundamental rights. For developments in trade union rights, anti-discrimination and equal opportunities, see also Chapter 19 — Social policy and employment. Freedom of expression The country has some level of preparation regarding freedom of expression. The legislative framework has been overhauled in recent years and is aligned with both the acquis and international standards. Nevertheless, the freedom of expression and the media remains a serious challenge in the current media culture and political climate. The country continued to backslide over the past year. In addressing the shortcomings outlined here, in the coming year the country should in particular: → ensure full transparency on government advertising and develop a mechanism for unpaid public service announcements of a true public interest character (Urgent Reform Priority); → enforce, at political level, the exercising of appropriate self-restraint by politicians and public officials not to resort to defamation actions, in line with ECtHR case law (‘Urgent Reform Priority’); → ensure that the public has access to objective and accurate reporting and a variety of viewpoints through the mainstream media, particularly the public service broadcaster. Intimidation of journalists There were several reports of intimidation and harassment of journalists, two reports of property damage and two death threats against journalists in 2015. Journalists continued to report a general climate of self-censorship and the publication of intercepted telephone conversations confirmed that journalists had been under extensive and unlawful surveillance for several years. Legislative environment The Criminal Code was amended in 2012 to decriminalise defamation and insult. A Law on Civil Liability for Insult and Defamation was adopted, among other things setting out maximum levels of damages which could be awarded in cases involving the media. The 2013 Law on Media regulates basic obligations, protections and freedoms relating to the media. Blasphemy is not a criminal offence. The legislation on hate speech is largely in line with the acquis but data collection on the reporting, investigation and prosecution of hate speech and hate crime is not yet systematic. Training of law enforcement, prosecutors, judges and media employees needs to be increased in this field. Regulations on registration of journalists and access to information follow international standards. However, according to journalists there is a tendency by public authorities to over-use the ‘classification’ of documents, most notably those relating to the costs of the Skopje 2014 project, to prevent public access to information. Implementation of legislation/institutions The regulatory regime was reformed in 2013 with the adoption of the new Law on Audio and Audiovisual Media Services, and the Broadcasting Council has been replaced by the Agency for Audio and Audiovisual Media Services. Legislation provides for the Agency’s formal and financial independence but there are concerns about its political independence in practice (see also Chapter 10 - Information Society and Media). The content of the intercepted communications brought to light revelations which confirmed existing concerns about the media environment. The corollary rights of the media to impart information and ideas which are of public interest and of the public to receive them, as foreseen by the ECtHR, are undermined by regular political interference in the editorial policies of the media, in particular mainstream nationwide broadcasters. This has extended as far as direct control over the content and timing of news reporting. The tendency of politicians and public officials to sue each other for defamation instead of engaging in open debate needs to be addressed urgently as it has a chilling effect on freedom of expression. As regards online freedom of expression, legislation prohibits operators from controlling internet traffic, except to protect network connections against becoming overloaded. In practice operators do not block, slow down, alter, degrade or discriminate against any internet content. The interception scandal has, to some degree, had the effect of increasing the self-confidence of various segments of society, allowing them to express their reactions and opinions without self-censorship, particularly on social media.

The Media Ethics Council, established in 2014, is a self–regulatory body that receives complaints about media content. It publishes all its decisions on its website. A large number of the complaints received so far were made by media against other media, emphasising the persistent polarisation and lack of solidarity within the media itself. Both the Council and the relevant journalists’ associations have a responsibility to contribute towards improving professional and ethical standards through training and awareness-raising. Public service broadcaster Regulation of the public service broadcaster MRT is in line with EU standards. Financing is not independent of the government and despite measures to improve license fee collection, this revenue source is not sufficient. Other means to ensure financial independence have been discussed, but no decision has yet been reached. MRT’s full editorial independence is still not ensured. Its failure to inform the public on issues of public interest, including the interception affair, in a balanced and non-selective manner continues to undermine its role as a public broadcaster (see also Chapter 10 - Information Society and Media). Concerns about a lack of balance in reporting could be addressed, for instance, by broadcasting more regular debates involving more than the governing parties. Economic factors The Law on Audio and Audiovisual Media Services regulates media ownership, setting out limitations and prohibitions relating to conflicts of interest. The largest television outlets with concessions to broadcast nationally (SITEL, KANAL5, ALFA and MRT, the public broadcaster) favour the government and report selectively on opposition or civil society activities. Government advertising provides the largest single source of funding and has a major influence on the media market at both national and local level. There is no systematic or detailed reporting on government advertising. Moreover, the content of the intercepted communications revealed close links between government and media owners with the highest viewership and circulation, who also receive most of the funding allocated to government advertising campaigns. The ‘Urgent Reform Priorities’ include a commitment to ensure full transparency on government advertising and to develop a mechanism for unpaid public service announcements of a truly public interest character. Professional organisations/ professional conditions Representation of journalists is divided between two associations, the Association of Journalists of Macedonia (AJM) and the Macedonian Association of Journalists (MAN). Here too, polarisation occurs along political lines, with the recently reactivated MAN tending towards pro-government stances on most issues. The older of the organisations, the AJM, has continued to draw attention to a number of important issues such as the impact of government advertising on the diversity of the media and the role of the media during the political crisis. Job security is fragile and labour rights are still inadequately enforced, contributing to the continuing problem of self-censorship. 2.5. Regional issues and international obligations The former Yugoslav Republic of Macedonia continued to cooperate fully with the International Criminal Tribunal for the former Yugoslavia. There are no remaining cases or appeals pending in The Hague. The country still maintains a 2003 bilateral immunity agreement with the United States, granting exemptions for US citizens from the jurisdiction of the International Criminal Court. This is not in compliance with the EU Common Positions on the integrity of the Rome Statute, nor with the related EU guiding principles on bilateral immunity agreements. The country needs to align with the EU position. As of 1 January 2015, there were 869 Roma refugees from Kosovo * registered in the country and 119 internally displaced persons. There are currently 536 people under subsidiary protection. In 2014, 83 people were voluntarily repatriated to Kosovo and Serbia. The Ministry of Labour and Social Policy continues to provide financial support to families for rented housing and utilities, under the integration strategy. Court procedures concerning internally displaced persons, relating to claims for damages resulting from the 2001 conflict, are still under way and most of those affected remain housed with host families. The number of third country nationals crossing the border from Greece into the country reached unprecedented numbers, with peaks in August and September. A total of 296 550 persons transited the country from January until mid-September. Over 178 900 people - mainly Syrians, Afghans and Iraqis – registered their intention to apply for asylum after new legislation was adopted in June. Only a fraction of them effectively applied for asylum. On 4 September, the former Yugoslav Republic of Macedonia signed a Memorandum of Understanding with Austria, Hungary and Serbia to extend joint border controls between signatory states to the country's border with Greece and to include the country in a joint investigation team on people smuggling. Regional cooperation and good neighbourly relations form an essential part of the country’s process of moving towards the EU. The country has continued to participate actively in regional initiatives, including in the South-East European Cooperation Process, the Regional Cooperation Council, the Energy Community Treaty, the European Common Aviation Area Agreement and the Central European Free Trade Agreement. It assumed the rotating presidency of the Central European Initiative in January 2015. Its priorities include advancing the sustainable development of the region by developing the necessary energy and transport infrastructure and promoting tourism and the agricultural sector. Fresh impetus has been given to regional cooperation by the Berlin Process, with the Western Balkan Six (WB6) intensifying cooperation among themselves and with the EU. In April, WB6 countries reached an agreement on the South East Europe core regional transport network, which extends the EU corridors to the region to improve connectivity within the Western Balkans as well as with the EU. At the WB6 meeting in Vienna in August, the WB6 countries committed to abstain from misusing outstanding bilateral issues in the EU accession process and discussed other urgent problems, including the migratory pressures on Europe. The former Yugoslav Republic of Macedonia has continued to play a generally constructive role in bilateral relations with other countries seeking to join the EU and with neighbouring EU Member States. However, a bilateral convention on regional cooperation, under Article 12 of the Stabilisation and Association Agreement, has not yet been concluded with Serbia. Bilateral relations with Albania remained generally good. A memorandum of understanding on defence was signed in January. An agreement to jointly recognise respective social insurance schemes and a protocol on cultural cooperation for 2015-2020 were signed in March. The Albanian government reacted to the Kumanovo incident by calling for calm and a transparent (international) investigation into the events, while defending the territorial integrity of the country. The Albanian government has reiterated its concerns about the full implementation of the Ohrid Framework Agreement. Relations with Bosnia and Herzegovina continued to develop. Agreements on the exchange and mutual protection of classified information with Sarajevo were signed and entered into force on 1 September 2015.The country continued to contribute to the EUFOR ALTHEA operation in Bosnia and Herzegovina and, as of June 2015, has two staff in the operation’s Operational Command. Cooperation with Montenegro was further strengthened. In September 2014, the two countries signed an agreement on mutual recognition of driving licences. In February, they signed a protocol on the collocation of their diplomatic and consular offices in Paris, France. A meeting of the joint committee on EU affairs was held in March in Skopje, during which the two countries exchanged their experiences of the accession process.

Relations with Serbia are good and continue to deepen. Regular political dialogue continued at the highest level. At the two governments’ second joint session, Several cooperation agreements were signed in the field of economy, culture, the environment, tourism, education, science and technology, together with an agreement on a border-crossing point. The Serbian authorities condemned the attacks in Kumanovo in May. The Serbian government condemned the violent incident in Kumanovo. Relations with Kosovo continued to develop. A memorandum of cooperation between the public prosecutors of both countries in combating cross-border crime and terrorism was signed in late December. In January, the two countries signed an agreement on the promotion and mutual protection of investment.. In response to allegations that the attack on the border police station in Gošince was instigated from Kosovo and that Kosovo citizens were involved in the incidents in Kumanovo, the government of Kosovo called for the country’s territorial integrity to be respected and condemned the violence. The government in Kosovo has also called for the full implementation of the Ohrid Framework Agreement. Close relations with Turkey were maintained, as demonstrated by the Turkish Prime Minister’s visit to Skopje in December 2014. Relations with Bulgaria continued to be affected by differences, primarily about the interpretation of history. A number of high-level visits took place. Negotiations on a bilateral agreement on good neighbourly relations continued. Open issues remain, however. The countries continued to cooperate on defence issues. Good cooperation continued on cross-border matters, as well as on sectoral and trade relations, including infrastructure priorities. People-to-people contacts continued normally. Good relations with Croatia continued, promoted by high-level visits. An agreement on the Euro-Atlantic Partnership entered into force. Amendments to the agreement on economic cooperation and trade were signed, as was the joint declaration on the adoption of the 2014-20 regional strategy for research and innovation development. Relations with Greece continued to be affected by the name issue. There were no formal talks on this issue under the auspices of the UN during the reporting period. Regular meetings at official and expert level took place in June 2015 in Skopje. The Greek Foreign Minister took the initiative to visit Skopje for the first time in 11 years. On this occasion, the two sides agreed on a number of important confidence-building measures. Economic and trade relations continued normally. 3.ECONOMIC CRITERIA Key economic figures 2013 2014 Gross domestic product per capita (% of EU28 in PPS) 35.6 36 GDP growth (%) 2.7 3.8 Unemployment rate (female; male) (%) 29 (29; 29) 28 (28.6; 27.7) Economic activity rate for persons aged 20–64: proportion of the population aged 20–64 that is economically active (female; male) (%) 70.4 (57.1; 83.4) 70.8 (56.8; 84.5) Current account balance (% of GDP) -1.8 -1.3 Foreign direct investment (FDI) (% of GDP) 3.3 3.3 Source: Eurostat In line with the conclusions of the European Council in Copenhagen in June 1993, EU accession requires the existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union. The Monitoring of these economic criteria should be seen in the context of the increased importance of economic governance in the enlargement process. In order to improve their economic governance, in 2015 the enlargement countries were asked to prepare Economic Reform Programmes (ERPs), which set out a medium-term macro-fiscal policy framework together with key structural reforms aimed at supporting the framework and boosting competitiveness. The ERPs were the basis for country-specific recommendations jointly adopted by the EU and the Western Balkans and Turkey in the Economic and Financial Dialogue meeting on 12 May 2015. 3.1. The existence of a functioning market economy The former Yugoslav Republic of Macedonia has a good level of preparation in developing a functioning market economy. Overall, no progress was made. On the one side positive developments were recorded particularly as regards the business environment. The macroeconomic environment strengthened further, despite key vulnerabilities. However, this was counterbalanced by backsliding in the management of public finances. The government continued to promote growth and employment through major public infrastructure investment and foreign direct investment (FDI). This contributed to improving the structure of exports and job creation. However, the development of a competitive private sector remained hampered by weak contract enforcement and the large informal economy. In line with the 2015 ERP recommendations and in order to support long-term growth, the former Yugoslav Republic of Macedonia should pay particular attention to: → improving medium-term budget planning and execution, and adhering more rigorously to the medium-term fiscal strategy; → continuing with structural reforms to improve the business environment and establishing an efficient bankruptcy procedure; → taking further measures to repair the bank lending channel. Economic policy essentials The government remained committed to pursuing market-based economic reforms, attracting FDI and developing the private sector. In January 2015, the authorities submitted their Economic Reform Programme (ERP), outlining key economic, fiscal and structural reforms and policies for 2015-2017. The government has made little progress on structural reforms of the labour market and there was even backsliding on fiscal discipline. Efforts to strengthen medium-term budget planning and execution and the employability of workers should therefore be strengthened. The government should take further measures to implement the ERP recommendations, which are set out below. The government continued to engage actively with the international financial institutions. In November 2014, the IMF concluded its fourth and last post-programme monitoring mission related to the country’s 2011-2013 precautionary liquidity credit line. In February 2015, the government repaid in advance all outstanding loans to the IMF. Macroeconomic stability The macroeconomic environment strengthened further, but key vulnerabilities remained a source of concern. The economic recovery continued, with domestic demand becoming the sole driver of growth. Output expanded by 3.8 % in 2014 and solid growth continued in the first quarter of 2015. Investment picked up markedly in 2014 due to public road, rail and energy infrastructure projects and new FDI. Import demand, mainly investment-related, increased accordingly. The recovery of industrial production from its 2012 trough continued, driven by the manufacturing sector, which accounts for about three quarters of industry, although performance in the first quarter of 2015 disappointed. Overall, sustainable development of the economy can only be achieved if the domestic private sector continues to develop and contribute more to growth.

The stability of the external sector relied increasingly on public borrowing abroad. The current account deficit has declined steadily since 2009 and stood at a moderate 1.3 % of GDP in 2014. This development has been driven by an improvement in the merchandise trade balance, spurred largely by exports made by foreign investors in the automotive components sector. Current transfers from abroad fell, but remained significant. FDI inflows (3.3 % of GDP) remained markedly below their 10-year average (4.3 % of GDP). External debt stood at 70 % of GDP at the end of 2014, up by more than 5pp from a year earlier, mainly due to an increase in public debt and, somewhat less, in FDI-related intercompany lending. Hence, movements in foreign exchange reserves were increasingly driven by public borrowing abroad, rather than by private investment. Risks to the domestic economy from the economic situation in Greece, via trade, investment and financial linkages appear limited at this point. The share of Greece as a destination of the country's exports has fallen from 10 % in 2008 to 5 % in 2014, yet fuel imports have risen markedly. In the medium term, a sustained crisis in Greece may, however, impact on the economy through a protracted loss in consumer and investor confidence, lower exports and more costly external government financing. Labour market conditions remained burdened by structural impediments. The unemployment rate has steadily fallen since 2008 (34 %), to 28 % in 2014. Significant gender differences persist with economic activity rates of women being considerably lower than those of men (56.8 % compared to 84,5 % for 2014). Job creation returned to average speed in 2014 after a surge in 2013. New jobs were created mainly in low-productivity sectors and agriculture, supported by public subsidies and active labour market measures. It is estimated that the public sector accounts for 20 % of total employment. Prices remained stable; monetary policy successfully defended the currency peg. Lower prices for food and for energy contributed to a fall of 0.3 % in the consumer price index (CPI) in 2014. Annual average inflation has steadily decreased since 2011, when it stood at 3.9 %. Since April 2015, headline inflation has registered positive gains again. The central bank kept the key policy rate unchanged in 2014. ERP recommendation 1: ‘Improve the management of public finances by adhering rigorously to the 2015-2017 medium-term fiscal targets outlined in the ERP, and frontload consolidation so as to be on track for the 2017 budget deficit target of 2.9% of GDP. Use any additional fiscal space for further consolidation measures, so as to protect growth-enhancing capital spending in case of unexpected budget pressures. Keep tight control on the development of transfer payments, pensions, and public wages. Introduce a medium-term expenditure framework. Inform in a timely and regular manner on the size of the government workforce and payroll.’ Fiscal discipline slipped again in 2014 and 2015, pointing to a need to improve medium-term expenditure planning. The government adopted a supplementary budget in autumn 2014, due both to revenue shortfalls and to earlier and higher-than-expected expenditure on infrastructure. The supplementary budget revised the deficit target upwards, from 3.4 % to 3.6 % of GDP. However, the actual budget deficit was even higher, at 4.2 % of GDP, on account of ad hoc increases in spending on pensions, social benefits and subsidies, as well as additional resources required for the construction of the Corridor X motorway. In July 2015, the government adopted again a supplementary budget, raising expenditure in particular for social welfare assistance, police wages, and budgeted capital expenditure. The 2015 deficit target was raised from 3.4 % to 3.6 % of GDP despite increased revenue projections. GDP growth expectations reduced for 2015, by 0.5pp to 3.5. The composition of public spending did not improve. In 2014, investment accounted for only 10 % of the budget and even less of actual spending. Some 45 % of total spending went on social transfers including pensions, which the government had increased, as in the previous year, beyond what was required by law and despite falling prices. Public sector wages and agricultural subsidies were also raised beyond statutory requirements in 2014. ERP recommendation 2: ‘Improve the composition of spending, by prioritising investment projects according to their productive potential, and be more transparent on the cost-benefit analysis underlying transfer and investment spending items on the budget. Provide more timely and detailed data on planned and executed capital expenditure.’ The government's commitment to the medium-term fiscal strategy weakened - the 2015-17 strategy provides for a gradual decline in the general government deficit to 2.9 % of GDP by 2017, relaxing the previous target of 2.6 %. Given the 2015 supplementary budget, and in anticipation of a further increase in entitlement spending in the upcoming pre-election period, reaching the 2017 target seems overly ambitious. Overall, the link between the medium-term framework and the annual budget process remains weak, leading to further retrenchment of fiscal space needed to absorb unexpected spending pressures or revenue contraction. ERP recommendation 3: ‘Improve the fiscal transparency by including more comprehensive data on the debt of public companies and contingent liabilities in the government’s debt management strategy and inform about arrears. Speed up transition to ESA 2010 reporting and resume fiscal notifications. Continue to keep tight control on guaranteed and non-guaranteed borrowing by state-owned enterprises and municipalities.’ Public debt levels have risen markedly in recent years and amendments to the public debt law raise concerns about transparency. The general government debt ratio is still comparatively moderate, but has been rising continuously since 2008. The increasing financing needs of state-owned enterprises, which carry out major infrastructure works, have contributed to a marked rise in overall public debt, which stood at 46 % of GDP at the end of 2014, compared with 38.6 % at the end of 2013. This is likely to rise further in the short to medium term, given the scale of planned investment projects. In the summer of 2014, the government amended the public debt law to restrict the scope for borrowing by state-owned enterprises with state guarantees, while encouraging non-guaranteed borrowing. As a result, the public debt figure will be less transparent. The government should improve the management and the transparency of public finances, practise more rigorous fiscal discipline and improve fiscal transparency as recommended in ERP recommendations 1, 2 and 3. Interplay of market forces The public sector’s share of the economy remained largely unchanged. In 2013, the government sold its minority stake in two companies. However, the number of fully state-owned enterprises remained unchanged at 15. In January 2013, the Public Enterprise for State Roads (PESR), which is state-owned, started operations. In October 2014, the government decided to postpone full liberalisation of the electricity market, planned on 1 January 2015, for five years. Administered and regulated prices accounted for some 15 % of the CPI basket. Most are regulated prices that usually cover production costs. Electrivity prices for households and small companies as well as prices for natural gas and oil remain subject to regulation by the Energy Regulatory Commission (ERC). Market entry and exit Setting up a business became slightly easier, but market exit remained cumbersome. The implementation of measures under the ‘regulatory guillotine’ project progressed further, with a view to facilitating business registration. However, the ‘one-stop-shop’ procedure is advancing only slowly. Conditions for obtaining public support and administrative fast-track procedures implicitly favour (bigger) foreign firms, as local firms can rarely meet the investment size criteria. Connections between the more technologically advanced foreign companies and the domestic private economy are poor, which is a particular concern. Progress in simplifying market exit is more limited; the bankruptcy law was amended to shorten procedural deadlines and allow out-of-court settlement in the event of insolvency. Legal system ERP recommendation 8: ‘Improve the business environment by implementing the Master Plan for Competitiveness and the related Government Action Plan. These should include measures affecting competitiveness, such as a more predictable legal and regulatory environment, enforcement of contracts, respect of IPRs, payment discipline, labour legislation, quality and integrity of inspection services, etc. Ensure regular and structured dialogue with social partners regarding the implementation and review of the Master Plan. Step up efforts to fight against corruption and informalities in the economy.’ Frequent legal changes, uneven implementation of laws and difficult contract enforcement burdened business operations. Since 2011, the government has adopted a number of judicial reforms to speed up procedures and improve capacity, e.g. by upgrading information and electronic delivery systems, which accelerated certain court procedures and improved the handling of backlog cases. No major new reforms were undertaken in 2014 and beyond. Protection and enforcement of intellectual property rights remain a concern. The large informal economy continued to hamper competition and private sector development. The Labour Ministry regularly updates its action plan on reducing the shadow economy, but the indicators and measures presented are not fully coherent, and there is no results-based assessment of previous measures. Government arrears still affected domestic companies’ liquidity, despite the recent adoption of the Law on Payment Discipline. The business environment should be improved in accordance with ERP recommendation 8.

Cooperation between the government and the business sector has declined in recent years. The proportion of draft laws published on the electronic register (ENER) fell significantly over recent years, and the number of laws that undergo frequent changes or are adopted with too short consultation deadlines has increased. In many cases, there is little ex post consultation with stakeholders on the laws’ impact and effectiveness once they have been implemented (see also political criteria – Policy development and co-ordination). Financial sector development ERP recommendation 6: ‘Increase efforts towards facilitating the disposal of non-performing loans by banks, involving all key stakeholders including the central bank as necessary, with a view to removing potential obstacles to credit extension in the context of a sustained pick-up in credit demand.’ The banking sector remained stable despite high levels of non-performing loans (NPL). The financial sector remains dominated by banks which account for roughly 90 % of the financial system’s total assets. Foreign ownership of banking assets remains high, at about 70 %, and concentration levels have not declined much over recent years – the three biggest banks hold 60 % of the sectors assets, compared to about 66 % in 2010. The main funding source of banks are deposits, which have kept growing since 2013. Financial stability indicators, such as regulatory capital ratios, point to the system’s continued resilience. Profitability improved in the second half of 2014, after a lacklustre performance in the preceding two years partly due to the high share of bad loans. Since 2013, the central bank has managed to gradually reduce the share of outstanding loans denominated in foreign currency, hence decreasing exchange rate risks. Further measures should be taken to implement ERP recommendation 6. Roughly one fifth of the domestic banking sector's assets and liabilities are held by two subsidiaries of Greek banks. Both are financially sound and their funding is assured mainly through domestic deposit-taking. In addition, the central bank put in place prudential measures aimed at containing possible repercussions from the banking crisis in Greece. As a temporary emergency measure, it also prohibited residents from exporting capital related to capital transactions such as debt and equity purchases and long-term lending to Greece. Liquidity in the banking sector remained ample in 2014 and beyond, and bank lending to the private sector continued to rally. While lending to non-financial companies picked up noticeably, these funds were used mainly for working capital purposes, rather than for new investment. The ratio of non-performing to total loans to the non-financial sector remained elevated, at 11.5 %, at the end of the second quarter of 2015, and only somewhat lower than a year earlier. The ongoing establishment of a modern and comprehensive land registry (cadastre) is expected to help inform lenders about the value of real estate as collateral. The setting up of a private and public credit registry should also boost the quality of lending. ERP recommendation 9: ‘Improve access to finance for SMEs and speed up bankruptcy procedures. Continue with the implementation of the innovation strategy, and step up the use of instruments foreseen by the Innovation Fund.’ Bank lending remains by far the dominant form of company financing, with the development of a wider financial market stalled - equity financing by public listing has even declined in recent years. To support the restoration of credit flows, the government should take further measures to facilitate the write-off of bad claims. To improve access to finance for companies under ERP recommendation 9, the government should support the development of venture capital and equity financing, leasing and factoring, among other measures. 3.2. The capacity to cope with competitive pressure and market forces within the Union The economy is moderately prepared to cope with competitive pressures and market forces within the Union. Some progress was made particularly as regards addressing prevalent shortcomings in human capital and physical infrastructure. However, businesses remained concentrated in low-productivity activities and it is necessary to increase the value added in productive sectors. Further investment is needed to boost labour productivity growth and speed up the transformation of the economy. Overall, the state’s influence on competitiveness increased. In line with the 2015 ERP recommendations and in order to support long-term growth, the former Yugoslav Republic of Macedonia should pay particular attention to: → improving the employability of workers by better aligning education with labour demand needs, and improving the basic and transversal skills of students at all levels of education; → upgrading linkages between foreign direct investors and the economy and encouraging investment in capital goods and innovation; → better prioritising investment and aligning the transport strategy with the regional agenda on connectivity. Human and physical capital The share of highly qualified workers in the economy is rising, but structural factors limit an increase in labour productivity. Recent reforms have led to greater participation in education. The number of early school leavers has dropped and pre-school enrolment has increased in the past three years. The overall proportion of tertiary education graduates in the workforce rose by 4 % to 18 % of the workforce between 2009 and 2013. However, one quarter of university graduates were unemployed, as most new jobs were concentrated in low-productivity sectors. The main challenges remained the low labour market participation (particularly among women), skills mismatches, and limited job opportunities in advanced industrial sectors. Hence, labour productivity has remained at around 18 % of the EU average for a number of years. The structure of employment remained focused on low-productivity sectors, and agriculture (19 % of total employment). The government continued to address labour