COMMISSION STAFF WORKING DOCUMENT ex-ante evaluation statement Accompanying the document Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on providing macro-financial assistance to the Republic of North Macedonia
Date: 2023-02-06
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU aid, EU candidate countries, EU loan, European neighbourhood policy, North Macedonia, accession negotiations, economic reform, economic stabilisation, financial aid, macro-financial assistance

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 6.2.2023  SWD(2023) 42 final  COMMISSION STAFF WORKING DOCUMENT ex-ante evaluation statement Accompanying the document Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on providing macro-financial assistance to the Republic of North Macedonia {COM(2023) 74 final}  
 
 
Ex-ante evaluation statement 

EU Macro-Financial Assistance to the Republic of North Macedonia 

TABLE OF CONTENTS 

1.1 

1.2 

Introduction ............................................................................................................................. 2 

The macroeconomic situation in North Macedonia ................................................................ 3 

1.3. 

IMF and other donor support .................................................................................................. 6 

1.4. 

External financing needs .......................................................................................................... 6 

1.5. 

Structural reforms .................................................................................................................... 8 

2.1.  Objectives................................................................................................................................. 9 

2.2  Monitoring indicators .............................................................................................................. 9 

3.1 

3.2 

5.1 

5.2 

5.3 

5.4 

5.5 

6.1 

6.2 

Delivery mechanisms ............................................................................................................. 10 

Risk assessment ..................................................................................................................... 10 

Exceptional Character and Limited Time-frame .................................................................... 11 

Political preconditions and EU-North Macedonia relations .................................................. 11 

Complementarity ................................................................................................................... 12 

Conditionality ......................................................................................................................... 13 

Financial Discipline ................................................................................................................. 13 

Evaluation .............................................................................................................................. 13 

Achieving cost-effectiveness .................................................................................................. 14 

1 

 
 
PROBLEM ANALYSIS AND NEEDS ASSESSMENT 

1.1 

Introduction 

Given  the  strong  dependence  of  North  Macedonia  on  imported  energy,  soaring  gas  and 
electricity  prices  led  to  a  significant  deterioration  of  the  external  balances  in  2022. 
Underpinned by sound economic and monetary policy and committed reform implementation, the 
economy was on track to recover from the COVID-19 induced setback. However, the steep rise in 
global food and energy prices began to take its toll on domestic demand and the country’s external 
balance. A significant  widening of the country’s trade and current  account  deficit  has  emerged 
since the beginning of 2022 despite strong inflows of remittances from abroad. Foreign reserves 
declined in the early months of 2022, mainly in response to rising import prices and external debt 
repayments, but have stabilised since the summer. Year-on-year GDP growth still averaged 2.6% 
in the first half of 2022 but slowed to 2% in the third quarter. High uncertainty over the economic 
fallout  from  Russia’s  war  of  aggression  against  Ukraine,  rising  inflation  and  tighter  financing 
conditions are set to curtail domestic demand further. Exports are impacted by weaker external 
demand and by ongoing supply chain disruptions, particularly those affecting the production of 
automotive components, one of the country’s main export sectors.  

Against the backdrop of tighter global financial conditions, higher energy prices and higher-
than-expected losses by the domestic, state-owned electricity producer, the government of 
North Macedonia renewed its request for macro-financial assistance (MFA) on 18 October 
2022. The Commission had put the government’s initial request for MFA, submitted on 19 April 
2022, on hold, mainly because the economy was still relatively resilient and because there were 
some other options to meet external financing needs in 2022. In April, the government had already 
secured Staff Approval from the International Monetary Fund (IMF) for a 24-month precautionary 
and liquidity line (PLL)  of up to  EUR 530 million, which was officially approved by the  IMF 
Executive Board on 22 November 2022. Given the country’s high gross external financing needs 
in  2023  and  significant  uncertainties  regarding  the  availability  and  costs  of  external  market 
financing,  the  Commission  is  now  submitting  a  proposal  to  the  European  Parliament  and  the 
Council to provide an MFA loan of up to EUR 100 million to North Macedonia. The proposed 
legal basis will be Article 212 of the Treaty on the Functioning of the European Union.  

The  proposed  MFA  would  help  North  Macedonia  to  cover  part  of  the  country’s  residual 
external financing needs in 2023, which are estimated at EUR 800 million under the IMF’s 
baseline scenario.  The operation would reduce the economy’s short-term balance-of-payments 
and fiscal vulnerabilities and demonstrate the EU’s support for the country when addressing this 
challenging situation. Its design and implementation would take account of the policy guidance 
agreed in the Joint Conclusions of the Economic and Financial Dialogue between the EU and the 

2 

 
 
 
 
Western Balkans and Türkiye of 24 May 20221, as well as the programme North Macedonia has 
agreed with the IMF2. 

The disbursement would take place in two instalments. The release of each instalment would 
be  conditional  on  progress  being  made  with  the  implementation  of  a  number  of  policy 
measures  to  be  agreed  between  the  Commission  and  the  authorities  and  listed  in  a 
Memorandum  of  Understanding  (MoU)  as  well  as  on  a  satisfactory  track  record 
implementing the IMF programme. The MoU is likely to focus on policy reforms addressing 
fiscal governance, tax policy, the management of public investment, public-private partnerships, 
business environment, transparency in state aid, energy efficiency, judiciary reform, and the fight 
against  corruption.  The  policy  measures  will  aim  to  address  some  of  the  most  important 
weaknesses of the economy of North Macedonia and its economic governance system.  

1.2 

The macroeconomic situation in North Macedonia 

Following a partial  recovery from the pandemic-induced recession, North Macedonia  has 
been  severely  hit  by  the  fallout  from  Russia’s  war  of  aggression  against  Ukraine.  GDP 
dropped  by  4.7%  in  2020  but  rebounded  by  3.9%  in  2021,  driven  by  domestic  demand. 
Remittances  from  abroad  returned  to  pre-crisis  levels  and  bolstered  household’s  disposable 
income. COVID-19 containment measures were gradually lifted. Growth slowed towards the end 
of 2021 as external demand weakened, disruptions in global supply chains grew and global food 
and  energy  prices  started  to  rise  rapidly  (fuelled  further  by  the  fallout  from  Russia’s  war  of 
agression  against  Ukraine  in  2022).  North  Macedonia  has  limited  direct  exposure  to  Russia  or 
Ukraine, but its economy is vulnerable to rising commodity prices. Government efforts to mitigate 
the impact on households and small business have caused fiscal spending to increase well above 
the initial budget. Sharply rising food and energy prices have pushed inflation to almost 20% in 
the  autumn  of  2022.  GDP  grew  by  2.6%  in  the  first  half  of  2022,  thanks  in  part  to  a  rise  in 
investment, but this rise was largely due to increases in companies’ stocks. Annual growth slowed 
to 2% in the third quarter of 2022. 

The external position started to deteriorate in late 2021 as import prices rose sharply. The 
current account deficit stood at 3.5% of GDP in 2021 (the same as in 2020). This was above the 
2017-2019 average of 1.5%. However, the goods trade balance has deteriorated steadily since the 
last quarter of 2021, largely on account of rising energy prices and reflecting the country’s high 
dependence on energy imports. The economy imports over 30% of its domestic energy needs and 
fully relies on imports for gas and oil. Driven by the sharply deteriorating energy balance, the four-
quarter moving average current account deficit rose to 7.3% of GDP in the third quarter of 2022, 
compared to 1% in the third quarter of 2021. This was despite a marked increase in private transfers 
(remittances) and the services surplus, which was helped by a rebound in tourism. The external 
debt ratio had decreased each year between 2016 and 2019 but jumped by 7.3 percentage points 

1 https://www.consilium.europa.eu/media/56385/st09459-en22.pdf 

2https://www.imf.org/en/Publications/CR/Issues/2022/11/29/Republic-of-North-Macedonia-Request-for-an-

Arrangement-under-the-Precautionary-and-525935 

3 

 
 
                                                           
 
(pps.) in 2020 to 80.3% of GDP and rose further to 81.4% in 2021, mainly as a result of continued 
foreign financing for crisis-induced needs.  

Foreign  reserves  dropped  heavily  in  the  first  half  of  2022,  mainly  due  to  higher  energy 
imports and external debt repayments. Foreign exchange reserves declined by over 14% in the 
first  half  of  2022  due  to  the  increased  conversion  of  domestic  denar-denominated  savings  into 
euro; a surge in energy imports; external debt payments; and decreasing valuations of securities 
holdings. In early 2022, during a period of high energy imports, the central bank intervened in the 
foreign  exchange  market  to  support  the  de  facto  exchange  rate  peg  to  the  euro.  Forex  markets 
stabilised  somewhat  over  the  summer  due  to  seasonally  high  inflows  of  foreign  currency  that 
exceeded  central  bank  expectations  and  supported  by  a  EUR  250  million  private  placement  of 
government securities in Germany in September. Foreign exchange reserves increased each month 
between  July  and  December  to  reach  100%  of  the  IMF’s  reserve  adequacy  metric  and  now 
correspond  to  3.9  months  of  imports.  However,  reserves  are  expected  to  decline  again  as  the 
heating season progresses and energy imports increase further. 

The central bank has been tightening monetary policy to counter rising inflation expectations 
and protect the de facto exchange rate peg. Headline inflation rose to 19.8% in October 2022, 
reflecting the high pass-through of the global energy and food price shock, but abated somewhat 
in November and December. Since April 2022, the policy rate has been raised by 350 basis points 
in eight consecutive hikes to 4.75%, thereby increasing the spread to the European Central Bank 
(ECB). The central bank also adjusted reserve requirement rates in June and September to dis-
incentivise the shift into euro deposits that was a significant factor behind the fall in reserves in 
early 2022. These actions have reduced inflation expectations and pressures on the exchange rate. 

The  authorities  have  responded  to  the  external  shocks  with  significant  fiscal  support.  In 
addition to ongoing expenditures to support the energy sector and maintain subsidised electricity 
prices for households, the authorities of North Macedonia adopted a EUR 400 million package of 
measures  in  March  2022,  and  another  one  in  October,  worth  EUR  350  million,  to  protect 
households from rising food and energy prices, and to help firms maintain liquidity. Largely on 
account of under-implementation of the capital expenditure budget, the fiscal deficit for the full 
year of 2022, at 4.3% of government-projected GDP, remained below the revised target (5.3%) 
and in line with the government’s initial target. The government intends to continue supporting 
the  loss-making  domestic  electricity  producer  and  end  customers  also  in  2023,  yet  in  a  more 
targeted fashion. The level of general government debt and public debt (including the debt of state-
owned enterprises) remained moderate but rose markedly in 2020 and 2021, reflecting high fiscal 
deficits and, in 2020, the fall in GDP. Public debt decreased somewhat in 2022, to some 57% of 
government-projected full-year GDP at end-September 2022. 

The  2023  budget,  adopted  by  the  Parliament  in  December,  raises  the  fiscal  deficit  target 
(compared with original plans outlined in the May 2022 medium-term fiscal strategy) from 
4.2% to 4.6% of GDP. At the same time, the government lowered the real GDP growth projection 
for 2023, to 2.9%. The 2023 budget provides for a small consolidation effect from the withdrawal 
of some fiscal stimulus measures as well as a reduction in subsidies to the state-owned electricity 
company. It contains a number of fiscal consolidation measures, such as streamlining preferential 
treatments  and  exemptions  in  VAT  and  in  direct  taxation  on  the  revenue  side  and  reducing 
government  consumption on the expenditure side.  In line with  the policy  guidance of the May 

4 

 
 
2022  Joint  Conclusions,  crisis-related  fiscal  support  is  projected  to  become  better  targeted  to 
vulnerable groups.  

The  Commission’s  autumn  forecast  projects  moderating  growth  and  lower  fiscal  and 
external deficits after 2022, while risks are clearly to the downside. GDP growth in 2022 and 
2023 is set to slow to 2.3% and 2.5% respectively as high inflation weighs on domestic demand. 
The  Commission  forecast  expected  the  external  deficit  to  widen  considerably  in  2022,  mostly 
reflecting higher energy prices, and to improve in 2023 and 2024. The fiscal deficit is expected to 
fall in 2023 as a result of revenue-enhancing reforms and some consolidation. However, it is set 
to remain high due to the continuing need to support the economy during the energy crisis. The 
new organic budget law, adopted by the Parliament in July 2022, puts a cap on the fiscal deficit 
(3% of GDP in non-crisis times) and on general government debt (60% of GDP), and will, once 
applied,  anchor  fiscal  policy  in  the  medium  term.  The  growth  outlook  could  be  challenged  if 
geopolitical challenges lead to further energy and food price shocks, possibly in combination with 
a further tightening of global financial conditions and more difficult access to capital for emerging 
market economies. Also, a prolonged disruption of supply chains would halt the improvement of 
external deficits. On the other hand, the EU accession process could bolster reforms, fiscal and 
external  sustainability, including through the  further strengthening of  foreign direct investment 
inflows. 

Table 1: North Macedonia – Selected macroeconomic indicators 2013-2021 

5 

 
 
 
1.3. 

IMF and other donor support 

Following  the  authorities’  request  and  staff  level  agreement,  the  IMF’s  Executive  Board 
adopted, on 22 November, a 24-month arrangement under the Precautionary and Liquidity 
Line (PLL) of up to EUR 530 million. The PLL is an instrument in the IMF’s toolbox which is 
only  available  to  countries  with  sound  economic  fundamentals  and  a  strong  record  of  policy 
implementation,  but  with  some  remaining  vulnerabilities.  Its  use  therefore  signals  that  the 
economic policies of North Macedonia are deemed generally sound, and the arrangement explicitly 
aims to help boost international reserves and facilitate other external financing.  

Other potential sources of financing which are not included in the IMF scenario have not yet 
materialised. The EBRD has approved a EUR 100 million liquidity line to the state-owned energy 
company, which is currently blocked by the Parliament due to disagreements over energy-related 
conditions attached to it (closure of lignite-fired plants). The World Bank is considering to provide 
budget  support  of  around  EUR  80-100  million.  There  is  a  possibility  that  the  government  will 
receive an additional loan from the IMF’s new Resilience and Sustainability Trust (RST) of around 
EUR 75-100 million. The government’s request for an RST loan is expected to be taken to the 
board by end-May 2023. An RST loan would be tied to conditions in the energy sector. Would any 
of these potential official financing sources materialise, which at this at stage remains uncertain, 
this would correspondingly reduce the amounts to be raised from the market. 

1.4.  External financing needs  

For 2023, the IMF projects economy-wide external gross financing needs of EUR 1.5 billion, 
consisting  of  the  current  account  deficit  (EUR  622  million)  and  large  debt  amortisation  needs 
(EUR 878 million).3 When calculating remaining financing needs in 2023, the IMF considers the 
second tranche disbursement under the PLL4 (EUR 155 million) as well as the EUR 80 million EU 
budget support under the new EUR 1 billion EU Energy Support Package for the Western Balkans. 
Given the high external gross financing needs of the country in 2023, and the limited amount of 
financial assistance secured so far from donors, remaining external financing needs as calculated 
by the IMF are elevated, at EUR 800 million in 2023 and EUR 300 million in 2024 (see Table 2). 
Remaining needs are assumed to be met by external market financing, including through a new 
Eurobond.   

The IMF programme also sketches out a downside scenario under which global growth slows 
more than expected and financial conditions tighten more, the budget deficit would increase, as 
would the current  account  deficit, and there  would  be lower  foreign direct  investment  inflows. 
Gross  financing  needs  would  hence  be  higher  compared  to  the  baseline  scenario.  Eurobond 
issuances could become even more challenging in such a scenario, resulting in higher interest rates 
and lower volumes. The IMF assumes that due to negative shocks, the government would be able 
to secure external financing in the amount of EUR 500 million only in 2023, instead of EUR 800 
million, and with higher spreads. This additional shortfall would be met by drawing from the PLL 

3 IMF repayment calculations include public and private external debt and hence result in a higher amount than 
official repayments on foreign debt.  

4 The tranche under the PLL amounting to EUR 110 million was disbursed in 2022. 

6 

 
 
 
                                                           
(i.e.  transforming  the  third  and  fourth  precautionary  tranches  into  disbursing  ones)  also  in  the 
second year of the arrangement, in November 2023 and May 2024.  

There  is  considerable  risk  that  the  expected  amount  of  external  market-based  financing 
cannot be fully realised. The assumed external market financing of EUR 800 million under the 
IMF  baseline  scenario  (which  is  technically  a  residual  between  estimated  needs  and  assured 
official financing)5 is elevated and may prove challenging (and not only in a worst-case scenario). 
Government bond yields have increased markedly and market conditions remain volatile, which 
might make it challenging for North Macedonia to fully meet remaining financing needs6. There 
may thus be larger  residual financing needs than indicated in the IMF estimates. The proposed 
MFA  can  be  considered  as  a  significant  contribution  towards  meeting  the  remaining  external 
financing needs in a difficult financial market environment. 

Table 2: The external financing gap and potential financing sources of North Macedonia 

5 Staff can only present a programme to the board that is fully financed; hence the external financing acts as a residual 

and that might de facto, at least partly, represent a financing gap. 

6 Given increased uncertainties and higher government bond yields, plans to issue Eurobonds have been put on hold 
across the Western Balkans.  

7 

202220232024202520262027Gross financing needs1.3471.5001.0331.4781.7641.108  Current account deficit996622584597638686  MLT debt amortization 1/3508784498811.126422Financing sources9701.7751.5872.0512.0911.469  FDI (net)493553596634675717  MLT debt disbursements419507638683712729  Government external financing3008003007007000  Other 2/-242-845334423Net change in reseves (-: increase)266-510-554-574-327-361Financing gap1102350000  Precautionary and Liquidity Line (PLL)1101550000  European Union (Grant)0800000  Remaining financing gap000000Memorandum itemsGross International Reserves (GIR)3.3773.8874.4425.0155.3425.703  as % of ARA Metric93100106110113113(Millions of euros, unless specified otherwise)Sources: National Bank of North Macedonia; and IMF staff estimates1/ Excluding the amortization of MLT intercompany loans, which is included in FDI (net).2/ Including the capital account balance, trade credits and advances, currency and deposits, private portfolio investments, short-term loans, and net errors and omissions 
 
 
 
                                                           
1.5. 

Structural reforms 

North  Macedonia  has  a  good  track  record  of  structural  reform  implementation,  but  key 
challenges remain. The proposed MFA would be expected to leverage important macro-relevant 
reforms through its specific conditionality. The current energy crisis has put in focus the challenges 
that  make  the  country’s  economy  vulnerable  to  external  shocks.  These  should  be  addressed  in 
order to strenghten macro-fiscal and external sustainability. These include the need to rebuild fiscal 
space in the medium term, also by strenghening the tax base; to improve fiscal governance; and to 
carry  out  growth-enhancing  reforms  targeting  the  management  of  public  capital  spending  and 
weaknesses  in  the  business  environment  in  areas  such  as  the  rule  of  law,  the  fight  against 
corruption  and  the  state  aid  regime.  The  country’s  high  energy  intensity  and  energy  imports 
undescore the urgent need to accelerate the clean energy transition as a way to reduce vulnerability 
to external shocks and increase energy security. In the following paragraphs, these challenges are 
presented more in detail. 

Downside risks to the  economic  recovery call for a cautious phasing out of fiscal support 
while rebuilding fiscal space in the medium term. Due to high uncertainty about the continuing 
impact of Russia’s war against Ukraine, standing ready to provide crisis mitigation if needed seems 
appropriate. At the same time, once the recovery is on solid grounds, the country needs to return 
to more prudent fiscal positions and to stabilise debt levels in the medium term. This should be 
supported  by  strengthening  fiscal  governance.  Following  its  recent  parliamentary  adoption,  the 
provisions  of  the  new  Organic  Budget  Law  (OBL)  should  be  swiftly  implemented,  and  an 
independent fiscal council be set up. 

The  implementation  of  budgeted  capital  expenditure  remains  weak  largely  because  of 
shortcomings  in  the  management  of  public  investment.  It  is  important  to  address  these 
shortcomings to ensure a rigorous and transparent project selection and efficient preparation and 
implementation, given the government’s plans to significantly raise capital investment. Measures 
should be based on the approved action plan. Adopting the new legal framework for public-private 
partnerships  could  provide  additional  financing  sources  for  public  infrastructure  projects.  The 
country’s  revenue-to-GDP  ratio  is,  by  comparison,  very  low.  Revenue  collection  suffers  from 
substantial  -  primarily structural  -  weaknesses, including a  comparatively  narrow tax base, and 
shortcomings in technical and human capacities. These need to be addressed, so as to facilitate the 
move towards a reduction in the primary deficit.  

Competitiveness  of  domestic  companies,  investment  and  global  value  chain  integration  is 
undermined by a challenging business environment. This includes a large informal economy, 
a lack of skills, innovation and technology adoption, low productivity and the need to modernise 
and digitalise public administration. COVID-19 had significant negative effects on the economy 
of North Macedonia and exacerbated these structural challenges, causing companies to reduce their 
investment in development of human and physical capital. At the same time, the crisis has revealed 
vulnerabilities  in  global  value  chains,  which  also  affected  the  companies  of  North  Macedonia. 
Improving  the  competitiveness  of  local  companies  and  benefiting  from  the  post-COVID-19 
restructuring of global value chains will require improvements in human and physical capital and 
the  business  environment,  including  better  enforcement  of  business  regulation  and  corporate 
governance, a more focused investment attraction strategy, less complex state-aid rules, as well as 
better services including trade and transport logistics. North Macedonia also needs to continue to 
tackle  corruption,  improve  the  rule  of  law  and  strengthen  institutions  in  order  to  promote 

8 

 
 
competitiveness.  Addressing  these  fundamental  concerns  is  a  prerequisite  for  successfully 
transforming the economy. 

The  Russian  war  of  aggression  against  Ukraine  clearly  demonstrates  the  urgent  need  to 
accelerate the clean energy transition. This would help reduce vulnerability to external shocks 
and increase energy security. At this stage, the economy of North Macedonia is characterised by 
high  energy  intensity,  inefficiencies  in  the  ageing  energy  production  system,  persistently  high 
dependency on highly polluting lignite coal, and inefficient energy consumption. A sustainable 
post-COVID recovery will have to address the longer-term transition to green growth, particularly 
in the context of geo-political shocks and bearing in mind the upcoming carbon border adjustment 
mechanism. Energy supply is unreliable and efforts on energy diversification need to be improved. 
The government has annual targets on raising the share of renewables in energy consumption, but, 
at this stage, renewable energy still only accounts for a relatively small share of power generation 
and  hydropower  is  the  most  exploited  renewable  source  of  energy.  Energy  efficiency  has  the 
potential to significantly reduce the impact of energy costs on the competitiveness of the economy 
by reducing the need  for energy overall, but  measures to  improve energy efficiency  are hardly 
progressing. While energy transition and the sustainability of the energy system are  considered 
priorities in the government’s strategic documents, implementation will be a challenge and needs 
to be accompanied by enhanced institutional capacity. 

OBJECTIVES AND RELATED INDICATORS OF THE MACRO-FINANCIAL ASSISTANCE 

2.1.  Objectives 

The objectives of the proposed MFA operation are to:  

i)  Contribute to covering the external financing needs of North Macedonia in the context of a 
significant deterioration in the external position due to the impact of high energy prices, and 
upcoming repayments of foreign debt.  

ii)  Support  the  fiscal  consolidation  efforts  and  external  stabilisation  expected  in  the  IMF 

programme. 

iii)   Support  macro-relevant  structural  reform  efforts  aimed  at  reducing  the  economy’s 
vulnerability to energy price shocks and accelerating the transition to clean energy; improving 
the  implementation  of  public  investment;  promoting  the  competitiveness  of  domestic 
companies by improving the business environment, in line with policy commitments jointly 
agreed with the EU in the context of the country’s Economic Reform Programme. 

2.2  Monitoring indicators 

The fulfilment of the objectives of the assistance will be assessed by the Commission, including 
in the context of the ex-post evaluation (see below), on the basis of the following indicators:  

i)   Progress with fiscal consolidation and external stabilisation, in line with the requirements of 

the IMF-supported programme.  

ii)  Progress with the implementation of structural reforms, notably the specific policy actions to 
be  identified  as  conditions  for  disbursement  of  the  assistance,  which  will  be  included  in  a 

9 

 
 
 
 
 
 
 
Memorandum of Understanding to be negotiated between the Commission and the authorities 
of North Macedonia. 

DELIVERY MECHANISMS AND RISK ASSESSMENT 

3.1 

Delivery mechanisms 

The MFA operation under consideration is expected to cover part of the residual financing needs 
for the 2023-2024 period and would amount to a maximum of EUR 100 million. The Commission 
proposes to provide the assistance in the form of a medium-term loan. Given the proposed size of 
the operation, the Commission is considering releasing the assistance in two instalments, evenly 
disbursed over the programme period, between 2023 and early 2024. 

It  is  important  to  ensure  the  MFA’s  value  added,  notably  by  providing  the  EU  with  sufficient 
leverage  to  promote  reforms.  To  that  end,  policy  conditions  will  be  attached  to  the  MFA’s 
disbursements, with each tranche, including the first one, being subject to good progress with the 
IMF  programme  and  the  specific  actions  agreed  with  the  EU  in  the  Memorandum  of 
Understanding as well as the fulfilment of the political preconditions (see below).  

3.2 

Risk assessment 

On the  basis of a thorough assessment of potential risks, the Commission services consider that 
there  are  sufficient  grounds  and  guarantees  to  proceed  with  the  proposed  MFA  to  North 
Macedonia.  

Credit risk:  A reliable track record of repaying external obligations on time; good credit rankings; 
sound macrofiscal policies and moderate debt levels (as well as improvements in the structure of 
debt towards longer maturities) underline the country’s capacity to service its debts, even against 
the  background  of  increasing  public  debt  levels  and  rising  interest  payments.  Overall,  North 
Macedonia  has  a  track  record  of  steady  sovereign  access  to  international  capital  markets  at 
favorable terms. The country’s debt is ranked BB-/B by Standard and Poor’s (August 2022), with 
a stable outlook. Following its first Eurobond issuance in 2005, North Macedonia has accessed 
international  capital  markets  regularly, with  three Eurobond issuances totaling EUR 1.9 billion 
over  the  last  five  years.  To  support  the  economic  recovery  from  the  pandemic,  the  authorities 
issued a six-year EUR 700 million  Eurobond in  May  2020 and  a seven-year EUR 700 million 
Eurobond in March 2021 at competitive rates. In September 2022, the government managed to 
issue a 3-year registered marketable bond with an international bank worth EUR 250 million, at a 
370 basis points spread over the 6-month Euribor rate.  

Fiduciary risk: Past progress in developing institutional capacities in public financial management 
and in the fight against corruption make it unlikely that the MFA, which is not dedicated to specific 
expenses  (contrary  to  project  financing,  for  example),  could  be  used  in  a  fraudulent  way. 
Management systems in the central bank and the Ministry of Finance, administrative procedures, 
control and oversight functions, the security of IT systems and the appropriateness of internal and 
external  audit  capabilities  are  at  a  considerably  advanced  stage  in  North  Macedonia.  MFA 
assistance will be liable to verification, control and auditing procedures under the responsibility of 
the Commission, including the European Anti-Fraud Office (OLAF), and the European Court of 
Auditors.  

10 

 
 
 
External  risks:  There  are  moderate  external  risks,  stemming  from  a  possible  weakening  of  the 
European and global economic environment and from a significantly drawn-out war of aggression 
against  Ukraine,  impacting  further  on  international  energy  prices  (taking  into  account  the 
dependence  on  energy  imports  of  North  Macedonia,  including  full  reliance  on  Russia  for  gas 
imports, and the country’s close trade links with the EU market). Such developments would lead 
to further weakening of the fiscal and balance-of-payments situation of North Macedonia. 

ADDED VALUE OF EU INVOLVEMENT 

The Union's financial support to North Macedonia reflects the country's strategic importance to 
the EU as an EU candidate country with which accession negotiations process was launched in 
July  2022.  The  MFA  instrument  is  a  policy-based  instrument  directed  to  alleviate  short-  and 
medium-term external financial needs. As a part of the overall EU package of assistance, it would 
contribute  to  supporting  the  European  Union's  objectives  of  economic  stability  and  economic 
development  in  North  Macedonia.  By  supporting  the  authorities'  measures  to  improve  fiscal 
governance and consolidation, and to accelerate the clean energy transition, hereby reducing the 
economy’s energy import dependence and its vulnerability to energy price shocks, the proposed 
assistance would help improve the effectiveness of other EU financial assistance to the country, 
including budgetary support operations. 

CHARACTERISTICS OF MACRO-FINANCIAL ASSISTANCE 

5.1 

Exceptional Character and Limited Time-frame 

The  MFA  operation  would  be  exceptional,  aiming  to  support  a  sustainable  external  finance 
situation for North Macedonia. It would run in parallel to the IMF PLL arrangement, as adopted 
by the Executive Board on 22 November 2022. The proposed MFA would only be implemented 
if the IMF programme remains on track. Against this background and given the expected time of 
approval  of  the  programme,  the  assistance  is  expected  to  be  implemented  in  2023-2024.  The 
disbursement of the first tranche could take place in the third quarter of 2023, the second tranche 
could  be  disbursed  in  the  first  half  of  2024.  All  disbursements  are  conditional  on  the  IMF 
programme remaining on track and on a number of policy measures, agreed with the EU and listed 
in the Memorandum of Understanding attached to the proposed MFA operation.  

5.2 

Political preconditions and EU-North Macedonia relations 

A  pre-condition  for  granting  MFA  is  that  the  eligible  country  respects  effective  democratic 
mechanisms,  including  a  multi-party  parliamentary  system  and  the  rule  of  law,  and  guarantees 
respect for human rights.  

As  noted  in  the  2022  Commission  Communication  on  EU  Enlargement  Policy7  (hereinafter: 
Commission Communication), the launch of the EU accession negotiations process  with  North 
Macedonia last year was a major breakthrough and marked the beginning of a new phase in the 
EU-North  Macedonia  relations.  The  first  political  intergovernmental  conference  with  North 
Macedonia  took  place  on  19  July,  following  the  approval  by  the  Council  of  the  negotiating 
framework. This was a clear recognition of the progress achieved by North Macedonia to advance 

7   COM(2022) 528 final 

11 

 
 
 
 
                                                           
the  EU  reform  agenda  and  to  deliver  tangible  and  sustained  results,  including  under  the 
fundamentals cluster.  

As  indicated  in  the  Commission  Communication8,  North  Macedonia  continued  its  efforts  to 
strengthen democracy and the rule of law, despite some challenges. The country has shown its 
commitment to continuing to deliver results in key areas of the fundamentals.  

However, the work of Parliament was marred by political polarisation, which delayed the adoption 
of many pieces of legislation. Following intense debates, Parliament adopted conclusions on the 
proposal which paved the way for the opening of accession negotiations. Parliament needs to play 
an active and positive role in the EU accession negotiation process. Joint and prompt efforts by all 
parties are needed as a matter of priority to strengthen Parliament’s role as a forum for constructive 
political dialogue, particularly on the EU reform agenda.  

The judicial system of North Macedonia has achieved some level of preparation / is moderately 
prepared.  Some  progress  was  achieved  in  the  field  of  the  judiciary,  through  the  steady 
implementation of the judicial reform strategy, thereby addressing the recommendations made by 
the  Venice  Commission  and  the  Senior  Experts’  Group  on  systemic  rule  of  law  issues.  The 
preparation of a new judicial reform strategy has started, in an inclusive manner, building upon 
the lessons learnt from the previous one. Implementation of the updated action plan on the judicial 
reform  strategy  has  continued  but  needs  to  become  more  systematic.  The  judiciary  has 
demonstrated its commitment to protect its integrity and independence. 

The  legal  framework  on  the  protection  of  fundamental  rights  is  largely  in  line  with  European 
standards, but implementation needs to be improved, such as on hate speech and of the national 
action plan for the Istanbul Convention’s provisions.  

The general context in North Macedonia is favourable to media freedom and allows for critical 
media reporting, although there were some tensions  during the 2021 local  elections. Action on 
self-regulation of the media should resume and produce practical results in advancing professional 
standards  of  journalism.  Greater  transparency  is  needed  regarding  media  advertising  by  state 
institutions and political parties.9 

5.3 

Complementarity 

The proposed MFA would complement the assistance provided by the IMF and other multilateral 
donors. The EU´s MFA would also complement the budget support grant of EUR 80 million to be 
disbursed  as  of  early  2023  under  the  new  EU  Energy  Support  package  put  forward  by  the 
Commission for the Western Balkans. By supporting macroeconomic policy and structural reforms 
of  North  Macedonia,  the  MFA  would  enhance  the  added  value  and  effectiveness  of  the  EU 
involvement through other financial instruments and help steer the country towards a sustained 
reform trajectory to strengthen macroeconomic stability, address governance problems and boost 
potential growth in the longer run and in a sustainable manner. 

8 COM (2022) 528 final 

9 A complete assessment of the satisfaction of the political preconditions for MFA is provided in the Annex. 

12 

 
 
                                                           
5.4 

Conditionality 

Disbursements under the proposed MFA operation would be conditional on successful reviews 
under the IMF programme. In addition, the Commission and the authorities of North Macedonia 
would agree on a specific set of structural reform measures, to be defined in a Memorandum of 
Understanding.  These  reform  measures  would  support  the  authorities’  reform  agenda  and 
complement the programmes agreed with the IMF, the World Bank, and other donors, as well as 
the policy conditions associated with the EU’s budget support operation. They would be consistent 
with the main economic reform priorities agreed each year between the EU and North Macedonia 
in the context of the Economic and Financial Dialogue between the EU and the Western Balkans 
and Türkiye, laid down in the jointly endorsed conclusions of the dialogue. 

The Commission will seek a broad consensus with the authorities of North Macedonia to ensure 
their ownership and fostering a smooth implementation of the agreed conditionality. These policy 
conditions  should  address  some  of  the  shortcomings  of  the  country’s  economy  and  economic 
governance  system.  Possible  areas  of  conditionality  may  include  reforms  to  strengthen  fiscal 
governance,  e.g.  through  a  well-functioning  fiscal  oversight  body;  revenue-enhancing  reforms; 
measures to  improve the efficiency of public investment  selection and implementation; public-
private partnerships; business environment; transparency in state aid; energy efficiency; judiciary 
reform; and the fight against corruption.  

5.5 

Financial Discipline 

The proposed MFA operation for North Macedonia of up to EUR 100 million is foreseen to be 
disbursed in two equal tranches to be released in 2023-2024. 

The required provisioning of the loan of EUR 100 million at a rate of 9% of the External Action 
Guarantee will be programmed under the Instrument for Pre-accession (IPA), for a total amount 
of EUR  9 million  (budget  line  15.020203  IPA  III  – Provisioning of the  Common Provisioning 
Fund (External Action Guarantee – MFA).  

In line with the requirements of the Financial Regulation, the European Commission services have 
carried  out,  an  Operational  Assessment  of  the  financial  and  administrative  circuits  of  North 
Macedonia.  Developments  in  this  area  will  continue  to  be  closely  monitored  also  through  the 
regular progress reports on PFM reforms produced by the EU Delegation. 

EVALUATION AND COST-EFFECTIVENESS 

This assistance is of exceptional and macroeconomic nature and its evaluation will be undertaken 
in line with the standard Commission procedures.  

6.1 

Evaluation 

Ex-post evaluations of MFA operations are foreseen in the Multi-Annual Evaluation Programme 
of  the  Commission's  Directorate-General  for  Economic  and  Financial  Affairs.  An  ex-post 
evaluation of the proposed MFA to North Macedonia will be launched within a period of two years 
after the availability period has expired. A provision for the ex-post evaluation is included in the 
proposed  Decision  for  the  assistance,  and  will  also  be  included  in  the  Memorandum  of 

13 

 
 
 
Understanding. Budget appropriations from the macro-financial assistance grant budget line will 
be used for this evaluation.  

6.2 

Achieving cost-effectiveness 

The proposed assistance would entail a high degree of cost effectiveness for several reasons:  

i)   Since  the  assistance  would  be  leveraged  by  that  provided  by  the  international  financial 
institutions, with which, as noted, it would be closely coordinated, its ultimate impact could be 
very significant compared to its cost. Moreover, in negotiating specific policy conditions, the 
Commission will be able to draw on the expertise of those institutions, including the IMF and 
the World Bank, and to influence their conditionality as well in ways that will take into account 
the EU's views.  

ii)  Providing  coordinated  macroeconomic  support  to  North  Macedonia  on  behalf  of  the  EU 
countries, the MFA would be more cost efficient than the provision of a similar total amount 
of financial support by EU Member States individually.  

iii)  The proposed assistance would be provided in the form of loans, the budgetary impact of which 

is more limited than that of grants. 

iv)  Finally,  the  Commission  will  aim  at  achieving  synergies  with  other  EU  policies  and 
instruments used to support the implementation by the beneficiary of the relevant measures 
(notably in the area of public finance management).  

14 

 
 
 
 
 
 
 
Annex: 

Assessment of democracy, human rights, rule of law and reforms in North Macedonia 

The launch of the EU accession negotiations process with North Macedonia in July 2022 was a 
major  breakthrough  and  marked  the  beginning  of  a  new  phase  in  the  EU-North  Macedonia 
relations. This was a clear recognition of the progress achieved by North Macedonia to advance 
the  EU  reform  agenda  and  to  deliver  tangible  and  sustained  results,  including  under  the 
fundamentals cluster. The Commission started immediately the screening of the EU acquis, which 
is proceeding smoothly. The accession negotiations process is conducted in line with the revised 
enlargement methodology, which puts a stronger focus on the fundamentals.  

Political criteria 

In October 2022, the Commission published the enlargement package10 and assessed that North 
Macedonia  continued  its  efforts  to  strengthen  democracy  and  the  rule  of  law,  despite  some 
challenges. The country has shown its commitment to continuing to deliver results in key areas of 
the fundamentals.  

Overall,  the  legal  framework  remains  conducive  to  the  organisation  of  democratic  elections. 
Local elections took place in October 2021. The Office for Democratic Institutions and Human 
Rights of the Organisation for Security and Cooperation in Europe (OSCE/ODIHR) assessed that 
they were competitive and fundamental freedoms were widely respected. However, efforts should 
be made to address the outstanding recommendations made by the OSCE/ODIHR and the Venice 
Commission.  

The country has a multi-party parliamentary system. Parliament continues to fulfil its functions, 
despite the challenges and the political polarisation. The Parliament needs to play an active and 
positive role in the EU accession negotiation process. The government continued to work on the 
EU  reform  agenda  and  on  addressing  the  consequences  of  the  COVID-19  pandemic  and  of 
Russia’s  invasion  of  Ukraine.  In  this  regard,  North  Macedonia  confirmed  its  strong  and  clear 
strategic orientation towards the EU by fully aligning with all EU common foreign and security 
policy decisions and declarations and has since maintained a 100% alignment rate. By doing so, 
North Macedonia has shown its determination to advance on its EU path as a reliable partner. 

Civil  society  organisations  (CSOs)  continue  to operate  in  an  enabling  environment,  including 
with the adoption of the strategy of cooperation with and development of civil society 2022-2024. 
Civil society continued to play an important role in decision-making processes and in monitoring 
the activities of the state. However, efforts are needed to improve transparency in policymaking 

10 COM(2022) 528 final and SWD(2022) 337 final 

15 

 
 
                                                           
and the inclusiveness of consultation processes. The legal and financial frameworks still need to 
be improved and implemented in practice. 

Rule of law and human rights 

Concerning judicial reforms, the Commission reported that some progress was achieved, through 
the steady implementation of the judicial reform strategy. The preparation of a new judicial reform 
strategy has started, in an inclusive manner. The judiciary has demonstrated its commitment to 
protect  its  integrity  and  independence.  The  pace  of  implementation  of  the  human  resources 
strategies for the judiciary and prosecution services needs to be stepped up. Judicial institutions 
have  implemented  consistently  the  new  rules  for  the  appointment,  promotion,  discipline  and 
dismissal of judges and prosecutors. The Judicial Council and the Council of Public Prosecutors 
continued implementing the strategic plans. Work was undertaken to upgrade the software system 
for automatic and random distribution of cases in the courts. 

The  country  continues  to  consolidate  its  performance  on  investigating,  prosecuting  and  trying 
several  corruption  cases,  including  at  a  high  level.  The  cases  initiated  by  the  former  Special 
Prosecutor’s Office (SPO) continued to move forward, establishing accountability for the illegal 
wiretaps. A number of cases were subject to first-instance rulings. The State Commission for the 
Prevention  of  Corruption  (SCPC)  has  been  proactive  in  providing  policy  guidance  to  public 
institutions on preventing corruption and it opened several  cases, including cases against high-
level officials. North Macedonia made some progress in the fight against organised crime: the 
internal coordination of activities and the operational cooperation with international partners have 
improved. 

The legal framework on the protection of fundamental rights is largely in line with European 
standards. The Ministry of Labour and Social Policy continues to invest in community services, 
including support for victims of gender-based violence. Continued improvements can be noted in 
gender mainstreaming and respect for women’s rights. In the area of freedom of expression, the 
overall  situation  and  climate  in  which  media  operates  remain  generally  conducive  to  media 
freedom  and  allow  for  critical  media  reporting.  Action  on  self-regulation  of  the  media  should 
resume and produce practical results in advancing professional standards of journalism. 

Conclusion 

North  Macedonia  continues  to  fulfil  the  general  political  pre-condition  for  macro-financial 
assistance with regard to effective democratic mechanisms, including a multi-party parliamentary 
system, the rule of law and respect of human rights. 

16