# Introduction

North Macedonia is coping with the aftermath of its deepest recession since 2001. The 3.9 percent growth of 2019 was reversed to -6.1 percent by the end of 2020 as the COVID-19 pandemic unfolded. The fiscal deficit increased to 8.8 percent of GDP in 2020 as a result of plummeting revenues and the unprecedented transfers to firms and households (of around 10 percent of GDP). This pushed up public debt by 11 percentage points in just one year to a new historical peak of 60.8 percent of the GDP.

Now that the recovery is starting to take hold, public finances need to be brought back onto a sustainable path. Given a gradual deficit-reduction trajectory, as announced in the government’s Fiscal Strategy 2021-26, public debt will remain above 60 percent of GDP by 2026. With current policies and new support packages discussed, the primary fiscal deficit (Public Enterprise for State Roads included) will not close even by 2026. The projected deficit reduction will come mainly from lower subsidies and higher revenues as the economy recovers. This is a lower adjustment effort than the average for the Western Balkans and is also based on optimistic growth expectations of above 5 percent on average by 2026.

Public procurement in North Macedonia amounted to 16% of the total government expenditures or 5% of GDP in 2018 (OECD 2020, chapter 7). According to the same report, countries from the Western Balkans face challenges in ensuring efficient spending. They maximize the value of their purchases. Combining this with the critical role played by public procurement in the provision of works, goods, and services, it is a category within the state budget that is closely scrutinized for spending reforms by organizations such as OECD (OECD 2020) as well as the EU (European Commission 2022).

Hence, one possible way to control state expenditures is to improve public procurement practices and enhance value for money, that is procuring the same goods and services but for better prices. North Macedonia continues to lag EU countries on governance indicators. The gap to the EU is most pronounced along institutions critical for economic growth such as the rule of law, control of corruption, and government effectiveness. One critical institutional area where governance weaknesses and state capture by private interests are evident is public procurement. Thanks to the digitalization of public procurement data and the introduction of national e-procurement systems, audits, and judicial institutions, analysts and civil society whistleblowers now have access to electronic public procurement transaction data, including the details of individual government contracts. Such administrative datasets allow us to analyze the cost of noncompetitive public procurement practices and corruption risks. Moreover, they also allow for a comprehensive analysis of economic relations, that is contracts, among public and private organizations revealing hidden partners of state capture risks.

This paper presents an in-depth analysis of public procurement in North Macedonia based on contract level data between 2011 and 2022. First, it gives a descriptive overview of the country’s public procurement market. Second, it calculates and validates a set of corruption risk indicators following the risk measurement approach introduced in Fazekas & Kocsis (2020) and applied in 3