Republic of North Macedonia: Selected Issues

This Selected Issues paper assesses North Macedonia’s long-term growth challenges and quantifies the potential gains from structural reforms. Despite significant progress since the early 2000s, real GDP growth has remained below that of regional peers, resulting in slow income convergence due to weak productivity, labor underutilization, population aging, and emigration. Potential output growth is estimated at 2.6–2.9 percent in 2025, with a small positive output gap. Benchmarking against frontier economies in Central, Eastern, and Southeastern Europe indicates substantial scope for improving economic performance through structural reforms. Simulations suggest that closing half of the policy gap could generate significant output gains over the next five years. The largest benefits are expected from labor market and human capital reforms, improvements in the business environment, and stronger governance. The findings emphasize that well-sequenced and complementary reform packages are more effective than isolated measures. The analysis also identifies the EU Reform and Growth Facility as a critical catalyst for accelerating reform implementation, enhancing productivity, and promoting faster, more resilient, and inclusive convergence toward European Union income levels.