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The post New Policy Study! first appeared on Finance Think.

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The deficit results from three forces that have been at work for more than two decades. First, the contribution rate was reduced from 21.2% to 18% in 2009–2010, although it was increased to 19.9% as of 1 July 2025, while pensions were repeatedly raised outside the statutory indexation formula. Second, demographic trends have become increasingly unfavourable: the fertility rate stands at 1.6, natural population growth has been negative since 2019, and since 2021 the number of people aged over 65 has exceeded the number of children. Third, labour-market weaknesses persist: informal employment has risen again to 13.5%, while women remain significantly less economically active than men.

Since 2023, pension expenditure has been growing considerably faster than contribution revenues—by 19% compared with 8.8% in 2025. This is not a demographic effect, but the result of pension indexation and across-the-board increases.

Without reform, the deficit will rise from 5.2% of GDP in 2025 to 6.3% by 2030, reaching a peak of approximately 6.6% in 2035–2037. The most critical period will be 2038–2048, when transition costs peak and the number of insured persons per pensioner falls below 1.3. In the long run, the deficit appears to decline—to 5.5% in 2050 and 2.7% in 2070—but this does not represent a genuine improvement. Pensions will increasingly lag behind wages, with the ratio of the average pension to the average net wage falling from 59% to 35% by 2050. In absolute terms, the deficit will continue to grow throughout the projection period, while by the mid-2040s there will be fewer insured persons than pensioners.

The study shows that no single measure is sufficient. With reform—namely, a combined package comprising a gradual increase in the contribution rate to 20%, inflation-only indexation, higher female labour-market participation and reduced informality—the deficit would fall to 4.2% of GDP by 2030, instead of rising to 6.3%, and to below 0.5% by 2050. A change in the retirement age as part of this package would have only a small additional effect of less than 0.2 percentage points of GDP. The trade-off is a lower replacement rate, measured as the ratio of pensions to net wages. If the current indexation formula is retained, however, the deficit will remain above 4% of GDP until 2040.

Short-term fiscal savings refer to the reduction in budget transfers to the Pension and Disability Insurance Fund during the first ten years of a potential reform, from 2026 to 2035, compared with the no-reform scenario. Under the combined reform package, these savings would amount to approximately MKD 337–341 billion—around €5.5 billion—or a cumulative total of approximately 30% of GDP. On an annual basis, this represents an average of around MKD 34 billion, or approximately €550 million, equivalent to about 3% of GDP. This is three to four times the savings generated by the most effective individual measure—inflation-only indexation—which would save approximately MKD 179 billion, or around €2.9 billion.

Nevertheless, the study highlights a fundamental dilemma between pension-system sustainability and pension adequacy. Under inflation-only indexation, the replacement rate would fall to approximately 22% by 2050, compared with 35% under the current formula, with both figures below the 40% threshold commonly used as a minimum benchmark. The study therefore recommends introducing a guaranteed minimum pension instead of ad hoc pension increases and replacing discretionary decisions with an indexation formula incorporating an automatic fiscal adjustment mechanism.

“Parametric reforms are necessary, but not sufficient—they buy time. The window for reform is closing around 2035, while the cost of delay does not rise linearly but accumulates over time,” Petreski emphasised.

The study was prepared using the PSSM-MK model and is based on official data from the Pension and Disability Insurance Fund of North Macedonia, the State Statistical Office, the Ministry of Finance and international databases.

The post North Macedonia’s Pension System Under Pressure: Reforms Could Save €5.5 Billion by 2035 first appeared on Finance Think.

The post North Macedonia’s Pension System Under Pressure: Reforms Could Save €5.5 Billion by 2035 appeared first on Finance Think.

In the second quarter of 2026, GDP growth accelerated to 4.3%. This was the first quarter with growth above 4% since the post-pandemic quarters of 2021. During this quarter, growth was predominantly driven by construction (21.9%), which, on the expenditure side, was also reflected in the strong growth of gross investment (16.5%). Solid growth rates were also recorded by industry (3.9%) and trade (4.1%), while on the expenditure side, personal consumption grew by 3.3% and exports by 10.4%. This particularly solid growth momentum is associated with at least two critical trends. First, construction was mainly driven by growth in civil engineering (48.9%) and specialised construction works (61.5%), which can be attributed to the implementation of government capital investments at the national and local levels. This activity is crucial for growth but is accompanied by a high budget deficit (7.1% in the first half of the year). Second, the continued growth of personal consumption reflects rising incomes, including wages (nominal growth of 7.3%), household credit (12.1%), and the substantial increase in pensions over the past two years, which has placed pressure on the pension budget (in the first half of 2026, its execution exceeded the proportional level, reaching 55%). Therefore, GDP growth is, to a significant extent, although not entirely, induced by budget spending that prevents sufficient fiscal consolidation.

Unemployment remained unchanged at 11.3% in the second quarter of 2026, accompanied by similar employment and unchanged labour force participation. Thus, the labour market remained in a state of intense lethargy, failing to respond to GDP growth. Informal employment increased further, from an already high 13.3% of total employment to 14.3%, and may represent an important – although not the only – indication that the particularly high level of the grey economy – likely especially in construction – is not declining.

In the second quarter of 2026, inflation increased to 4.6% year-on-year (from 3.7%), although this was mainly due to low-base effects stemming from a previous period during which measures limiting margins and prices were in force. Nevertheless, the persistence of conflicts on European soil and in the Middle East, together with domestic pressures on the budget deficit, calls for particular vigilance regarding price dynamics on the part of monetary and fiscal policy.

Economic growth is expected to continue throughout 2026, driven mainly by domestic factors. Finance Think’s projection for GDP growth in 2026 is 3.5%, while inflation is projected at 4.1%.

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The post Participation in the WB Reform and Growth Monitor Workshop in Tirana first appeared on Finance Think.

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The post 📍 Finance Think at the World Bank Fiscal Councils Peers Learning Event in Vienna first appeared on Finance Think.

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https://shorturl.at/CWIXg

The study shows that North Macedonia is at a critical juncture of energy and industrial transformation. In 2025, exports covered by CBAM reached around EUR 468 million, accounting for 7.7% of exports to the EU and 2.8% of GDP.

Representatives of public institutions, local government and the energy sector discussed how the energy transition can become a driver of competitiveness, investment and local development.

The key message is clear: the energy transition is no longer only an environmental issue — it is a matter of economic competitiveness and the future development of Macedonian industry.

The full study is available at:
https://shorturl.at/CWIXg

#CBAM #EnergyTransition #GreenIndustry #Decarbonisation #NorthMacedonia #FinanceThink #GreenTransition #Competitiveness

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