On January 21, the Regional Policy Debate titled “After the Energy Crisis: A Roadmap for Energy Self-Sustainability in the Western Balkans Region – Lessons Learned and the Way Forward” was held.
During the debate, we discussed how to become a more energy-resilient region, as well as the socio-economic implications of the green transition.
Stay tuned! In the coming period, we will organize another Regional Policy Debate, this time focusing on food security.
WEBecon Network SMART Balkans

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The trainer for the session was Marjan Bojadziev, who shared critical tools and strategies for boosting productivity and managing conflicts in dynamic work environments, drawing on his expert advice and decades of experience.

#RandomizedControlledExperiment continues to be supported by the British Embassy Skopje. #WorkplaceProductivity #ProfessionalDevelopment #FinanceThink #ManagementTraining

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In response to this inflationary pressure, the Government introduced a series of measures to mitigate the negative impacts on consumption and the living standards of the population. Between 2021 and 2024, measures included freezing the prices of certain basic products and/or limiting trade margins to prevent further price increases. A total of nine key decisions were made by December 2024, three of which targeted margin limitations, while the others focused on price controls. Some measures applied to specific food products, while others covered a broader range of food items.

The findings of the analysis show that price control measures for food had a mild aggregate effect and a strong immediate effect. During periods without such measures, the average month-on-month food inflation rate was 0.5%. Under these measures, food inflation averaged as low as -1%, indicating that food prices decreased during the intervention. Thus, the estimated effect is relatively significant. However, this effect diminishes after the first month of implementation (if the measure lasted longer than one month). This indicates that while the measures achieve their strongest expected effect on reducing food prices in the first month, the impact quickly weakens, likely due to market adjustments (e.g., rising prices of alternative products not covered by the measures).

Another finding suggests that price control measures only temporarily suppress inflation, as prices tend to increase again once the measure expires. Inflation returns almost entirely to its pre-measure dynamics, without evidence of overshooting.

Finance Think recommends that food price control measures be used only in cases of exceptionally high inflation. In all other situations, they should be replaced with structural or market-based measures, such as:

• Consistent and impartial enforcement of the Law on Unfair Trading Practices.
• Strengthening the capacity and tools of the Commission for Protection of Competition.
• Overhauling the agricultural subsidies system to increase domestic production.
• Targeted budget support for the most vulnerable segments of the population.

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The post Our Economic Forum effectively delivered key insights on state aid management first appeared on Finance Think.

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The goal of this study is to examine the types, amounts, and measures of state aid provided by the governments of the six Western Balkan countries to domestic and foreign companies, aiming to foster innovation, technological advancement, productivity, and more.

State aid in the Western Balkan countries ranges from below 0.5% of GDP in Kosovo and Albania to 5.9% of GDP in Serbia (2022 data). North Macedonia allocates state aid amounting to 1.9% of GDP or €253 million (Figure 1).

In general, all countries have numerous state aid measures targeting three segments: farmers, domestic companies, and foreign companies. To some extent, these measures are similar across the countries, especially those aimed at farmers and foreign companies operating in free economic zones. Low transparency and lack of information regarding the measures and the amounts of allocated aid are additional commonalities among the analyzed countries.

More specifically, the results show that state aid allocated to farmers accounts for more than half of the total state aid in four countries (Kosovo, Bosnia and Herzegovina, Montenegro, and North Macedonia). On the other hand, this aid cannot be linked to increased agricultural and livestock production, suggesting the need to reassess the purpose, model, and distribution methods of such aid. For example, in North Macedonia, a significant reduction in livestock production aid has been observed over the past two years, while meat production has consistently increased. Although aid for plant production support varies from year to year, vegetable production remains relatively stable.

State aid targeting domestic companies varies between countries, particularly in terms of the sectors being supported. More than half of the aid for domestic companies in Albania is directed toward manufacturing and tourism. Serbia is the only country allocating a larger portion of state aid to the development of small and medium-sized enterprises. In North Macedonia, over 90% of the aid is allocated across all sectors, with the remainder targeting manufacturing, energy, and tourism. Similar trends are observed in Bosnia and Herzegovina and Kosovo.

State aid should not function as a form of social assistance for companies. It should lead to increased productivity, innovation, competitiveness, job creation, and technological development for both the recipient company and the economy as a whole. An increased amount of state aid allocated to innovation correlates with an improved ranking of the Macedonian economy in the Global Innovation Index. The introduction of aid for new start-ups and spin-off companies is associated with an increased number of newly established companies. On the other hand, despite the continuous increase in aid for new employment, training, and employee specialization, labor productivity in the country has not improved.

All Western Balkan countries, except Kosovo, offer a wide range of attractive measures to attract and support foreign investors. The state aid scheme for foreign investors in North Macedonia is rated the most transparent, straightforward, and attractive compared to other countries. All foreign companies, regardless of location, can utilize the measures outlined in the Law on Financial Support of Investments, which, according to the analysis, account for two-thirds of state aid allocated to foreign investors. For the other analyzed countries, data on aid for foreign investors is incomplete (Serbia and Albania) or non-existent (Bosnia and Herzegovina and Montenegro), highlighting the need for increased transparency among the institutions responsible for managing and overseeing this type of aid.

The recommendations from the analysis are focused on three segments:

1. Improving regional cooperation to align state aid policies, enabling a more integrated market that can attract cross-border investments and stimulate regional development. This can be achieved through joint initiatives, sharing best practices, and creating regional funds addressing common challenges.
2. Focusing state aid on strategic sectors by promoting innovation, digitalization, and sustainability. In the future, aid should target sectors such as green technologies, renewable energy, and digital infrastructure, positioning the countries as competitive players in the global market.
3. Enhancing transparency and accountability of relevant institutions by introducing more robust mechanisms for monitoring and reporting the types and amounts of state aid allocated.

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A link to gallery.

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Key findings of the study:

1. Fiscal Rules: Introduced through the Budget Law of 2022, these rules limit the budget deficit to 3% of GDP and public debt to 60% of GDP. The rules are self-imposed restrictions by policymakers aimed at ensuring fiscal stability, maintaining optimal levels of public debt, contributing to macroeconomic stability, and promoting long-term sustainable economic growth. Although these rules were not applied during the analyzed period, the authors evaluated how fiscal policy might be assessed if these rules were enforced, providing valid insights into the management of public finances in the future.

The implementation of fiscal rules encountered certain challenges. During the analyzed period, total public debt (excluding overdue unpaid obligations) increased at an average annual rate of 7%, surpassing the threshold of 60% of GDP by the end of 2023. By the end of 2024, the debt is projected to reach 66.4% of GDP and 70.8% when including overdue unpaid obligations. Additionally, in more than half of the analyzed years, the deficit exceeded the fiscal rule of 3% of GDP. Frequent revisions of initial targets highlight weaknesses in accurate planning, overly optimistic revenue projections, and difficulties in expenditure management. This narrows the space for countercyclical policy and medium-term crisis buffers.

2. Medium-term Fiscal Strategy: Although fiscal strategies set targets for budget deficits and public debt, frequent revisions undermine the credibility of these goals, making consistent achievement of fiscal objectives impossible. Consequently, annual planning focuses on short-term measures, rendering budget projections vulnerable.
3. Pro-cyclical Policy: The analysis revealed that expansionary fiscal policy was applied throughout the analyzed period. In this context, fiscal policy was not used solely for countercyclical purposes to stabilize economic cycles but also to maintain high aggregate demand. This led to increased expenditures in the form of budget deficits and higher public debt. Expansionary fiscal measures during periods of economic growth further increased public debt, reducing budget flexibility during economic crises.

Short-term fiscal policy fluctuations were also identified, correlated with the political election cycle.

4. Long-term Expenditure Growth: The growth of fixed expenditures, particularly current ones such as salaries and pensions, outpaced revenue growth and real GDP growth. This poses a risk of increasing the structural budget deficit and necessitating further borrowing.

Event Details:

Managing these risks was the focus of the event, which was organized into two panels.

• In the first panel, Minister of Finance Dimitar Kovachevski, through a presentation of policies in the Fiscal Strategy 2025-2029, highlighted the mechanisms and tools for addressing these risks, the dynamics of fiscal consolidation, and alignment with fiscal rules.
• Members of the Fiscal Council emphasized the need for policies and reforms in public finance aimed at managing the structural budget deficit and restructuring public expenditures.
• Representatives of Finance Think stressed the importance of applying the rule of countercyclical fiscal policy.
• A representative from the EU Delegation shared experiences with fiscal rules in the EU, recommending that North Macedonia, as a future EU member, prepare for their implementation.
• A World Bank representative shared insights on fiscal rules in the Western Balkans and emphasized the need to create fiscal space during periods of economic growth to build buffers for crisis periods.
• A representative from the Macedonia 2025 business community stressed the need for predictable fiscal policies and effective application of medium-term fiscal strategies.

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