Multi-dimensional Review of the Western Balkans

13. Impact of COVID-19 in North Macedonia

Abstract

COVID-19 took a relatively high toll on North Macedonia’s citizens and economy. Authorities acted quickly to contain the spread of the virus, and took measures to mitigate the negative effects of restrictions on the economy. Yet, the medium- to long-term impact of the pandemic will largely depend on pre-existing socio-economic vulnerabilities. This chapter reviews the most binding of them. In particular, as a small and open economy, North Macedonia is particularly exposed to a reduction in global trade flows and financing, as well as a weakening tourism sector. The pandemic hit the hardest already vulnerable groups, the poor and the unemployed, who accounts for a large share of the population. Building resilience will depend on the strength and capacity of institutions to timely design and implement policy measures, as well as on the citizens’ trust in the public decision-making process and the efficiency of the public administration.

Evolution of the pandemic

COVID-19 has had a relatively high health impact in North Macedonia. The first case of COVID-19 was reported on 26 February 2020. Three and a half months later (on 29 June), the economy registered 6 092 cases (2 933 cases per million inhabitants) and 286 registered deaths (138  per million inhabitants). Importantly, the situation worsened as of the end of May: the number of cases increased sharply, resulting in a new wave of contagion. As of 26 May 2021, the economy counts an accumulated 154 640 cases (or 74 454 per million inhabitants) (Figure 13.1) and the second highest number of COVID-19 deaths in the region with 5 337 registered deaths (or 2 570  per million inhabitants) (Figure 13.2).

Figure 13.1. North Macedonia reported the highest number of new daily cases in the Western Balkans

Daily new confirmed COVID-19 cases per million inhabitants, rolling seven-day average

Note: North Macedonia reported its first COVID-19 case on 26 February 2020.

Source: Authors’ own calculations based Our World in Data (2020[1]), Our World in Data website, https://ourworldindata.org/coronavirus.

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Figure 13.2. North Macedonia reported the second-highest number of COVID-19 registered deaths per million inhabitants in the Western Balkans

Cumulative number of confirmed COVID-19 deaths per million inhabitants

Note: North Macedonia reported its first COVID-19 death on 22 February 2020.

Source: Authors’ own calculations based Our World in Data (2020[1]), Our World in Data website, https://ourworldindata.org/coronavirus.

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Authorities in North Macedonia acted quickly to contain the spread of the virus, yet future health resilience is not guaranteed. On 18 March 2020, three weeks after the first case was announced, a 30‑day nationwide state of emergency was declared, restricting public gatherings and the movement of people. As of 22 March, a curfew was put in place. The government closed all schools, cultural premises, restaurants, non-critical stores and borders. Only essential businesses, such as food stores and pharmacies, remained open. The parliamentary elections scheduled for April were postponed to 15 July. The measures led to about a 95% decrease in movements throughout the economy (Figure 13.3). As of the latest available data, North Macedonia has conducted 373 491 tests per million inhabitants since the beginning of the pandemic (Figure 13.4). Increasing testing capacity will be crucial in detecting new cases and in strengthening the economy’s health resilience. With 2 people fully vaccinated per hundred inhabitants by the latest available data, vaccine capacity in North Macedonia is the second lowest in the region (Figure 13.5).

Figure 13.3. Restrictive measures to tackle COVID-19 have reduced mobility of people

Notes: The chart shows the relative volume of requests for directions compared to a baseline volume on 15 February 2020, as recorded by Google Maps.

Source: Authors’ elaboration based on Google (2020[2]), “Google Mobility Trends”, www.google.com/covid19/mobility/.

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Figure 13.4. Testing capacity in North Macedonia remains relatively low

Source: Worldometer (2020[3]), Worldometer (database), www.worldometers.info/coronavirus. Costa Rica officially became an OECD Member on 25 May 2021, therefore it is not included in the OECD averages in the current report.

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Figure 13.5. Covid-19 vaccination rates in North Macedonia are low

Note: Last reported numbers are from May 2021.

Source: Worldometer (2020[3]), Worldometer (database), www.worldometers.info/coronavirus.

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Policy responses and economic impact

The government has taken measures to mitigate the negative effects of restrictions on the economy. In May 2020, the government retroactively classified the measures into four packages. The first two were implemented between March and May 2020 and were intended to provide life support to the economy and to the health sector. On 17 May, the government introduced a third package, worth EUR 335 million, to boost economic recovery and stimulate consumption further. The three packages together are worth EUR 550 million or 5.5% of GDP. The fourth package, adopted on 24 September, is worth about EUR 470 million and is a direct extension of the three previous ones.

Table 13.1. Policy measures in response to the COVID-19 pandemic

	People	Businesses	Other measures
1st and 2nd package, implemented from March to May 2020	Setting up an unemployment insurance system for employees who lost their jobs due to the health crisis. The state paid a monthly allowance of 50% of the average monthly net salary. For citizens who lost their jobs or were part of the informal economy, providing accelerated access to the social protection system for April and May. Postponing rent payments on social housing.	A three-month fiscal package (0.2% of GDP) to help address firms’ liquidity problems and protect jobs, targeted at transport, tourism and catering, starting in April. A salaries support programme subsidising contributions for employees in the tourism, transport and catering sectors up to a maximum of MKD 14 500 (EUR 235) per month and per employee for April, May and June. Credit support measures: new credit risk methodology introduced by the National Bank to promote more favourable credit standards for companies affected by the COVID-19 crisis and to ease the standards for household and corporate loan restructuring. The Development Bank of North Macedonia issued a first set of interest-free loans for MSMEs worth EUR 13.7 million (EUR 5.7 million + EUR 8.0 million) – up to EUR 90 000 per enterprise, depending on the number of employees.	Scaling up of public health measures, adopting protocols for the treatment of COVID-19 cases and mobilising the necessary medical and health staff and equipment (e.g. mechanical respirators) from public and private health facilities. Public call for the procurement of respirators. On 16 March 2020, the National Bank of North Macedonia cut its policy rate by 0.25% to 1.75%. On 13 May 2020, the policy rate was cut further to 1.50%. The National Bank reduced the offer of the Central Bank Bills by MKD 15 billion and increased the liquidity of the banking sector. It also revised its credit risk regulation to encourage banks to restructure loans temporarily and relaxed the loan classification standards for non-performing loans. In addition, it reduced the base for the reserve requirement for firms in affected sectors. The government signed a decree that facilitates procedures in banks.
3rd package	Distributing payment cards credited with MKD 3 000 for low-paid employees to stimulate consumption of domestic goods and services. Providing support to students: up to MKD 6 000 to cover tuition fees, a payment card of MKD 3 000 and co-financing vouchers of up to MKD 30 000 for IT and digital skills training. The measure is estimated to affect 100 000 students and is worth about EUR 12 million. Vouchers for home tourism of MKD 6 000. 40% of base wage reward for medical staff.	Support for the agriculture sector: package of measures supporting agriculture amounting to EUR 76.1 million. Measures include support to micro enterprises and SMEs and direct support to green oil farmers and grape processors. The Development Bank of North Macedonia will unblock interest-free loans worth EUR 31 million. This credit line will be available to all micro and small companies. The Development Bank will also offer a non-refundable 30% grant for companies that are run or founded by women or employ young people, are export-oriented or introduce innovation and digitalisation in their operations. State guarantees for commercial loans and customs debt: a support for start-ups and small and micro companies through commercial banks; EUR 10 million of initial capital for easier access to funds will be granted, mainly by taking part in the credit risk.
4th package	Continued dispersal of payment vouchers for vulnerable households, including the unemployed, students and pensioners, in amounts up to MKD 6 000, package totalling EUR 27.6 million. Domestic payment card for single parents, low-income pensioners, passive job seekers. Reduction and/or abolishment of parafiscal charges.	Support programme for salary payments extended until the end of 2020, adjusted for the decline in revenue for companies covered by this measure. 3-month extension of the grace period on interest-free loans for existing lines of credit. A package totalling EUR 100 million will be made available to domestic companies through the provision of favourable loans at low interest rates. A state credit guarantee was activated, offering EUR 10 million in financial resources to support companies through taking partial responsibility of their credit risk. Deferred payment of VAT for companies.	Refund of the tourist tax collected in 2019 to 5 000 businesses. Decrease in VAT for goods and services purchased from artisans in amounts from 5 to 18%.

Sources: OECD (2020[4]), “COVID-19 Policy Tracker”, http://oecd.org/coronavirus/en/#country-policy-tracker; OECD (2020[5]), The COVID-19 Crisis in North Macedonia, www.oecd.org/south-east-europe/COVID-19-Crisis-in-North-Macedonia.pdf.

COVID-19 had significant negative effects on North Macedonia’s economy. While North Macedonia experienced a robust GDP growth of 3.6% in 2019, GDP declined by 4.5% in 2020. Private consumption declined by 5.6% and investments by more than 10%, even though they rebounded in the third quarter due to public investments in infrastructure. Government consumption increased by more than 10%. Manufacturing, construction, trade, transportation and tourism experienced were particularly affected by the reduced economic activity, while information and communication, and real estate grew. Reduced external demand, saw a fall in exports by 10.9% in 2020, but was followed by a decline in imports (World Bank, 2021[6]).

Coronavirus COVID-19

The analysis of policy responses to the COVID-19 pandemic does not reflect the policy development that occurred since February 2021, with the exception of the figures on testing and vaccination for which the most recent and internationally comparable data were used.

Dimensions of vulnerability to further socio-economic impact from COVID-19

The medium- to long-term impact of the COVID-19 pandemic on North Macedonia will largely depend on pre-existing socio-economic vulnerabilities and the strength of the policy-setting institutions and their ability to implement the envisaged policy measures. Taking pre-existing vulnerabilities into account can help policy makers to determine who will need help the most and to design and target policies accordingly (Table 13.2).

Table 13.2. North Macedonia’s socio-economic exposure and policy resilience to COVID-19

	Channels	Level of vulnerability	Signalling indicators (Latest available year is 2019 unless otherwise specified)
				North Macedonia	OECD
Socio-economic exposure	Well-being	High	Household debt, loans and debt securities (% GDP)	26.8	68.3
			Poverty headcount (USD 5.5 per person per day, 2011 PPP) (% population)	19.5*	2.9
			Personal remittances, received (% of GDP)	2.5	0.9
			Unemployment rate	17.3	5.8
			Informal employment (% of total employment)	13.8	x
			Social protection spending (% of GDP)1	15.3	20.1
			Life satisfaction (average score on 0-10 scale)	5	6.7
			Lack of social support (% of population)	18	8.6
			Gender norms that normalise violence against women (% of adult women who consider a husband justified in hitting or beating his wife for trivial reasons)	14.5	8(2012)
	Health risks	Medium	Adult smoking prevalence (%)	48.4	24.9
			Adult obesity prevalence (%)	22,4**	20.8
	Trade	High	Trade (% of GDP)	138.8	60.6
			External balance on goods and services (% of GDP)	-14.2	0.46
	Investment	High	Micro enterprises (1-9 employees) (% among total enterprises)	68	78.7
			FDI, net inflows (% in GDP)	4.4	1.8
	Tertiary sector	Medium	Total contribution of the tourism sector to GDP (% GDP)	7.4	8.8
	Financial and monetary	Low	Non-performing loans (% total loans)	4.6	2.9
			Total reserves in months of imports	4.3	9.5
			Capital adequacy ratio (%)	16.3	18.9
			Main interest rate (%)	1.5 (May 2020)	x
Policy resilience	Public finances	Low	Gross general government debt (%)	40.7	65.8
			Budget deficit (% GDP)	1.95	0.76
			Gross domestic savings (%)	20.3	22.5
			Foreign currency debt (% of total debt)	73.7	x
	Health sector	Medium	Spending on health care (% of GDP)	6.6*	12.6
			Hospital beds per 1 000 inhabitants	4.3*	4.7
			Physicians per 1 000 inhabitants	2.9†	3.5
	Government effectiveness	Medium	Government performance index (1: low; 10: high)	6.0	7.5
			Rigorous and impartial public administration (0: partial; 4: impartial)	1.9	3.3

Notes: Level of vulnerability is an OECD assessment for this report. Data are from 2019 unless otherwise specified. In particular: *: 2017; **: 2016; ^†: 2015; 1: The figure for social spending in North Macedonia includes healthcare spending.

Source: Authors’ elaboration based on national and international data: Coppedge et al. (2020[7]), V-Dem Dataset -- Version 10 (dataset), www.v-dem.net/en/data/data/v-dem-dataset/; IMF (2020[8]), International Financial Statistics (dataset), https://data.imf.org/?sk=4c514d48-b6ba-49ed-8ab9-52b0c1a0179b; IMF (2020[9]), Financial Soundness Indicators (dataset), https://data.imf.org/?sk=51B096FA-2CD2-40C2-8D09-0699CC1764DA; IMF (2020[10]), “World Economic Outlook Databases”, www.imf.org/external/pubs/ft/weo/2020/01/weodata/index.aspx; IMF (2020[11]), "Republic of North Macedonia: Request for purchase under the rapid financing instrument", www.imf.org/en/Publications/CR/Issues/2020/04/16/Republic-of-North-Macedonia-Request-for-Purchase-Under-the-Rapid-Financing-Instrument-Press-49340; IMF (2020[12]), "Republic of North Macedonia: 2019 Article IV Consultation", www.imf.org/en/Publications/CR/Issues/2020/01/24/Republic-of-North-Macedonia-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-48982; IMF (2019[13]), World Economic Outlook, October 2019: Global Manufacturing Downturn, Rising Trade Barrier, www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019; OECD et al. (2019[14]), SME Policy Index: Western Balkans and Turkey 2019: Assessing the Implementation of the Small Business Act for Europe, https://doi.org/10.1787/g2g9fa9a-en; WHO (2020[15]), Global Health Observatory, https://www.who.int/data/gho.; World Bank (2020[8]), World Development Indicators (database), https://databank.worldbank.org/source/world-development-indicators; WTTC (2020[16]), World Travel & Tourism Council (database), https://wttc.org/Research/Economic-Impact/Data-Gateway.

Material well-being and social protection

The short-term impact of the lockdown could harm the most vulnerable, including the unemployed and people living in poverty. Despite a progressive decrease in the unemployment rate since 2015, North Macedonia entered the crisis with a relatively high unemployment rate of about 17.3%. While North Macedonia has taken measures to mitigate the negative effect of the crisis on employment (Table 13.1), unemployment is likely to increase due to business closures. Poverty remains a major challenge, and households will need adequate support in the coming months, especially those faced with loss of income.

Inadequate social assistance limits its ability to act as an automatic stabiliser. Prior to the crisis, social assistance programmes were small in scale, poorly targeted and only reduced the risk of poverty by 3.7% in 2016, half the reduction observed in the European Union. In response, the government mandated a Guaranteed Minimum Income (GMI) in 2019. However, this does not cover 75% of those likely to fall into poverty during the pandemic (World Bank, 2020[17]). Furthermore, the decline in remittance inflows may jeopardise the revenue of many households.

Health and non-material well-being

The pre-existing, comparatively poor health outcomes and inefficiencies of North Macedonia’s health system render the economy vulnerable to the current pandemic and potential new outbreaks. According to the Ministry of Health, the economy has around 1 000 hospital beds for COVID-19 cases and 4.3 beds per 1 000 inhabitants, which is a decent capacity to respond to the crisis by international comparison. The economy has 2.9 physicians per 1 000 inhabitants, slightly below the OECD average. The low healthcare spending of about 6.6% of GDP in 2017 (OECD, 2020[5]), compared to 12.6% in 2017 in OECD economies, is likely to affect North Macedonia’s capability to respond adequately to the crisis. Furthermore, health-sector revenues are very sensitive to employment and economic downturns, such as the predicted repercussions of COVID-19, since they heavily depend on payroll contributions from the population in formal employment.

Other, non-material aspects of well-being are affected by the crisis. Quality of life is also about people’s relationships, which can provide a vital lifeline during crises and social distancing. Yet, 18% of people in North Macedonia say they have no relatives or friends they can count on for help in times of need. Even before the COVID-19 pandemic, life satisfaction was much lower in North Macedonia than in the average OECD country. The considerable risks of social isolation and loneliness need to be addressed, for both physical and mental health, by policy measures (for instance, through regular check-ins by social services, civil society and volunteers) and the promotion of digital technologies for connecting people with each other and with public services (World Bank, 2018[18]).

Women and children are particularly exposed to the collateral effects of COVID-19. As in other economies, loss of employment and lockdown conditions in North Macedonia are likely to have led to increased GBV, while services and shelters for victims of violence are not operational after curfew (OECD, 2020[19]; Bami, 2020[20]). Even before the pandemic, prevailing gender norms that normalised violence against women were concerning. Some 14.5% of women in North Macedonia justified husbands hitting or beating their wives, compared to 8.0% in OECD economies (OECD, 2019[21]), while 61% of 850 women surveyed in 2005 stated that they had suffered domestic violence (World Bank, 2018[18]). Women are affected in other ways too. They make up the majority of the healthcare workforce, exposing them to greater risk of infection. At the same time, women are shouldering much of the burden at home given school closures and longstanding gender inequalities in unpaid work (see the People section in Chapter 14). The government has recently taken measures to relieve the burden. For example, on 8 April 2020, the government teamed up with local providers to expand mobile Internet access for distance learning purposes. This measure will affect 30 000 primary and secondary school students (OECD, 2020[5]).

References

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