The economy in 2019

Nikola Popovski

The government has basically already created its economic policy for the entire past year of its rule, and that is 2019. In 2020, around late autumn, if they are held in the regular term, we should have out next parliamentary election, but due to the procedures of the election process, the government will have the opportunity to create and implement its economic policy only until the summer of the same year. It is basically not enough time. Hence, the next 2019 will be a crucial year in which the Government will have to demonstrate its full vision of both the economic and the development policies. But not to only communicate it as a concept, but also show the ability to carry it out as planned.
The contours of its economic policy may still be insufficiently clear and precise, but they are already sufficiently recognizable and they are basically drawn into the proposed budget for the next year. In several lines, they can be profiled as follows. Firstly, the government, as well as all the governments before it, will continue to maintain the macroeconomic stability of the country and in cooperation with the Central bank to maintain a low level of inflation of around 2% in conditions of fixed and unchanged exchange rate of the denar against the euro. It is understood by everyone in the country as already determined determinant since the distant 1994, but it is not bad to know that it will remain so.
Secondly, the focus of economic policy is slowly shifting from economic growth at all costs to ensuring growth in conditions of more equitable distribution of income in the economy with measures for further relative and absolute reduction of poverty with a pronounced focus on securing and financing the instruments for provision of social funds (especially the pension and health fund for which only about 1.1 billion MKD will be provided in the budgets in 2019) and classic budget social protection of various social and other groups of citizens or communities. The latter in 2019, for example, increased to 12.9 billion denars, and compared to 2017 it is a growth of relatively high 3.3 billion denars. Health care costs increased by 3.2 billion MKD in the same period. In this group of measures of economic policy should include those for the increased minimum wage in 2018 and the increase of public sector wages by 5% in 2019, due to which the budget expenditures for the next year are projected with growth of 1, 6 billion, or a total of 28.4 billion. Considering that the increase in public sector wages is planned to begin in the last quarter of 2019, ie starting with the payment of the September salary in 2019, it is clear that the effects on the budget will be at the 12-month level only in 2020 and with that wage costs in that year will be even greater, that is, in the full amount. In this direction, more equitable distribution of income in the economy is provided with other appropriate measures such as the return of progressive taxation of personal income and the like.
Thirdly, the orientation towards direct state, that is, non-market support for the economic activities of many economic entities and entire economic activities remains in place. The government expects the growth of the economy to be fundamentally provided by such measures. In addition to the sustained and increased abundant support for agriculture as a whole, which in 2019 reached a record 11.1 billion (around 180 million euros), ie over 1.6 percent of GDP, will also include large public investments in infrastructure that continue or start and directly engage in construction in the country, and of course the newly adopted legal solutions that will support the growth of employment, exports and production in various activities and companies, with direct state aid, especially those from the industrial sector. The quite controversial measures to support innovations in the economy should be added to this, as well as the active employment policies and measures planned at the level of 1.1 billion MKD, aimed at programs, measures and services for employment and support in creating new jobs and employment of young people.
Fourth, insignificant but apparent defocusing from economic growth brought the government in a state after two very bad years in relation to the growth rate (0.2 percent in 2017 and possibly about 2 percent in 2018) to be forced in 2019 to project a relatively modest rate of real economic growth of 3.2 percent in conditions of strengthened interventionist measures of the state. This exercise, unfortunately, will have to be considered a certain failure. Even the expectations for greater employment and further reduction of unemployment, which would be the result of economic growth, would be dampened by the focus on raising the minimum and average salaries of already employed people, both in the public and private sectors. Given that political and economic conditions in the country will undoubtedly continue to generate unabated pace of outbursts abroad, the government hopes that these processes will displace the bits of the eternal problem of high unemployment, especially among young people, and will relativize the problem. Who would know?
Fifth, the reforms on the revenue side of the budget, especially the structure of tax revenues, are in good direction. An indicator of this, for instance, is the fact that the share of VAT revenues in total tax revenues is decreasing (from 45.7 percent in 2017, 43.1 percent in 2018 to 42.8 percent in 2019). It should continue and support. But the policy of further growth of public debt should undoubtedly be reformulated immediately. The level of 50% of GDP should not be exceeded.
Sixth, the institutional support of the economy does not seem to increase. Some major and significant reforms of the important institutions are not visible on the horizon, and many important institutions for regulating the economic life in certain segments remain profoundly occupied by persons that are not interested in success from the previous regime who, despite many processes, still appears to be “in power”. Probably at the head of the ineffective and mature for serious reform institutions is the Parliament of Macedonia. Too large number of MPs with relatively low capacity and with too many opportunities for everyday obstructions accompanied by inefficiency in the work does not make the Parliament an efficient and decent institution. Some ministries and their organs are also well below their level of preparedness to function in the desired direction. A current escape from the country has shown the many serious weaknesses of a number of ministries and other institutions. Furthermore, as has recently been publicly stated by professional circles – even in the country, we have formed and have too many institutions that have a vague mandate and are with vague competences that intertwine with the competencies of other such institutions. An example of this is the popularly called Anti-Corruption Commission and many other such commissions, institutions and bodies. Judicial organs in the broadest sense are, of course, a great institutional problem notorious for many inside and outside the country.
Finally, neither conceptual disagreement about many measures of economic policy within the government is involved. In order for the management of the process to be managed smoothly, there needs to be a high degree of alignment of policy makers, and it does not seem to exist now.

(The column is part of the AGTIS project, titled “Children’s Diseases of Democracy”, financially supported by the NED)