Page 68 - Central & Southeast Outlook 2020

financed by international financial institutions (IFIs).
In 2020 higher public wages, remittances and consumer lending are expected to support higher consumption. Private investment is expected to increase, driven by favourable lending conditions and by foreign direct investment (FDI) in energy and real estate.
The new law on public sector salaries, if not regulated through prudent secondary legislation, could result in higher deficits, a breach of the fiscal rule on public wage growth, and a deterioration in the composition of public spending. Public employment should be contained through 2020 as it could result in further increases in compensation of public employees, the World Bank said. Because the law on public wages came into force only at the end of 2019, the full impact will not be felt until 2020. Higher public sector wages can also put pressure on private sector wages, which could undermine the competitiveness of Kosovar exporters. Additional fiscal risks might arise from higher untargeted social protection spending, unproductive capital spending and potentially lower performance of publicly owned enterprises.
To counterbalance the risks, Kosovo should improve the quality of fiscal spending and stability, the World Bank has recommended.
3.6 ​Budget - North Macedonia
North Macedonia plans a ​budget deficit of 2.3% of ​GDP in 2020​or​a total of MKD17.38bn (€282.6mn). The gap will be lower than that of 2019, which will come in at about 2.5% of ​GDP.​​The moderate deficit reduction will directly affect the stabilisation of government and public debt in the medium-term.
Revenues in 2020 are seen at MKD222.3bn, 5.6% more than 2018, an expectation based on the moderate relaxation of the tax policy with adjustments of individual tax rates. Budget costs​are projected at MKD239.7bn, up 5% from 2019.
The increase of wages is projected at 6.3% in 2020. The jobless rate is expected to fall below 16%. T​he 2020 budget will be focused on human capital.
European Commission expects North Macedonia’s f​iscal balance to improve gradually, as the positive net effect from recent policy measures (the pensions deficit, social assistance reform in force since June 2019) is set to increase. However, subsidies for investment and employment are expected to be stepped up in 2020-2021. Risks to fiscal projections arise from possible increases in pensions (the government announced an increase beyond the agreed CPI-only indexation for 2020), and public sector wages.
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