The collection is maintained and updated by the UK-based Center for Microsimulation and Policy Analysis.
MK-MOD is part of such models on the European ground, from which integrates all 27 EU member states. Thus, North Macedonia is one of the 34 European countries that have developed a micro-simulation model and the only one among the countries of the Western Balkans.
The objective of the project is to conduct a comprehensive data analysis and write up the underlying report on Balkan Barometer 2021.
Donor: Regional Cooperation Council
Partner: ACIT – Albania
Duration: February – March 2021
As early as December 2020, Finance Think stressed the need to design measures that would represent a transition from a phase of amortization of losses to a phase of supporting economic recovery (see Policy Study 33 of December 29, 2020). The prolongation of the Covid-19 crisis complicates the transition to economic recovery.
The fifth package of measures related to the Covid-19 crisis is a combination of measures that amortize losses (measures of a social nature) and stimulate economic recovery (measures of a development nature). While the very announcement of the fifth package of measures can create a positive sentiment in the economy, proper implementation is crucial for the effectiveness of the measures (see Brief 44), which is why we appealed in early January 2021 that the hasty adoption of the next package of measures without the capacity to implement previous and new measures carries the risk of incomplete results.
In that sense, the longer period of devising of the package to match the current stage of the economy, the consultations and the reduction of the scope (in terms of the financial framework) of the package of real circumstances, compared to the previous four packages, are welcome steps.
Finance Think provides the following opinions on the individual sets of measures under the fifth package:
- Subsidizing salaries “14,500 MKD per employee” and interest-free loans aimed at the most affected. Due to the prolongation of the Covid-19 crisis, the liquidity of companies is still endangered, endangering a large number of jobs. Finance Think pointed out that it is too early to abolish the wage subsidy measure due to its importance in saving jobs (see Brief 41) and welcomes the Government’s decision to extend the measure for the months of February and March 2021. According to our calculations from January 14, 2021, the scope of the measure will be around 68,000 workers, with a monthly cost of EUR 16.7 million, or EUR 33.3 million for the two months, which is in line with the Government’s projections. Assuming that the vaccination process will progress significantly by June 2021, Finance Think points out that the assistance through the measure “MKD 14,500 per worker” for these two months should be considered last.
Finance Think also considers the exclusivity between the measures “MKD 14,500 per employee” and “interest-free loans to the most affected sectors” to be appropriate. However, we point out that the two measures are not necessarily completely interchangeable. Interest-free loans refer more to the recovery phase, a phase in which a significant part of the companies in tourism and catering and some of the companies in some manufacturing branches (which trade with countries that are still in a significant lockdown) have not yet arrived. Interest-free loans would provide an impetus to advancing the technological level, especially among exporters in manufacturing (see Brief 47). In addition, interest-free loans as a substitute for wage support can be offered only with extremely strict control over the spending for the employers to maintain jobs, for which the state will have to spend plentiful resources (intensive engagement of the Public Revenue Office and the State Labor Inspectorate), yet without guarantee of the final effect.
- Abolition and reduction of tariff rates and revision of the Customs Tariffs List. Finance Think welcomes this measure which is in line with our recommendations from Policy Study 33. The abolition and reduction of customs tariffs and the harmonization of customs tariffs with the EU would increase investment, production and competitiveness of exporters in North Macedonia. Additionally, they would make the country a more attractive destination for new production lines from the parent companies of the exporters present in North Macedonia. This measure could in the future be supplemented by the abolition or reduction of import duties for the purchase of machinery and equipment, which would further increase the investment and competitiveness of companies (see Brief 47).
- Fund for support of exporting companies, grants for technological development through FITD, credit guarantees for small and medium-sized companies and digitalization measures. These measures are extremely important, as they contain a development component. Although exporters have significantly amortized their income losses due to shocks in foreign trade, they still face restrictions (see Brief 45). The Export Companies Support Fund should take these restrictions into account when channeling support. For example, credit guarantees will allow to overcome restrictions in access to finance. Technological development grants would be complementary to interest-free long-term loans to stimulate companies’ technological advancement. Digitization measures should take advantage of the pandemic pressure on companies to implement long-term solutions to enable “work from home”, online sales, etc.
- Debt forgiveness. Finance Think points to the need for a great care when designing this type of measures. While debt forgiveness can be essential in amortizing losses and aid liquidity burden during a pandemic, these measures are subject to a moral hazard. Such measures may change the behavior of aid recipients in relation to their dependence on them and their future riskier behavior in the expectation that they will receive such assistance again.
- Support for tobacco growers and grape exporters. Finance Think considers that partial support of farmers creates false expectations for constant compensation of dissatisfaction with market conditions in certain groups of products, which in turn is necessarily closely and directly related to the Covid-19 crisis. Instead, the fact that the agricultural sector was one of the most affected by the crisis should be approached by adjusting the current measures to include farmers, especially the measure “MKD 14,500 per worker”, as well as credit guarantees, the Export Fund and possible instituting of one-time grants for small agricultural holdings. These recommendations can be seen in our Brief 46.
In an analysis of foreign investment and exports by the world-renowned Global Finance Magazine, our Blagica Petreski talks about Finance Think’s projections and the results of our recent study on export-oriented companies during Covid-19.
The scientific paper of our Blagica Petreski and Despina Tumanoska, as well the Advisory Board member Jorge Davalos, which was recently accepted in the international peer-reviewed journal Eastern European Economics (IF = .854) got volume and issue 59(1), p. 25-50.