SKOPJE, June 22 (BV) — North Macedonia’s economic growth model remains overly dependent on domestic consumption, public spending and borrowing, while weak productivity, labor shortages, institutional deficiencies and uncertainty over European Union membership continue to undermine the country’s long-term development prospects, economist and academic Abdylmenaf Bexheti said in an interview with BalkanView.
At a time when global markets are adjusting to the aftermath of the Middle East crisis and governments worldwide are grappling with geopolitical uncertainty, Bexheti argues that North Macedonia’s biggest challenges remain internal. Rising public debt, structural weaknesses in the economy, the departure of young people and the slow pace of reforms are creating pressures that could become increasingly difficult to reverse.
“The country cannot achieve sustainable economic growth based solely on consumption and borrowing,” Bexheti said. “Without stronger exports, higher productivity and credible institutions, economic convergence with the European Union will remain elusive.”
Global Economy Stabilizing, but Risks Remain
Commenting on the global economic outlook following the easing of tensions between the United States and Iran, Bexheti said the worst shocks caused by disruptions in the Middle East and around the Strait of Hormuz appear to be subsiding.
However, he warned that economic stabilization is usually slower than the spread of a crisis because markets often remain influenced by speculation and uncertainty long after political agreements are reached.
Under the assumption that peace remains durable, he expects global economic growth to remain within a range of 3.2% to 3.5%.
Europe, however, is likely to continue lagging behind the global average.
“The European Union will probably record growth of only around 1.2% to 1.3%, while the Western Balkans could grow by roughly 3.2%, despite challenges in several countries of the region,” he said.
For North Macedonia, achieving growth above 3.2% would constitute a positive outcome, according to Bexheti, particularly after domestic institutions revised their economic forecasts downward.
Fiscal Pressures Mounting
Bexheti expressed concern about the state of public finances, arguing that budgetary pressures are becoming increasingly difficult to manage.
He noted that by mid-June, almost the entire budget deficit planned for 2026 had already been utilized, according to official fiscal data.
Although part of the deficit reflects advance payments related to major infrastructure projects and the settlement of outstanding liabilities from previous years, he said the overall trajectory remains worrying.
Particular concern stems from the government’s own projections that public debt could rise above 61% of gross domestic product, exceeding the country’s self-imposed threshold.
According to Bexheti, the real fiscal burden may be even higher because several hundred million euros in overdue but unpaid obligations are not fully reflected in official debt calculations.
“Interest payments alone are expected to reach around 400 million euros this year,” he said. “That leaves very little room for fiscal consolidation or the creation of additional fiscal space.”
He warned that social expenditures, pensions, agricultural subsidies and VAT refunds will continue to place pressure on public finances over the coming years.
Growth Model Remains Unbalanced
Despite government efforts to stimulate growth through infrastructure investments, Bexheti believes North Macedonia has yet to develop a sustainable economic model.
He described the economy as heavily reliant on consumption-driven growth, while sectors capable of generating long-term competitiveness remain underdeveloped.
Energy production, manufacturing and agriculture continue to underperform, while services, trade and construction account for a growing share of economic activity.
Although these sectors contribute to growth, they cannot alone guarantee long-term economic resilience, he said.
At the same time, demographic trends threaten to weaken one of the main engines of domestic demand.
“Consumption itself may come under pressure in the future as remittances from the diaspora gradually decline,” Bexheti said.
Productivity remains another major weakness.
According to Bexheti, North Macedonia currently operates at only around 40% of the European Union’s average productivity level, highlighting the scale of the challenge facing policymakers.
EU Integration Becoming an Economic Issue
Bexheti argued that the debate over European integration should no longer be viewed solely through a political lens.
In his assessment, delays in the accession process are increasingly imposing direct economic costs on the country.
He described North Macedonia’s position as contradictory.
Political leaders regularly acknowledge that EU membership is essential for economic development, investor confidence and institutional modernization. Yet, at the same time, political discourse often suggests a willingness to accept prolonged delays in the process.
“That contradiction carries a price,” he said.
“If current attitudes and priorities remain unchanged, North Macedonia risks falling behind its regional peers and becoming one of the last countries in the Western Balkans to advance toward membership.”
Bexheti also warned that political instability could emerge as an additional risk if institutions continue to lose credibility and public trust.
Demographic Decline the Greatest Long-Term Threat
While debt, productivity and investment remain major concerns, Bexheti believes demographic decline represents the country’s most serious long-term challenge.
Years of emigration have already reshaped the labor market, leaving employers increasingly unable to find qualified workers.
The problem extends beyond economics, he said, affecting social cohesion, public services and future development prospects.
Successive governments have attempted to offset labor shortages by opening the market to foreign workers. However, Bexheti believes such measures can only provide temporary relief.
“Small countries with limited resources cannot build their future around imported labor,” he said.
Perhaps his starkest warning concerned the likelihood of emigrants returning.
“Younger generations are increasingly building their lives in Western Europe and other developed economies,” he said. “It is unrealistic to expect them to return solely because of patriotism or emotional attachment to their homeland.”
The longer the country remains outside the European mainstream, he added, the less likely it becomes that those who have left will return.
Institutions Are the Foundation of Competitiveness
Asked what reforms are needed most urgently, Bexheti argued that competitiveness cannot be improved through isolated policy measures.
Instead, he called for a comprehensive transformation centered on education, judicial reform and institutional strengthening.
Such reforms require political courage because their benefits often materialize only after many years, making them unattractive to politicians focused on short electoral cycles.
“Everything starts with institutions,” he said.
He pointed to the work of Nobel Prize-winning economists Daron Acemoglu, Simon Johnson and James Robinson, whose research linked institutional quality directly to economic prosperity.
According to Bexheti, countries that establish effective institutions create the conditions for investment, innovation and sustainable growth, while those that fail to do so remain trapped in cycles of underdevelopment.
Artificial Intelligence Should Be Seen as an Opportunity
Unlike many observers who focus on the disruptive effects of artificial intelligence, Bexheti views technological transformation primarily as an opportunity.
He acknowledged that some jobs will disappear as automation expands but argued that many new occupations will emerge in parallel.
Rather than resisting change, institutions and businesses should focus on adaptation.
He cited South East European University’s recently launched AI platform as an example of how organizations can use technology to improve efficiency and reduce costs.
“Digitalization has no alternative,” he said.
Artificial intelligence, he argued, can help eliminate bureaucratic inefficiencies, increase transparency and improve public service delivery.
Technology, Energy and Sustainability to Shape the Next Decade
Looking ahead, Bexheti identified technology, energy, food production, healthcare and environmental sustainability as the sectors most likely to drive economic growth in the coming decade.
He believes future prosperity will increasingly depend on countries’ ability to innovate, diversify energy sources and invest in human capital.
Europe remains a leader in promoting sustainable development, while China has made significant progress by combining rapid industrial expansion with investments in renewable energy and green technologies.
The lesson for North Macedonia, he said, is clear.
Economic success in the future will depend less on consumption and more on innovation, productivity and institutional quality.
“The next decade will not belong to those who consume the most,” Bexheti said. “It will belong to those who innovate the most.”