North Macedonia’s new Finance Minister Gordana Dimitrieska-Kocoska said that the recent budget revision was necessary due to the budget being in a dire situation, surpassing even the most pessimistic expectations.

Initially, the state budget revision was planned for September, but the government of PM Hristijan Mickoski, which came to power in June after right-wing VMRO-DPMNE defeated the Social Democrats, decided to revise the budget much earlier.

"We found a situation that means a country in chaos and debt. A budget that is a wish list, instead of a planned development. Oversized payments. Economics in clinical death," Dimitrieska-Kocoska said at a news conference on July 17, after the government adopted the budget revision.

According to her, the preparation of the budget revision began with several key assumptions: redistributing funds within the existing budget from poorly implemented items, planning funds for legally mandated but unanticipated needs, and addressing overdue obligations to citizens and businesses.

"The goal of this rebalancing is for the new government to improve the condition of a huge number of citizens and the business community, including farmers, youth, adults, and athletes," Dimitrieska-Kocoska added.

"The budget revision ensures funds for due obligations, which were not planned in the 2024 budget.”

Revenues and spending increased

With the revision, total budget revenues are planned at MKD318.2bn (€5.2bn), an increase of MKD8.22bn or 2.6%. This rise is attributed to higher realisation of contributions, driven by salary increases in some public institutions and expected salary growth in the private sector. Tax revenues from own accounts are also expected to increase.

On the expenditure side, the budget is set at MKD362.8bn, marking an increase of MKD19.2bn or 5.6%, resulting in a budget deficit of MKD44.7bn or 4.9% of GDP.

"The deviation from the fiscal rule in the budget deficit is primarily due to the need to provide necessary funds for the smooth functioning of institutions and servicing obligations," Dimitrieska-Kocoska explained.

 Around MKD20bn were redistributed from various items, such as goods and services, to all users, from capital investments. An additional MKD11bn were allocated to cover overdue and legally mandated but unplanned obligations.

The revision ensures MKD4.1bn for salaries, MKD5bn for pensions, as well as MKD5.1bn for servicing credit obligations to international financial institutions on behalf of state and public enterprises. An additional MKD822mn have been provided for interest due to rising rates linked to Euribor.

"The greatest fiscal risk is the payment of obligations following the issued guarantees for loans taken by state and public enterprises, as well as the interest," the minister warned.

Dimitrieska-Kocoska criticised certain institutions for holding nearly MKD14bn in their accounts. She stressed that these funds should be used for public purposes to reduce the budget burden.

The GDP growth projection was downsized to 2.1% from 3.4%. Inflation is predicted at the level of 3.5%, while the growth of the net salary is predicted at 13%.

Despite the challenges, the minister expressed hope that the 2025 budget would bring new hope, better planning, and successful project implementation that would benefit the entire economy and the populace.

The finance minister said earlier in July that the ministry will pursue a fiscal policy aimed at restoring macroeconomic stability and supporting economic activity through gradual fiscal consolidation, improved management of public finances, and maintaining high levels of capital expenditures.

Dimitrieska-Kocoska expects that good coordination between monetary and fiscal policy, along with maintaining a moderate budget deficit and exchange rate stability, will contribute to reducing inflation. Inflation is projected to be between 2% and 2.5% annually from 2025 to 2028.

Political issue

Meanwhile, a former official from the now opposition Social Democratic Union of Macedonia (SDSM) indicated VMRO-DPMNE’s claim the party left the national budget in a catastrophic state might be politically motivated.

Addressing claims that €500mn were missing from the budget, ex- director of the Tax Directorate from the SDSM, Sanja Lukarevska firmly denied any wrongdoings.

"Not a denar is missing. The accusations by VMRO-DPMNE are purely for political gain. It is not true that there is no money or that its whereabouts are unknown,” she noted

She said that VMRO-DPMNE wants to create a perception of chaos under SDSM's governance and to convince citizens that there are no funds available for them. Additionally, it serves as an alibi for securing a loan from Hungary, which could lead to a financial collapse, she added.

On the other hand, the opposition SDSM has criticised VMRO-DPMNE's budget rebalancing efforts, describing them as unrealistic and likely to increase the country's dependency on loans. "With a deficit of 4.9% and public debt nearing 70%, VMRO-DPMNE's financial policies are leading the state into deeper fiscal trouble," SDSM representatives stated.