Business sinks, insolvency grows – Macedonian economy has optimism over words, not actions

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“There have been, and will be political events. There are all kinds of affairs in many countries around the world, but economies have never behaved like this. If there is a stable tax policy, a functioning legal system, independent of politics, an efficient judiciary, there may be stagnation, but not such dire results”, says Gordana Dimitrieska Kocoska, Additional Deputy Minister of Finance


Gordana Dimitrieska – Kocoska is the Interim Deputy Minister of Finance on the proposal of VMRO-DPMNE. She says that it is an honor, but also a great responsibility for her, to influence the macroeconomic flows in such difficult times for the Republic of Macedonia.

In an interview with NetPress, Dimitrieska Kocoska explains the country’s financial condition, as well as the state of the economy, and answers questions about how economists, experts and businessmen rated last year as a bad year in terms of economy. She also talks about why the planned growth was not achieved, the announced foreign investments were not realized, why it failed with capital projects… Populist measures artificially raised the standard (growth of salaries and jobs in administration, higher pensions)… which should in itself be the result of positive economic trends.

* What is your assessment of last year’s economic situation?

– We had a disastrous economy with bad results. To begin with the latest World Bank data which in its global economic publication clearly stated that Macedonia in 2019 will grow by 3.1%, and this is below the average of 3.2% in the Western Balkan countries. The expected growth of 3.5% for this year will obviously not come true and this is the third year in a row that we have optimism only in words, but not in actions.

But what I find more worrying is the fact that business in Macedonia is sinking and insolvency is growing. There is a serious non-performance of the profit tax, of 24.5% compared to the plan and 21.7% compared to the year before. This is a clear signal that there is growing pressure on business, which is the sole driver of the economy.

The fall in private equity investment by 3.3% in 2018, which was considered to be the weakest economic year in recent history, is devastating. This confirms the thesis that businesses are living and trying to work in economically volatile conditions that do not see a bright future, distrust the government and decide not to invest in fixed assets, which are vital as they extend the lives of the companies, affect productivity growth, cost reduction and etc.

* What were the key mistakes that constrained development? Were political situations the main stumbling block?

– An unstable economic environment, inconsistent economy, passing laws without consulting the business community… In the end it is more than obvious that business has lost confidence in the government. On top of that, budget users have not implemented capital investments as planned, which signals to the economy that the government itself does not believe in progress. There have been, and will be political developments. There are all kinds of affairs in many countries around the world, but economies have never behaved like this. If there is a stable tax policy, a functioning legal system, independent of politics, an efficient judiciary, there may be stagnation, but not such dire results as in the case of business gains, investment decline and the like. In my opinion, the main obstacle is the fact that institutions do not work.

* The government forecasts growth of 3.8 percent this year. How realistic is it and what preconditions are necessary, reforms, the rule of law, crime and corruption…?

 

– Unfortunately, I trust the World Bank forecasts at the moment, and they are well below ours. Greater growth should be a result of the conditions in the economy created by the state, a positive business climate, an efficient state, the judiciary etc. We don’t have any of that right now.

* What should be prioritized this year?

– The starting point is to have a seriously high rate of realization of capital investments, as they are directly correlated with the amount of GDP. But priority must be given to investments with high added value. In economy, there is a thing called cost benefit analysis (how much you get for your investment) that must be made for each project. At the same time, it is logical that it is in the interest of the state to finance projects that will have less or no added value, but therefore there are various combinations of realization, in order to maximize the budget, with the lowest loan rates.

* Since the beginning of 2020 the progressive tax has been put on hold, and the flat tax has returned. How much progressive tax damage did the business have last year?

There is great damage. The analysis of personal income tax on wages and other personal income – salary income, showed that there is an increase of one billion denars. So the business was additionally burdened by that, because by law, the personal income tax is paid by the payer, the company. Instead of leaving money in the business and motivating it to invest, we take it. And to point out, salary is not a measure of who is richer and who is poorer.

* What effects can be expected from the income tax reductions for salaries higher than 90,000 denars from 15 to 10 percent?

– Reducing income tax can only produce positive results. I have already said, the more money left in business, the better the business climate in the country. The more the judiciary works, the better. In this context, the question is, does anyone know how to manage my money better than I do? Of course not. Let’s leave the money to the business and create working conditions for it. The business knows best how to use them.

* Macedonia is entering election year, and politics will be once again in the limelight. What is the position of the economy, considering that election years have had a negative effect so far, and the economy is almost nonexistent at the time of the election?

– The unfortunate circumstance for business is that we have an election year again, but the fortunate circumstance is that they are at the beginning of the year. After April 12th, with the arrival of VMRO-DPMNE led by Hristijan Mickoski, I expect a positive trend and far better results. We are ready to create a positive business climate, talk to the business community and listen to their problems.

* Will there be investment restraint and precaution for both domestic and foreign companies (new and existing)?

– Until the elections, I do not expect any positive trends in investments, job creation etc. Unfortunately, practice over the past 29 years has shown that there is a state-wide slowdown before elections. Things are set right now, so business depends too much on politics. Let me be clear, when there are unstable economic policies, everyone will be afraid for their future. As a state, we have not yet been taught that there are some interests that should be outside the political.

* What can full-fledged NATO membership really bring to the economy?

 

– Our people are known for one saying: “Every miracle lasts only three days”. I think that joining NATO will be just that. Investors are not guided solely by the fact that the country is a member. If a stable economy, an efficient judiciary, consistent tax laws and the like are not guaranteed, why would they invest? We must understand that businessmen in the West are thinking of fertilizing their capital and that is their only justification for investing. Everyone wants to make money. It is a fact that NATO will guarantee political stability that will help to revive the economy. But that’s just one segment.

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