WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

by Branimir Jovanovic

Holding elections during a pandemic is never a good idea. Especially not if the country is going through the peak of the pandemic, like North Macedonia currently.

Still, the decision to hold the parliamentary elections on July 15 did not seem unjustified - the country had non-functional institutions for some time, as the Parliament was dismissed in February, before the onset of the pandemic, and the country was run by a technical government, that featured also the opposition. This was all preventing efficient and coordinated governance, undermining efforts to contain the pandemic.

Well organized elections with challenging outcomes

The elections were organized relatively well, with no major problems and safety issues. The turn-out was also rather good - 52%, higher than in Croatia (46%) and Serbia (49%), which also held parliamentary elections in the past month.  

The problems arrived when the time for publishing the results came. The website of the State Election Commission, which was supposed to publish the vote count in real time, experienced a cyber-attack, which prevented following the results for some time. When the Commission found a way to publish the vote count, it showed some strange results in some places. Many parties complained, some even claiming that their votes have been stolen. This undermined trust in the whole process and created uncertainty about parties’ responses to the results. First preliminary results were published a full day after the vote, and parties filed a record number of objections.

Final results have not been published yet, full week after the elections, but preliminary results indicate that a period of uncertainty is looming ahead. It is clear that the ruling Social-Democratic SDSM have won most seats (46 out of 120), but it is unclear if they will be able to negotiate a government. To do so, they would have to find at least 15 more MPs. The most obvious option is to coalesce with ethnic-Albanian DUI, who won 15 seats, and is their current partner in the government. Despite this, the relations between the two parties worsened during the election campaign, as SDSM was attacking DUI all the time, while DUI ran a campaign based on the demand of having an ethnic-Albanian Prime Minister, which SDSM has publicly dismissed.  

The right-wing VMRO-DPMNE, who won the second largest number of seats (44), could also form a government, but they would have to coalesce with DUI and the new party Levica, who won 2 seats. This seems very unlikely, as Levica had many anti-Albanian statements during the campaign.

Thus, it seems that a lengthy process of inconvenient negotiations is to follow, especially after the president of the winning SDSM stated that his party is now taking a two-weeks holiday. Even if negotiations result in a coalition, it might be based on a thin majority, leading to an unstable government and new elections soon. Snap elections, by the end of the year, are also possible, if no party manages to negotiate a coalition.

Technical government will continue for some time

Whatever the outcome of the negotiations, the current technical government will continue for some time, which poses some serious challenges.

The country is currently going through a second peak of Covid-19, higher even than the first one in April. That initial wave was handled relatively successfully, and the number of new daily cases fell to single digits at the beginning of May. But then the government rushed with the re-opening, and the number of cases started growing again. Elections played a major role in this, as the government tried to project an image of normality ahead of the elections, and removed nearly all restrictions. Something similar happened in Serbia several weeks ago.

Without restrictions, the number of new cases has plateaued for a whole month at a level much higher than the peak in April, and seems unlikely to decline on its own. But restrictions seem highly unlikely with the current post-election technical government, which lacks political legitimacy. Containment of the virus is thus unlikely to occur soon, and without that, economic activity is unlikely to revive, as people and companies will remain cautious about their spending and investment.

The technical government is posing challenges for several other reasons. The government is run by a technical Prime Minister, who is not president of the ruling party, which raises issues of political leadership. The technical government also features a Minister of Interior from the biggest opposition party, who has undermined the work of the government several times, once even stating that he does not want the police to fine people who do not abide Covid-19 measures. The government has also experienced some poor coordination between different economic ministers in the government, who come from different coalition partners and have different positions on certain questions.

Economic perspectives remain uncertain

The good handling of the initial phase of the health crisis produced a rather optimistic view for the economic outcomes, at least until some time ago. IMF in April projected that GDP will decline by 4%, which is one of the smallest contractions in whole Europe.

Early economic data, however, question this optimistic view and warn that the decline might be much more serious. Industrial production in April and May declined by around 30% on annual basis, which is worse than the EU decline of 24%. Similarly, retail trade in April and May declined by 19%, while the decline in the EU was 11%.

Preliminary results for unemployment and wages are not that bad, though. Agency for Employment data suggest that the number of new unemployed in March, April and May is around 14.000, which is less than 2% of the total number of employed persons in the country. Data from the State Statistical Office show that wages have declined by 5% in April, compared to February, which does not seem drastic.

The relatively good performance of the labour market is mainly due to the anti-crisis measures that the government undertook, such as the wage subsidies for companies that keep workers. But these measures have expired already (in June), and if economic activity does not improve soon and there are no additional measures, labour market is likely to worsen.

Public finances seem stable at the moment, after the government borrowed heavily abroad, issuing a Eurobond and taking loans from the IMF, the World Bank and the European Commission, in a total amount of around 10% of GDP. But if the subdued economic activity prolongs, government revenues will remain weak, and the country might need to take additional fiscal actions by the end of the year.

The country also needs a stable and efficient government, to start preparing a plan for recovering the economy after the Covid-19 crisis. Such a plan needs several months to prepare, and several years to implement.  

For all these reasons, North Macedonia needs a new, stable, efficient, committed and well-prepared government, and needs it soon. Without it, the economic costs of the political uncertainty will prove very costly.