Fitch confirms North Macedonia's rating at BB+ with a stable outlook

Credit agency Fitch confirmed North Macedonia's long‑term rating at BB+ with a stable outlook, citing favorable governance indicators, higher GDP per capita relative to similar economies and consistent monetary policy that maintains the de facto peg of the denar to the euro.

Fiscal risks and constraints

As support for the rating, the agency cites commitment to reforms related to the European Union accession process, but main constraining factors remain the small size of the economy, high public debt and the current account deficit.

According to Fitch's estimates, the budget deficit will reach 4.0% of GDP in 2026 and gradually decline to 3.6% by 2028. The government revised the 2026 deficit target from 3.5% to 4.1% due to higher public‑sector wage spending, agricultural subsidies and capital investment. Capital expenditures in the January–July period rose by 40% year on year, mainly due to construction of highway corridors 8 and 10d.

Full implementation of the Budget Law has been postponed for the third time, this time to 2028, due to high current and capital needs and insufficient progress in technical preparations. The law envisages a budget deficit limit of 3% and public debt up to 60% of GDP.

Public debt at end‑2025 stood at 51.6% of GDP, and projections indicate it will stabilize at an average of 52.7% in 2026–2028. Most borrowing will be carried out abroad via eurobonds and syndicated loans. About 62% of the debt is in foreign currency, mostly in euros, while 76% is at fixed interest rates.

An additional fiscal risk is state guarantees, which in the first half of the year amounted to 6.8% of GDP; the largest share of these, 4.1% of GDP, relates to the Public Enterprise for State Roads. Following legal changes in June, the enterprise is expected to finance corridor construction on its own and will therefore be heavily dependent on new loans backed by state guarantees. Arrears of state‑owned enterprises amount to 3.8% of GDP.

Economic growth for 2026 is projected at 3.2% after accelerating to 4.3% in the second quarter, supported by construction and industry. The main drivers of growth are public investment and private consumption, while net exports are a drag due to weak demand in the EU. Inflation averaged 3.7% in January–August due to higher energy prices triggered by the war in the Middle East; Fitch expects average inflation of 4% in 2026–2028, also driven by wage growth and credit activity.

The current account deficit for the full year is expected to reach 5.5% of GDP due to expensive imports of energy and investment goods. External borrowing will keep foreign exchange reserves at a level sufficient to cover 3.9 months of imports, and liquidity will also be supported by a €50 billion repo line from the European Central Bank starting in October.

Photo: press material from the event