24 Apr 2018

Fiscal Rules and Fiscal Councils

Lessons Learned and Applications for Macedonia

Marjan Nikolov

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In 2008, unlike Croatia and Albania, Macedonia was not invited to become a NATO member owing to its name dispute with Greece – a dispute that also complicates its accession to the EU. The disappointment felt in Macedonia at this rejection was immense: the government’s rhetoric became more nationalistic and populist. The government moved towards debt-driven growth policies and growing deficit spending. The new policies were accompanied by lack of fiscal transparency and an increased appetite for clientelistic forms of governance. The rule of law, fiscal transparency, accountability and controlling corruption all eroded dramatically, leading to an increased level of state capture by the incumbent political party and to unsustainable public finances. In 2016, Freedom House reported that Macedonia was only a partially free country. Macedonia’s political elites have since proposed fiscal rules and a fiscal council to facilitate more sustainable public finances.

This study finds that the creation of an independent national fiscal institution could enhance fiscal transparency and contribute to improve sustainability of public finances as long as it is well-designed, it builds on political consensus and its operations enjoy the support of citizens. A fiscal council must have an explicit statutory role to monitor fiscal policy, which should be based on explicit fiscal rules. In order to be able to exert positive pressure on policy makers towards more transparency and sound policies, it must also have access to relevant information and visibility in public debate. These are the necessary factors for a credible fiscal council in Macedonia.

This publication has been carried out within the framework of the ENGAGE Fellowship Programme. The Fellowship Programme counts with the support of the Open Society Initiative for Europe (OSIFE). It is a tailor-made Programme that connects academic, civil society and think tank actors from Central and Eastern European and Western Balkans countries with EU-level policy debates. It consists of a one-year programme providing a set of trainings, study visits, public events and a policy brief writing exercise. The ENGAGE Fellowship takes a Rule of Law approach to the policy domains of Rights, Security and Economics.

 Marjan Nikolov is President of the Center for Economic Analyses (CEA), a think tank based in Skopje and a Fellow in the CEPS Engage research programme.