North Macedonia's 'BB+' rating affirmed by Fitch with stable outlook

Fitch Ratings affirmed North Macedonia’s Long-Term Foreign-Currency Issuer Default Rating at ’BB+’ with a Stable Outlook, citing consistent macroeconomic policies and EU accession commitment, despite a small economy, high unemployment, and weak productivity. The country faces ongoing fiscal pressures, with Fitch projecting a 2025 deficit of 4.5% of GDP and government debt rising to 57% by 2030, necessitating a €700 million Eurobond rollover in 2026. While EU accession remains stalled, the banking sector is stable, and Fitch forecasts moderate GDP growth of 3.2% for 2025, with inflation expected to moderate significantly by 2027.

Analysis

Fitch Ratings' affirmation of North Macedonia's 'BB+' rating with a Stable Outlook reflects a balance between credible macroeconomic policy and significant structural constraints. The rating is anchored by the de facto euro exchange rate peg and the country's EU accession ambitions, which provide a framework for reform. However, these strengths are offset by considerable fiscal pressures, highlighted by the second delay of the Organic Budget Law to 2027. Fitch projects a 2025 fiscal deficit of 4.5% of GDP, exceeding both the government's 4% target and the 'BB' median of 3%, driven by high current expenditures on wages and pensions. Consequently, government debt is forecast to rise from 54.1% of GDP in 2025 to a stable level around 57% by 2030, necessitating a €700 million Eurobond rollover in 2026. On the macroeconomic front, real GDP growth remains resilient at a projected 3.2% for 2025, supported by strong investment (11.7% YoY) and consumption (2.6% YoY). Inflation, although elevated at 4.7% in H1 2025, is expected to moderate to 2.2% by 2027. The stable banking sector, with a 19% Tier 1 capital ratio and a low 2.4% NPL ratio, provides a key buffer, though long-term growth prospects remain dependent on resolving the EU accession stalemate with Bulgaria.

Key Decisions for Investors

• Investors should monitor North Macedonia's fiscal discipline, as the projected 4.5% deficit for 2025 and rising debt trajectory to 57% of GDP by 2030 signal persistent fiscal slippage and represent the primary risk to the country's credit profile.
• The planned €700 million Eurobond rollover in June 2026 is a key event to watch; its pricing and demand will serve as a critical indicator of market access and investor confidence in the country's sovereign debt.
• While the stable 'BB+' rating suggests limited near-term downside, upside is capped by stalled EU accession and structural weaknesses, positioning existing bondholders to hold but warranting caution for new investors until there is clear progress on fiscal consolidation.
• Monitor developments in the political dispute with Bulgaria, as a resolution is the most significant potential catalyst for unlocking EU-related funding and driving long-term positive re-rating, while continued stalemate will remain a persistent drag on investor sentiment.