Today the Republic of Macedonia is considered a country with an intermediary-developed industry, with continuing growth of the industrial production. The process of transition in the economy was triggered in 1995. The government has signed arrangements with the IMF (International Monetary Fund) and World Bank. It has an open economy that is integrating into international trade, with a total trade-to-GDP ratio of 79.5%. The most important sectors are agriculture and industry. The service sector also grew in the past few years. The work force has competitive education and skills, but lacks adequate jobs, leading to steady brain drain. The country’s economic policy is to attract foreign investments and to increase employment. One of the biggest features of the country’s economy is the fiscal discipline which maintained a stable currency for a long period. The country also makes efforts to develop the Small and Medium-Sized Enterprise sector.

Looking back, the country together with Montenegro, Bosnia and Hercegovina and Kosovo belonged to the less developed regions in the former Yugoslavia. It suffered severe economic difficulties after independence, when the Yugoslav internal market collapsed and subsidies from Belgrade ended. In addition, it faced many of the same problems faced by other former socialist East European countries during the transition to a market economy. Its main land and rail exports route, through Serbia, remains unreliable with high transit costs, thereby affecting the export of its formerly highly profitable, early vegetables market to Germany.

The outbreak of the Yugoslav wars and the imposition of sanctions on Serbia and Montenegro caused great damage to the Republic’s economy, with Serbia constituting 60% of its markets prior to the disintegration of Yugoslavia. When Greece imposed a trade embargo on the Republic in 1994–95, the economy was also affected. Some relief was afforded by the end of the Bosnian war in November 1995 and the lifting of the Greek embargo, but the Kosovo War of 1999 and the 2001 Albanian crisis caused further destabilization. Since the end of the Greek embargo, Greece has become the most important business partner of the Republic of Macedonia. Many Greek companies have bought former state companies in the country, such as the oil refinery Okta, the baking company Zhito Luks, a marble mine in Prilep, textile facilities in Bitola etc. Other key partners are Germany, Italy and Slovenia.

The Macedonian economy has since made a sluggish recovery, though the extent of unemployment, the grey market, corruption and a relatively ineffective legal system keep the growth rate low and cause significant problems. The Republic still has one of the lowest per capita GDPs in Europe. The official unemployment rate is 36%. The active population numbers about 900,000 people with about 320,000 of them unemployed. However, many of the employed go unreported. This is reflected in the large grey market, estimated at close to 20% of GDP.

Growth barely recovered in 2002 to 0.9%, then 3.4%, 2.9%, 3.7% and 3.2% in the following years. The current government has announced plans to introduce flat tax system with the intention to make the country more attractive location for prospective foreign investors. The flat tax rate will amount to 12% in 2007 and will be further lowered to 10% in 2008.