Dear Mr. Paolucci, distinguished speakers,

Ladies and gentlemen, 

It is both a privilege and a pleasure to welcome you to this workshop on the modernization of the Macedonian payment system by its alignment with the EU acquis and Single Euro Payments Area (SEPA) participation criteria. This event marks a significant milestone in our ongoing journey towards integrating our economy with that of the European Union, and I am delighted to see so many key stakeholders gathered here today to contribute to this vital discourse.

Income convergence remains one of the key priorities for the WB region, including the Macedonian economy, as the average income in the region accounts for only about 40% of the EU income. What is even more worrisome is that in the period following the GFC, the speed of convergence has not accelerated, but rather decelerated, reflecting slowdown in all key structural segments such as human capital, physical capital and productivity, which is only about 50% of the EU productivity.

It is well established that sound and stable financial system is one of the key ingredients for lifting the growth potential and speeding up convergence. Our financial system has undergone significant transformation and increased its capacity to serve the households and companies, as visible through the continuous increase in the financial intermediation that reached 89% of GDP. Importantly, the increase in intermediation was coupled with strengthened banking system balance sheet, as evidenced by its capital position, which is the strongest in the last two decades (19% capital adequacy ratio as of June 2024).

Still, despite this progress, many challenges lay ahead. For example, the IMF financial development index, which measures the level of financial intermediation and its sophistication, points out that the gaps to the EU remain wide (a level that is broadly half of the EU), underling a need for further reforms and innovations, including in the area of payments.

Payment system modernization is not just about upgrading technology, it is a fundamental transformation that will tackle every aspect of our economy. Our journey towards the European financial ecosystem has been closely tied to the Berlin Process that serves as a vital platform for fostering regional cooperation among the Western Balkans Six and enhancing ties with the European economy.

Preparation for the SEPA accession has been one of the highlights of this process. Our committed work to diligently address all European Commission’s recommendations and regulatory gaps, culminated in the submission of our full application on 10 July 2024. If positively assessed and SEPA membership is allowed, this will mark a historic step. For the first time we will have an access to the EU payments systems and infrastructure, which can bring a number of benefits for the economy at large. 

Our economic ties with SEPA members are already strong, and they continue to grow. In 2023, over two-thirds of our foreign trade was conducted with SEPA countries, equivalent to 101% of our GDP. Additionally, 87% of our total outflow payments and 77% of the total inflow payments were made in euros. By joining SEPA, our domestic banks will be able to directly participate in the European payment systems, avoiding the complex correspondent banking arrangements, which should lead to significantly lower costs for payment transactions. According to a World Bank study, the Western Balkan citizens currently pay on average 6 times higher cross border payment fees than the EU citizens. Moreover, the cross border payments will be faster - within one day, or if instant payment systems are used - within seconds, while currently it can take a couple of days.

Cheaper, faster and more efficient payment system can be conducive to higher competitiveness of our corporate sector and its further integration with EU, especially of the micro, small and medium-sized enterprises, which are the backbone of our economy, employing around 75% of all employees and creating around 70% of the value added.  Some estimates for the WB region indicate that benefits can be visible also through a decline of grey economy by 2 p.p. Households tend to benefit as well given that about ¼ of the disposable income comes through remittances. According to a World Bank estimate, this process can result in a savings of about Euro 500 million for the Western Balkan region. Overall, SEPA accession can further stimulate digitalization, development and EU alignment of our financial system, which plays an important role in accelerating growth dynamics and speeding up income convergence process.

As we begin this workshop, I encourage all of you to engage fully in the discussions, to share your insights, and to collaborate towards our shared goal of a modern, efficient, and inclusive payment system. The work we do here today will have a lasting impact on the future of our economy and on the lives of our people. The decisions we make and the strategies we develop will shape the financial landscape of our country for years to come.

In conclusion, allow me to express my sincere gratitude to all of you for your dedication to this important cause, and in particular to the World Bank team for supporting us in this historical transformation of the payment infrastructure of the country. Your expertise and commitment are invaluable as we navigate the complexities of this transformation. I am confident that the discussions and collaborations over the next two days will be both fruitful and insightful, setting the stage for a brighter and more connected future of our country with the EU.

Thank you for your attention! I look forward to the productive exchanges ahead.