One of the three priority areas that FYR Macedonia needs to focus on, is to sustain reforms in the public enterprise, financial, and public sectors. FYR Macedonia is making steady progress in its transition towards a market economy, but political uncertainty, slow structural reforms, bureaucracy and corruption are preventing stronger growth potential. After a decade of transition, maintaining financial stability and reducing the vulnerability of the financial system remain key challenge. On the other hand, structural reforms have already contributed to an improved business environment, but further actions will enhance competitiveness and help prepare for eventual EU accession. The country's progress in the accession process would depend on individual performance. The European Commission has urged Western Balkan countries to take significant measures that would bring them closer, where Macedonia was criticized for a slowdown in reforms. This paper will analyze the banking sector in FYROM compared to that of advanced industrial countries. While banks have evolved gradually to become the main source of external finance for the real economy, securities markets have grown at a more modest place. The improvements in the areas of formal exchanges and transparency will be analyzed. The comparison between the development of the fixed income markets and the stock market is given for Macedonia. Since progress in pension reforms and rapid growth of the insurance markets in Macedonia can support the development of domestic institutional investors in the coming years, in this paper are elaborated some suggestion methods for public sector downsizing in Macedonia.