Do I need to set the country in Webmaster Tools even if I am set to apply the hreflang tag to our different country pages?
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We are global brand that will be migrating to a new platform in the next few months. As such, this will allow us to fix our current SEO issues. We are planning on using geo-targeted subfolders instead of country code top level domains primarily because of resource limitations. My question is - do I need to set the country in Webmaster Tools even though I am already going to tell Google that certain pages are targeted towards a specific country?
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Yes. Use every signal you can to inform the search engines of the target location.
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For one, the hreflang markup tells Google which pages are similar to this exact page in your other localizations, which is not specified at all in webmaster tools. From my understanding, the hreflang tags will swap out a page to the correct localized version on search result pages, which is doing a lot more than simply telling Google that the content in a subfolder is localized to a specific location.