The World Bank in the Western Balkans Orsalia Kalantzopoulos Director, Central Europe and the Baltic Countries, Europe and Central Asia Region, World Bank March 18, 2008
Outline
Economic overview of the Western Balkans and recent developments in the New Member States Potential risks and key challenges for the future Joint World Bank – EU initiatives in the Western Balkans The World Bank assistance to the region The Bank’s involvement in the accession/post-accession process
Economic overview of the Western Balkans and recent developments in the New Member States
Macroeconomic trends in SEE
Last five years have been relatively good for the Western Balkans economies:
Macroeconomic environment has been stable Economic growth was high
Near-term outlook remains favorable However, increased efforts and reforms are need to sustain the pace of growth and to achieve faster convergence to EU levels!
GDP per inhabitant in PPP, EU-27 = 100 Albania BiH Croatia Macedonia Montenegro Serbia Bulgaria Romania Turkey Source: Eurostat
2004 … … 49 27 … …
2005 20 25 50 28 30 33
2006 21 26 52 28 33 33
34 34 29
35 35 29
37 39 31
Recent GDP growth has been strong 8 7 6 5 4 3 2 1 0
2006 2007 (e)
Source: World Bank
Se rb ia
on te ne gr o
M
ia ac ed on M
Ko so vo
H Bi
Cr oa t ia
Al
ba ni a
2008 (p)
Most economies have successfully contained inflation 12 10 8
2006
6
2007 (e)
4
2008 (p)
2
Se rb ia
ac ed on ia M on te ne gr o
M
Ko so vo
H Bi
Cr oa t ia
Al
ba ni a
0
Fiscal balances are prudent in most economies 10 8 6 4
2006
2
2007 (e)
0 2008 (p)
-2 -4
rb ia Se
gr o on te ne M
M
ac
ed o
ni a
so vo Ko
H Bi
ro at ia C
Al
ba n
ia
-6
Current account balances are worrisome 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 -50
2006 2007 (e)
Se rb ia
gr o M on te ne
ni a M
ac
ed o
ro at ia C
H Bi
Al ba n
ia
2008 (p)
External debt to GPD ratios are low or moderate, except for Croatia 100 90 80 70 60 50 40 30 20 10 0
2006
Se rb ia
on te ne gr o M
ia ac ed on M
H Bi
Cr oa t ia
Al
ba ni a
2007 (e)
Public debt is also moderate 70 60 50 40
2006
30
2007 (e)
20
2008 (p)
10
rb ia Se
gr o M on te ne
ni a ed o M ac
ro at ia C
H Bi
Al ba n
ia
0
Unemployment remains high Unemployment rate, 2000-2007 45.00 40.00 35.00
2007
30.00
2000
25.00 20.00 15.00 10.00 5.00
Bo sn ia
&
Ro m an ia
Sl ov en ia
A re a Eu ro
Bu lg ar ia
Cr oa tia
A lb an ia
Se rb ia
H er ze go vi M na ac ed on ia ,F Y R
0.00
Economic trends in the NMS
The economic outlook for the NMS in 2008 and 2009 is generally positive, but imbalances have increased significantly in some countries Several economies are passing through the turning point in the business cycle Current account deficits stabilized in the Baltic countries but are still widening in Bulgaria and Romania Inflationary trends are reasserting themselves across the region
Potential risks and key challenges for the future
Slowdown of global growth will have a negative impact on the region Growth in the World Economy, 2001-2010 9.0 8.0
Emerging markets
7.0 6.0 World
5.0 Central and Eastern Europe
4.0 3.0 2.0
Euro area
1.0 0.0 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
The global financial turbulence presents a downside risk for the region
Financial turbulence has raised borrowing costs for developing markets It may cause foreign banks to tighten credit supply Imbalances may also lead to capital flow reversals Countries with large CADs and increasing private credit funded by foreign bank-led capital inflows are most vulnerable Problems in one country may spread to another through cross-border contagion
The region is to some extent resilient to such major shocks
Rapid and deep financial integration It remains an attractive region for foreign investors EU membership perspective is a driving force for institutional reform A large part of capital inflows is FDI A strong banking sector is key to withstand turbulence!
Increasing commodity/food prices are a major risk to the region
The region is increasingly exposed to commodity shocks Energy is becoming a scarce resource (with some electricity shortages in Albania, Kosovo and Montenegro) Rising oil prices; all countries are net importers Food prices have risen fast in the last year as elsewhere in Europe
Food prices are also rising in the NMS 25
percent
20
15
10
5
0
CZ
EE
HU
2006 (total)
LT
2007 (total)
LV
PL
2007 (food)
RO
SK
2007 (energy)
SI
The underlying reasons for the commodity/food prices increase
US dollar depreciation Rising incomes in developing countries, especially China and India Increased use of food crops for biofuels Supply disruptions (energy) and record low world carryover stocks (grain). Policy responses of exporting countries, e.g. recent limits on exports by some key grain exporting countries
Possible impacts
Growth slowdown/inflationary pressures would complicate macro management Highly agricultural economies, such as Serbia could benefit from higher agricultural prices but there will also be a negative impact on other sectors Possible policy responses to the inflationary pressures could introduce new distortions, such as price controls, subsidies, export tariffs/bans etc. Urban poverty could increase relative to rural poverty
How can the risks be minimized?
Monetary policy generally needs tightening to contain inflationary pressures Financial systems need to be further developed to contribute to resilience and efficiency Broaden structural reforms to improve investment climate, flexibility of markets, and reap benefits from international economic integration Reform fiscal policy (improve spending efficiency, increase transparency, safeguard long-term fiscal sustainability
How can the Bank help to mitigate these risks?
It is ready to provide budget support if needed Jointly with the IMF, we monitor macro risks, prepare forecasts/ scenarios Financial sector assessments are done periodically to monitor the developments in the sector Provides advice on improving social safety nets, energy adjustment issues Examine impact on agricultural sector Adjust poverty work to focus on impact of such shocks.
Joint World Bank – EU initiatives in the Western Balkans
Excellent collaboration between the EU and the World Bank in the region
WB and EC give same policy advice on number of issues – stronger push for reform WB projects support accession-driven reforms (acquis compliance, but also sustainable economic development – Lisbon Agenda) Past joint activities
Joint work on railway sector WB supported the establishment of the SEE Energy Treaty
Areas of future cooperation
Disaster risk management Tourism and cultural heritage
Joint Office for SEE in Brussels
Set up by the EC and the WB in 1999 to help lead coordination of international assistance to the Balkans Facilitates Donor mobilization and coordination Supports EC/WB cooperation in pre-accession countries and on regional initiatives
The World Bank assistance to the region
Donor support to the Western Balkans in EUR million
2001
2003
2004
2005
2006
Bilateral donors
1,549 1,609 1,187
926
677
322
680
663
679
EC IFIs of which WB Total
927
2002
756
635
1,312 1,612 1,224 1,605 1,874 1,972 262
605
353
545
359
406
3,788 3,977 3,046 3,211 3,214 2,973
Western Balkans’ current portfolio Private Sector Development 9%
Agriculture 25%
Other infrastructure 11%
Public Sector Governance and Economic policy 5%
Transport 14% Social protection and development 8%
Energy 19% Education 3%
Health 6%
The Bank’s involvement in the accession/post-accession process
The World Bank has continued to provide support after EU accession
WB has provided over USD 11 billion to CEE during the transition process Currently, Poland, Bulgaria, Romania and Croatia have active (and significant) portfolios Slovenia and Czech Republic graduated in 2004 Estonia and Lithuania graduated in September 2006 Hungary and Latvia graduated in April 2007 However, non-borrowing NMS continue to show interest in the Bank’s knowledge services
Bank's current portfolio in the NMS Lending (fiscal year) Amount, in USD million Number of projects Non-lending Activities Technical Assistance activities Economic reports/studies
2007 1,216 12
2008 566 7
6 11
14 15
Joint EC-World Bank Network on Regional Development
Unique Network of think tanks and experts in regional development Objectives: Identify and examine global trends that will affect the development prospects in European regions (EU 27 and pre-accession countries) Reflect on the instruments for public intervention at a regional level to meet these challenges
Thank you!
