South East Europe Regular Economic Report, No. 3 : From Double-Dip Recession to Accelerated Reforms
After two years of fragile recovery from the global recession, as a group the six South East European countries (SEE6) Albania, Bosnia and Herzegovina (BIH), Kosovo, FYR Macedonia, Montenegro, and Serbia are experiencing a double-dip recession in 2...
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| Format: | Report |
| Language: | English en_US |
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World Bank, Washington, DC
2017
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| Online Access: | http://documents.worldbank.org/curated/en/298291468035472027/From-double-dip-recession-to-accelerated-reforms http://hdl.handle.net/10986/26832 |
| Summary: | After two years of fragile recovery from
the global recession, as a group the six South East European
countries (SEE6) Albania, Bosnia and Herzegovina (BIH),
Kosovo, FYR Macedonia, Montenegro, and Serbia are
experiencing a double-dip recession in 2012. Deteriorating
external conditions, the impact of the severe winter on
economic activity, and a continuing rise in unemployment
early in the year took a toll on consumption, investments,
and exports. In this fragile environment, Serbia, Albania,
and Montenegro in particular will need to persevere in
reducing fiscal deficits and bringing down debt, even as
they must continue to improve the investment climate and
reform labor markets and the public sector. In all SEE6
countries, public sector arrears pose special challenges to
fiscal management and the private sector, and there are
unfinished, structural reforms agendas. After two years of
deep crisis, a sluggish recovery, rising unemployment and
poverty, and a continuing recession even with the best
efforts on fiscal consolidation and structural reforms,
which must continue there is a danger that SEE6 countries
are caught in a vicious circle that reinforces the cycle of
long-term austerity, low if not negative growth, high debt,
and even higher risks of social upheaval. To prevent this
outcome, this report argues, SEE6 governments need to
redouble their efforts to accelerate fiscal and structural
reforms. These countries have largely exhausted their fiscal
space and reduced public investment (except Kosovo, an
outlier) to a fraction of what is needed to maintain public
capital stock in critical infrastructure. Private investment
is suppressed by the lack of productive, complementary
public investments, slow credit recovery, and depressed
domestic demand. External demand is minimal, and exports are
not only too few, they are prevented from becoming an
immediate, new engine of growth by infrastructure, finance,
and other deficiencies. If such accelerated reforms
materialize, external support well-coordinated and targeting
the region as a whole, not just individual countries from
the European Union (EU) and global international financial
institutions (IFIs) could help ease the transition to a more
sustained growth in medium term. In November 2012, the
European Investment Bank, the European Bank for
Reconstruction and Development, and the World Bank announced
30 billion in financing for Central and South East European
countries over the next two years. In SEE6 countries, this
timely initiative would likely be delivered via the Western
Balkans Investment Framework (WBIF) and other IFI resources.
Investment Promotion Agency (IPA) resources will also be
important, especially in supporting institutional reform and
rural development. By focusing on major infrastructure of
regional significance (rail, highways, energy, and gas) and
on jobs and small and medium enterprises, the efficiency of
investments, growth, and employment could be substantially
heightened. However, additional financing for growth and
jobs could prove effective only if accompanied by
intensified fiscal and structural reforms, especially in the
areas of investment climate, labor markets, and governance. |
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