It will take as many as six decades for income levels in the Western Balkans to catch up with those of the European Union (EU) if economies in the region continue to grow at the average speed achieved between 1995 and 2015, says a new World Bank report.
The Western Balkans: Revving Up the Engines of Growth and Prosperity report, launched in Vienna, looks at how Albania, Bosnia and Herzegovina, Kosovo, the Former Yugoslav Republic of Macedonia, Montenegro, and Serbia – the six countries of the Western Balkans – can speed up economic growth and achieve faster income convergence with the EU.
“In recent years, the Western Balkan countries have made strides in reforming public finances and rekindling economic growth, but citizens may not yet feel the benefits of this progress,” said Linda Van Gelder, World Bank Director for the Western Balkans. “Focus on structural reforms can speed up economic growth and boost livelihoods so that income levels can catch-up with those in the European Union.”
Reforms and macroeconomic stability that can enable average growth rates of 5 percent a year would allow the Western Balkans to converge with the EU in just two decades, instead of six, notes the report.
While average growth in the region of 5-6 percent annually in the years before 2008 was faster than both in the EU and worldwide, this growth halved following the global financial crisis – stalling the pre-crisis convergence of countries in the Western Balkans with EU living standards and calling for a new growth model based on higher productivity and investment, more exports, and a greater role for the private sector.
“The growth we witnessed in the region in the years leading up to the global financial crisis is evidence of the overall economic potential of the Western Balkans,” says Mr. Harald Waiglein, Director General for Economic Policy, Financial Markets and Customs Duties, Ministry of Finance of Austria, who offered opening remarks at the launch today. “The key, now, is to prioritize policies that can spur private sector investment, help deepen regional integration, and create jobs.”
Increasing exports, investments, and employment are all priority areas for policymakers, according to the report. Stronger regional integration can help raise exports as a share of GDP, which would have to double in order to match those of other small transition economies that are now in the EU, while private investment in countries where the public sector is still the main driver of the economy will also need to increase. Low and slow-growing productivity levels in the Western Balkans call for improvements in the business environment that can attract private investment and spur enterprise growth.
The unemployment rate in the region is almost two times higher than in other small transition economies that are now in the EU. With half of the working age population in the region seeking work and a quarter of job-seekers failing to find it, the need to increase participation in the labor market in the region remains key. This can be done by addressing disincentives for work, while simultaneously removing barriers to employment faced by older workers, youth, women, and minorities.