Overlapping crisis in the Western Balkans

The countries of the Western Balkans are facing one economic shock after another. The region’s economy had just begun to recover from the COVID-19-induced recession, but now has to contend with the aftermath of the Ukraine war, a resurgence of inflation and a shift in energy pressure. Steering through this crisis involves risk and requires careful choice.

The six economies of the Western Balkans — Albania, Bosnia and Herzegovina, Kosovo, Montenegro, Northern Macedonia and Serbia দেখে saw a strong economic recovery with growth of 7.4 percent in 2021 as the region recovered from the 2020 recession. In fact, energy recovery forecasts have been exceeded due to a combination of consumer demand, loose travel restrictions despite high transmission rates and low vaccinations, and increased return on investment and export সহায়তা all supported by continued financial support. The return to economic growth has created employment, which in turn has helped reduce poverty throughout the region.

In 2021, with the recovery of growth, budget deficit and reduction of government debt, tax revenue has also returned. However, one year of growth is not enough time for any country to rebuild the financial and debt buffer enough to push it if it is a big one. Government debt fell to 57 percent of GDP in 2021, about 4 percentage points lower than the 2020 peak, but still higher than the pre-COVID-19 50 percent of 2019. As a result, governments across the Western Balkans have narrowly entered into room for strategy in 2022.

Even before the war between Russia and Ukraine began, economic growth in the Western Balkans had already slowed to a pre-crisis rate, and similarly, inflation is already rising due to limited supply around the world and push-up demand for paint-up products. The war in Ukraine is exacerbating these two trends and raising inflation sharply. It is also undermining business and consumer confidence, affecting trade and tourism, and severely disrupting the food and energy supply chain. This is especially so in the case of Serbia and Montenegro, which are the most open economies in the Western Balkans to trade with Russia and Ukraine.

Test time ahead

The Western Balkans now face a particularly uncertain outlook. In addition to the outbreak of war, COVID-19 has not gone away, and the disruption of energy due to the war in Ukraine has exposed the weaknesses associated with the region’s continued reliance on fossil fuels. While we were expecting an endless strong return in 2022 as most epidemiological measures have been lifted, and paint-up demand has led to increased costs and investments, war has disrupted this trajectory. In our current baseline situation, we expect real output to grow by 3.1 percent in 2022 — a downward correction by about 1 percentage point এবং and below the historic growth rate. Furthermore, as growth slows further and the forecast for higher inflation extends to the summer of 2022, sanctions intensify and EU growth slows further (Figure 1).

Not only is the region experiencing a slowdown in growth, but rising food and energy prices mean that poor households are spending more than 60 percent of their budgets on food and energy, especially in the face of high inflation (Figure 2). They often lack the means to cope with the high cost of living.

Policy trade-off in uncertainty

The economies of the Western Balkans have been relatively resilient to the Covid-19 push and they have become faster and stronger than expected, using monetary policy to support vulnerable families and institutions. However, resources have been depleted and a major challenge now is to respond to today’s pressing demands, as well as to focus on the reforms needed to support tomorrow’s equitable, green and sustainable growth. Governments need to be frugal – using their limited financial resources to protect the poorest families who spend a large portion of their income on food and energy. At present, policy measures to respond to the need for pressure should be timed so that governments can return to buffer reconstruction as the pressures subside. Moreover, in an environment of scarce resources, now is the time for governments to step up efforts to improve tax compliance, strengthen social assistance systems to protect the energy poor, and redistribute resources for energy efficiency investments, as well as enable private investments to be renewable. Energy.

Finally, governments should not lose sight of the reforms that have been neglected since 2020 that are critical to maximizing long-term potential growth. Structural reforms to improve human capital, support for labor market participation (especially for women and youth) and strengthening competition will help boost potential growth that was slow before the current crisis. In addition, deeper efforts will be needed to streamline business regulations to attract green and higher value-added foreign investment and encourage connectivity and digitization.

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