a new growth model in the western balkans?

EU Funded Project implemented by

Support to IFI Coordination

in the Western

Balkans and Turkey

April 20, 2023

A New Growth Model in the Western Balkans?

B Snoy, IFI Coordination OfficeRegional Cooperation Council

Western Balkans and Europe 2020 – Supporting Convergence and Growth,

31March 2011



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Context

o Review of latest thinking from EC, IFIs and Think Tanks regarding policy changes needed post-crisis

o Contribute to the formulation of new growth strategies/agenda/initiatives and to development of new assistance programmes

o Link with assessment of impact of austerity measures on investment programmes

o Synopsis report available in April



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Limitation of pre-crisis growth model

o Unbalanced growth driven by domestic demand with high imports

o Too much consumption (both public and private), too little domestic savings

o Weakness and limited diversification of export sector

o Investment excessively concentrated in construction activities

o High size of government compared to countries at comparable per capita income level



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Limitations of pre-crisis growth model

o High dependence on foreign capital inflows o FDI concentrated on acquisition of privatised

assets (primarily in the financial sector) with little greenfield investment

o Low contribution of labour inputs to growtho Financial sector fragilitieso Incomplete transition linked to incomplete

reforms



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Main themes for new growth agenda

oFrom exogenous to endogenous growth (EC)oRecreating fiscal room for manœuvre (IMF)oPlaying the global game of competitiveness (WorldBank)oInvigorating trade, integration and export-ledgrowth (EBRD)oImproving the business environment (EBRD & OECD)oDeveloping local currency finance and new instruments such as PPPs (EBRD & OECD)oContribution of think tanks & academics



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EC: From exogenous to endogenous growth o European Economy Occasional Paper 62, June 2010o Need for a growth model less dependent on external capital

inflowso Encourage flows that enhance the intrinsic competitiveness

& productive capacity of economieso Moderate those which fuel domestic and external

imbalanceso Shift the composition of investment to tradable sectoro Promote structural reforms that enhance domestic savingso Focus on completion of unfinished transition reform agenda,

including labour market reform o Convergence with adoption of acquis communautaire



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World Bank - Playing the global game of competitiveness

o Shift of emphasis from demand to supply sideo Prepare for a more competitive external

environmento Skills, technology absorption, capacity, institution

building & the overall business environment will become more important

o The new markets to be conquered are those of the emerging countries



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« Turmoil at Twenty » World Bank, 2010

• Infrastructure and labour skills emerged as binding constraints to growth & raised cost of weak institutions

• Private investment crucial for opening infrastructure bottlenecks

• Requires competitive trading regimes & predictable &credible regulatory frameworks

• State has the important task of continually strengthening institutions that provide essential public goods (e.g. regulation, supervision and education)



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« Western Balkan Integration and the EU » World Bank, 2008

o Deeper integration within CEFTA will bring benefits. Need for an agreement on services

o Human capital development and return migration can help

o Reduction in telecommunication costs and efficient transport are catalysts for development



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« Investment matters » World Bank, 2009

• Investment rates are too low• ICT investment plays important role in improving

the quality of overall investment• WBC trail in R&D spending & most of funding

comes from the public sector• Improving the quality of public investment is key• Plan properly and implement public

infrastructure projects in order to maximize the « crowding in » effect and avoid « crowding out » effect



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Improving the business environment

o Common denominator of policy advice given by EC, OECD and IFIs

o Major business environment concerns: skills availability, infrastructure, tax administration, corruption and crime

o Significance of transport as a business environment constraint

o Need to enhance broadband internet penetration



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Conclusions

• The end of complacency: the transition agenda must be completed

• Improving the business environment is the cornerstone of the post crisis agenda

• New growth agenda is a revised and reinforced version of the old agenda of structural reforms .

• « Europe 2020 can provide inspiration for a framework for smart, sustainable and inclusive growth »



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April 20, 2023

Thank you for your attention!

a new growth model in the western balkans?

Documents

new growth model

new instruments

domestic demand

importantthe new markets

domestic savingsfocus

eu world bank

labour skills

composition of investment