Regional Economic Outlook Discussed at the CisBalk

Lazar Šestović of the World Bank visited CISBalk on 28 February 2013

Three main problems Balkan economies are currently facing are slow growth coupled with high unemployment; high inflation; and low competitiveness. They are all embedded in the context of weak institutions in the region that is highly unfavourable to the stronger economic growth. Compared to the European Union Balkan economies are very small, while at the same time much dependent on developments in the EU. In recent years the dependence is actually increasing, as the economies are increasingly interrelated because: first, most of the investments in the region are coming from the EU (80%); second, remittances are also coming from the EU most of the time; and, finally, the Balkan countries export most of their goods in the EU. However, the general interest in the EU for the Balkans is very low because the region is a miniature compared to the EU.

These were some of the points made by Mr. Lazar Šestović of the World Bank, when he visited the Centre for Interdisciplinary Studies of the Balkans on 28 February to give a presentation on the latest World Bank report on the Balkans. Mr Šestović has been working for the World Bank for more than a decade and currently holds the position of senior country economist in the World Bank Country Office for Serbia. Mr. Šestović further emphasised that the region was seriously hit in 2008 with the economic crisis. Before the crisis average growth was 5-6% (2000-2008), however the average drop was also high, around 2% annually during the crisis. In 2012 the drop was caused by global trends and natural conditions and the biggest share in the drop was Serbia’s, as it makes 45% of the region’s economy. The GDP drop was also followed by big increases in unemployment and inflation. Structural problems of the regional economies have to do with the monopoly issues and the overall low competiveness.

Mr. Šestović in his conclusion discussed the possibilities for changing the situation by noting that there is a limited room for governments’ financing and large room for better governments’ policies. Fiscal space is limited, as debts are already too high, but governments still have space to change their policies. On the other hand, a lot depends on the EU itself. If the EU wants to reshape the region it should invest substantial amounts in the regional infrastructure.  However, with the Eurozone again in recession, and with a sluggish growth projected, the EU is reluctant to invest more in the Balkans.

In the Q&A session that followed Mr. Šestović’s presentation, participants raised the issues of global economic position of Europe, of possible Serbia’s comparative advantages, of the effects of the Croatian accession to the EU and differences in economic situations in Croatia and Serbia. In his response regarding the possible comparative advantages of Serbia, Mr. Šestović replied that comparative advantage is a dynamic category and that it changes over time. The problem in Serbia is that it has a lot of unqualified workers. A country should be investing in people to produce added value. Mr. Šestović concluded that one of Serbia’s comparative advantages is access to the EU markets. On the question of comparison between the economic situations in Croatia and Serbia, Mr. Šestović pointed out that Serbian economy is only at 65% of development compared to 1989. Privatization in Serbia started in 1997 but only to a limited extent. In 2001 the rest of the companies were transformed. However, foreigners showed little interest for buying domestic enterprises. That is why controversial businessmen bought companies, for different reasons. Total revenues from privatization in Serbia were 4 billion euros, but more than 400 cases of privatization were annulled. Because of this every year Serbian budget gives 650 million euros of subsidies to enterprises. The good news is that new Minister of finance, Mr. Dinkić announced recently that by July 2014 the story of privatization will be finished.  Unlike Serbia, Croatia has a fixed exchange rate and it has managed to lower the inflation, although costs of living became very high in Croatia. However, in order to develop more progressively, Croatia must find sources of revenue other than tourism. Mr. Šestović noted that Croatia is obliged to leave CEFTA upon accession, although Croatian government has been working on re-negotiating the terms with CEFTA and the EU. The World Bank is pushing CEFTA to introduce liberalization of services, as the countries in the region have similar heritage and it would be easy to do it.

Written by: Mateja Stanković

Event Date
28 February 2013