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A New Growth Model in the Western Balkans?

A New Growth Model in the Western Balkans?. B Snoy , IFI Coordination Office Regional Cooperation Council Western Balkans and Europe 2020 – Supporting Convergence and Growth , 31March 2011. Context.

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A New Growth Model in the Western Balkans?

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  1. A New Growth Model in the Western Balkans? B Snoy, IFI Coordination Office Regional Cooperation Council Western Balkans and Europe 2020 – Supporting Convergence and Growth, 31March 2011

  2. Context • Review of latest thinking from EC, IFIs and Think Tanks regarding policy changes needed post-crisis • Contribute to the formulation of new growth strategies/agenda/initiatives and to development of new assistance programmes • Link with assessment of impact of austerity measures on investment programmes • Synopsis report available in April

  3. Limitation of pre-crisis growth model • Unbalanced growth driven by domestic demand with high imports • Too much consumption (both public and private), too little domestic savings • Weakness and limited diversification of export sector • Investment excessively concentrated in construction activities • High size of government compared to countries at comparable per capita income level

  4. Limitations of pre-crisis growth model • High dependence on foreign capital inflows • FDI concentrated on acquisition of privatised assets (primarily in the financial sector) with little greenfield investment • Low contribution of labour inputs to growth • Financial sector fragilities • Incomplete transition linked to incomplete reforms

  5. Main themes for new growth agenda • From exogenous to endogenous growth (EC) • Recreating fiscal room for manœuvre (IMF) • Playing the global game of competitiveness (World Bank) • Invigorating trade, integration and export-led growth (EBRD) • Improving the business environment (EBRD & OECD) • Developing local currency finance and new instruments such as PPPs (EBRD & OECD) • Contribution of think tanks & academics

  6. EC: From exogenous to endogenous growth • European Economy Occasional Paper 62, June 2010 • Need for a growth model less dependent on external capital inflows • Encourage flows that enhance the intrinsic competitiveness & productive capacity of economies • Moderate those which fuel domestic and external imbalances • Shift the composition of investment to tradable sector • Promote structural reforms that enhance domestic savings • Focus on completion of unfinished transition reform agenda, including labour market reform • Convergence with adoption of acquis communautaire

  7. World Bank - Playing the global game of competitiveness • Shift of emphasis from demand to supply side • Prepare for a more competitive external environment • Skills, technology absorption, capacity, institution building & the overall business environment will become more important • The new markets to be conquered are those of the emerging countries

  8. « 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)

  9. « Western Balkan Integration and the EU » World Bank, 2008 • Deeper integration within CEFTA will bring benefits. Need for an agreement on services • Human capital development and return migration can help • Reduction in telecommunication costs and efficient transport are catalysts for development

  10. « 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

  11. Improving the business environment • Common denominator of policy advice given by EC, OECD and IFIs • Major business environment concerns: skills availability, infrastructure, tax administration, corruption and crime • Significance of transport as a business environment constraint • Need to enhance broadband internet penetration

  12. 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 »

  13. Thank you for your attention!

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