RCC Western Balkans in 2020 Sarajevo Giulio Moreno

RCC Western Balkans in 2020 Sarajevo Giulio Moreno Head of Office EBRD Bosnia and Herzegovina 24 -25 February 2010

Content l Eastern Europe and the crisis l The EBRD region and the post crisis period l The Western Balkans and the crisis l Specific actions for the Western Balkans l Outlook 2010 l Bosnia and Herzegovina: Macroeconomic outlook

Eastern Europe and the crisis l l l The EBRD Region has been severely affected by the crisis. Expected 2009 contraction of GDP in the region of -6. 2 per cent. Russia is at -8. 5 per cent. Why has the crisis hit Eastern Europe so hard: – Overdependence on export of commodities – Lopsided export structures in terms of products (Slovak Republic: car industry) and geographical orientation (EU markets, negligence of Emerging Markets such as India) – Small and weak local capital markets, overdependence on capital inflows from Western Europe l But: Crisis also demonstrated resilience of the countries, positive impacts of financial, political and institutional integration, commitment of investors, prudent policy responses. Expansion to Croatia and Turkey

The EBRD region and the post-crisis period l l Return to growth in the region in 2010: average 2. 2 per cent, again with significant differences: Russia +3. 1 per cent, Azerbaijan +7. 1 per cent, Ukraine +3. 0 per cent (after -14. 0 per cent in 2009) Growth will be far below the rates we have seen in the period 19992008 and remain fragile and halting. Serious challenges and concerns remain: – Non-performing loans and defaults – Foreign currency exposure and weak domestic capital markets – Budgetary constraints l However: Business prospects in the region remain promising – Large devaluations has improved export competitiveness (Ukraine: steel) – Once external demand picks up, countries remain well positioned to benefit – Still advantages over other regions: labour costs, skilled labour force, favourable tax regime, but also still existing pent-up demand – Region is rich in natural resources, commodities and energy - all too often inefficiently used or wasted.

The Western Balkans and the crisis Because of lesser degree of integration less affected by the global crisis, but significant differentiation among countries: 2009 Albania +3. 0 per cent, Serbia -4. 0 per cent; Croatia -5. 4 per cent l What was especially noteworthy in 2009: l – Responsible and adequate reaction to the crisis – No populist or anti-democratic backlash – Timely consultations and negotiations with international institutions like IMF (Serbia, Bosnia) – Special role of the “EU anchor” Further reasons for confidence l – Skilled labour, cost advantage – Pent-up demand remains high – Potential: natural resources, agriculture, tourism – Strong drive towards energy efficiency, including cross-border cooperation

Specific actions for the WB l l For the WB region EBRD had new commitments for about € 1 bn in 65 new projects in 2009 and we plan € 1. 2 bn in 75 new projects in 2010 Accelerate actions to mitigate crisis impact in the real economy: – special products for banks to increase lending – direct equity driven investment with local enterprises – energy efficiency products – enhance FDI inflow l Enhance the WBIF as a key vehicle for increasing funds, prioritizing infrastructure investments and pulling resources

Outlook 2010 l l Growth in 2010 likely to average around +1 -1. 5 per cent, but macroeconomic stability, including low inflation, will be preserved. The crisis has migrated from financial to the manufacturing sector and an adequate crisis response package needs to be deployed to bridge financing needs of local companies and allow them a healthy recovery. The new WBIF will create the stimulus for the consolidation of financial resources and mechanisms and a better and more coordinated use of IFI resources. Energy and regional economic integration will be two key critical factors for economic recovery and good progress can be achieved in 2010.

Bosnia and Herzegovina: Macroeconomic outlook l l GDP decline of -4. 5% in 2009 was smaller than regional average, but slow recovery expected (between 0. 4 and 1% in 2010); Macro stability preserved – below-zero inflation, some fiscal control, and an IMF programme; Financial sector helped by Vienna Initiative and enhanced deposit insurance (EUR 50 million credit line to Deposit Insurance Agency enabling increase of deposit coverage to KM 50, 000). There is potential for stronger growth over the medium term, but this will require a firm commitment by the authorities at all levels to a major structural reform agenda

THANK YOU!