ECONOMIC AND EUROPEAN PERSPECTIVES OF WESTERN BALKAN COUNTRIES,

Slavica Penev

Tirana, Albanian Parliament 13 March, 2013

ECONOMIC TRENDS AND PROSPECTS OF WESTERN BALKAN COUNTRIES

Relatively small and underdeveloped region◦Less than 20 million people◦GDP is 68.9 billion EUR (7% of EU10, 0.5% of EU27) ◦GDP in PPP p.c. 7850 EUR (49% of EU10, 31% of

EU27 average) Size, population and level of economic

development vary among the countries of the region

_________

Western Balkans as a region1

1 Western Balkans covers: Albania, Bosnia and Herzegovina, Macedonia, Montenegro, Serbia, and Kosovo*

Population (million)

GDP (EUR bn)

GDP in EUR at PPP, per capita, EU 27=100

GDP in EUR at PPP, per capita

Albania 2.8 9.2 27 6800Bosnia and Herzeg. 3.8 13.3 27 6800

Macedonia 2.1 7.5 38 9500Montenegro 0.6 3.3 42 10500Serbia 7.2 30.9 35 8700Kosovo* 1.7 4.7 n/a 4810Western Balkans 18.3 68.9 34 7850

EU-10 98.9 972 63 15900EU-27 502.9 12630 100 25100

Table 1.1: Basic indicators, Western Balkan countries, 2011

-6

-4

-2

0

2

4

6

8

10

12

Albania BiH Macedonia Montenegro Serbia Kosovo* Western Balkans

EU-10

2001-2003 2004-2006 2007 2008 2009 2010 2011 2012 proj1

Strong economic growth in the pre crisis period, followed by sharp decline in 2009 and slow recovery after 2009

Figure 1.1: Real GDP growth (in %)

The economic crisis resulted in the reduction of imports and current account deficits

Figure 1.2: Current account deficit, 2007-2011 (% of GDP)

0

20

40

60

80

100

120

Albania BiH Macedonia Montenegro Serbia Kosovo* Western Balkans

2007

2008

2009

2010

2011

• External debt recorded permanent growth in the pre-crisis period.

• In spite of the reduced current account deficits in 2009 and 2010, foreign debt recorded further growth.

Figure 1.3: External debt, 2007-2001 (% of GDP)

• In 2007, the region had budget surplus of 0.3%. • In 2009, the regional budget deficit averaged 4.9

due to extensive borrowing from the IMF and other IFIs

• It remained below the average for CEEB (5.4%)

Figure 1.4: Fiscal balance, 2007-2011 (% of GDP)

• The general government debt increased from 37% of GDP in 2009 to 44% at the end of 2011

• Debt levels remain high compared to pre-crisis levels of around 30%

Figure 1.5: General government debt, 2007-2011 (% of GDP)

• FDI inflows strongly affected by the crisis. • In the pre-crisis period, FDI 5.688 mil. EUR in 2007

(9.3% of GDP). • in 2008 the region experienced a decrease in FDI

inflows, mostly due to the impact of the global economic crisis.

Figure 1.6: Inflows of FDI in Western Balkan countries, 2007-2011 (% of GDP)

STRENGTHS WEAKNESSES GDP growth remained positive during the crisis High exposure to the Eurozone crisis Contracting current account deficit High and growing general government debt Relatively low external debt (the lowest in the region)

Contracting fiscal deficit

Strengths and weaknesses – AlbaniaAchieved level of macroeconomic stability

STRENGTHS WEAKNESSES Contracting fiscal deficit Current account deficit Contracting current account deficit High and growing general government debt Slow recovery of GDP High exposure to the Eurozone crisis High external debt

Strengths and weaknesses – Western Balkan countriesAchieved level of macroeconomic stability

THE BUSINESS ENVIRONMENT AND COMPETITIVENESS OF THE WESTERN

BALKAN COUNTRIES

World Bank survey “Doing Business” is a comprehensive analysis of regulations and obstacles to starting, operating, and closing a business, compares the ease of doing business among more than 180 countries around the world

Figure 2.1: World Bank Doing Business Rankings: 2009-2013

  Albania

BiH

Macedonia

Montenegro

Serbia

Kosovo

Western Balkans

EU-10

EASE OF DOING BUSINESS RANK 85 126 23 51 86 98 78 47

Starting a Business 62 162 5 58 42 126 76 77

Dealing with construction permits 185 163 65 176 179 144 152 85

Registering Property 121 93 50 117 41 76 83 41

Getting electricity 154 158 101 69 76 116 112 103

Getting credit 23 70 23 4 40 23 31 39

Protecting Investors 17 100 19 32 82 100 58 72

Paying taxes 160 128 24 81 149 44 98 90

Trading Across Borders 79 103 76 42 94 124 86 56

Enforcing Contracts 85 120 59 135 103 138 107 49

Closing business 66 83 30 44 103 87 69 56Values better than the Western Balkans average are in red

Table 2.1: World Bank Doing Business Rankings per dimension, 2012

Country rank Country CPI score95 Albania 3.1

91 Bosnia and Herzegovina 3.2

69 Macedonia 3.966 Montenegro 4.086 Serbia 3.3

112 Kosovo* 2.987 Western Balkans 3.455 EU-10 4.7

Transparency International’s Corruption Perception Index measures the perceived levels of public sector corruption in more than 170 countries. 1 Values better than the Western Balkans average are in red

Table 2.2: Transparency International’s Corruption Perception Index, 2011

 Regulatory quality Rule of law Control of

corruptionAlbania 0.23 -0.44 -0.43

Bosnia and Herzegovina -0.1 -0.36 -0.32

Macedonia 0.28 -0.30 -0.06

Montenegro -0.06 -0.02 -0.33

Serbia -0.2 -0.39 -0.21

Kosovo* -0.04 -0.64 -0.64

Western Balkans 0.02 -0.36 -0.33

EU-10 0.97 0.61 0.25

WGI permit meaningful cross-country comparisons in governance as well as monitoring progress over time 1 Values better than the Western Balkans average are in red

Table 2.3: World Bank Worldwide Governance Indicators

0

20

40

60

80

100

120

Albania BiH Macedonia Montenegro Serbia WB5 Average EU10

89 8880

72

95

82

54

2008–2009 2009–2010 2010–2011 2011-2012 2012-2013

Figure 2.2: Global Competitiveness Index, overall ranking,2008/2009-2012/2013

 

Albania

Bosnia and Herzegovina

Macedonia

Montenegro

Serbia

Western Balkans

EU-10

Global Competitiveness Index - overall rankings 89 88 80 72 95 85 54

1. Basic requirements 87 81 71 74 95 82 552. Efficiency enhancers 92 97 84 74 88 87 473. Innovation and

sophistication factors 113 99 110 69 124 103 61The 2012/13 rank is out of 144 countries. The lower the rank number, the better1 Values better than the Western Balkans average are in red

Table 2.5: WEF Global Competitiveness pillars of competitiveness(rankings), 2012-2013

Figure 2.3: The most problematic factors for doing business, 2012/13

Figure 2.4: Top three most problematic factors for doing business by country and region, WEF GCR, 2012/13

STRENGTHS WEAKNESSES Macroeconomic stability Level of competitiveness Reduced business barriers in the area of protecting investors, starting a business, and closing a business

Capability for innovation

Quality of regulations above the regional average

Business barriers in the area of construction permits and registering property

Corruption Market size Rule of law

Strengths and weaknesses – AlbaniaBusiness environment and competitiveness

STRENGTHS WEAKNESSES Reduced business barriers in the area of protecting investors and closing a business

Level of competitiveness

Quality of regulations Capability for innovation Macroeconomic stability Business barriers in the area of construction

permits, enforcing contracts and paying taxes Corruption Market size Rule of law

Strengths and weaknesses – Western Balkan countriesBusiness environment and competitiveness

REGULATORY REFORM – BETTER AND SMART REGULATION AGENDA

  Albania

BiH Macedonia

Montenegro

Serbia

Kosovo*

1.1. Systemic approach to a better regulation agenda

Regulatory reform strategy √  √ (RS)  √ √ √  

Segments of the regulatory reform strategy as a part of other country strategic documents   √ (BiH state & FBiH)       √

1.2. Main motive for the regulatory reform? 

Need to boost competitiveness and growth √ √ √ √ √ √

International commitment (e.g. EU integration commitment) √ √ √ √ √ √

Government reform agenda √ √ √ √ √ √

1.3. Leadership of the regulatory reform implementation

Government √ √ (BiH state & FBiH) √ √ √ √

Businesses   √ (RS) √     √

Citizens, national opinion      √      

NGOs      √      

Table 3.1: Systemic approach to a Better regulation agenda

Country Central regulatory oversight authorityAlbania Regulatory reform task force Bosnia & Herzegovina

 

- BiH State No oversight authority- BiH Federation No oversight authority- Republic of Srpska Council for regulatory reform

Macedonia Central body for better regulation and capacity building within the Ministry of Information Society and Administration (MIOA)1

Montenegro Council for Regulatory Reform and Improvement of Business Environment

Serbia Office for RIA and Regulatory ReformKosovo* Council on Economic Development

Table 3.2: Institutional framework for regulatory reform in the Western Balkan countries

Table 3.3: Better regulation agenda - use of Regulatory Impact Analysis (RIA) in the government

Alb

ania

Bos

nia

and

H

erze

govi

na

Mac

edon

ia

Mon

tene

gro

Ser

bia

Kos

ovo*

1. Regulatory Impact Analysis (RIA)

Formally introduced √ √ √

Initiated √ √ (BiH state, FBiH and RS)

None √ 2. Regulatory Impact Analysis

Government-wide √1 √ √ For specific sectors or policy areas RIA pilots √ √ (BiH state & RS)

Table 3.3: Better regulation agenda – use of Regulatory Impact Analysis (RIA) in the government

Alb

ania

BiH

Mac

edon

ia

Mon

tene

gro

Ser

bia

Kos

ovo*

1. Consultation with stakeholders in the government 1.1. Is consultation mandatory during the period of drafting laws?

For all laws √ √1 √

For complex and systematic laws √ √ √

1.2. Is public consultation with parties affected by regulations a part of developing draft laws?

Always √ √ √ √

In most of the cases √ √ In some cases

1.3. What forms of public consultation are routinely used: Broad circulation of proposals for comment (e.g. through Internet) √ √ √ √ √ √

Public meetings, roundtables, focus groups √ √ √ √ √ √

Advisors or experts √ √ √ √ √ √

2. Forward planning of regulatory activities 2.1. Plan of legislative activities

Fully implemented/publicly available plan √ √ √ √ √

Partially implemented/not publicly available plan √ 2.2. Is there monitoring of the implementation of the legislative activities plan √ √ √ √ √ √

Table 3.4: Better regulation agenda – use of regulatory quality tools related to the transparency in the legislation process

Figure 3.5: Timing of regulatory reform in Albania

INSTITUTIONAL FRAMEWORK

Regulatory reform Task Force

Inter-ministerial Coordination Body

Technical working groups, in 7 policy areas

2005

REGULATORY REFORM CONTINUATION

Two-pronged Regulatory reform - Reducing the existing barriers to businesses (Inspections) -RIA

2009

RIA IMPLEMENTATION

-RIA pilots -RIA trainings -RIA guidelines - RIA strategy: (December 2010)

2010

REGULATORY REFORM

2005

Two-pronged Regulatory reform - Reducing the existing barriers to businesses (business registration; l icensing) -RIA

STRENGTHS WEAKNESSES Strategic approach to regulatory reform Slow implementation of regulatory strategy Regulatory reform strategy as a separate strategic document

Regulatory reform office abolished

Established Institutional framework – Regulatory reform Task Force

Public consultation obligatory only for complex and systemic laws

Successfully implemented Program of reduction of administrative barriers to businesses - licensing system and business registration.

RIA implementation still in its initial phase

Publicly available plan of legislative activities Insufficient cooperation between the Government and the Parliament in the implementation of regulatory reform.

Strengths and weaknesses – AlbaniaRegulatory Reform – Better and Smart Regulation Agenda

STRENGTHS WEAKNESSES Mostly strategic approach to regulatory reform Insufficient cooperation between the

Government and the Parliament in the implementation of regulatory reform.

Established Institutional framework Insufficient interface between sub-national and national level of government in the regulatory reform process.

Implemented Program of reduction of administrative barriers to businesses

Uniqual progress in RIA introduction and implementation

Publicly available plan of legislative activities Lack of capacities for RIA implementation

Strengths and weaknesses – Western Balkan countriesRegulatory Reform – Better and Smart Regulation Agenda

THE WESTERN BALKAN COUNTRIES' PROGRESS IN TRANSITION IN THE CONTEXT OF THE EU

INTEGRATION PROCESS

STRENGTHS WEAKNESSES 2nd Copenhagen economic criteria

Broad political consensus on the essentials of economic policy

EU candidate status not yet granted

High private sector share in GDP Underdeveloped non-banking sector High level of trade liberalization Legal system weaknesses, in the area of rule of

law, property rights, and judicial independence High level of price liberalization Low share of R&D spending in GDP High level of trade integration with the EU Low level of state interference in the economy

Strengths and weaknesses – AlbaniaProgress in the EU integration process

STRENGTHS WEAKNESSES 2nd Copenhagen economic criteria

Broad political consensus on the essentials of economic policy

Moderate progress towards the EU

Underdeveloped non-banking sector High level of trade liberalization Legal system weaknesses, in the area of rule of

law, property rights, and judicial independence High level of price liberalization Low share of R&D spending in GDP High level of trade integration with the EU Unemployment rate

Strengths and weaknesses – Western BalkansProgress in the EU integration process

Economy related negotiating chapters of the EU acquis A

lban

ia

Bos

nia

and

Her

zego

vina

Mac

edon

ia

Mon

tene

gro

Ser

bia

Kos

ovo

Chapter 1: Free movement of goods Chapter 5: Public procurement

Chapter 6: Company law Chapter 8: Competition policy Chapter 9: Financial Services

Chapter 11: Agriculture and rural development Chapter 15: Energy

Chapter 16: Taxation Chapter 17: Economic and Monetary policy

Chapter 18: Statistics Chapter 20: Enterprise and industrial policy Chapter 28: Consumer Protection Chapter 29: Customs Union

Chapter 30: External Relations Yellow - the country has the capacity to comply with the requirements of the acquis in the

medium term; Orange – additional efforts are needed to align with the EU acquis and to implement it effectively in the medium term Brown - considerable and sustained efforts are needed to align with the EU acquis and to implement it effectively in the medium term.

3rd Copenhagen Criteria – Acceptance of the Community acquis

CHAPTER VTHE ROLE OF PARLIAMENTS IN THE

REGULATORY REFORM AND ECONOMIC REFORMS PROCESS

Unicameral BicameralAlbania √Bosnia and Herzegovina

- Bosnia and Herzegovina – state level √

- Federation of Bosnia and Herzegovina √

- Republika Srpska √Macedonia √Montenegro √Serbia √

Table 5.1: The structure of parliaments in Western Balkan countries

 

Albania BiH

Macedonia

Montenegro

Serbia

Kosovo*

Direct parliamentary oversight of the government activity            Parliamentary questions and interpellations √ √ √ √ √ √Government annual reports to the parliament √ √ √ √ √ √Ministries’ quarterly reports to the related committees         √  √Budgetary scrutiny and financial control √ √ √ √ √ √

Parliamentary oversight over implementing public agencies            

Telecommunication regulatory body            Agency submits reports to the parliamentary committees √ √ √  √ √ √Parliament adopts the reports √ √  √ √   √Parliament nominates executives √ √ √   √ √

Energy regulatory body            Agency submits reports to the parliamentary committees √ √ √ √ √ √Parliament adopts the reports √ √  √ √   √Parliament nominates executives √ √ √ √ √ √

Table 5.2: Parliamentary oversight of the government activity

Number of parliamentary committees

Albania 8Bosnia and Herzegovina:- Bosnia and Herzegovina – state level1 16- Federation of Bosnia and Herzegovina2 27- Republika Srpska 22

Macedonia 21Montenegro 11Serbia 19+13

Kosovo* 164

Table 5.3: Number of parliamentary committees in Western Balkan countries’ parliaments

Country Parliamentary Committees for Economy and Finance

No. of committee members

Albania Economy and Finance Committee 23Bosnia and Herzegovina  

Bosnia and Herzegovina – state level

Finances and Budget Committee 9

Joint committee for economic reforms and development 11

Federation of BiH Committee for economic and financial policy 11

Republika SrpskaFinances and Budget Committee 9+21

Audit Committee 9

MacedoniaCommittee on Financing and Budget 14 Committee on economy 12

Montenegro Committee on economy, finance and budget 12

Serbia

Committee on Finance, State Budget and Control of Public Spending 17

Committee on the Economy, Regional Development, Trade, Tourism and Energy

17

Kosovo*

Committee for Budget and Finance 11The Committee on Oversight of Public Finances 9Committee on Economy, Trade, Industry, Energy, Transport and Telecommunication

11

Table 5.4: Parliamentary Committees for Economy and Finance in Western Balkan Countries

Parliamentary Committees for Economy and Finance

Economic policies

State budget: consideration and

execution

State budget: oversight of

implementation

Public finances

Financial and banking system

Consideration of regulations in the

field of budget and finance

Consideration of regulations in the field of economy

Albania: Economy and Finance Committee

√ √ √ √ √ √ √

Macedonia:

Committee on Financing and Budget

√ √ √ √ √

Committee on economy

√ √

Montenegro: Committee on economy, finance and budget

√ √ √ √ √ √ √

 

Albania

BiH Macedonia

Montenegro

Serbia Kosovo*

Research department x x (state level) x   x xNumber of employees 3 5 17  6 10 6Number of experts 3 1 4  2 7 4

Number of experts working for parliamentary department /committee(s)Department/ committee for Economy and Finance

Number of employees  43 (BiH state)

4  4  13* 1010 (FBiH) 3 (RS)

Number of experts  4

3 (BiH state)

 2  1  4* 86 (FBiH) 

1 (+2)3 (RS)

Department / committee for legislation

Number of employees  5

3 (BiH state)

11   6 4 35 (FBiH) 

1 (RS)

Number of experts  5

3 (BiH state)

3   2 3  35 (FBH) 

1 (+2) (RS)

EU integrations department 

Number of employees  5

2 (BiH state)

 6  5  7 32 (FBiH) 

1 (RS)

Number of experts  5

2 (BiH state)8 (FBiH)

1 (+2) (RS) 1  1  6 3

Table 5.8: Parliamentary research departments and experts in WBCs

 

Albania

BiH

Macedonia

Montenegro

Serbia

Kosovo*

1. Budgetary independence of the parliamentBudget of the parliament as a segment of the government budget √ √ √ √

Partial budgetary independence - Budget Council  √

Full budgetary independence        √ 2. Available financial resources for drafting lawsSufficient          Limited √ √ √ √ √ √

Table 5.9: Budgetary independence of parliaments

  Albania

Bosnia and Herzegovina

Macedonia

Montenegro

Serbia

Kosovo*

1. Public hearing with stakeholders 1.1. Is public hearing in the parliament mandatory? conducted during the consideration of laws in the parliament?

Yes            No √ √ √ √ √ √

1.2. Is public hearing conducted during the consideration of laws in the parliament?

For all laws            For some laws √ √ √ √ √ √

2. Forward planning of regulatory activities2.1. Plan of legislative activities 

Fully implemented/publicly available plan √  √   √     √ 

Partially implemented/not publicly available plan         √ 

2.2 . Harmonization of forward planning of regulatory activities between government and parliament

√  √   √     √

3. Regulatory Impact Analysis (RIA) Formally introduced RIA as a part of explanatory note of the draft law (in the Rules of Procedure of the Parliament)

           

Initiated     √      

None √  √  √  √  √ 

  Albania

Bosnia and Herzegovina

Macedonia

Montenegro

Serbia Kosovo*

1. Public hearing with stakeholders 1.1. Is public hearing in the parliament mandatory? conducted during the consideration of laws in the parliament?

Yes            No √ √ √ √ √ √

1.2. Is public hearing conducted during the consideration of laws in the parliament? For all laws            For some laws √ √ √ √ √ √

2. Forward planning of regulatory activities2.1. Plan of legislative activities 

Fully implemented/publicly available plan √  √   √     √ Partially implemented/not publicly available plan      √    √ 

2.2 . Harmonization of forward planning of regulatory activities between government and parliament √  √   √     √

3. Regulatory Impact Analysis (RIA) Formally introduced RIA as a part of explanatory note of the draft law (in the Rules of Procedure of the Parliament)

           

Initiated     √      None √  √  √  √  √ 

Table 5.10: Use of better regulation: regulatory quality tools related to transparency in the legislation process in Western Balkan parliaments

1. Role of the committee in the consideration, execution and oversight of the implementation of the state budget:

- reports of the ministry of finance- active role of the committee in the budget decision-making role - monitoring of the implementation of the state budget- state audit institution report2. Strengthening the role of the committee in economic policy creation

Documents related to the effect of the crisis and external shocksNational development plans and strategies

3. Reports of the regulatory bodies/agencies that report to this committee- State audit institution- Competition Agency4. Cooperation of the Economy and Finance Committee with the EU Integrations Committee in the

following areas:- progress in the EU integrations process- State budget: consideration, execution and oversight of implementation- harmonization of the legislation with the EU acquis

Albania: Economy and Finance Committee

5. Types of analysis to be prepared in order to improve the efficiency of the Economy and finance committee

- consideration, execution and oversight of implementation of the state budget- economic policy analysis- fiscal policy analysis - sharing the knowledge and experience with the relevant committees from the region in the areas of

common interest

6. Cooperation with the private sector and NGOs- Chambers of commerce- Foreign investors council- SMEs- NGOs7. Improving the control function of the parliaments over executives:- annual government reports- reports of the relevant ministries related to their work - questions and interpellations

Albania: Economy and Finance Committee

Albania: EU integrations committee1. Cooperation of the EU Integrations Committee with other committees

(Economy and Finance Committee) in the following areas: - EU integrations and their influence on the state budget -

2. Types of analysis to be prepared in order to improve the efficiency of the EU Integrations Committee

- achieved progress in the EU integrations process - progress in the acceptance of the EU acquis - sharing the knowledge and experience with the relevant committees

from the region in the area of the EU integration process - initiatives of the committee related to EU integrations

3. Cooperation with the private sector and NGOs - Chambers of commerce - Foreign investors council - NGOs

4. Improving the control function of the parliaments over executives: - reports of the EU integration office related to its work - questions and interpellations related to the EU integration process