LUCA BARBONETHE WORLD BANK

Poverty and growth in the Western Balkans:The Big Picture

Main messages

In the decade before the crisis the Western Balkans experienced significant progress

The crisis has stalled these positive trends and brought in new fiscal pressures

Yet the need to tackle structural issues remain

Priorities for the inclusion agenda are Social assistance reforms Activation Addressing barriers that vulnerable groups face

Positive developments before the crisis

2002

2003

2004

2005

2006

2007

2008

-4

-2

0

2

4

6

8

10

12

High growth before the crisis

AlbaniaBosnia and HerzegovinaKosovoMacedonia, FYRMontenegroSerbiaECAEuro areaPe

rcen

t

Overall ($5 a day) Urban ($5 a day) Rural ($5 a day)Headcount

0

5

10

15

20

25

30

35

40

45

50

Headway on poverty reduction

2003 2008

though structural concerns remained

Labour force participation rates remain some of the lowest in Eastern Europe …

Activation as a policy priority

… while households rely heavily on migration and foreign labour markets

Agriculture’s contribution to growth decreased while poverty remains disproportionally rural

Turning agriculture into an engine of growth Sustaining poverty reduction in rural areas

Some groups such as the Roma are at distinct disadvantage Integration agenda

The crisis stalled progress

2008 2009 2010 2011

-6.0

-2.0

2.0

6.0

10.0 The crisis hit

AlbaniaBosnia and HerzegovinaKosovoMacedonia, FYRMontenegroSerbia

2008 2009 201023.0

24.0

25.0

26.0

27.0

28.0

29.0

30.0

31.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

More people at risk of poverty )

Headcount $5 a day, crisis scenario (Millions) Headcount $2.5 a day, crisis scenario (Millions) Headcount, $5 a day (%) Base scenarioHeadcount, $5 a day (%) Crisis scenario

Perc

ent

Mill

ions

Poverty trending up and overshooting pre-crisis levels

Worrisome developments on the labour market

2007 2008 2009 2010(first 6

months)

4

4.5

5

5.5

6

6.5

7

7.5

8

8.5

9

Employment rate Unemployment rate

Inactivity rate-8

-6

-4

-2

0

2

4

6

8

… compounding the challenges

Example 1Effects of the crisis on the unemployed in Serbia

Em

ploy

ee

Self-

empl

oyed

Dis

cour

aged

Une

mpl

oyed

Labour force status in October 2009

0%10%20%30%40%50%60%

More likely to report being strongly affected by the

crisis

Em

ploy

ee

Self-

empl

oyed

Dis

cour

aged

Une

mpl

oyed

Labour force status in October 2009

0%

5%

10%

15%

20%

25%

Less able to draw on sav-ings as a coping strategy

Households that experienced a shock reduced investments in insurance, preventive healthcare, and training

Those in the lowest quintile were most likely to cancel insurance or reduce preventive care as a coping mechanism

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0 Experienced a shock

No measured shock

Perc

ent o

f hou

seho

lds

1 2 3 4 50.0

5.0

10.0

15.0

20.0

25.0

30.0Cancelled insurance

Reduced training

Reduced preventive care

Asset Quintile

Perc

ent h

ouse

hold

s aff

ecte

d by

cri

sis

Example 2Vulnerability undermines resilience to future shocks in MNE

Government in the region now face a worsening fiscal environment

Albania Bosnia and Herzegovina

Kosovo FYR Macedonia Montenegro Serbia

-10

-8

-6

-4

-2

0

2

4

6

8

General government net lending / borrowing (% of GDP)

2007 2008 2009 2010 2011

Need to improve coverage of social assistance

despite a reduced fiscal envelope …

Kosovo SA

FYR Macedonia SFA

Serbia CA

Albania NE

Montenegro FMS/MOP

Serbia MOP

BiH CSW

ECA average (unweighted)

0 5 10 15 20 25 30 35 40 45

Coverage of bottom quintile

reduce spending on rights-based or categorical SA;

improve uptake and coverage of means-tested LRSA benefits;

reducing work disincentives;

make benefits more flexible to respond to crisis and policy shocks.

And they need to do more with less

The World Bank and the emerging inclusion agenda

Support to structural reforms Improving social assistance

DPLs supporting improved targeting and rebalancing of priorities in the social assistance budget

Tackling the activation agenda Work on active labour market programs – design and evaluation

Addressing challenges of inclusion Work on the benefits of Roma inclusion Gender monitoring and gender analysis of reforms

… while strengthening capacity to monitor and analyze welfare indicators and the distributional impacts of reforms

Conclusions

Current environment is challenging as it requires to do more with less

Opportunities of building on the positive dynamic in the region before the crisis

World Bank supports the new reform agenda of which the social inclusion priorities are a big part