Western Balkans and Europe 2020

Does the Western Balkan need a new Growth Model?

Peter Sanfey

Lead Economist, EBRD

Regional Coordination Meeting, Regional Cooperation Council

Brussels, March 31 2011

The “growth model” of the Transition Region (incl. the Western Balkans):

Market-oriented reforms

Trade integration

Financial integration with the West

Political integration (for EU or near-EU countries).

Rapid catch up and growing prosperity

But also important weaknesses and gaps

Is a new approach to development needed after the crisis?

The EBRD answer in a nutshell

No new “growth model” needed, but region must address its key weaknesses

Need both stronger and safer growth New reform agenda

• Close sector-level reform gaps

• Develop local currency finance

• Strengthen export capacity

• Improve business environment

Weakness (1): Incomplete Reforms

HUNEST

POL

SVK

BGR

ROMTUR

ALBARM

MNEMDV

GEO

UKR

FYRKAZ

SRB

MON

KYR

BIH

AZE

TAJBEL

UZB

TKM

RUS

LIT

LATSVN CRO

1

1.5

2

2.5

3

3.5

4

4.5

1 1.5 2 2.5 3 3.5 4 4.5

Traditional country-level transition indicators

Ne

w E

BR

D s

ect

or

ind

ica

tors

Weakness (2): Financial Sector Fragility

Weakness (3): Unbalanced Growth

Exports ► Innovation ► Growth

0

8

16

24

32

Pro

ba

bili

ty (

%)

Firm level R&D Spending

≈1/3Export activity significantly raises probability of R&D

No

n-e

xpo

rter

Exp

ort

er

Top priorities to improve export-friendliness

Weakness (4): persistent business environment problems

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Albania BiH Croatia FYR Macedonia Montenegro Serbia

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BEEPS: Top three constraints in each country