The Catching‐Up Experience of the Western Balkans: 

The Catching‐Up Experience of the Western Balkans: 

The Cases of  ^Serbia, F.Y.R.O.M., and  ^Albania

Michael Loufir

Head of Emerging Markets Research, National Bank of Greece Conference on European Economic Integration

Catching‐Up Strategies after the Crisis 15‐16 November 2010

Strategy & Economic Research Division

Strategy & Economic Research Division p.2

Key Messages

 Before the global crisis: Slower catching-up process, from a lower base

 Since the start of the global crisis: Less of a Boom, Less of a Crash;

but Real Need to Accelerate Reforms

The Catching-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Strategy & Economic Research Division p.3

Before the global crisis: Slower catching-up process, from a lower base

Booming activity, from a low base, but less than in the new EU member states …

Strategy & Economic Research Division p.4

Serbia F.Y.R.O.M. Albania

The Catching-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Romania Bulgaria

90 100 110 120 130 140 150 160 170

90 100 110 120 130 140 150 160 170

2000 2001 2002 2003 2004 2005 2006 2007 2008

Real GDP per capita (2000=100)

90 100 110 120 130 140 150 160 170

90 100 110 120 130 140 150 160 170

2000 2001 2002 2003 2004 2005 2006 2007 2008

Real GDP per capita (2000=100) 90

100 110 120 130 140 150 160 170

90 100 110 120 130 140 150 160 170

2000 2001 2002 2003 2004 2005 2006 2007 2008

Real GDP per capita (2000=100)

90 100 110 120 130 140 150 160 170

90 100 110 120 130 140 150 160 170

2000 2001 2002 2003 2004 2005 2006 2007 2008

Real GDP per capita (2000=100)

90 100 110 120 130 140 150 160 170

90 100 110 120 130 140 150 160 170

2000 2001 2002 2003 2004 2005 2006 2007 2008

Real GDP per capita (2000=100) GDP per capita (2008) = USD 6,616

GDP per capita (PPP, 2008) = USD 10,805

GDP per capita (2008) = USD 6,561 GDP per capita (PPP, 2008) = USD 12,337 GDP per capita (2008) = USD 9,501

GDP per capita (PPP, 2008) = USD 12,645

GDP per capita (2008) = USD 4,098 GDP per capita (PPP, 2008) = USD 6,911 GDP per capita (2008) = USD 4,786

GDP per capita (PPP, 2008) = USD 9,201

. . . supported by soaring domestic demand and exports; but also less than in the new EU member states

Strategy & Economic Research Division p.5

Serbia F.Y.R.O.M. Albania

Romania Bulgaria

0 5 10 15 20 25 30 35 40 45 50

0 5 10 15 20 25 30 35 40 45 50

2000 2001 2002 2003 2004 2005 2006 2007 2008

Exports of Goods (% of GDP)

0 5 10 15 20 25 30 35 40 45 50

0 5 10 15 20 25 30 35 40 45 50

2000 2001 2002 2003 2004 2005 2006 2007 2008

Exports of Goods (% of GDP) 0

5 10 15 20 25 30 35 40 45 50

0 5 10 15 20 25 30 35 40 45 50

2000 2001 2002 2003 2004 2005 2006 2007 2008

Exports of Goods (% of GDP)

0 5 10 15 20 25 30 35 40 45 50

0 5 10 15 20 25 30 35 40 45 50

2000 2001 2002 2003 2004 2005 2006 2007 2008

Exports of Goods (% of GDP)

0 5 10 15 20 25 30 35 40 45 50

0 5 10 15 20 25 30 35 40 45 50

2000 2001 2002 2003 2004 2005 2006 2007 2008

Exports of Goods (% of GDP)

. . . leading to less pronounced external imbalances . . .

Strategy & Economic Research Division p.6

Serbia F.Y.R.O.M. Albania

The Catching-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Romania Bulgaria

-25 -20 -15 -10 -5 0 5

-25 -20 -15 -10 -5 0 5

2000 2001 2002 2003 2004 2005 2006 2007 2008

Current Account Balance (% of GDP)

-25 -20 -15 -10 -5 0 5

-25 -20 -15 -10 -5 0 5

2000 2001 2002 2003 2004 2005 2006 2007 2008

Current Account Balance (% of GDP) -25

-20 -15 -10 -5 0 5

-25 -20 -15 -10 -5 0 5

2000 2001 2002 2003 2004 2005 2006 2007 2008

Current Account Balance (% of GDP)

-25 -20 -15 -10 -5 0 5

-25 -20 -15 -10 -5 0 5

2000 2001 2002 2003 2004 2005 2006 2007 2008

Current Account Balance (% of GDP)

-25 -20 -15 -10 -5 0 5

-25 -20 -15 -10 -5 0 5

2000 2001 2002 2003 2004 2005 2006 2007 2008

Current Account Balance (% of GDP)

. . . reflecting relatively weaker capital inflows . . .

Strategy & Economic Research Division p.7

Serbia F.Y.R.O.M. Albania

Romania Bulgaria

-10 -5 0 5 10 15 20 25 30

-10 -5 0 5 10 15 20 25 30

2000 2001 2002 2003 2004 2005 2006 2007 2008

Net Capital Inflows (% of GDP)

FDI (Net)

Other Capital Inflows (Net)

-10 0 10 20 30 40 50

-10 0 10 20 30 40 50

2000 2001 2002 2003 2004 2005 2006 2007 2008

Net Capital Inflows (% of GDP)

FDI (Net)

Other Capital Inflows (Net) -10

-5 0 5 10 15 20 25 30

-10 -5 0 5 10 15 20 25 30

2000 2001 2002 2003 2004 2005 2006 2007 2008

Net Capital Inflows (% of GDP)

FDI (Net)

Other Capital Inflows (Net)

-10 -5 0 5 10 15 20 25 30

-10 -5 0 5 10 15 20 25 30

2000 2001 2002 2003 2004 2005 2006 2007 2008

Net Capital Inflows (% of GDP)

FDI (Net)

Other Capital Inflows (Net) -10

-5 0 5 10 15 20 25 30

-10 -5 0 5 10 15 20 25 30

2000 2001 2002 2003 2004 2005 2006 2007 2008

Net Capital Inflows (% of GDP)

FDI (Net)

Other Capital Inflows (Net)

. . . relatively slower appreciation of the local currency in real terms . . .

Strategy & Economic Research Division p.8

Serbia F.Y.R.O.M. Albania

The Catch-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Romania Bulgaria

50 60 70 80 90 100 110 120 130 140 150

50 60 70 80 90 100 110 120 130 140 150

2000 2001 2002 2003 2004 2005 2006 2007 2008

REER (2000=100)

50 60 70 80 90 100 110 120 130 140 150

50 60 70 80 90 100 110 120 130 140 150

2000 2001 2002 2003 2004 2005 2006 2007 2008

REER (2000=100) 0 10 20 30 40 50 60 70 80 90 100

0 10 20 30 40 50 60 70 80 90 100

2000 2001 2002 2003 2004 2005 2006 2007 2008

REER (2000=100)

80 90 100 110 120 130 140 150 160 170 180

80 90 100 110 120 130 140 150 160 170 180

2000 2001 2002 2003 2004 2005 2006 2007 2008

REER (2000=100)

80 85 90 95 100 105 110 115

80 85 90 95 100 105 110 115

2000 2001 2002 2003 2004 2005 2006 2007 2008

REER (2000=100)

. . . and a relatively weaker credit impulse

Strategy & Economic Research Division p.9

Serbia F.Y.R.O.M. Albania

Romania Bulgaria

0 10 20 30 40 50 60 70

0 10 20 30 40 50 60 70

2000 2001 2002 2003 2004 2005 2006 2007 2008

Loans (% of GDP)

0 10 20 30 40 50 60 70

0 10 20 30 40 50 60 70

2000 2001 2002 2003 2004 2005 2006 2007 2008

Loans (% of GDP) 0

10 20 30 40 50 60 70

0 10 20 30 40 50 60 70

2000 2001 2002 2003 2004 2005 2006 2007 2008

Loans (% of GDP)

0 10 20 30 40 50 60 70

0 10 20 30 40 50 60 70

2000 2001 2002 2003 2004 2005 2006 2007 2008

Loans (% of GDP)

0 10 20 30 40 50 60 70

0 10 20 30 40 50 60 70

2000 2001 2002 2003 2004 2005 2006 2007 2008

Loans (% of GDP)

As a result, the external debt-to-GDP ratio had not increased as much as in new EU member states

Strategy & Economic Research Division p.10

Serbia F.Y.R.O.M. Albania

The Catching-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Romania Bulgaria

0 10 20 30 40 50 60

0 10 20 30 40 50 60

2000 2001 2002 2003 2004 2005 2006 2007 2008

External Debt (% of GDP)

0 10 20 30 40 50 60 70 80 90 100 110

0 10 20 30 40 50 60 70 80 90 100 110

2000 2001 2002 2003 2004 2005 2006 2007 2008

External Debt (% of GDP) 0

10 20 30 40 50 60

0 10 20 30 40 50 60

2000 2001 2002 2003 2004 2005 2006 2007 2008

External Debt (% of GDP)

0 15 30 45 60 75 90 105 120 135

0 15 30 45 60 75 90 105 120 135

2000 2001 2002 2003 2004 2005 2006 2007 2008

External Debt (% of GDP)

0 10 20 30 40

0 10 20 30 40

2000 2001 2002 2003 2004 2005 2006 2007 2008

External Debt (% of GDP)

Macroeconomic policies had been reacting well, with tight fiscal policy, as in the new EU member states

Strategy & Economic Research Division p.11

Serbia F.Y.R.O.M. Albania

Romania Bulgaria

-10 -8 -6 -4 -2 0 2 4

-10 -8 -6 -4 -2 0 2 4

2000 2001 2002 2003 2004 2005 2006 2007 2008

Fiscal Balance (% of GDP)

-10 -8 -6 -4 -2 0 2 4

-10 -8 -6 -4 -2 0 2 4

2000 2001 2002 2003 2004 2005 2006 2007 2008

Fiscal Balance (% of GDP) -10

-8 -6 -4 -2 0 2 4

-10 -8 -6 -4 -2 0 2 4

2000 2001 2002 2003 2004 2005 2006 2007 2008

Fiscal Balance (% of GDP)

-10 -8 -6 -4 -2 0 2 4

-10 -8 -6 -4 -2 0 2 4

2000 2001 2002 2003 2004 2005 2006 2007 2008

Fiscal Balance (% of GDP)

-10 -8 -6 -4 -2 0 2 4

-10 -8 -6 -4 -2 0 2 4

2000 2001 2002 2003 2004 2005 2006 2007 2008

Fiscal Balance (% of GDP)

On the fronts of institutional and structural reforms, substantial progress has been made; but more has to be done to converge to the new EU member states

Strategy & Economic Research Division p.12

Serbia F.Y.R.O.M. Albania

The Catching-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Romania Bulgaria

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5

Small-scale privatisation Large-scale privatisation Enterprise reform Price liberalisation Forex & trade liberalisation Competition policy Banking sector reform Reform of n/b fin. Instit. Infrastructure reform

EBRD Transition Indicators 2000 2009

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5

Small-scale privatisation Large-scale privatisation Enterprise reform Price liberalisation Forex & trade liberalisation Competition policy Banking sector reform Reform of n/b fin. Instit. Infrastructure reform

EBRD Transition Indicators 2000 2009 0.0

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Small-scale privatisation Large-scale privatisation Enterprise reform Price liberalisation Forex & trade liberalisation Competition policy Banking sector reform Reform of n/b fin. Instit. Infrastructure reform

EBRD Transition Indicators 2000 2009

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Small-scale privatisation Large-scale privatisation Enterprise reform Price liberalisation Forex & trade liberalisation Competition policy Banking sector reform Reform of n/b fin. Instit. Infrastructure reform

EBRD Transition Indicators 2000 2009

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Small-scale privatisation Large-scale privatisation Enterprise reform Price liberalisation Forex & trade liberalisation Competition policy Banking sector reform Reform of n/b fin. Instit. Infrastructure reform

EBRD Transition Indicators 2000 2009

Strategy & Economic Research Division p.13

Since the start of the global crisis: Less of a Boom, Less of a Crash;

but Real Need to Accelerate Reforms

More resilient activity than in the new EU member states

Strategy & Economic Research Division p.14

Serbia F.Y.R.O.M. Albania

The Catching-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Romania Bulgaria

-10 -8 -6 -4 -2 0 2 4 6 8 10

-10 -8 -6 -4 -2 0 2 4 6 8 10

Q1:08 Q2:08 Q3:08 Q4:08 Q1:09 Q2:09 Q3:09 Q4:09 Q1:10 Q2:10

Real GDP (y-o-y % change)

-8 -6 -4 -2 0 2 4 6 8

-8 -6 -4 -2 0 2 4 6 8

Q1:08 Q2:08 Q3:08 Q4:08 Q1:09 Q2:09 Q3:09 Q4:09 Q1:10 Q2:10

Real GDP (y-o-y % change) -5

-4 -3 -2 -1 0 1 2 3 4 5 6 7

-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7

Q1:08 Q2:08 Q3:08 Q4:08 Q1:09 Q2:09 Q3:09 Q4:09 Q1:10 Q2:10

Real GDP (y-o-y % change)

-5 -3 -1 1 3 5 7 9

-5 -3 -1 1 3 5 7 9

Q1:08 Q2:08 Q3:08 Q4:08 Q1:09 Q2:09 Q3:09 Q4:09 Q1:10 Q2:10

Real GDP (y-o-y % change)

-2 0 2 4 6 8 10

-2 0 2 4 6 8 10

Q1:08 Q2:08 Q3:08 Q4:08 Q1:09 Q2:09 Q3:09 Q4:09 Q1:10 Q2:10

Real GDP (y-o-y % change)

. . . despite a sharp drop in exports

Strategy & Economic Research Division p.15

Serbia F.Y.R.O.M. Albania

Romania Bulgaria

-30 -20 -10 0 10 20 30 40

-30 -20 -10 0 10 20 30 40

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

Exports (EUR terms, y-o-y % change)

-40 -30 -20 -10 0 10 20 30 40 50

-40 -30 -20 -10 0 10 20 30 40 50

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

Exports (EUR terms, y-o-y % change) -40

-30 -20 -10 0 10 20 30 40

-40 -30 -20 -10 0 10 20 30 40

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

Exports (EUR terms, y-o-y % change)

-30 -20 -10 0 10 20 30

-30 -20 -10 0 10 20 30

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

Exports (EUR terms, y-o-y % change)

-30 -10 10 30 50 70 90 110 130

-30 -10 10 30 50 70 90 110 130

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

Exports (EUR terms, y-o-y % change)

The mild contraction in activity reflects better-than-expected capital inflows . . .

Strategy & Economic Research Division p.16

Serbia F.Y.R.O.M. Albania

The Catching-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Romania Bulgaria

Net Capital Inflows (12M Rolling Sum, % of GDP)

0 5 10 15 20 25 30

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

0 5 10 15 20 25 30

Net Capital Inflows (12M Rolling Sum, % of GDP)

0 5 10 15 20 25 30

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

0 5 10 15 20 25 30

Net Capital Inflows (12M Rolling Sum, % of GDP)

0 5 10 15 20 25 30 35 40 45 50

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

0 5 10 15 20 25 30 35 40 45 50 Net Capital Inflows

(12M Rolling Sum, % of GDP)

0 5 10 15 20 25 30

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10 0

5 10 15 20 25 IMF Disbursements 30

Other Capital Inflows (excl. IMF Disbursements)

Net Capital Inflows (12M Rolling Sum, % of GDP)

0 5 10 15 20 25 30

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

0 5 10 15 20 25 30

. . . and still relatively robust, albeit decelerating, credit expansion

Strategy & Economic Research Division p.17

Serbia F.Y.R.O.M. Albania

Romania Bulgaria

-10 0 10 20 30 40 50 60 70 80

-10 0 10 20 30 40 50 60 70 80

01/08 05/08 09/08 01/09 05/09 09/09 01/10 05/10 09/10

Credit to the Private Sector (y-o-y % change)

0 10 20 30 40 50 60 70

0 10 20 30 40 50 60 70

01/08 05/08 09/08 01/09 05/09 09/09 01/10 05/10 09/10

Credit to the Private Sector (y-o-y % change) 0

10 20 30 40 50

0 10 20 30 40 50

01/08 05/08 09/08 01/09 05/09 09/09 01/10 05/10 09/10

Credit to the Private Sector (y-o-y % change)

0 10 20 30 40 50

0 10 20 30 40 50

01/08 05/08 09/08 01/09 05/09 09/09 01/10 05/10 09/10

Credit to the Private Sector (y-o-y % change)

0 10 20 30 40 50

0 10 20 30 40 50

01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10

Credit to the Private Sector (y-o-y % change)

EU membership process acts as a catalyst and provides the much needed anchor for policy and reform

Strategy & Economic Research Division p.18

The Catching-Up Experience of the Western Balkans: The Cases of Serbia, F.Y.R.O.M., and Albania

Serbia

o Potential candidate country

o Signed a Stabilisation and Association Agreement (SAA) in April 2008 o Presented its application for EU membership in December 2009 o EU member states agreed to start ratification of the SAA in June 2010

o EU Foreign Ministers asked the European Commission to assess the country’s eligibility for candidacy status in October 2010

FYROM

o Candidate country

o Signed a SAA in April 2001

o EU Commission recommended entry talks with FYROM (14 October 2009)

Albania

o Potential candidate country o Signed a SAA in June 2006 o Entry into force of the SAA

o Presented its application for EU membership in April 2009

o The European Commission denied Tirana the status of EU candidate in November 2010, considering

that accession negotiations should start as soon as the country meets a number of key priorities

Conclusion

Strategy & Economic Research Division p.19

 Western Balkan countries are a potential “convergence play”:

 Still poorer

 Competitive (low wages, tax rates, . . .)

 Future EU member states

 However, to become a “convergence play”, Western Balkan countries have to make further efforts to build on the progress made to date on institutional, structural, and economic reforms

 In the event, the catching-up process in Western Balkans will be faster

than in New EU member states

Strategy & Economic Research Division