Europe and Central Asia Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Annual Meetings 2024 © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Europe and Central Asia Albania Kazakhstan Russian Federation Armenia Kosovo Serbia Azerbaijan Kyrgyz Republic Tajikistan Belarus Moldova Turkey Bosnia and Herzegovina Montenegro Ukraine Bulgaria North Macedonia Uzbekistan Croatia Poland Georgia Romania MPO 1 Oct 24 the EU accession aspiration, and built on reforms tackling productivity, includ- ALBANIA Key conditions and ing improving the business environment, and expanding Albania’s integration into challenges foreign markets. Table 1 2023 The Albanian economy has shown consid- Population, million 2.8 erable resilience as prudent macroeconom- GDP, current US$ billion 23.0 ic policies supported a strong economic re- Recent developments GDP per capita, current US$ 8300.4 bound, with real GDP growth averaging a 3.9 International poverty rate ($2.15) 4.2 percent in 2022 and 2023. A key factor Following a 3.4 percent real growth rate in a 11.3 in Albania’s resilience has been the prox- 2023, Albania’s economy grew at a higher Lower middle-income poverty rate ($3.65) a 34.2 imity to the EU, a key source of investment pace of 3.6 percent in Q1 of 2024. On the Upper middle-income poverty rate ($6.85) Gini index a 36.0 and remittances, and a main destination supply side, growth was primarily driven School enrollment, primary (% gross) b 95.6 for exports. Tourism remains a key growth by services and construction. Private con- b 76.8 driver, helping to improve external imbal- sumption and investment were the main Life expectancy at birth, years ances and partially contributing to a drivers on the demand side. In the coming Total GHG emissions (mtCO2e) 7.9 steady appreciation of the LEK in recent quarters, investment and services exports Source: WDI, Macro Poverty Outlook, and official data. years. The availability of hydropower, are expected to strengthen. Economic sen- a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2022). which meets 85 percent of domestic energy timent remains positive (Figure 1), though demand in years with average precipita- showing signs of moderation. tion, has contributed to containing the At the end-2023, the employment rate country’s greenhouse gas emissions. reached 66.7 percent with variation across Albania’s key development challenges are demographics, with a 0.7 percentage point its declining population, partially due to increase for men and 0.3 percentage point Growth in 2024 is expected to remain ro- outmigration; the poor quality of the labor decrease for women. Overall, poverty de- bust at 3.3 percent, on the back of private force and the low quality of jobs created; clined by 1.9 percentage points to reach consumption, tourism, and construction. the moderate pace of structural reforms, 21.7 percent. Based on administrative data especially in the areas of private sector en- for Q1 2024, employment grew by 1.1 per- Price pressures have continued to ease. vironment and governance; and rising fis- cent y-o-y, driven by the private sector. Poverty is expected to continue to decline cal pressures, due to climate risks, contin- The average private sector wage increased as labor income increases. Medium-term gent liabilities and debt refinancing at a by 12.7 percent, reflecting growth across prospects hinge on the recovery of the time of the high cost of external financing. all economic activities. global economy and on the pace of struc- To create the needed fiscal space and ad- Annual inflation rate continued its declin- dress these challenges, Albania will need ing trend, averaging around 2.7 percent tural reforms. The European Union (EU) to implement a Medium-Term Revenue in Q1 of 2024, as a result of downward accession aspirations provide an anchor Strategy to strengthen domestic rev- pressures from lower import prices, do- to speed up convergence. enues. Unlocking further growth is con- mestic currency appreciation, and mone- ditional on the swift implementation of tary policy normalization. In the subse- the government’s program, anchored in quent months up to July 2024, inflation FIGURE 1 Albania / Economic sentiment index (ESI) and FIGURE 2 Albania / Actual and projected poverty rates and GDP growth real GDP per capita Real GDP Growth (percent, y/y,not sa) ESI Poverty rate (%) Real GDP per capita (constant LCU) 20 140 45 800000 15 120 40 700000 35 600000 10 100 30 500000 5 80 25 400000 0 60 20 300000 15 -5 40 200000 GDP growth (lhs) 10 -10 20 5 100000 ESI (rhs) 0 0 -15 0 2016 2018 2020 2022 2024 2026 M 17 M 18 M 19 M 20 M 21 M 22 M 23 Se 7 Se 8 Se 9 Se 0 Se 1 Se 2 Se 3 4 International poverty rate Lower middle-income pov. rate -1 -1 -1 -2 -2 -2 -2 -2 p- p- p- p- p- p- p- ar ar ar ar ar ar ar ar Upper middle-income pov. rate Real GDP pc M Sources: Instat and Bank of Albania. Source: World Bank. Notes: see Table 2. MPO 2 Oct 24 has remained stable at around 2.1 per- (FDI) continued to perform strongly, in- from 2024 onwards. Government plans to cent, mainly driven by wage increases in creasing by 8.5 percent. Foreign currency continue improving tax administration, as the private sector, while food and non-al- reserves reached the level of 5.7 billion envisioned in the Medium-Term Revenue coholic beverages, which constitute close Euros as of July 2024. Strategy. Public debt is expected to decline to 35 percent of the consumption basket, further in the medium term. had a deflationary trend. Leading indicators are pointing upwards: As of July 2024, the government reported there is strong tourism data and increased a fiscal surplus, on account of robust rev- Outlook construction activity, rising credit growth, enue collection and sluggish execution of positive business and consumer senti- capital investment. Budget revenues in- Growth is expected to remain robust at 3.3 ment indicators, and strong tax revenues. creased by over 8 percent y-o-y as of July percent in 2024, with increased tourism Given Albania’s growing reliance on ex- 2024, with growth observed in all cate- and construction expected to drive ex- ternal financing, risks related to the ex- gories, except grants and profits, which ports, and consumption and investment change rate, interest rate, and refinancing were mostly affected by the base effect (as growth at rates similar as in the pre-pan- remain elevated. they had picked up in the previous year). demic period. The inflation rate is project- As a small, open economy, Albania is high- Overall credit increased by 13 percent y- ed to remain below the 3 percent target ly exposed to external shocks, such as a re- o-y through July 2024. Both private busi- in the medium term, despite the increase cession in the EU or further tightening of nesses and household loans registered in wages, which has partially been offset financing conditions in international capi- double digit growth, at approximately by the appreciation of the LEK. The cur- tal markets. Risks to growth emanate from 12.0 percent and 14.5 percent. Gross non- rent account deficit is expected to hover at natural disasters and unfavorable global performing loans reached the level of 4.7 3.8 percent of GDP in the medium term. conditions (including geopolitical devel- percent in July 2024. With higher growth expected, poverty is opments). Fiscal risks emanate from pub- The current account deficit (CAD) widened also projected to decrease. A tighter labor lic-private partnerships and state-owned in H1, primarily driven by the rapid growth market could further boost wages. enterprises (SOEs), in addition to the coun- of imports and the decrease in exports of Albania’s primary balance is projected to try’s hydropower-based energy sector, due goods. Net foreign direct investment improve and reach zero percent of GDP to variations in hydrology. TABLE 2 Albania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 8.9 4.9 3.4 3.3 3.4 3.4 Private consumption 4.3 7.4 3.1 3.1 3.1 3.0 Government consumption 7.8 -4.7 9.2 10.4 -0.5 0.9 Gross fixed capital investment 19.2 6.5 6.4 9.7 3.4 3.1 Exports, goods and services 52.0 7.5 10.1 0.5 6.5 6.5 Imports, goods and services 31.5 13.1 1.3 5.8 4.3 4.4 Real GDP growth, at constant factor prices 8.2 5.3 3.8 3.0 3.5 3.3 Agriculture 1.8 0.1 -0.7 -0.5 0.2 0.2 a Industry 13.6 7.7 4.0 1.0 2.0 2.0 Services 8.1 5.9 5.2 5.2 5.2 4.8 Inflation (consumer price index) 2.0 6.7 4.8 2.2 2.7 2.9 Current account balance (% of GDP) -7.7 -5.9 -0.9 -3.9 -3.8 -3.7 Net foreign direct investment inflow (% of GDP) 6.5 6.6 5.9 5.3 5.3 5.4 Fiscal balance (% of GDP) -4.6 -3.7 -1.3 -2.3 -2.3 -1.8 Revenues (% of GDP) 27.5 26.8 27.8 29.2 28.4 28.5 Debt (% of GDP) 75.4 65.3 59.8 58.3 57.6 56.3 Primary balance (% of GDP) -2.7 -1.8 0.7 0.0 0.0 0.5 b,c International poverty rate ($2.15 in 2017 PPP) 2.4 1.8 1.5 1.3 1.1 1.0 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 7.3 5.7 4.9 4.3 3.7 3.2 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 27.1 23.6 21.7 20.1 18.5 17.1 GHG emissions growth (mtCO2e) 2.4 -4.2 -4.6 -1.5 -0.7 -0.2 Energy related GHG emissions (% of total) 46.7 46.5 46.0 47.4 49.1 50.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Includes construction. b/ Calculations based on ECAPOV harmonization, using 2014- and 2019-SILC-C. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. c/ Projection using point-to-point elasticity (2013-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 3 Oct 24 ARMENIA Key conditions and Recent developments challenges In H1 2024, real GDP growth reached 6.5 percent (yoy), down from 10.4 percent in H1 Table 1 2023 Armenia has weathered multiple shocks 2023. Private consumption and investment Population, million 3.0 since 2020, including the refugee crisis at grew 7.6 and 13.1 percent, respectively. On GDP, current US$ billion 24.1 the end of 2023. This has been possible the supply side, trade, financial, and real GDP per capita, current US$ 8053.0 due to targeted government interventions estate services grew 22 percent (yoy), 15 a 0.8 International poverty rate ($2.15) and effective macroeconomic manage- percent (yoy), and 13 percent (yoy), respec- a 10.0 ment. Following Russia's invasion of tively. In the industrial sector, construction Lower middle-income poverty rate ($3.65) a 51.3 Ukraine in 2022, the Armenian economy and manufacturing were positive contrib- Upper middle-income poverty rate ($6.85) Gini index a 27.9 benefited from significant inflows of utors, whereas mining contracted 11 per- School enrollment, primary (% gross) b 92.9 funds, migrants, and re-routed exports. cent (yoy), due to lower ore extraction (fol- b 73.4 This led to an impressive 10.5 percent lowing the closure of the Sotk mine at the Life expectancy at birth, years average annual growth rate in 2022–2023. border with Azerbaijan). Meanwhile, agri- Total GHG emissions (mtCO2e) 13.2 Recently this growth momentum has be- culture showed signs of recovery, expand- Source: WDI, Macro Poverty Outlook, and official data. gun to slow down due to a gradual out- ing 5 percent (yoy) in the same period. a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2022). flow of funds and migrants, and a reduc- Armenia's unemployment rate rose to 15.5 tion in net exports. percent in Q1 2024, up from 13.7 percent in Although notable progress has been made Q1 2023. The rise can be partly attributed in recent years in reducing corruption and to the inflow of refugees not yet integrat- improving the business environ- ed into the labor market, and to a decline ment—particularly through more effective in employment levels, particularly female Armenia’s economy expanded by 6.5 tax and customs administration—other workers in urban areas. percent in H1 2024, driven by private key structural challenges persist. There Average inflation fell from 2 percent in consumption and investment. During continues to be low private sector invest- 2023 to 0.3 percent deflation during Janu- ment and constraints such as low labor ary-July 2024, largely due to a 3.7 percent January-July, an average 0.3 percent de- force participation rates and a shortage of fall in food and non-alcoholic beverage flation was recorded, largely due to skilled workers. To address these chal- prices. This is influenced by a high base ef- falling food and non-alcoholic beverage lenges, the government is pursuing an am- fect in 2023, which is expected to weaken in prices. Meanwhile, unemployment rose bitious plan to boost human capital H2 2024. In response, the Central Bank re- in Q1. Growth is expected to moderate through reforms in the education and duced the policy rate cumulatively through health sectors. September by 175 bsp, to 7.5 percent. at around 4.5 percent in the medium Positive progress on resolving Armenia’s In H1 2024, the budget posted a surplus term, with exports and money transfer peace negotiations and reopening of bor- of 0.1 percent of projected GDP, driven inflows easing. ders with neighbors would expand Arme- by an 11 percent under-execution of cur- nia’s economic potential and potentially rent expenditure. Although tax revenues boost growth. increased 7.6 percent in nominal terms, FIGURE 1 Armenia / Real GDP growth and contributions to FIGURE 2 Armenia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant million LCU) 15 70 3.0 10 60 2.5 5 50 2.0 40 0 1.5 30 -5 1.0 20 -10 10 0.5 -15 2019 2020 2021 2022 2023e 2024f 2025f 2026f 0 0.0 Private consumption Government consumption 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Investment Net export International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: Statistical Committee of Armenia, Central Bank of Armenia (CBA), and Source: World Bank. Notes: see Table 2. World Bank staff projections. MPO 4 Oct 24 they were still 9 percent below the banks increased 8 percent and 4 percent, continued support for refugees, elevated planned budget. Capital expenditure was respectively, through July 2024. This domestic interest payments, and substan- in line with the budget, and at end-July growth was primarily driven by AMD- tial capital expenditure plans. Further de- government debt was at 44.6 percent of denominated funds, which helped lower terioration is likely in 2025, to be followed the annual GDP forecast. the credit dollarization ratio to 33.2 per- by a period of fiscal consolidation. As a re- Armenia's trade turnover doubled in H1 cent by end-July 2024. sult, the public debt stock is expected to in- 2024, driven by a 134 percent leap in ex- The national absolute poverty rate contin- crease over the next two years. ports and an 87 percent rise in imports ued to fall, reaching 23.7 percent in 2023, The current account deficit (CAD) is ex- (both in nominal terms), primarily due to although the decline was slower than in pected to widen to 3.3 percent of GDP in the re-export of precious stones and metals previous years and less than proportionate 2024, and potentially deteriorate further in (70 percent of total exports). The number to economic growth. the medium term, mainly due to the posi- of tourists declined 6.1 percent, largely due tive impact of re-exports phasing out. The to a 24 percent fall in Russian visitors. CAD is expected to remain below 4.5 per- Meanwhile, net non-commercial money cent of GDP in the medium term. transfers were 48 percent lower than in H1 Outlook Poverty, as measured by the upper mid- 2023, mainly due to reduced inflows from dle-income poverty line of USD 6.85, is Russia. By mid-August, the AMD had ap- Supported by domestic demand, growth expected to remain about 49 percent in preciated 4 percent against the USD, com- in 2024 is expected to slow to 5.5 percent 2024. Rising unemployment and slower pared with the end of 2023. before gradually converging to a potential GDP growth may suppress real wages, af- Armenia's financial stability indicators re- growth rate of 4.5 percent in the medium fecting the trend in poverty reduction. mained robust as of June 2024, with a 20.2 term. Average inflation is expected to rise Downside risks to this outlook include percent Capital Adequacy Ratio and a low gradually toward 4 percent target in the geopolitical instability, challenges in Non-Performing Loans ratio at 1.2 percent. medium term. refugee integration, and potential Banking sector profitability improved, The fiscal deficit is projected to rise to slowdowns in the economies of key and credit and deposits by commercial 4.7 percent of GDP in 2024, driven by trading partners. TABLE 2 Armenia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 5.8 12.6 8.3 5.5 5.0 4.6 Private consumption 2.8 5.6 5.6 6.3 4.9 4.5 Government consumption -6.2 -2.2 28.3 2.1 1.0 4.6 Gross fixed capital investment 23.6 14.0 10.1 11.6 8.0 8.1 Exports, goods and services 18.6 59.9 30.7 29.2 -15.3 1.6 Imports, goods and services 12.9 35.0 30.2 29.3 -13.1 3.2 Real GDP growth, at constant factor prices 5.6 13.1 8.0 5.5 5.0 4.6 Agriculture -0.8 -2.8 2.9 4.1 3.5 3.0 Industry 2.6 9.8 2.7 6.5 5.8 4.5 Services 8.7 18.1 11.4 5.3 4.9 4.8 Inflation (consumer price index) 7.2 8.6 2.0 0.6 3.2 4.0 Current account balance (% of GDP) -3.5 0.3 -2.3 -3.3 -3.8 -4.3 Net foreign direct investment inflow (% of GDP) 2.5 4.9 2.2 2.0 2.0 2.1 a Fiscal balance (% of GDP) -4.5 -2.2 -1.9 -4.7 -5.5 -4.6 Revenues (% of GDP) 24.9 25.1 26.0 26.1 26.2 26.5 b Debt (% of GDP) 60.2 46.7 48.4 50.3 53.8 55.4 Primary balance (% of GDP) -2.0 0.1 0.7 -1.5 -2.1 -1.1 c,d International poverty rate ($2.15 in 2017 PPP) 0.5 0.8 0.8 0.8 0.9 0.9 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 8.7 10.0 9.5 9.2 8.9 8.6 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 51.7 51.3 49.6 48.6 47.6 46.6 GHG emissions growth (mtCO2e) 5.9 6.6 11.5 7.9 6.4 4.8 Energy related GHG emissions (% of total) 63.1 65.3 68.7 67.8 68.7 70.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The 2023 fiscal balance registered a deficit of -4.1 percent of GDP, including realized liabilities to Karabakh. b/ Excludes CBA debt. c/ Calculations based on ECAPOV harmonization, using 2010-ILCS, 2018-ILCS, and 2022-ILCS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. d/ Projection using annualized elasticity (2010-2018) with pass-through = 0.69 based on GDP per capita in constant LCU. MPO 5 Oct 24 in 2023. Hydrocarbon sector growth re- mained lackluster at 0.4 percent in real AZERBAIJAN Key conditions and terms as decline in crude oil production offset expansion in natural gas produc- challenges tion. Bolstered by fast real growth in the construction sector (18.4 percent, yoy), Table 1 2023 Azerbaijan’s continued reliance on hydro- which is fueled by public investment in Population, million 10.2 carbons as a major source of export and reconstruction, non-hydrocarbon sector GDP, current US$ billion 72.7 fiscal revenue remains its main vulnera- activity expanded by 6.9 percent in H1 GDP per capita, current US$ 7134.4 bility. Declining oil production, oil price 2024. Other drivers of economic activity a 99.8 School enrollment, primary (% gross) volatility, and the global transition away included real growth in transportation a 73.5 from fossil fuels are challenges to long- (15.4 percent, yoy), ICT (12.2 percent, Life expectancy at birth, years Total GHG emissions (mtCO2e) 53.1 term growth prospects. yoy), and hospitality (10.2 percent, yoy). Source: WDI, Macro Poverty Outlook, and official data. Private sector development is constrained On the demand side, investment growth a/ Most recent WDI value (2022). by the economy’s large state footprint, an gained momentum (9.4 percent, yoy in uneven playing field for companies, shal- real terms) due to greater public invest- low financial markets, and a weak hu- ment, and consumption growth remained man capital base. robust. The official unemployment rate Global mitigation efforts, resulting in de- fell to 5.4 percent by end-June, from 5.6 clining fossil fuel demand and fuel prices, percent in December 2023. can lead to substantial reductions in Annual inflation fell to 1.1 percent in June Azerbaijan’s resource rents. Carbon bor- 2024 as external pressures subsided and Economic growth rose to 4.3 percent in der adjustment measures could adversely Nominal effective exchange rate appreci- H1 2024, driven by the non-hydrocar- impact the country’s economy further. ated, further supporting the disinflation Azerbaijan’s role in hosting COP29 in No- process. Inflation remained below the Cen- bon sector supported by public invest- vember 2024 may provide an opportuni- tral Bank’s target range (4+/-2 percent), ment. Annual inflation fell to 1.1 per- ty to boost climate mitigation and adap- prompting a cut in the policy rate by 75 cent as external pressures subsided. Ex- tation efforts. Phasing out distortionary basis points to 7.25 percent, in three steps ternal and fiscal surpluses narrowed fossil fuel subsidies would substantially over six months in 2024. reduce carbon emissions while fostering The fiscal balance recorded a surplus of due to slowing energy prices. In the private investment in renewable energy, 10.3 percent of GDP in H1 2024, com- medium term, growth is estimated to contributing to boosting the economy in pared with 18.1 percent in H1 2023. This hover around 2.5 percent as oil produc- the long run. is due to an increase in expenditure and a tion continues to decline. Risks to this fall in hydrocarbon revenue. Revenue fell by 11.1 percent (yoy), due to lower hy- outlook are balanced. drocarbon sector receipts caused by low- Recent developments er prices. Tax collection in the non-hydro- carbon sector grew by 8.6 percent in re- Growth rose to 4.3 percent in real terms al terms. Expenditure increased by 13.5 in H1 2024, compared with 1.1 percent percent (yoy) in real terms, propelled FIGURE 1 Azerbaijan / Non-oil GDP growth and oil price FIGURE 2 Azerbaijan / Official poverty rate and unemployment rate US$ per bbl Percent Percentage of population Percent 120 12 10 10 Crude oil price, avg (lhs) Official poverty rate (lhs) Non-oil GDP growth (rhs) 100 9 Unemployment rate (rhs) 8 8 80 6 6 6 60 3 4 4 40 0 2 2 20 -3 0 0 0 -6 10 11 12 13 14 15 16 17 18 19 20 21 22 * 23 14 15 16 17 18 19 20 21 22 23 24 25 26 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Sources: State Statistical Committee and World Bank. Source: State Statistical Committee. Notes: The World Bank has not yet reviewed the official national poverty rates for 2013–2022.*Preliminary. MPO 6 Oct 24 by a 25.7 percent increase in capital down to 1.7 percent. Deposit dollarization major external pressures, inflation will expenditure. Current expenditure rose fell to 40 percent. hover around 3.2 percent amid slowing by 8.8 percent (yoy) in real terms. The domestic demand. 2024 budget was amended in June, with The fiscal balance is projected to remain in both revenue and expenditure revised surplus in the medium term, although the upwards. For budgeted revenue, the re- Outlook surplus will narrow due to rising expendi- vision was largely due to an increase ture, largely on public investment. Rising in the benchmark oil price from US$60 Supported by additional public expen- expenditure is a challenge to compliance to US$75; additional expenditure was diture on non-hydrocarbon sectors, the with the medium-term targets for the non- mostly allocated to the reconstruction economy is projected to expand by 3.2 hydrocarbon primary fiscal balance. program. The substantial fiscal surplus percent in 2024, faster than previously an- The external balance is expected to re- allowed State Oil Fund reserves to in- ticipated. The hydrocarbon sector is pro- main in surplus in the medium term be- crease to US$58bn (equivalent to 80 per- jected to decline in 2024–2026, due to cause of continuing favorable energy cent of GDP) by end-June 2024. falling crude oil production because the prices. However, a projected fall in sur- Compared with H1 2023, the trade surplus major oilfield is aging, whereas natural plus is in line with declining crude oil narrowed to 11.5 percent of GDP in H1 gas production is expected to stabilize. production and rising imports. 2024, with exports declining by 28 percent Non-hydrocarbon sector growth is ex- Risks to the outlook are balanced. On (yoy) on the back of lower oil and gas pected to slow in the medium term, due the downside, geopolitical tensions add prices and a decline in crude oil produc- to the impact of public investment in to uncertainty, although they could also tion; whereas, due to increased public in- reconstruction abating; consumption lead to higher commodity prices. With vestment, imports increased by 9.4 percent growth is expected to cool further. With- public investment as the main driver of (yoy). Central Bank reserves edged up to out structural reforms to boost private in- non-hydrocarbon sector growth, there is USD 11.7 billion (16.2 percent of GDP) by vestment, growth is projected to hover a risk that the economy will be increas- end-June 2024, corresponding to 5.6 around 2.5 percent in the medium term. ingly vulnerable to fluctuations in energy months of imports. Inflation is projected to remain within the prices. This could also divert the focus Credit to the economy expanded by 12 per- Central Bank’s target in 2024, despite some away from structural reforms needed to cent in H1 2024 (yoy) in real terms, with increase in H2 2024 due to the government support private sector-led growth. In July, both consumer and business loans increas- raising fuel prices in June 2024. In the Fitch upgraded Azerbaijan’s credit rating ing by 10 percent. The NPL ratio edged medium term, assuming the absence of to BBB- investment grade. TABLE 2 Azerbaijan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 5.6 4.6 1.1 3.2 2.7 2.4 Private consumption 7.0 4.9 4.0 4.1 3.7 3.6 Government consumption 3.8 6.3 8.1 5.1 5.0 4.8 Gross fixed capital investment -6.0 5.7 9.6 11.4 8.2 6.0 Exports, goods and services 5.6 3.3 -2.9 0.4 0.4 0.4 Imports, goods and services 2.5 3.2 1.9 2.7 2.8 2.8 Real GDP growth, at constant factor prices 5.6 4.6 1.1 3.2 2.7 2.4 Agriculture 3.3 3.4 3.2 3.0 3.0 3.0 Industry 4.1 2.4 -0.9 0.2 0.2 0.2 Services 8.6 8.5 3.8 7.7 6.0 5.1 Inflation (consumer price index) 6.7 13.8 2.1 4.2 3.4 3.0 Current account balance (% of GDP) 15.2 29.7 11.5 8.5 7.4 6.1 Net foreign direct investment inflow (% of GDP) -4.1 -1.4 -1.1 -1.0 -1.0 -0.9 Fiscal balance (% of GDP) 4.1 5.7 8.1 5.5 3.7 3.0 Revenues (% of GDP) 36.5 31.6 40.7 38.4 35.9 33.9 Debt (% of GDP) 18.2 11.6 21.8 21.9 22.2 23.0 Primary balance (% of GDP) 4.8 6.1 8.4 6.1 4.3 3.5 GHG emissions growth (mtCO2e) 5.2 -2.0 -0.7 1.1 1.1 1.2 Energy related GHG emissions (% of total) 62.7 60.8 60.4 61.2 61.8 62.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 7 Oct 24 concerns and geopolitical tensions exac- erbate the economic outlook, with the BELARUS Key conditions and potential for further sanctions or more stringent enforcement of existing ones. challenges Maintaining accommodative policies pre- sents challenges in balancing social bene- Table 1 2023 In 2024, Belarus experienced stronger- fits, wages, economic support, and over- Population, million 9.2 than-anticipated economic growth, though all stability. This, combined with a dete- GDP, current US$ billion 71.8 this success strains the limits of its eco- riorating current account, exchange rate GDP per capita, current US$ 7817.0 nomic policy effectiveness. To support do- volatility, price controls, and labor force a 0.0 International poverty rate ($2.15) mestic demand, the government has em- constraints, increases the risk of substan- a 0.1 ployed a range of extensive administrative tial inflationary pressures. Belarus’s econ- Lower middle-income poverty rate ($3.65) a 1.3 measures alongside expansionary mone- omy, with its outdated Soviet-era frame- Upper middle-income poverty rate ($6.85) Gini index a 24.4 tary and fiscal policies. Nevertheless, the work and inefficiencies, combined with School enrollment, primary (% gross) b 94.7 country’s potential GDP is constrained by limited opportunities for diversification, b 73.1 the imposition of sanctions and restricted requires continuous budgetary support Life expectancy at birth, years access to advanced technologies, despite and reforms to address its deep-seated Total GHG emissions (mtCO2e) 83.9 efforts to stimulate investment activity. In economic challenges. Source: WDI, Macro Poverty Outlook, and official data. response to sanctions, Belarus is seeking a/ Most recent value (2020), 2017 PPPs. b/ Most recent WDI value (2022). to establish new trade routes and redirect external trade through Russia, though this shift has resulted in increased logistical Recent developments costs and payment delays. In the medium term, the government's focus will be on From January to August 2024, Belarus's In 2024, Belarus's economy is projected mitigating supply chain disruptions and GDP grew by 4.9 percent year-on-year, to register strong growth, driven by Rus- enhancing local production through im- with second-quarter performance notably sia’s recovery and reduced sanctions im- port substitution, supported by substantial exceeding potential GDP due to robust pact. However, the long-term growth investments and subsidies from Russia. consumer spending, rising investment ac- These administrative adjustments are in- tivity, and heightened demand from Rus- faces obstacles from the limitations of ac- tended to bolster economic resilience, but sia, particularly in the defense sector. The commodative policies and ongoing macro- increased dependence on the Russian mar- unemployment rate is at a record low of economic challenges. Tightening mone- ket—amidst growing competition for Be- 3 percent amid persistent labor shortages. tary conditions, inflation, and currency larusian products—exposes the economy Domestic trade drove growth, with high challenges are expected, while ongoing to significant risks. The vulnerability to industrial sector performance from re- weakened external demand is pro- duced inventories and increased exports stimulus measures strain the fiscal nounced, particularly if Russia’s economic boosting the transport sector. Agriculture stance. The economy's insulation from outlook deteriorates. Addressing labor benefited from accelerated harvests and global trends limits growth and worsens market rigidities will be crucial, as will in- favorable weather, while construction ac- competitiveness and productivity. vestments aimed at stimulating potential tivity surged due to investments in the growth. Additionally, heightened security Russian market and import substitution. FIGURE 1 Belarus / Quarterly real GDP growth and FIGURE 2 Belarus / Actual and projected poverty rates and contributions to real quarterly GDP growth real private consumption per capita Percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 40 25 7000 30 20 6000 20 10 5000 0 15 4000 -10 -20 3000 10 -30 2000 -40 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 5 1000 2021 2022 2023 2024 0 0 HH Consumption GG Consumption Gross Capital Formation Exports 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Imports Stat discrepancy International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real priv. cons. pc Source: World Bank calculations based on Belstat data. Source: World Bank. Notes: see Table 2. MPO 8 Oct 24 The IT sector showed signs of stabilization. In 2023, real disposable income rose by already overheated economy is expected On the demand side, buoyant household 6.3 percent, reversing the previous year's to slow to 1.2 percent in 2025. Consump- spending, supported by increased lending, decline. Employment fell by 1.5 percent, tion will continue to drive growth, though moderate interest rates, rising wages, and but real wages and pensions increased. at a slower pace due to a tight labor mar- high consumer confidence. Poverty, based on the UMIC poverty line ket, while investments will contribute Inflation reached 5.7 percent in January- ($6.85/day 2017PPP), is low and is expect- positively but face constraints from August, year on year, driven by non-reg- ed to decrease from 0.69 percent in 2023 tighter monetary conditions. Net exports ulated prices, while regulated prices re- to 0.57 percent in 2024. may negatively impact growth due to re- mained stable. In response, the Central liance on a single market and a challeng- Bank raised the overnight lending rate by ing external environment. 0.5 percentage points to 11 percent and In the medium term, inflation, a tight labor increased the reserve requirement for for- Outlook market, and financial losses in enterprises, eign currency liabilities by 2 percentage coupled with a shift of resources to less points to 20 percent. The national curren- Belarus's economy is projected to grow productive sectors, will diminish the effec- cy depreciated slightly due to sanctions by 4 percent in 2024, exceeding previous tiveness of economic stimulus measures. and reduced trade inflows, tracking the forecasts, though growth is expected to With a projected slowdown in Russia, Be- Russian ruble's fluctuations. With region- slow in the latter half of the year. This larusian growth is likely to fall short of its al budgets offsetting central spending, the expansion is driven by significant wage potential, even with administrative efforts general government recorded a surplus of increases and improvements in the Russ- to sustain macroeconomic stability. Elevat- 1.2 percent of GDP. ian economy. Manufacturing remains the ed inflationary pressures are expected, The financial sector reported strong main growth driver, bolstered by a recov- with prices predicted to rise by 6.5 percent profits, mainly from state-owned banks ery in external trade, largely fueled by in 2024 and remain above historical aver- investing in state bonds, with non-per- Russian demand. Future growth will de- ages. Trade logistics and lower commodity forming assets stable. On the back of a pend on effective expansionary policies, prices may strain the current account, lead- mild trade surplus, the current account support for state-owned enterprises, tar- ing to currency pressures and a worsening registered a 3.9 percent GDP deficit for geted lending, domestic borrowing, and fiscal outlook due to stimulus measures Q1-Q2 2024, despite a 13 percent drop rising disposable income. and job preservation efforts. The fiscal out- in remittances. The deficit was largely However, the economy faces challenges look is expected to remain challenging due financed by foreign direct investments, from mounting inflationary pressures to government stimulus measures, indexa- with external debt slightly decreasing and overall macroeconomic challenges. tion, and job preservation efforts. Despite and foreign reserves rising to USD 8.5 With a projected slowdown in the Russian higher inflation, poverty levels are expect- billion by August 2024. economy and tighter monetary policy, the ed to remain stable through 2024 and 2025. TABLE 2 Belarus / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 2.4 -4.7 3.9 4.0 1.2 0.8 Private consumption 4.9 -1.2 4.1 7.3 2.0 1.9 Government consumption -0.8 -0.1 1.4 0.9 0.1 0.5 Gross fixed capital investment -5.5 -13.3 12.1 2.4 1.5 1.3 Exports, goods and services 10.1 -12.3 23.1 3.0 2.8 2.6 Imports, goods and services 5.7 -11.4 29.1 4.7 3.8 4.0 Real GDP growth, at constant factor prices 2.4 -4.7 3.7 3.9 1.3 0.8 Agriculture -4.1 4.4 -0.4 3.8 1.9 1.1 Industry 3.1 -6.2 8.0 5.7 1.8 0.8 Services 3.0 -5.1 1.1 2.5 0.8 0.8 Inflation (consumer price index) 9.5 15.2 5.1 6.5 6.9 6.2 Current account balance (% of GDP) 3.1 3.6 -1.5 -5.1 -4.9 -5.6 Net foreign direct investment inflow (% of GDP) 1.9 1.9 2.7 1.9 1.9 1.9 Fiscal balance (% of GDP) 0.2 -1.5 1.2 -0.9 -1.1 -1.1 Revenues (% of GDP) 35.7 36.0 41.1 34.8 34.4 34.3 Debt (% of GDP) 35.8 38.7 37.7 37.5 37.8 37.9 Primary balance (% of GDP) 1.8 0.1 2.8 0.7 0.5 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.1 0.1 0.1 0.0 0.0 0.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 1.0 1.0 0.7 0.6 0.5 0.5 GHG emissions growth (mtCO2e) 0.1 -3.7 0.9 1.7 -0.1 -0.1 Energy related GHG emissions (% of total) 62.4 61.7 61.9 62.5 62.5 62.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2020-HHS. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 9 Oct 24 Border Adjustment Mechanism in 2026 is expected to further challenge BiH's export BOSNIA AND Key conditions and competitiveness by 2030. To achieve sustained long-term growth of challenges HERZEGOVINA 3-4 percent, reforming the economy and the energy system is crucial. However, the Bosnia and Herzegovina (BiH) has been pace of reform remains slow due to lack granted permission by the European Coun- of consensus on country level policies that Table 1 2023 cil to begin accession talks in March 2024, would bring BiH closer to EU member- Population, million 3.2 pending the implementation of necessary ship; furthermore, frequent elections, GDP, current US$ billion 24.1 reforms. To meet the economic criteria for widespread corruption, and the fragment- GDP per capita, current US$ 7514.9 EU membership, BiH must tackle internal ed division of responsibilities between the School enrollment, primary (% gross) a 87.9 market fragmentation by bolstering nation- two entities and cantons also contribute to a 75.3 wide regulatory and supervisory bodies, the slow pace of reforms. Overcoming Life expectancy at birth, years improving the transparency and efficiency these obstacles is vital for BiH to move to- Total GHG emissions (mtCO2e) 22.9 of the large public sector, and reducing the wards a more prosperous future. Source: WDI, Macro Poverty Outlook, and official data. footprint of state-owned enterprises. a/ WDI for School enrollment (2023); Life expectancy (2022). BiH’s economy has shown macroeconomic stability and resilience over the past, in- cluding during the COVID-19 pandemic. Recent developments This resilience is attributed to three eco- nomic anchors: the currency board (which In Q1 2024, real GDP growth rose 2.7 per- ties the BiH mark to the euro), the state- cent, discontinuing the sharp slowdown in wide collection of indirect taxes through 2023. The pick-up in output growth is Real GDP growth rose 2.7 percent in ITA, and the prospects of EU membership. largely due to a recovery in private con- Q1 2024, from 1.6 percent in 2023 due Despite macro stability and resilience, re- sumption fueled by an increase in mini- al income growth has averaged only 2 mum wages and a tightening labor market. to the modest economic expansion in the percent per annum from 2009 to 2023, Stronger retail sales volumes in the first European Union (EU) and a decelera- leading to stagnant living standards, with half of 2024 suggest robust private con- tion in investment growth. Upcoming real per capita consumption remaining sumption outcomes during this period. municipal elections are expected to lead at just 40 percent of the EU27 average. Inflation reached 1.8 percent in July 2024 y/ to a widening fiscal deficit to 1.7 per- Achieving faster convergence with the y, compared to 4.0 percent the year before, EU27 remains difficult due to low invest- marking a drop in transport prices and a cent of GDP in 2024, yet public debt re- ment rates and a growth model that de- slowdown in utility prices. As a result, in- mains around 36 percent of GDP. Liv- pends on private consumption. The need flation from January to July 2024 decelerat- ing standards are stagnant, in part due for structural reforms is even more critical ed to 1.9 percent from 12.2 percent during to an anemic labor market. given the challenges of a declining popula- the same period the year before. tion and the likely slowdown in total fac- The labor market showed mixed signals. tor productivity over the long term. In ad- The employment rate rose to 41.9 percent dition, the introduction of the EU Carbon in Q1 2024, up from 41.5 percent in 2023, FIGURE 1 Bosnia and Herzegovina / Real GDP growth and FIGURE 2 Bosnia and Herzegovina / Labor market contributions to real GDP growth indicators Percent, percentage points Percent 8 45 40 6 Q1 2023 Q2 2023 35 Q3 2023 Q4 2023 4 30 Q1 2024 2 25 20 0 15 -2 10 5 -4 2019 2020 2021 2022 2023e 2024f 2025f 2026f 0 Agriculture Industry Services GDP Emp. Rate (15-89) Unemp. Rate (15-74) Sources: Agency for Statistics (BHAS) and World Bank staff calculations. Sources: LFS 2023 - 2024 report, and World Bank staff calculations. MPO 10 Oct 24 whereas the unemployment rate in- portion of the educated labor force. Popu- creased to 13.5 percent, a 0.3 percentage lation aging, driven by outmigration, also point increase compared to the previous Outlook dampens productivity and burdens public year. Economic vulnerability to shocks service delivery, particularly in health. The in BiH remains high—according to the An improvement in the EU economic land- economic activity rate remains low at 2023 Life in Transition Survey, 40 percent scape, coupled with higher private con- around 48 percent compared to the EU of the population report being unable to sumption and investment driven by con- average of 75 percent, with women’s par- save, running into debt, or not being able struction activities, is set to raise real GDP ticipation at roughly 37 percent. Gender to cover basic household expenses for growth in BiH to 2.8 percent in 2024, and discrepancies in employment remain par- longer than 1 month in case of loss of 3.2 percent in 2025. Inflation is expected to ticularly stark at the lower levels of ed- their main income source. decelerate to half a percent by 2026 bar- ucation. Thus, creating conditions to acti- Higher government spending and smaller ring any further external shocks. By 2026, vate the female labor force would benefit revenues (in GDP terms) contributed to a real output growth is projected to rise to economic growth. Furthermore, the sharp consolidated fiscal deficit of 0.9 percent of 3.9 percent fueled by strengthened exports rise in minimum wages, in January of GDP in 2023, which followed a surplus of and private consumption stemming from 2023 and 2024, may impact external com- 0.5 percent of GDP the year before. The improved economic conditions in the EU petitiveness, which could also be affected deficit in 2023 was driven by an estimat- and tightening labor markets in BiH. The by the EU’s Carbon Border Adjustment ed 16 percent increase in subsidies, social current account deficit is expected to Mechanism, considering that two-thirds benefits and transfers in FBiH, and an 11 widen to around 3.6 percent of GDP due to of BiH’s electricity production comes percent increase in RS. Nevertheless, pub- higher imports of consumer goods. from coal-fired thermal power plants. In lic debt remains relatively low at around In the last quarter of 2024, policymakers addition, a lack of digitalization and uni- 36 percent of GDP. are focused on the municipal elections fied databases and registries hampers reg- Meanwhile, the current account deficit im- leaving little space for economic reforms. ulatory compliance and business opera- proved to 2.8 percent in 2023. It was almost Several structural challenges hinder tions. Finally, geopolitical risks pose a fully financed by net foreign direct invest- stronger output growth. Productivity is af- threat of exacerbating domestic political ment inflows, and other investments, fected by the large footprint of state- frictions, undermining the much-needed mainly foreign loans. owned enterprises, which employ a sizable push for structural reforms. TABLE 2 Bosnia and Herzegovina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 7.3 3.8 1.6 2.8 3.2 3.9 Private consumption 4.0 3.0 2.0 2.5 2.8 3.2 Government consumption 6.1 2.7 4.1 4.6 1.5 3.7 Gross fixed capital investment 33.9 18.1 0.2 5.8 8.3 2.2 Exports, goods and services 5.0 9.9 -6.0 1.0 3.0 4.0 Imports, goods and services 8.0 12.0 -3.0 3.0 3.9 2.0 Real GDP growth, at constant factor prices 7.4 4.2 1.7 2.8 3.2 3.9 Agriculture 3.4 3.5 3.1 3.0 3.2 3.2 Industry 10.0 1.4 -3.4 0.5 2.0 3.2 Services 6.8 5.5 3.6 3.6 3.6 4.2 Inflation (consumer price index) 2.0 14.0 6.1 2.0 0.9 0.4 Current account balance (% of GDP) -1.8 -4.3 -2.8 -3.2 -3.8 -3.6 Net foreign direct investment inflow (% of GDP) 3.3 3.0 3.2 3.2 3.1 3.1 Fiscal balance (% of GDP) -0.3 0.5 -0.9 -1.7 -0.2 -0.4 Revenues (% of GDP) 43.2 46.0 44.8 43.9 45.4 45.2 Debt (% of GDP) 37.8 35.8 36.3 35.8 35.2 34.3 Primary balance (% of GDP) 0.3 1.2 -0.2 -1.0 0.4 0.2 GHG emissions growth (mtCO2e) -1.4 -2.7 -2.2 0.4 1.8 2.5 Energy related GHG emissions (% of total) 88.7 88.9 88.8 88.7 88.5 88.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 11 Oct 24 among the less educated. Income inequal- ity remains high, making the country the BULGARIA Key conditions and most unequal EU member. Since early 2021, Bulgaria has been marred challenges by political instability and lost reform mo- mentum. Thus, the country has failed to Table 1 2023 Since the start of the century, Bulgaria’s deliver on major policy goals, including Population, million 6.4 authorities have adhered to macroeconom- some of the milestones under the National GDP, current US$ billion 102.2 ic stability, underpinned by a currency Recovery and Resilience Plan. GDP per capita, current US$ 15855.4 board arrangement and fiscal prudence. Despite the political turmoil, near-term eu- a 0.7 International poverty rate ($2.15) This has helped the country weather the rozone entry has remained a key govern- a 2.0 recent crises relatively well while remain- ment priority. Should inflation meet the Lower middle-income poverty rate ($3.65) a 5.8 ing on a stable income convergence path. Maastricht criterion before end-2024, as ex- Upper middle-income poverty rate ($6.85) Gini index a 39.0 Bulgaria’s GDP per capita reached 64 per- pected, the country could join the euro- School enrollment, primary (% gross) b 87.3 cent of the European Union (EU) average zone from mid-2025 or January 2026. Full- b 74.4 (in purchasing power parity terms) in 2023, fledged Schengen Area membership and Life expectancy at birth, years while the country joined the ranks of high- OECD accession have been consistently Total GHG emissions (mtCO2e) 50.1 income countries effective July 1, 2024. pursued, too. Yet, continued political tur- Source: WDI, Macro Poverty Outlook, and official data. Despite that, the country continues to face moil and early elections in October 2024 a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2022). multiple development challenges. A key jeopardize the reform agenda. horizontal constraint is deep-rooted in- stitutional and governance weaknesses, which enable state capture by vested in- terests and discourage investment. This Recent developments suppresses productivity and private sec- The Bulgarian economy has embarked tor growth, while also resulting in subop- The first two quarters of 2024 saw a recovery on a recovery path in early 2024 timal public services. A rapid decline in of GDP growth to 1.9 and 2 percent y/y, re- aligned with the moderate pick-up of ac- the population—one of the worst global- spectively, in line with the firming of growth ly—also limits the country’s economic po- in the wider EU. Noteworthy, while growth tivity in the eurozone. The widening tential while exerting increasing pressure in Q1 was driven by final consumption, Q2 gap between real wage and productivity on public systems. saw exports embarking on a recovery path, growth and the potential build-up of a Despite some recent progress, Bulgaria too. Consumption was fed by unabating construction-credit bubble warrant close continues to experience one of the highest wage growth, which accelerated to 13 and monitoring. The country struggles with a levels of income poverty and inequality 15 percent y/y in real terms in Q1 and Q2 within the EU. From 2016 to 2020, eco- 2024, respectively, due to a hike of the min- continued political crisis that jeopardizes nomic growth led to improved living imum wage by 19 percent from start-2024 the reform agenda. standards and significant poverty reduc- and long-standing labor shortages. While tion. However, this trend reversed in 2021 the gap between real wage and productiv- due to the lingering effects of the pandem- ity growth has been consistently positive ic, inflation, and rising unemployment since 2013 (the only exception to this trend FIGURE 1 Bulgaria / Real wage and productivity growth gap FIGURE 2 Bulgaria / Actual and projected poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 16 25000 14 10 20000 12 10 15000 5 8 0 6 10000 4 Real wage growth, y/y 5000 -5 Productivity growth, y/y 2 Wage and productivity growth gap 0 0 -10 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate 3 4 5 6 7 8 9 0 1 2 3 4 /1 /1 /1 /1 /1 /1 /1 /2 /2 /2 /2 /2 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 12 Oct 24 was 2022, when inflation shot up marked- the 3 percent Maastricht ceiling, given the This trend is mirrored by an ongoing con- ly), it reached a 15-year high of above 10pp government’s aspiration for prompt euro- struction boom and fuels concerns about in Q1 2024, fueling concerns about the zone accession. As in previous years, how- the build-up of a construction-credit bub- economy’s competitiveness. ever, this may require cutting down on ble, which may be followed by a painful The pick-up of growth and the minimum planned capital spending. In late August correction and increase in non-performing wage increase—which affected positively 2024, the government successfully placed a loans. For the time being, however, non- the bottom of the income distribution - are record-high volume of EUR 4.34bn of EUR performing loans remain low at 3.64 per- expected to have supported further pover- and USD-denominated bonds on interna- cent as of June 2024, down from 3.80 per- ty reduction in early 2024. Despite this pos- tional markets, which testified to contin- cent a year ago. In an attempt to mitigate itive development, the employment rate ued market access at attractive terms. those risks, effective October 1, the central among the working-age population with bank introduced several requirements for low education (ISCED 0-2) dropped from new mortgage loans to households includ- 39.2 percent in Q3 2023 to 33.2 percent in ing a 50 percent ceiling for the loan service- Q1 2024, highlighting a worrying trend Outlook to-income ratio, an 85 percent ceiling for amidst the broader recovery. loan-to-mortgage value, and a maximum Consumer price inflation kept decelerat- The economy’s growth is projected to pick 30-year loan maturity. ing in the year to date, further improving up in 2024-2025 with the expected recovery Political risks have re-escalated in recent the purchasing power of households. An- in the eurozone. This is expected to have a months following a failed attempt at for- nual average HICP inflation slowed to 4.3 benign impact on domestic poverty reduc- mation of a regular government after the percent in July, which narrowed the gap tion, while also keeping Bulgaria on its con- latest round of early elections in June 2024. with the line criterion for eurozone en- vergence path towards average EU incomes. The country is now heading towards new try to just 1.3 percentage points. Should Bulgaria’s target to join the eurozone from snap elections in October—the 7th in a row this disinflationary trend continue, Bul- mid-2025 or January 2026 is also within in about three years—which jeopardizes garia could meet the criterion—which is reach, should the disinflation trend contin- the reform agenda and provides fertile the only remaining hurdle to euro adop- ue in the coming months, as expected. ground for populist policies. The latter tion—before year-end. Credit to households remains on the radar could result in further expansion of cur- The fiscal position remains stable. The due to its accelerating growth that reached rent expenditure at the expense of capital general government deficit on a cash ba- 19 percent y/y in June 2024. The increase spending, as evidenced in the past. Even if sis reached 0.5 percent of the World was propelled by long-term household the headline fiscal deficit is likely to stay Bank’s GDP projection in the year to July mortgage loans and consumer loans (with below the 3 percent Maastricht ceiling, pub- 2024. The deficit for the full year, on an above 5-year maturity) which grew by 25 lic investment would remain below peers, accrual basis, is expected to be kept below and 15 percent y/y, respectively, in June. capping the country’s growth potential. TABLE 2 Bulgaria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 7.7 3.9 1.8 2.2 2.8 2.7 Private consumption 8.5 3.9 5.4 2.6 3.1 3.6 Government consumption 0.4 5.5 -0.4 11.3 3.6 2.8 Gross fixed capital investment -8.3 6.5 3.3 -2.6 1.3 2.6 Exports, goods and services 11.2 11.6 -1.9 2.3 5.6 6.0 Imports, goods and services 10.7 15.0 -6.3 3.5 5.5 6.6 Real GDP growth, at constant factor prices 8.0 5.3 1.8 2.2 2.8 2.7 Agriculture 28.8 -4.4 -3.9 1.5 1.2 1.0 Industry 1.7 12.1 0.9 1.3 5.2 5.3 Services 8.8 3.9 2.6 2.5 2.1 1.9 Inflation (consumer price index) 3.3 15.3 9.5 2.6 2.2 2.0 Current account balance (% of GDP) -1.7 -1.4 -0.3 -0.7 -0.5 -1.0 Net foreign direct investment inflow (% of GDP) 1.8 2.4 3.2 2.5 2.8 2.7 Fiscal balance (% of GDP) -2.7 -0.8 -3.0 -3.1 -3.0 -2.9 Revenues (% of GDP) 37.7 38.6 36.3 39.0 39.5 39.8 Debt (% of GDP) 23.9 22.6 22.9 23.4 23.7 23.6 Primary balance (% of GDP) -2.3 -0.4 -2.6 -2.7 -2.6 -2.5 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 0.5 0.5 0.5 0.5 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.0 1.8 1.7 1.7 1.6 1.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 5.8 5.2 5.1 5.0 4.8 4.6 GHG emissions growth (mtCO2e) 6.8 6.0 -0.7 -0.6 -0.1 -0.1 Energy related GHG emissions (% of total) 78.9 76.3 74.8 74.0 73.1 72.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 13 Oct 24 to long term. Downside risks to growth coming from the external environment CROATIA Key conditions and remain significant. Geopolitical tensions continue to be elevated, making global challenges economic developments as well as energy price dynamics highly uncertain. At the Table 1 2023 Croatia's growth remains robust, but de- same time, inflation in the euro area Population, million 3.9 spite the positive momentum several chal- could remain elevated given increases in GDP, current US$ billion 82.7 lenges loom. The country's economic activ- labor costs, which may result in tighter GDP per capita, current US$ 21423.7 ity has been consistently outpacing aver- than expected monetary policy. However, a 0.3 International poverty rate ($2.15) age growth in the EU over the last three Croatia's overall macroeconomic imbal- a 0.4 years, and in 2023 Croatia's GDP per capita ances remain contained, given a robust Lower middle-income poverty rate ($3.65) a 1.8 (in PPS) reached 76 percent of the EU aver- banking sector, a positive current and Upper middle-income poverty rate ($6.85) Gini index a 28.9 age, up from 67 percent in 2019. The pos- capital account and public debt that has School enrollment, primary (% gross) b 95.9 itive trends continued in the first half of fallen to close to 60 percent of GDP. b 77.6 2024, but growth has become increasingly Life expectancy at birth, years dependent on consumption and public in- Total GHG emissions (mtCO2e) 17.4 vestment, largely driven by rising wages, Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2021), 2017 PPPs. expansionary fiscal policy, and the inflow Recent developments b/ Most recent WDI value (2022). of EU funds. At the same time, produc- tivity growth has been relatively subdued Economic activity in Croatia continued to which, when taken together with strongly expand in the first half of 2024, with an- Croatia's economic activity continued to rising labor costs, may weigh on Croatia's nual real GDP growth averaging 3.6 per- external competitiveness and export per- cent, primarily driven by robust domestic expand in the first half of 2024, mainly formance, with manufacturing production demand. Personal consumption remained driven by strong domestic demand. The already weak due to relatively subdued strong, bolstered by ongoing increases in medium-term outlook is relatively favor- external demand. Moreover, the tourism real disposable income. Investment activ- able, as the external environment is ex- sector, one of the key drivers of economic ity also gained momentum, with its aver- growth over the past three years, is show- age annual growth rate reaching double pected to gradually improve and domes- ing signs of reaching peak capacity. De- digits. This reflects the continuation of a tic demand to remain robust, in part pendence on the tourism sector makes the strong rise in public investment, but after supported by the inflow of European economy vulnerable to shocks. The sec- several years of sluggish developments Union (EU) funds. However, rising la- tor also exerts strong pressure on local private investments are also gaining mo- bor costs amid subdued productivity infrastructure, which raises sustainability mentum. Moreover, after a sharp decline concerns, further highlighting the need in 2023, exports of goods began to recover, growth pose a risk for the country's ex- for economic diversification. Against the while exports of services fell, partly due to ternal competitiveness and export per- backdrop of a tight labor market and ris- a strong rise in the same period of 2023 formance. Poverty in 2024 is expected to ing unit labor costs, accelerating produc- and relatively subdued tourism activity in decline to 1.3 percent. tivity growth will be essential for sustain- Q2 2024. Employment growth was broad- ing income convergence in the medium based across sectors in the first half of 2024, FIGURE 1 Croatia / Real GDP growth and contributions to FIGURE 2 Croatia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 9 18000 8 16000 10 7 14000 5 6 12000 5 10000 0 4 8000 3 6000 -5 2 4000 1 2000 -10 2017 2018 2019 2020 2021 2022 2023 2024e 2025f 2026f 0 0 Final consumption Gross fixed capital formation 2009 2011 2013 2015 2017 2019 2021 2023 2025 Change in inventories Net exports International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: CROSTAT and World Bank. Source: World Bank. Notes: see Table 2. MPO 14 Oct 24 with construction, the public sector and However, while Croatia's income inequal- to support goods exports, following their tourism making the strongest contribu- ity is below the EU average, pockets of decline in 2023, while exports of services tions to employment growth. The tight la- poverty persist, and inequality of oppor- may be constrained by an adverse base bor market continued to exert upward tunity remains high. Marginalized com- effect early in the year and a moderation pressure on private sector wages. Overall, munities, those with low education, the in tourist arrivals. Growth over the next wage growth further accelerated after a elderly living alone, and the unemployed two years is expected to average 2.9 per- strong rise in 2023, reflecting a substantial are most at risk. cent. Inflation, after averaging 4.2 percent increase in public sector wages following in 2024, is expected to gradually decline the reform of the public sector wage sys- over the forecast horizon toward the Eu- tem in April 2024. This has also resulted in ropean Central Bank’s target of 2 percent. worsening of the general government bud- Outlook However, a tight labor market and still get balance, despite relatively strong rev- elevated wage growth could keep infla- enue collection. At the same time, infla- Following relatively favorable economic tion slightly above that level. Strong wage tion is moderating and in August 2024 it developments in the first half of the year, growth in the public sector in 2024, cou- stood at 3 percent, down from 5.4 percent Croatia's economic growth in 2024 is ex- pled with an increase in the number of at the end of last year. This deceleration pected to strengthen compared to 2023 be- public sector employees, is expected to was driven by lower inflation for industrial fore moderating somewhat over the sub- significantly widen the fiscal deficit to products and food, while there was a slight sequent two years. Real GDP growth in nearly 3 percent of GDP. Nevertheless, uptick in energy inflation. Meanwhile, ser- 2024 is projected to reach 3.5 percent, dri- expenditures are projected to remain re- vices inflation, though easing somewhat, ven primarily by robust domestic demand. strained over the next two years, which, remained high at over 7 percent. Poverty, This is underpinned by a tight labor mar- along with continued economic expan- as measured by the share of population ket, expansionary fiscal policy—partially sion, should allow for gradual fiscal ad- living below the upper-middle income fueled by the inflow of EU funds—and a justment and a steady decline in public poverty line at 6.85 USD in PPP terms, is robust growth of public and private invest- debt. Poverty is projected to decline mar- estimated to have declined modestly from ment in the first half of the year. A gradual ginally to 1.1 percent by 2025 and then to 1.4 percent in 2023 to 1.3 percent in 2024. recovery in external demand is expected 1 percent in 2026. TABLE 2 Croatia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 13.0 7.0 3.1 3.5 3.0 2.8 Private consumption 10.6 6.7 3.0 5.6 3.5 2.7 Government consumption 3.1 2.7 6.6 3.4 2.5 2.1 Gross fixed capital investment 6.6 0.1 4.2 10.8 4.0 4.2 Exports, goods and services 32.7 27.0 -2.9 0.1 2.2 2.4 Imports, goods and services 17.3 26.5 -5.3 4.8 2.9 2.5 Real GDP growth, at constant factor prices 12.2 7.9 2.3 3.5 3.0 2.8 Agriculture 9.6 -4.3 0.4 0.0 0.9 1.0 Industry 12.4 2.7 -0.5 2.0 2.2 2.3 Services 12.3 10.5 3.4 4.2 3.3 3.0 Inflation (consumer price index) 2.7 10.7 8.4 4.2 2.8 2.2 Current account balance (% of GDP) 1.0 -2.8 1.1 0.1 0.0 0.3 Net foreign direct investment inflow (% of GDP) 5.1 5.3 1.9 2.1 2.2 2.2 Fiscal balance (% of GDP) -2.5 0.1 -0.7 -2.9 -2.4 -1.7 Revenues (% of GDP) 45.2 44.5 46.7 45.3 45.5 46.1 Debt (% of GDP) 77.5 67.8 63.0 60.0 59.1 58.1 Primary balance (% of GDP) -1.0 1.5 1.0 -1.3 -0.7 -0.1 a,b International poverty rate ($2.15 in 2017 PPP) 0.3 0.3 0.3 0.3 0.3 0.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.4 0.4 0.3 0.3 0.3 0.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 1.8 1.4 1.4 1.3 1.1 1.0 GHG emissions growth (mtCO2e) 4.0 -1.8 -0.1 0.9 0.2 -0.1 Energy related GHG emissions (% of total) 88.5 88.6 88.1 87.8 87.6 87.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 15 Oct 24 private consumption. Domestic demand has been bolstered by rising real wages GEORGIA Key conditions and (up 10.9 percent in H1, yoy) along with strong credit growth (up 20.4 percent in challenges real terms in H1, yoy). On the supply side, growth was led by services, including Table 1 2023 Over the past decade, Georgia has education and transportation followed by Population, million 3.7 achieved considerable progress in income public administration and trade. GDP, current US$ billion 30.5 growth and poverty alleviation following Annual inflation moderated to 1 percent GDP per capita, current US$ 8218.4 earlier market reforms and strengthened (yoy) in August, despite a 7-percent (yoy) a 4.3 International poverty rate ($2.15) macroeconomic management. rise in the transport and hospitality sector. a 15.0 Nevertheless, structural challenges persist, Core inflation was 0.9 percent (yoy), Lower middle-income poverty rate ($3.65) a 47.7 notably weak firm-level productivity growth down from 2.7 percent a year ago. The Upper middle-income poverty rate ($6.85) Gini index a 33.5 and limited high-quality job creation. Central Bank has lowered its policy rate School enrollment, primary (% gross) b 103.4 About a third of workers remain engaged by a cumulative 150 basis points since b 71.6 in low-productivity agriculture; Georgia the beginning of the year, reflecting eas- Life expectancy at birth, years also has a large share of self-employed in ing inflationary pressures. Total GHG emissions (mtCO2e) 18.1 other sectors. Access to finance, particu- The banking sector remains profitable, Source: WDI, Macro Poverty Outlook, and official data. larly for SMEs, and skills mismatches, are with return on assets reaching 4.2 per- a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2023); Life expectancy among the critical obstacles, firms face. cent in June 2024 and return on equity (2022). Georgia's economic openness and reliance reaching 24.4 percent. NPLs are low at on tourism further increase its vulnerabil- 1.6 percent in June 2024. ity to external shocks, such as geopolitical The current account deficit narrowed by tensions, global market volatility, and pan- 1.5 percentage points (yoy) in H1 2024, to Growth reached 9.1 percent in H1 2024, demics. Nonetheless, the recent granting 6.0 percent of GDP, despite a deficit rise of in December 2023 of EU candidate status 16.9 percent in the trade of goods. This was driven by strong private consumption presents Georgia with a strategic oppor- offset by positive contributions from the due to rising real wages. Unemployment tunity to accelerate reforms. The EU ac- services sector and current transfers. Ex- decreased and poverty continued to de- cession process could provide a platform ports of goods fell 7.8 percent (yoy) in H1 cline. Growth is projected at 7.5 percent for enhancing governance, aligning regu- 2024, driven by weaker domestic exports lations, and boosting economic resilience, (down 11.5 percent, yoy) as commodity for 2024. Weakening exports and remit- thereby enabling Georgia to converge with exports slowed, whereas imports grew 2.4 tances suggest a widening of the current more prosperous EU member states. percent (yoy). Gross money transfers fell account deficit in 2024. The fiscal deficit 30.3 percent (yoy) in H1, with inflows is expected to reach 3 percent. Risks to from Russia decreasing 71.4 percent the outlook remain, notably related to (yoy). However, this decline was partly the October Parliamentary elections. Recent developments offset by increased inflows from the EU, US, and UAE. Proceeds from internation- Georgia's economy expanded by 9.1 per- al visitors increased 5 percent (yoy) in H1 cent in H1 2024, driven by public and 2024. On the financing side, lower net FDI FIGURE 1 Georgia / Gross money transfers from abroad and FIGURE 2 Georgia / Actual and projected poverty rates and tourism proceeds real GDP per capita Million US$ Poverty rate (%) Real GDP per capita (constant LCU) 1600 80 25000 1400 70 1200 20000 60 1000 50 15000 800 40 600 10000 30 400 20 200 5000 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate RF US EU Others Tourism proceeds Upper middle-income pov. rate Real GDP pc Sources: Geostat, NBG, and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 16 Oct 24 inflows, which accounted for about 3.6 fell 3 percentage points, to 13.7 percent as the deficit is projected to remain below the percent of GDP in H1, highlighted weak of end-June, which was accompanied by a level of 10.3 percent recorded in 2021. external investor confidence. higher labor force participation rate. On the fiscal side, tax revenues are expect- The GEL depreciated by 4.1 percent against ed to remain strong, contributing 25 per- the USD in the first eight months of 2024. cent of GDP in 2024, boosted by the tax The GEL remains 11.8 percent stronger hikes on gambling, effective from July 2024. than its end-2021 level. Official reserves Outlook Total expenditure is anticipated to rise to 31 fell 14 percent (yoy) in July to USD 4.7 bil- percent of GDP due to election-related ex- lion, equivalent to 3.3 months of imports. Growth is expected to reach 7.5 percent in penditure; the deficit is expected to remain Georgia’s fiscal performance remained sol- 2024, buoyed by private consumption dri- at 3 percent of GDP, as per the fiscal rule. id and a deficit of 0.1 percent of projected ven by robust real wages and employment Key downside risks include uncertainties GDP was recorded in H1 2024. General figures. In the medium term, growth is ex- surrounding the post-election landscape government revenues increased 18.5 per- pected to moderate to 5 percent, returning and Georgia’s commitment to making de- cent (yoy) in nominal terms, mainly due to its potential rate. Supported by robust cisive progress on EU accession. Other to a 21.4 percent rise in tax receipts. Cur- growth, poverty is expected to keep falling risks include geopolitical tensions in the rent expenditures rose 16 percent (yoy), in the medium term. region, a faster reduction in remittances, while capital expenditure surged 27 per- Inflation is forecast to stay below the 3-per- lower tourism revenues, and rising global cent. Public debt stood at 40.4 percent of cent target in 2024 and return to the target commodity prices, all of which could im- GDP at end-June 2024. level by end-2025. Monetary policy is ex- pede growth and increase debt levels. En- Georgia's economic expansion has trans- pected to be eased to support economic suring the independence of the central lated into tangible benefits for its popu- growth, while remaining prudent. bank, maintaining sound monetary and lation, with the poverty headcount (USD The current account deficit is forecast to fiscal policy with sufficient buffers, and en- 6.85, PPP 2017) continuing to decline, widen to around 5.5 percent of GDP in suring exchange rate flexibility will be es- from 47.7 percent in 2022 to 43.6 percent 2024 and 2025, due to the slowing of exports sential to mitigating potential shocks and in 2023. During H1 2024, unemployment and remittances from Russia. Nonetheless, safeguarding macroeconomic stability. TABLE 2 Georgia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 10.6 11.0 7.5 7.5 5.2 5.0 Private consumption 12.3 -2.8 3.6 4.3 2.9 2.2 Government consumption 7.1 -0.8 6.2 15.9 10.1 9.6 Gross fixed capital investment -4.8 9.9 30.8 14.3 5.2 6.5 Exports, goods and services 23.5 37.4 8.2 2.5 6.0 7.0 Imports, goods and services 8.8 16.9 8.6 3.5 4.0 5.0 Real GDP growth, at constant factor prices 12.2 9.8 7.9 7.5 5.2 5.0 Agriculture 2.3 -1.8 -2.8 2.5 2.5 3.0 Industry 1.0 15.1 5.1 5.0 5.0 5.0 Services 17.4 9.6 10.0 8.7 5.5 5.2 Inflation (consumer price index) 9.6 11.9 2.5 2.2 3.0 3.0 Current account balance (% of GDP) -10.3 -4.5 -4.4 -5.5 -5.4 -4.9 Net foreign direct investment inflow (% of GDP) 4.9 7.1 4.3 3.4 4.0 4.4 Fiscal balance (% of GDP) -7.0 -3.5 -2.9 -3.0 -2.8 -2.6 Revenues (% of GDP) 24.9 26.6 27.6 28.2 27.1 26.9 Debt (% of GDP) 49.0 39.1 38.1 37.7 37.2 37.2 Primary balance (% of GDP) -5.7 -2.4 -1.4 -1.2 -0.9 -0.6 a,b International poverty rate ($2.15 in 2017 PPP) 5.5 4.3 3.7 3.1 2.8 2.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 19.1 15.0 12.9 10.9 9.5 8.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 55.4 47.7 43.6 39.2 36.4 33.8 GHG emissions growth (mtCO2e) 2.7 0.7 -1.2 0.3 -0.1 0.5 Energy related GHG emissions (% of total) 55.6 56.0 55.9 56.4 56.6 56.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-HIS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2022) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 17 Oct 24 (H1) of 2024, down from 5.3 percent a year ago. Slowing growth momentum is evi- KAZAKHSTAN Key conditions and dent across all demand components, with investment and government spending no- challenges tably weak. Investment declined by 3.5 percent y-o-y in real terms (+13.3 percent Table 1 2023 Kazakhstan’s progress toward high in- in H1 2023) and government spending Population, million 19.8 come has slowed in recent years; to regain was 4.5 percent lower in real terms y- GDP, current US$ billion 262.6 momentum, the government should focus o-y (+17 percent). Total sales growth, a GDP per capita, current US$ 13232.8 on the effective implementation of key re- proxy for consumer spending, slowed to a 0.0 International poverty rate ($2.15) forms to support growth diversification 3.9 percent y-o-y in real terms (+10.4 per- a 0.3 and enhance inclusion. The government’s cent in H1 2023), reflecting waning con- Lower middle-income poverty rate ($3.65) a 10.6 goal of achieving 6 percent growth in the sumer demand. On the supply side, in- Upper middle-income poverty rate ($6.85) Gini index a 29.2 medium term and doubling the size of its dustrial production showed tepid growth School enrollment, primary (% gross) b 100.5 economy by 2030 (compared to the 2023 of 2.7 percent y-o-y in H1 (+3.8 percent in b 74.4 level) cannot be attained in the absence H1 2023) due to lower oil production (-1.6 Life expectancy at birth, years of significant reforms, given the moder- percent); construction edged to 8.6 per- Total GHG emissions (mtCO2e) 314.2 ate potential growth that is hampered by cent (+7.7 percent); and services slowed to Source: WDI, Macro Poverty Outlook, and official data. stagnant productivity and dominance of 3.3 percent y-o-y (+5.5 percent). a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2023); Life expectancy extractive industries. The official unemployment rate held con- (2022). To stimulate foreign and domestic invest- stant at 4.7 percent in Q2. To bolster living ment and facilitate technology transfer, standards, the government implemented a Kazakhstan must enhance competition by 21.4 percent nominal increase in minimum removing market distortions and other wage, effectively doubling the amount Growth is projected to accelerate to 4.7 barriers to dynamic private sector growth. since 2021 (+70 percent rise in real term). Improving state-owned enterprise efficien- Consumer price inflation decreased from percent in 2025, driven by new oil pro- cy and establishing a robust governance 9.7 percent in December 2023 to 8.5 per- duction flows, before subsiding towards framework would further support compe- cent y-o-y in August and September, its long-term potential rate, thereafter. tition. Addressing infrastructure gaps, com- which is above the target rate of 5 per- Inflation is expected to decrease but will plemented with strengthening human cap- cent. Food and nonfood prices moderat- ital and policies to support decarboniza- ed, while service prices remain elevated remain above the central bank target. tion, also can enhance the competitiveness due to robust sectoral wage growth. The Poverty rate is projected to decrease mar- of firms and the quality of services. central bank trimmed its policy rate by 25 ginally to 6.1 percent by 2026. Downside basis points to 14.5 percent in June, main- risks include weakening global demand taining a tight policy stance. and lower prices for oil. Global decar- A reduction in goods imports and an bonization efforts pose a long-term chal- Recent developments increase in service exports improved the trade balance, raising it to lenge, warranting transition toward a Kazakhstan’s economy slowed to 3.2 per- US$11.3bn in H2 2023 (from US$9.6bn in new, sustainable growth model. cent year-on-year (y-o-y) in the first half H1 2023). This, coupled with a significant FIGURE 1 Kazakhstan / Real GDP growth and contributions FIGURE 2 Kazakhstan / Poverty rate, percent of population to real GDP growth living on less than $6.85 (PPP) per day Percent, percentage points Percent of population 6 40 35 actual 4 30 forecast 2 25 20 0 15 Non-oil sector Oil sector 10 -2 Net taxes Real GDP growth 5 -4 0 2020 2021 2022 2023 2024e 2025f 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Sources: Statistical Office of Kazakhstan and World Bank staff estimates. Source: World Bank staff estimates. MPO 18 Oct 24 27.7 percent y-o-y decline in the primary Non-performing loans amounted to only deficit is projected to decrease gradually income balance, shifted the current ac- 3 percent of the loan portfolio in June from 2.1 percent of GDP in 2024 to 1 per- count to a surplus of US$0.8bn in H1 2024, 2024, but this warrants close monitoring cent in 2026, through increased revenue compared to a deficit of US$5.0bn in H1 given rising household indebtedness and mobilization—primarily via tax code re- 2023. foreign direct investment inflows, elevated interest rates. forms—and more targeted and tempered declined by 56.3 percent compared to a budget spending. The revised tax code is year earlier, reaching US$2.2bn, as a major likely to include higher income taxes for oil production expansion project nears businesses and households, along with completion. Gross international reserves Outlook increased levies on luxury items. How- grew to US$41bn, covering approximately ever, uncertainty around revenue gains eight months of imports. Between January Economic growth is projected to pick up and growing pressures for social and in- and August, the tenge depreciated by 4.5 temporarily to 4.7 percent in 2025, sup- frastructure spending may pose risks to percent against the U.S. dollar. ported by increased oil production, be- meeting these fiscal goals. The fiscal deficit expanded in H1 2024 as fore gradually slowing down to its long- Poverty is expected to fall to 7.9 percent slower economic growth hit revenues, term potential rate of 3.0–3.5 percent in (at US$6.85/day) in 2024, 6.7 percent in widening the consolidated budget deficit the ensuing years. 2025, and 6.1 in 2026 as growth continues to 1 percent of GDP from 0.4 percent in Private consumption and net exports, and inflation subsides. 2023. Spending dropped by 1.3 ppts of boosted by higher oil exports, will be the Economic growth faces significant down- GDP to 24.2 percent due to cuts in defense primary growth drivers. Investment activ- side risks. A decline in global oil de- and healthcare, although social welfare, ity should remain subdued, contributing mand/prices would harm exports, fiscal housing, utility infrastructure, and interest modestly in 2025–2026. revenues, and growth. Increased budget payments rose. Revenues declined by 1.8 Inflation will gradually decline in 2025 as spending and reversal of fiscal consolida- ppts to 23.3 percent of GDP, with oil-relat- energy and food prices stabilize, but tion could worsen the fiscal balance, sus- ed and non-oil revenues falling. persistent service sector inflation will tain inflationary pressure, and keep bor- The banking sector remains resilient, sup- keep it above the 5 percent target until rowing costs elevated. Furthermore, the ported by robust capital and liquidity late 2026. Ongoing tariff adjustments and growing frequency of extreme weather positions exceeding regulatory require- potential fiscal imbalances may hinder the events (e.g., droughts, wildfires, floods) ments. Real bank loans increased by 13.8 disinflationary trend. threatens agricultural output, infrastruc- percent y-o-y in June, driven primarily by The current account deficit is projected ture, and economic stability, potentially consumer borrowing (2/3 of total growth), to narrow in 2025 and beyond, under- stoking inflation and requiring further helping to sustain consumer spending. pinned by higher oil exports. The fiscal fiscal intervention. TABLE 2 Kazakhstan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 4.3 3.2 5.1 3.4 4.7 3.5 Private consumption 6.3 3.9 4.6 3.8 5.2 4.1 Government consumption -2.4 4.3 10.3 -2.7 3.2 0.5 Gross fixed capital investment 2.6 3.8 20.7 2.6 4.0 3.6 Exports, goods and services 2.3 9.6 1.9 1.9 6.3 2.1 Imports, goods and services -0.3 13.1 14.7 1.7 5.1 3.5 Real GDP growth, at constant factor prices 4.1 2.9 4.7 3.4 4.6 3.4 Agriculture -2.2 9.1 -7.4 3.0 3.0 2.0 Industry 4.5 2.7 5.7 3.4 6.0 3.8 Services 4.4 2.5 5.2 3.4 3.8 3.2 Inflation (consumer price index) 8.5 20.3 9.8 8.4 7.1 6.0 Current account balance (% of GDP) -1.4 3.1 -3.3 -2.7 -2.0 -1.6 Net foreign direct investment inflow (% of GDP) -1.0 -3.6 -0.9 -0.4 -2.3 -1.7 Fiscal balance (% of GDP) -5.1 -0.2 -1.6 -2.1 -1.6 -1.0 Revenues (% of GDP) 16.8 21.5 21.5 20.3 20.1 20.2 Debt (% of GDP) 23.7 22.5 22.0 23.6 23.9 25.1 Primary balance (% of GDP) -3.9 1.2 0.0 -0.4 -0.1 0.5 a,b International poverty rate ($2.15 in 2017 PPP) 0.0 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.3 0.3 0.2 0.2 0.1 0.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 10.6 10.7 8.8 7.9 6.7 6.1 GHG emissions growth (mtCO2e) 6.1 -1.5 0.4 0.9 1.3 1.2 Energy related GHG emissions (% of total) 71.3 71.6 72.1 72.8 73.6 74.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2021-HBS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 19 Oct 24 gaps. The positive trend in the national average for poverty reduction may ob- KOSOVO Key conditions and scure regional disparities. Poverty is more prevalent among people with lower ed- challenges ucation and children, so it is essential to emphasize human capital accumula- Table 1 2023 After a slowdown in 2023, Kosovo’s tion. A significant portion of Kosovo's Population, million 1.7 growth accelerated in the first part of 2024, workforce comprises the working poor, GDP, current US$ billion 10.4 yet within the bounds of its structural con- who face low wages and limited human GDP per capita, current US$ 6142.0 straints. The fiscal performance remained capital. This situation is exacerbated by a 21.4 Upper middle-income poverty rate ($6.85) robust, with revenue growth continuing to low labor force participation, especially a 29.0 be strong. However, the country is con- among women, influenced by high reser- Gini index b 79.5 fronted with the need to undertake re- vation wages and attractive outside op- Life expectancy at birth, years Source: WDI, Macro Poverty Outlook, and official data. forms that demand substantial fiscal re- tions, including migration. a/ Estimated number, 2017 PPPs. sources. Key among these is the implemen- b/ Most recent WDI value (2022). tation of a new energy strategy, improve- ment of water security, and the accelera- tion of reforms aimed at bolstering human Recent developments capital and connectivity. Kosovo’s growth model relies mainly on consumption and GDP growth accelerated in the first quar- construction investment, financed signifi- ter of 2024, with provisional estimates in- cantly by the country’s diaspora. Recent dicating a 5.6 percent increase. Private Economic activity picked up during the growth trends in exports of ICT and other consumption growth (9.7 percent y/y) first quarter of 2024, on the back of robust business services are encouraging. Foreign provided the highest contribution. On the consumption growth as prices stabilized. direct investments (FDI) in 2024 continue supply side, net taxes on products con- Over the medium term, growth is project- to increase but remain primarily focused tributed most to the growth. Consumer on real estate. In 2023, labor force partici- inflation decelerated, averaging 2.1 per- ed to strengthen further, fueled by con- pation inched up to 40.7 percent. However, cent between January and August 2024. sumption, rising real incomes, credit ex- the working-age population has shrunk, Core inflation, however, remains elevated pansion, and increased public wages and partly due to ongoing outmigration. Visa (3.6 percent by August). Labor market transfers. A strengthened European liberalization with the EU has reduced formalization continued in 2023, reflected costs and spurred an increase in interna- in a 4.5 percent increase in formal em- Union (EU) accession process, backed by tional travel and higher service imports. ployment. The current account deficit the EU growth plan, has the potential to The country lags peers in human capital (CAD) for the first half of the year in- improve trade integration, attract more development. To transition to a growth creased by ¼ from the same period of FDI, and bolster economic growth. model that favors more and better-quality last year, driven by a higher deficit in the jobs, Kosovo should continue to maintain goods balance. Cumulative remittances’ macroeconomic stability and accelerate re- growth by July slowed down to 0.5 per- forms that target the closing of regulatory, cent, compared to 11.3 percent during the human capital, and vital infrastructure same period of last year. By August 2024, FIGURE 1 Kosovo / Consumer price inflation FIGURE 2 Kosovo / Actual and projected poverty rate and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 15 70 7000 12 60 6000 HCPI Core Inflation 50 5000 9 40 4000 6 30 3000 20 2000 3 10 1000 0 0 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 -3 Upper middle-income pov. rate Real GDP pc Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Source: Kosovo Statistics Agency. Source: World Bank. Notes: see Table 2. MPO 20 Oct 24 the government ran a fiscal surplus and increase, but more greenfield and produc- tax revenues grew by 11 percent, reflect- tive FDI is needed. Driven by higher cur- ing increased compliance and formaliza- Outlook rent and capital expenditures, the fiscal tion gains. Meanwhile, expenditures in- deficit is expected to edge up to 1.1 per- creased by 14 percent, driven by increases GDP growth is projected to accelerate to cent of GDP in 2024 and remain in line in wage spending. In the first quarter of 3.8 percent in 2024 and gradually con- with fiscal rules over the medium term. 2024, public and publicly guaranteed debt verge towards 4 percent over the medium An increase in spending pressures asso- (PPG) fell to 15.8 percent of GDP, down term. Growth is likely to be spurred by ciated with the upcoming electoral cy- from 17.5 percent in 2023. The financial consumption, underpinned by rising in- cle represents a risk. Continued geopolit- sector remains robust. By July 2024, credit comes, credit, and public spending. Pub- ical uncertainty, including that associat- increased by 13.6 percent (y/y) and non- lic infrastructure and private real estate ed with the domestic political context, al- performing loans remained stable at 2 investments, along with post-2025 renew- so entails risk. A reinforced EU accession percent. Poverty reduction is projected to able energy investments, are also expect- process could enhance growth prospects. continue, with a decline of 2.2 percentage ed to contribute to growth. On the pro- With growth expected to accelerate, points in 2024 (from 21.4 percent in 2023) duction side, services and construction poverty is also projected to decrease. A due to slightly higher growth. However, will provide the highest contribution. tighter labor market is anticipated to growth has been skewed towards urban Merchandise exports will remain sub- boost wages. While outmigration has centers, leading to increased inequality. dued in 2024, gradually recovering by sparked concerns about human capital Another important dimension is suscep- 2026. International price stabilization is losses, migration can also incentivize the tibility to shocks and its welfare conse- expected to slow domestic consumer optimal use of domestic human capital. quences. In 2022, price increases reached price inflation to 2 percent in 2024. How- The declining population could be offset levels not seen in decades, and energy ever, upward pressure on wages could by increasing female labor force partici- price shocks posed concerns for the most keep core inflation higher. Outmigration pation, constrained by lack of childcare vulnerable groups. Similarly, geopolitical and increased travel spending abroad, as- services. Expanding childcare services tensions and subsequent supply-chain sociated with visa liberalization, represent would not only improve labor market op- disruptions have heightened worries a drag on growth. The CAD is expected portunities for women but also enhance about their effects on those at the lower to deteriorate in 2024 but improve start- children's school readiness through better end of the economic distribution. ing in 2025. Real estate FDI is projected to early childhood education (ECE). TABLE 2 Kosovo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 10.7 4.3 3.3 3.8 3.9 4.0 Private consumption 7.3 3.4 3.9 4.8 3.7 3.9 Government consumption 9.0 0.2 2.3 6.7 5.3 5.9 Gross fixed capital investment 13.0 -3.2 3.0 5.7 5.2 4.5 Exports, goods and services 76.8 18.9 6.3 6.0 4.1 4.8 Imports, goods and services 31.4 5.4 5.9 6.9 4.4 4.7 Real GDP growth, at constant factor prices 7.8 5.2 2.3 3.8 3.9 4.0 Agriculture -2.5 4.5 3.0 3.0 2.5 1.8 Industry 7.8 4.0 1.6 1.8 4.0 4.2 Services 9.8 6.1 2.5 5.1 4.1 4.3 Inflation (consumer price index) 3.3 11.6 4.9 2.0 1.9 1.8 Current account balance (% of GDP) -8.7 -10.3 -7.6 -8.1 -7.6 -7.5 Net foreign direct investment inflow (% of GDP) 4.0 6.3 6.8 7.1 7.0 6.9 Fiscal balance (% of GDP) -1.3 -0.5 -0.3 -1.1 -1.7 -1.9 Revenues (% of GDP) 27.4 27.9 29.4 29.2 29.4 29.6 Debt (% of GDP) 21.1 19.7 17.2 17.2 18.1 18.9 Primary balance (% of GDP) -0.9 -0.1 0.2 -0.7 -1.3 -1.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 25.5 22.8 21.4 19.2 17.1 15.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2017-HBS. Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2017) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 21 Oct 24 supported by the transit trade of goods mainly from China to Russia and rising KYRGYZ Key conditions and inflows of remittances. Real GDP expand- ed by 8.1 percent in H1 2024, driven challenges REPUBLIC by consumption, exports, and investment. On the production side, growth has been The Kyrgyz Republic remains one of the supported by construction and services poorest countries in the region, with which grew by 48 percent and 7.7 percent Table 1 2023 poverty levels remaining stubbornly high. in real terms, respectively. Population, million 7.1 As a small, relatively undiversified econo- Consumer price inflation fell gradually GDP, current US$ billion 14.0 my, the Kyrgyz Republic is subject to sig- over H1 2024, to 5.0 percent in July 2024, GDP per capita, current US$ 1974.0 nificant economic risks. Domestic prices the lower end of the central bank’s target International poverty rate ($2.15) a 0.3 are sensitive to rising global food and fuel range of 5–7 percent, enabling the central a 11.3 prices, and international earnings depend bank to cut the policy interest rate by 400 Lower middle-income poverty rate ($3.65) a on gold exports and remittances. The econ- basis points to 9 percent by May 2024. The Gini index 26.4 b omy has limited gross international re- drop in inflation was driven by declining School enrollment, primary (% gross) 96.2 serves to absorb shocks, while nondiscre- food price inflation, while fuel price infla- b 72.0 Life expectancy at birth, years tionary fiscal expenditure is high, and the tion accelerated, and inflation of nonfood Total GHG emissions (mtCO2e) 14.0 country is at a moderate risk of debt distress. and service prices remained elevated. Cred- Source: WDI, Macro Poverty Outlook, and official data. The country has a young and growing it to the economy continued to grow, year- a/ Most recent value (2022), 2017 PPPs. population, abundant natural resources, on-year (y-o-y), at 15 percent in real terms b/ WDI for School enrollment (2023); Life expectancy (2022). and is near large markets. However, eco- as of June 2024. While the nonperforming nomic opportunities and job creation are loans ratio increased to 11.9 percent as of limited due to a stagnant private sector, end-June 2024, from 9.2 percent at end-De- constrained by a weak competitive envi- cember 2023, the banking sector remained ronment, undue advantage of poorly per- well capitalized, with capital adequacy and Economic growth remained strong and forming SOEs, a high level of informality, liquidity ratios at 22.3 percent and 78.8 per- inflation declined sharply in the first half and an onerous business environment. Pri- cent, respectively, well above requirements. of 2024. The fiscal balance was positive vate sector-led growth will require ambi- The current account deficit reached 80.4 owing to strong revenue performance. tious reforms to ensure a level playing percent of GDP (US$2.2bn) in the first field, reduce the cost of regulatory com- quarter (Q1) of 2024, the largest deficit to GDP growth is projected at 5.8 percent in pliance, remove barriers for cross-border date. This anomaly is likely driven by the 2024, mainly driven by consumption and trade, and maximize spillovers from FDI. under-reporting of re-exports of imported investment. Inflation is projected to re- goods to Russia, mainly from China--it main at around 4 percent. The fiscal bal- was almost entirely matched in the Balance ance is projected to improve in 2024 due of Payments by an increase in “errors and to lower capital spending. Recent developments omissions” to 77 percent of GDP (US$2.1 billion). Exports of goods and services The Kyrgyz economy continued to per- grew by 22 percent (in US$ terms) in Q1 form strongly in the first half (H1) of 2024, 2024, owing to increases in gold, tourism, FIGURE 1 Kyrgyz Republic / Headline, food, and fuel FIGURE 2 Kyrgyz Republic / Real GDP growth and poverty inflation rate Percent Percent of population Percent 80 35 12 Headline 30 60 8 Food 25 Fuel 4 40 20 15 0 20 10 -4 0 5 0 -8 -20 2007 2009 2011 2013 2015 2017 2019 2021 2023e 2025f Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Lower middle-income pov. rate (lhs) GDP growth Source: Kyrgyz authorities. Sources: Kyrgyz authorities and World Bank staff. MPO 22 Oct 24 and trade logistics service exports. Imports a year ago, respectively. Public debt de- absence of structural reforms to raise pro- of goods and services increased by 38 per- creased from 45.5 percent of GDP in De- ductivity and potential growth. cent (in US$ terms), including imports des- cember to 41.2 percent by end-June. In Assuming the central bank maintains a pru- tined for re-export. However, early re- 2023, the poverty rate (US$3.65/day dent monetary stance, inflation is projected leased data for Q2 2024 suggest that ex- poverty line), dropped to 9.7 percent, from to remain below 5 percent by end-2024 and ports and imports both declined. Remit- 11.3 percent in 2022. This decline was sup- thereafter in the medium term. tances (in US$ terms) grew by 6.4 percent ported by lower inflation and robust The current account deficit is projected at in H1 2024, y-o-y, although as a share of growth. Poverty reduction is expected to 10.8 percent of GDP in 2024 and to narrow GDP, they were lower than a year ago (22.4 continue into 2024, driven by the imple- to 8.2 percent by 2026 as an external de- percent vs 25.6 percent). mentation of social protection programs, mand for goods and services grows and re- The som strengthened by 3 percent against higher pensions, and increased lending to mittance inflows increase. the U.S. dollar over H1 2024, although the vulnerable households. The fiscal balance is projected at a surplus real effective exchange rate depreciated by of 2.6 percent of GDP in 2024 mainly as 0.3 percent. Gross international reserves a result of repayments of on-lent loans by increased to 3.3 months of imports SOEs and lower capital spending. In the (US$3.8bn) from 3.1 months (US$3.2bn) at Outlook medium-term, the fiscal balance is expect- end-December 2023. ed to remain positive despite a rise in cur- The government’s fiscal position remained GDP growth is projected to slow to 5.8 per- rent spending while revenues remain strong in H1 2024, with an estimated sur- cent in 2024, as exports continue to be broadly unchanged as a share of GDP. plus of 5.6 percent of GDP, supported by weak in H2 2024 due to an expected reduc- In the medium term, the poverty level is increases in tax and non-tax revenues com- tion in re-exports. Aggregate demand is expected to continue declining to around pared to a year ago (by 1.3 and 2 percent- expected to be supported by public and 8 percent, driven by the positive effects age points of GDP, respectively), as well as private consumption and investment. On of lower inflation and expanding social repayments of on-lent loans to the budget the production side, construction and ser- protection programs. by SOEs (7.9 percent of GDP). Current and vices are expected to contribute the most Risks to this outlook arise mainly from the capital expenditures declined by 1.2 and to growth. GDP is expected to stabilize at geopolitical situation and the uncertain 3.2 percentage points of GDP compared to 4.5 percent over the medium term in the outlook for transit trade and remittances. TABLE 2 Kyrgyz Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 5.5 9.0 6.2 5.8 4.5 4.5 Private consumption 18.8 17.0 10.4 6.2 4.3 4.4 Government consumption 0.5 4.4 0.9 0.6 0.5 0.3 Gross fixed capital investment 8.0 6.9 11.0 12.9 13.2 13.4 Exports, goods and services 16.4 59.2 -4.9 28.7 10.2 9.7 Imports, goods and services 38.8 66.7 34.1 15.0 8.7 9.0 Real GDP growth, at constant factor prices 5.5 12.1 4.7 5.8 4.5 4.5 Agriculture -4.5 7.3 0.6 2.5 2.2 2.3 Industry 6.5 11.9 2.7 5.3 6.0 6.0 Services 14.5 16.0 8.4 8.3 5.4 5.3 Inflation (consumer price index) 11.9 13.9 10.8 4.6 4.5 4.3 Current account balance (% of GDP) -8.0 -42.4 -48.2 -10.8 -8.6 -8.2 Net foreign direct investment inflow (% of GDP) 6.1 4.2 1.1 3.8 3.6 3.2 Fiscal balance (% of GDP) -0.3 -1.3 1.2 2.6 2.5 1.4 Revenues (% of GDP) 31.8 34.6 37.2 36.6 37.1 37.2 Debt (% of GDP) 55.8 46.9 45.5 40.9 40.4 39.9 Primary balance (% of GDP) 1.2 0.0 2.3 3.6 3.3 2.1 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 0.3 0.3 0.2 0.2 0.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 12.5 11.3 9.7 8.4 7.7 7.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 62.2 60.1 57.2 54.7 53.2 51.5 GHG emissions growth (mtCO2e) 9.9 -0.6 -0.4 0.0 0.3 1.0 Energy related GHG emissions (% of total) 66.2 64.5 64.0 63.2 62.2 61.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2016-KIHS, 2019-KIHS, and 2022-KIHS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2016-2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 23 Oct 24 country remains vulnerable to adverse weather events and energy shocks due to its MOLDOVA Key conditions and heavy dependence on energy imports and limited diversification in energy sources. challenges Climate change worsens these vulnerabili- ties, increasing the frequency and severity Table 1 2023 Moldova’s economy is showing signs of of droughts and other natural hazards, Population, million 2.4 recovery, while unprecedented challenges thereby posing substantial risks to Moldo- GDP, current US$ billion 16.5 due to the spillover effects of Russia's inva- va's agricultural sector and livelihoods. GDP per capita, current US$ 6861.1 sion of Ukraine are still unfolding. A mod- With EU candidate status, strong reform a 0.0 International poverty rate ($2.15) erate economic recovery in the first half of momentum, and growth-enhancing, cli- a 0.3 2024 improved household incomes and in- mate-resilient investments are needed to Lower middle-income poverty rate ($3.65) a 14.4 vestments. Nevertheless, there are signif- foster long-term, sustainable development Upper middle-income poverty rate ($6.85) Gini index a 25.7 icant macroeconomic risks, including the and convergence toward EU income levels. School enrollment, primary (% gross) b 106.5 potential intensification of the war in b 68.6 Ukraine, additional energy disruptions, Life expectancy at birth, years particularly the potential discontinuation Total GHG emissions (mtCO2e) 15.1 of gas transit through Ukraine, and head- Recent developments Source: WDI, Macro Poverty Outlook, and official data. winds from the upcoming elections in 2024 a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2022). and 2025. Moldova's medium-term Despite ongoing spillovers from Russia's prospects hinge on structural reforms and invasion of Ukraine, the economy is progress toward EU accession. Despite sus- showing promising recovery signs. In the tained economic growth over two decades, first half of 2024, the economy grew by poverty remains pervasive, particularly in 2.2 percent, driven by rebounds in do- Moldova’s economy is recovering despite rural regions, with limited access to ser- mestic trade, manufacturing, and a sub- ongoing spillovers from Russia's invasion vices and viable economic opportunities. stantial recovery in the energy sector, of Ukraine. Essential structural reforms Traditional means of poverty alleviation, which saw double-digit growth following and further integration with the Euro- such as remittances and social assistance, the 2023 energy crisis. The IT sector con- are slowing, while low labor force partic- tinued to experience robust growth, while pean Union (EU) is needed to address ipation and employment rates impede a agriculture remained resilient, though persistent socio-economic challenges, in- shift to employment-based poverty reduc- summer droughts may affect yields later. cluding poverty, low productivity, and tion, underscoring the urgency for struc- On the demand side, growth was fueled by climate vulnerabilities. While a gradual tural reforms. Nearly a quarter of young investments and restocking, while net ex- recovery is anticipated in 2024, signifi- people aged 15-34 were neither employed ports had a negative impact due to rising nor in education and training (NEET). imports. Private consumption improved cant risks persist, including the threat of Moldova faces structural challenges in- with increasing disposable incomes and continued conflict, potential energy dis- cluding low productivity growth, gover- lower interest rates. ruptions, and uncertainties surrounding nance deficiencies, a large state footprint, The current account deficit (CAD) im- upcoming elections. limited competition, an imbalanced busi- proved to 11.8 percent of GDP in the ness environment, and tax distortions. The first quarter of 2024, despite a 6.5 percent FIGURE 1 Moldova / Actual and projected macroeconomic FIGURE 2 Moldova / Actual and projected poverty rates and indicators real private consumption per capita Percent, percent of GDP Poverty rate (%) Real private consumption per capita (constant LCU) 15 40 80000 10 35 70000 5 30 60000 25 50000 0 20 40000 -5 15 30000 -10 10 20000 -15 5 10000 -20 0 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Real GDP growth rate Current account balance International poverty rate Lower middle-income pov. rate Fiscal balance Upper middle-income pov. rate Real priv. cons. pc Source: World Bank, based on national statistics. Source: World Bank. Notes: see Table 2. MPO 24 Oct 24 decline in remittances. This improvement Poverty rates, as measured by the diversification and competitiveness, in line was driven by a narrower trade deficit and US$6.85 2017 PPP poverty line, are ex- with the EU accession agenda. enhancements in the primary income ac- pected to have remained stable, marginal- Inflation is projected to stay near the low- count. The CAD was mainly financed ly dropping from 15.7 percent in 2022 to er end of the 3.5 to 6.5 percent target through cash, deposits, and trade loans 13.3 percent in 2023. range in 2024, with a medium-term aver- while direct investments fell. External debt age of around 5 percent. However, infla- decreased by 2.4 percentage points from the tion remains sensitive to supply-side fac- end of 2023, reaching 60.9 percent of GDP. tors, such as geopolitical tensions, energy Inflation continued to decelerate in 2024, Outlook prices, and climate conditions. averaging 4.2 percent (y-o-y) in the first While the CAD is expected to narrow eight months, driven by weaker domestic The economy is projected to grow by 2.8 further in 2024, aided by improvements demand and lower energy prices. In re- percent in 2024, supported by rising real in the trade balance and stable remit- sponse, the Central Bank lowered the wages due to lower inflation, favorable in- tances from the EU. However, it will like- base interest rate from 4.75 percent in ear- terest rates, and a positive fiscal impulse. ly remain above pre-pandemic levels due ly 2024 to 3.6 percent in August 2024. Despite a decline in real remittances, pri- to high import prices, transport costs, During the same period, banks main- vate consumption is expected to be a ma- and low foreign direct investment amid tained high liquidity, and the ratio of non- jor growth driver, supported by grad- ongoing uncertainties. performing loans dropped to a five-year ual improvements in investments. The in- The fiscal deficit is projected to remain low of 6.1 percent. crease in imports and reduced external high at 4.1 percent of GDP in 2024 due to In January-July, total revenues rose by demand for exports will result in a nega- spending on economic support, refugee as- 12.2 percent, y-o-y, driven by social con- tive contribution from net exports. On the sistance, and infrastructure. It is expected tributions, VAT and excise duties on im- supply side, growth will be supported by to decrease to 3 percent of GDP by 2026 as ported goods, and personal income taxes. the IT sector and domestic trade. The in- fiscal support declines. Expenditures to support the economy re- dustrial sector’s contribution is anticipat- As inflationary pressures ease, the poverty mained elevated, including spending on ed to increase, although external demand rate, as measured by the US$6.85 2017 PPP wages, subsidies, and goods and services. remains below pre-2021 levels. Agricul- poverty line, is expected to decrease to The fiscal deficit registered 3 percent of tural growth will be modest due to sum- 10.63 percent in 2024. With the anticipated GDP. Public and publicly guaranteed mer drought, despite strong results early economic recovery and normalization of debt decreased to 33.8 percent of GDP in in the year. Medium-term growth will be inflation, poverty is projected to decline the first half of 2024. fueled by reforms focused on economic further to 8.6 percent in 2025. TABLE 2 Moldova / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 13.9 -4.6 0.7 2.8 3.9 4.5 Private consumption 17.3 -4.8 -0.5 2.4 3.3 3.8 Government consumption 4.4 4.8 -2.2 0.8 0.7 0.2 Gross fixed capital investment 1.9 -10.5 -1.3 5.1 5.3 5.6 Exports, goods and services 17.5 29.7 5.1 0.2 4.7 5.9 Imports, goods and services 21.2 18.2 -5.1 1.1 3.8 4.3 Real GDP growth, at constant factor prices 13.4 -4.2 1.5 2.8 3.9 4.5 Agriculture 50.3 -23.5 31.9 1.9 3.3 3.8 Industry 0.5 -10.3 -10.0 4.4 4.8 5.2 Services 12.4 3.0 -0.1 2.6 3.8 4.5 Inflation (consumer price index) 5.1 28.7 13.4 4.5 5.1 4.9 Current account balance (% of GDP) -12.4 -17.1 -11.9 -11.0 -10.5 -9.7 Net foreign direct investment inflow (% of GDP) 2.7 3.7 2.5 1.7 2.2 2.5 Fiscal balance (% of GDP) -1.9 -3.2 -5.2 -4.1 -3.4 -2.8 Revenues (% of GDP) 32.0 33.3 34.1 33.7 33.8 33.8 Debt (% of GDP) 33.8 35.9 36.0 38.5 38.1 37.5 Primary balance (% of GDP) -1.1 -2.2 -3.4 -2.4 -1.7 -1.4 a,b International poverty rate ($2.15 in 2017 PPP) 0.0 .. .. .. .. .. a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.3 0.4 0.3 0.2 0.2 0.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 14.4 15.7 13.3 10.6 8.6 7.0 GHG emissions growth (mtCO2e) 6.9 0.2 7.2 8.1 8.8 9.6 Energy related GHG emissions (% of total) 64.8 63.5 65.7 69.2 72.7 75.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2021-HBS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 25 Oct 24 After years of political instability follow- ing the 2020 elections and the first power MONTENEGRO Key conditions and shift in 30 years, Montenegro's govern- ment, formed in October 2023 and reshuf- challenges fled in July 2024, has made EU accession its priority. By March 2024, key judiciary Table 1 2023 Montenegro, characterized by its small and prosecution appointments were Population, million 0.6 open economy, rich biodiversity, and EU made, and in June 2024, a positive In- GDP, current US$ billion 7.6 ambitions, has shown resilience despite terim Benchmark Assessment Report GDP per capita, current US$ 12252.6 vulnerabilities to external and domestic marked a crucial step, enabling the coun- a 2.0 International poverty rate ($2.15) demand shocks. As a euroized economy, try to begin closing chapters and move a 3.7 it relies heavily on fiscal policy for macro- closer to EU membership. Lower middle-income poverty rate ($3.65) a 12.2 economic stability. Given its reliance on Upper middle-income poverty rate ($6.85) Gini index a 34.3 tourism and the challenges of environmen- School enrollment, primary (% gross) b 100.7 tal degradation and climate change, the Life expectancy at birth, years b 76.2 country would benefit from more sustain- Recent developments able development strategies. After a 15.3 Total GHG emissions (mtCO2e) 3.5 percent contraction in 2020, the economy The solid growth from 2023 continued into Source: WDI, Macro Poverty Outlook, and official data. rebounded swiftly in 2021-23, averaging 2024, although GDP growth moderated a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2022). 8.6 percent growth per annum. Growth is from 4.4 percent in Q1 to 2.7 percent in Q2. estimated to remain robust in 2024 at 3.4 While increased private consumption and percent, driven by private consumption, investment supported growth, their high still supported by foreign residents, pri- import dependence led to higher imports, marily Russian and Ukrainian citizens. weighing on overall growth. By July, real Montenegro’s economy is expected to Montenegro successfully reduced its pub- retail trade had grown by 6.4 percent, and grow by 3.4 percent in 2024. Growth is lic debt from 103.5 percent of GDP in the value of construction works by 3.1 projected to moderate but remain solid at 2020 to 59.3 percent in 2023, but a lumpy percent. However, tourist overnight stays 3.5 percent in 2025, boosted by wage in- debt repayment profile represents a vul- fell by 4 percent, and industrial produc- nerability. While one-off revenues result- tion by 6.5 percent. creases. However, fiscal challenges persist ed in a fiscal surplus of 0.6 percent of Strong employment gains across all sec- as the government reduces pension con- GDP in 2023, a return to fiscal deficits is tors continued into 2024. In Q2, LFS tributions, likely increasing the deficit to expected in the medium term. Tax rev- data showed employment and activity 4.1 percent of GDP in 2025. Public debt enues remain below 2021 levels following rates of 56.7 percent and 64 percent, re- is expected to rise to an estimated 64.5 the 2022 reform, which removed health- spectively, while the unemployment rate care contributions and introduced the PIT dropped to 11.4 percent. percent of GDP by 2026. Maintaining allowance (Europe Now 1). Under the By July, annual inflation averaged 4.6 per- fiscal sustainability will require disci- government's Fiscal Strategy 2024-27 (Eu- cent, and real wages increased by 1.2 per- plined policies amid high external financ- rope Now 2), revenues are projected to de- cent y/y. Poverty (income below $6.85/day ing costs and geopolitical uncertainties. cline further with the proposed reduction in 2017 PPP) is projected to have declined in pension contributions. to 8.8 percent in 2023. FIGURE 1 Montenegro / Real GDP growth and contributions FIGURE 2 Montenegro / Actual and projected poverty rates to real GDP growth and real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 20 30 7000 15 25 6000 10 5000 5 20 0 4000 15 -5 3000 -10 10 2000 -15 5 1000 -20 2018 2019 2020 2021 2022 2023e 2024f 2025f 2026f 0 0 Final consumption Gross fixed capital formation 2012 2014 2016 2018 2020 2022 2024 2026 Change in inventories Net exports International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real priv. cons. pc Sources: MONSTAT and World Bank. Source: World Bank. Notes: see Table 2. MPO 26 Oct 24 The financial sector is well capitalized and Most of the poor are chronically unem- liquid, and credit growth remains strong. ployed, students, or out of the labor force, In June, the average capital adequacy ratio Outlook often living in the northern region. Thus, was at 19.5 percent, while non-performing reducing poverty further requires target- loans declined to 5 percent from 6.1 percent The growth outlook is positive albeit ed government policies alongside sus- of total loans a year ago. By June 2024, bank- challenged by an unfavorable global envi- tained economic growth. The fiscal deficit ing sector lending and deposits increased ronment. Coming from a very high base, is expected to increase in 2025 to an esti- by 12.5 and 2.1 percent y/y respectively. growth is expected to moderate to 3.4 mated 4.1 percent of GDP before gradu- In H1, the current account deficit (CAD) percent in 2024, still led by private con- ally declining to 3.7 percent in 2026. The widened due to lower service exports and sumption, but also investments. Consid- reduction in pension contributions is ex- a decline in net income accounts, driven ering the anticipated increase in the mini- pected to create a revenue shortfall de- by higher dividend and interest pay- mum and net wages from October 2024 as spite the government's planned compen- ments. Net foreign direct investment reflected in the Fiscal Strategy, personal satory measures. Implementing addition- (FDI) fell by 5 percent, covering a third consumption is expected to drive growth al fiscal consolidation measures would of the CAD, with the remainder financed in 2025 to 3.5 percent, despite a closure improve fiscal performance and help en- through new debt. External debt stays of the thermal power plant in 2025 for re- sure sustainability. Public debt is expect- high at 130 percent. construction that will require greater en- ed to rise to an estimated 64.5 percent In the first seven months of 2024, the cen- ergy imports. Medium-term growth is ex- of GDP in 2026. Maintaining debt sus- tral government achieved a fiscal surplus pected to be sustained and stimulated tainability will require strong fiscal dis- of 0.4 percent of GDP. Revenues rose by by the progress towards EU membership. cipline, especially amid challenging glob- 8.6 percent, despite one-off revenues in The CAD is projected to widen to 12.6 al financial conditions and significant fi- 2023, supported mainly by stronger VAT percent of GDP in 2024 and further to nancing needs over 2025-27. The outlook and CIT collection. 13.7 percent in 2025 due to higher energy is clouded by potential downside risks. Expenditures grew by 17.9 percent, main- imports, with just half of it financed by Heightened geopolitical uncertainties ly due to increased social transfers fol- net FDI, which may challenge sustain- may weaken growth prospects for Mon- lowing the minimum pension increase to ability. Inflation is expected to soften on- tenegro's trading partners, while the high €450 in January 2024. In June, public debt ly slightly to 3.7 percent in 2025 and cost of external financing poses a risk stood at 60.8 percent of GDP, and in further to 2.7 percent in 2026. Poverty given the country's substantial financing September, S&P upgraded Montenegro’s is projected to decline by 1.8 percentage needs. Domestic political developments credit rating from 'B' to 'B+'. points from 2023 to 7.0 percent in 2026. also pose a risk. TABLE 2 Montenegro / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 13.0 6.4 6.3 3.4 3.5 3.2 Private consumption 4.0 9.7 6.5 4.0 4.8 3.5 Government consumption 0.5 1.5 3.1 2.8 2.7 1.8 Gross fixed capital investment -12.3 0.1 6.9 6.6 4.6 3.0 Exports, goods and services 81.9 22.7 9.0 0.4 3.8 4.0 Imports, goods and services 13.7 21.3 5.9 3.1 5.3 3.5 Real GDP growth, at constant factor prices 13.2 6.3 5.7 3.4 3.4 3.2 Agriculture -0.5 -2.9 -0.3 0.5 0.5 0.5 Industry 1.4 -5.2 5.1 -2.5 -6.8 5.0 Services 19.1 10.6 6.5 5.0 6.0 3.1 Inflation (consumer price index) 2.4 13.0 8.6 4.2 3.7 2.7 Current account balance (% of GDP) -9.2 -12.9 -11.4 -12.6 -13.7 -13.2 Net foreign direct investment inflow (% of GDP) 11.7 13.2 6.2 7.0 7.0 7.0 Fiscal balance (% of GDP) -2.1 -4.9 0.6 -2.8 -4.1 -3.7 Revenues (% of GDP) 44.0 38.6 42.2 41.5 39.7 39.7 Debt (% of GDP) 84.0 69.2 59.3 62.2 61.6 64.5 Primary balance (% of GDP) 0.2 -3.3 2.4 -0.8 -1.8 -1.3 a,b International poverty rate ($2.15 in 2017 PPP) 2.0 1.8 1.7 1.6 1.5 1.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 3.7 3.0 2.8 2.6 2.5 2.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 12.2 10.1 8.8 8.1 7.5 7.0 GHG emissions growth (mtCO2e) 3.9 2.6 2.6 -2.3 -4.4 0.6 Energy related GHG emissions (% of total) 67.8 69.2 70.3 70.0 69.1 69.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-SILC-C. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 27 Oct 24 the pandemic has not kept pace with that of its peers. Ensuring sustainability, rising NORTH Key conditions and productivity, and undertaking necessary labor and regulatory structural reforms challenges MACEDONIA are essential for EU accession to progress and to enable sustainable growth. North Macedonia is struggling to recover after crises. Real GDP growth has re- Table 1 2023 mained muted in 2024, after mere 1 per- Population, million 1.8 cent in 2023, reflecting delays in the take- Recent developments GDP, current US$ billion 14.8 off of highway construction works, weaker GDP per capita, current US$ 8146.5 external demand, and lingering price pres- Output growth averaged 1.8 percent in H1 Upper middle-income poverty rate ($6.85) a 19.0 sures. Poverty reduction, having stalled in 2024 with strong domestic demand while a 33.5 2023, is estimated to have resumed in 2024 exports and imports dropped. Services led Gini index b due to rising wages and employment growth, while construction picked up and School enrollment, primary (% gross) 91.4 b growth vis-à-vis 2023. agriculture had a negative contribution. Life expectancy at birth, years 74.4 Fiscal challenges remain persistent. While Relative to end-2023, labor market indica- Total GHG emissions (mtCO2e) 9.5 some reforms have been made to boost do- tors in Q2 2024 improved slightly, with the Source: WDI, Macro Poverty Outlook, and official data. mestic revenues, spending efficiency re- employment rate rising by a notch to 45.6 a/ Most recent value (2019), 2017 PPPs. b/ Most recent WDI value (2022). mains low, and fiscal discipline weak. The percent, while the participation rate re- fiscal deficit remains at around 5 percent mained almost unchanged at 52.1 percent. post-pandemic, pushing the debt-to-GDP The unemployment rate dropped slightly ratio close to 62 percent of GDP. Both the to 12.5 percent, and the youth unemploy- fiscal deficit and public debt remain above ment rate (15-24) remained high at 26.9 Real growth remained constrained in H1 the newly introduced fiscal rules, further percent. Nominal net wage growth, driven 2024 amidst lingering inflationary pres- challenged by pre-election spending com- by public sector and minimum wage in- sures, weak external demand, and delayed mitments related to pensions, public sector creases, spiraled up to 14.8 percent in June wages, and transfers to municipalities. 2024, outpacing inflation by close to 12 pp. highway construction. Fiscal consolida- Monetary tightening has helped contain While headline inflation eased from dou- tion targets are likely to be missed for the surge in prices but persistent in- ble-digit growth in 2022 to 3 percent in July 2024 following election promises. The fis- flationary pressures risk prolonging the 2024, core inflation remains high—at above cal deficit and public debt remain elevated tightening cycle and further dampening 5 percent, led by wage pressures and ser- over the medium term with higher economic activity. Rising wages and pen- vices. At the same time, the Central Bank sions risk keeping inflation higher for initiated the first policy rate cut of 25 basis mandatory spending and build-up of fis- longer and cause a slower return to the points to 6.05 percent in September 2024. cal risks related to arrears, pensions, and long-term average. The fiscal deficit (with the state roads spending pressures ahead of local elec- Crisis-induced scars to the economy have finances included) is projected to reach tions. The growth outlook is positive, but significantly slowed potential growth and 5.1 percent of GDP in 2024 after a July income convergence with the European budget revision that increased spend- downside risks prevail. Union (EU). The country's rebound after ing on wages, pensions and transfers, FIGURE 1 North Macedonia / Fiscal performance FIGURE 2 North Macedonia / Actual and projected poverty rate and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 70 0 45 350000 60 40 -2 300000 50 35 -4 250000 40 30 30 25 200000 -6 20 20 150000 -8 15 10 100000 10 0 -10 50000 5 Q2 18 19 20 21 22 23 Q1 20 20 20 20 20 20 24 24 0 0 20 20 Guarantees (lhs) Foreign debt (lhs) 2009 2011 2013 2015 2017 2019 2021 2023 2025 Domestic debt (lhs) Total public debt (lhs) Upper middle-income pov. rate Real GDP pc Fiscal deficit with PESR (rhs) Sources: North Macedonia State Statistics Office, Ministry of Finance, and World Source: World Bank. Notes: see Table 2. Bank staff calculations. Note: Fiscal deficit with PESR included. MPO 28 Oct 24 and lowered capital spending. Public declined to 81.8 percent of GDP in Q1 growth, falling by a further 1.2 percentage debt went up to 61.5 percent of GDP in Q2 2024, but roughly half of the total is private points over the forecast period. 2024, mostly on account of higher issuance and mostly intercompany lending. The baseline scenario is built on the as- of domestic securities. Expenditure arrears sumption that the focus on the EU acces- have surged to 4.7 percent of GDP in Q2 sion agenda remains a priority for the new 2024 on account of poor fiscal discipline of administration that won the general elec- local utility companies, public health insti- Outlook tions in May 2024. At the same time, low tutions, and state-owned enterprises. productivity, inefficient capital deploy- Banking sector stability has been main- The medium-term outlook remains pos- ment, and weak external demand, com- tained in line with an increase in the itive, but risks are tilted strongly to the pounded by limited fiscal space and ris- capital adequacy ratio to 18.9 percent in downside. Growth is expected to step ing fiscal risks amidst high interest rates, Q1 2024, while the liquidity rate (with- up in the medium term to an average continue to impede growth prospects and out government securities) settled around of 2.7 percent during 2025-2026. This further slow the pace of income conver- 20 percent. At the same time, the NPL projection assumes a rebound of public gence with EU peers. Additional delays of ratio went above 3 percent for the first investments and a gradual recovery of decarbonization targets, along with carbon time since 2022, but solely as a result of consumption and exports. pricing, risk a loss in domestic public rev- methodological changes. Headline inflation is projected to remain enues and international competitiveness The CAB returned to negative territory above or close to 3 percent in 2024-25, but given the start of the EU Carbon Border at 1.2 percent of GDP in H1 2024 owing to slow thereafter to a long-term average Adjustment Mechanism. In this context, to a worsening of the goods trade bal- of 2 percent. Poverty rates are projected following up on the Growth Plan pledges ance, while services exports held up and to maintain a slow declining pathway, is critical to carve out a growth-conducive remittances eased. External debt slightly helped by real wage and employment economic environment. TABLE 2 North Macedonia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 4.5 2.2 1.0 1.8 2.5 3.0 Private consumption 8.8 3.8 2.4 1.2 1.4 2.6 Government consumption 0.9 -5.0 -0.6 8.4 1.8 0.5 Gross fixed capital investment -0.7 3.4 -4.5 5.1 5.1 5.2 Exports, goods and services 14.3 11.4 -0.1 3.0 5.2 5.6 Imports, goods and services 14.8 12.4 -5.8 3.2 4.0 4.6 Real GDP growth, at constant factor prices 4.0 2.4 1.0 1.8 2.5 3.0 Agriculture -8.7 -5.0 -3.8 1.2 1.1 1.1 Industry -2.0 -1.9 -2.4 1.6 1.4 1.4 Services 7.7 4.6 2.5 2.0 3.0 3.6 Inflation (consumer price index) 3.2 14.2 9.4 3.5 2.8 2.0 Current account balance (% of GDP) -2.8 -6.1 0.7 -1.8 -2.0 -2.0 Net foreign direct investment inflow (% of GDP) 3.3 5.0 3.8 3.7 3.5 3.4 Fiscal balance (% of GDP) -5.3 -4.5 -4.7 -4.9 -4.0 -3.7 Fiscal balance with the state roads (% of GDP) -5.7 -4.8 -4.9 -5.1 -4.3 -3.9 Revenues (% of GDP) 32.1 32.1 34.9 37.3 37.1 37.1 Debt (% of GDP) 60.3 59.0 62.0 63.5 63.1 62.8 Primary balance (% of GDP) -4.1 -3.4 -3.1 -2.9 -2.0 -1.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 18.7 17.8 17.6 16.9 16.1 15.8 GHG emissions growth (mtCO2e) -1.1 -2.0 0.5 0.0 0.6 0.9 Energy related GHG emissions (% of total) 71.8 71.7 71.7 71.4 71.3 71.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2020-SILC-C. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2019) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 29 Oct 24 social protection remains a priority for advancing inclusion. POLAND Key conditions and Medium-term economic prospects hinge on reaping the benefits of technological challenges and green transitions, advancing social mobility and inclusion, and addressing la- Table 1 2023 The Polish economy has weathered global bor shortages. Meeting the technological Population, million 37.6 and regional shocks, underpinned by a di- transformation and EU decarbonization GDP, current US$ billion 806.5 verse economic structure, integration with objectives requires investment and plan- GDP per capita, current US$ 21428.0 regional supply chains, a commitment to ning, including ensuring a just transition a 0.9 Upper middle-income poverty rate ($6.85) macroeconomic stability, a robust financial that supports vulnerable groups while a 28.5 sector, and tight labor markets that have containing regional disparities. Gini index b 100.1 led to notable wage increases and con- School enrollment, primary (% gross) Life expectancy at birth, years b 77.3 sumer spending. The shocks however have Total GHG emissions (mtCO2e) 324.1 weakened the fiscal stance, while the en- Source: WDI, Macro Poverty Outlook, and official data. ergy crisis led to a sharp increase in in- Recent developments a/ Most recent value (2021), 2017 PPPs. flation which reduced purchasing power, b/ Most recent WDI value (2022). weighed down on growth, and increased After a sharp deceleration in 2023 (at 0.2 poverty in 2023. percent) marked by lower private con- The new administration that took office in sumption amidst high inflation and the Poland's real 2024 GDP growth is fore- December 2023 marked the first political unwinding of household crisis support casted to exceed expectations due to a transition in 8 years. It has since unlocked measures, real GDP growth has accelerat- frozen European Union (EU) funds and ed in 2024. Growth surprised on the upside stronger rebound in private and public shifted course on key agendas, such as in Q2 (3.2 percent year-on-year (y/y)) consumption on the back of slowing infla- upholding the rule of law, strengthening thanks to government and private con- tion and high wage growth. The positive fiscal institutions, and steering the green sumption picking up. A tight labor market, medium-term outlook depends on the new transition towards the EU commitment. staggered increase in the minimum and Poland's economic strategy is at a criti- public wages have resulted in one of the government intensifying, in 2025, re- cal turning point: it requires boosting pro- largest increases in average real monthly forms and investments that address ductivity through innovation, rapidly de- wage (11.5 percent y/y in Q2). structural challenges, particularly accel- carbonizing the energy sector to retain Inflation markedly slowed down reaching erating the green transition in line with economic competitiveness, and re- and 2 percent y/y in March 2024—down from upskilling the labor force in the backdrop its peak of 18.4 percent y/y in February 2023 the European Green Deal and adapting of a rapidly aging population. Restor- -, due to falling global commodity prices, a the labor force to technological advance- ing fiscal buffers while supporting invest- stronger zloty, and fewer supply disrup- ments. A rise in national extreme poverty ments in healthcare, defense, and renew- tions. The zloty remains strong, thanks to rates in 2023, expected to continue in able energy will require balancing effi- improved risk perceptions and an increas- 2024, underlines the need to strengthen cient spending and tax policy reforms. ing interest rate disparity vis-à-vis the Eu- Promoting the efficiency of spending on ro. Inflationary pressures are expected to the social protection system. pick up in H2 2024, however, primarily social benefits and promoting adaptive FIGURE 1 Poland / Potential output growth and FIGURE 2 Poland / Actual and projected poverty rate and contributions to potential output growth real private consumption per capita Percent, percentage point Poverty rate (%) Real private consumption per capita (constant LCU) 6 6 45000 5 40000 5 35000 4 4 30000 3 25000 3 20000 2 2 15000 1 10000 1 0 5000 0 0 -1 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2000 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real priv. cons. pc TFP Capital Labour Potential Sources: GUS and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 30 Oct 24 due to the phasing out of energy price compensatory increases however do not alongside increased defense and election- caps. This has prevented the National extend to the poorest 6.6 percent of the related spending, is set to keep the gener- Bank of Poland from continuing its mone- population in extreme poverty in 2023, al government deficit at 5 percent of GDP tary easing cycle, which started in Septem- who rely heavily on means-tested benefits in 2024-2025. Entry into the EU's excessive ber 2023 (75 bps cut). Headline inflation whose coverage deteriorated during the deficit procedure (EDP) should gradually rose again in August 2024 (4.3 percent y/y). period. The ability of the Polish tax and trigger a fiscal consolidation, but the pace The banking sector remains well capital- benefit system to reduce income inequal- is expected to be slow due to the high lev- ized and higher interest rates allowed for ity, which has risen since 2017, remains els of defense spending in light of geopo- further improvement in capital adequacy. comparatively low and is expected to re- litical tensions. Public debt is sustainable Continuous strengthening is required to fi- main at the same level in 2024. but will rise relatively fast in the forecast nance growing investment needs, in the period, with the 2025 borrowing needs of context of an accelerated green transition. the general government sector expected to The fiscal deficit widened in 2023, reaching reach record highs. 5.1 percent of GDP, on the back of high Outlook Household income is projected to grow debt service costs (2.1 percent of GDP), in- significantly in 2024 for families, work- creased defense spending (around 4 per- Economic growth is set to accelerate to 3.2 ers, and retirees due to strong labor cent of GDP), untargeted measures to pro- percent in 2024 and 3.7 percent in 2025. markets, an increase in real wages and tect households from the energy and food While private consumption will continue pensions, and the expansion of Poland’s price shocks, and the time-lagged impact to be a major driver, investment stimulated child benefit. Consequently, relative of the significant personal income tax re- by structural reforms and unlocked EU poverty is expected to decrease in 2024 form in 2022. It is expected to remain at the funds is also expected to play a significant and 2025. However, socially vulnerable same level in 2024. role, especially in 2025-2026. Net exports’ households remain at risk due to re- Poverty rose in 2023 using Poland’s ex- contribution to growth should turn nega- duced support from minimum-income treme and relative concepts, as nominal tive in 2024 as domestic demand fuels im- programs. National extreme poverty wage growth was outpaced by price in- ports while EU exports remain weak. A rates should remain stable in 2024 and creases and the real value of several ben- gradual improvement in exports is expect- only decline in 2025 when minimum-in- efits declined due to a lack of indexation ed from 2025 onwards. Inflation should come programs are recalibrated for in- in transfers or thresholds and smallhold- stabilize at around 3.5-5 percent and move flation. Agricultural price volatility com- er farmers suffering from lower prices. closer to the NBP target of 2.5 percent (+/- bined with damages from the 2024 The rise in relative poverty—from 11.7 to 1 percent band) only in the medium term. floods could lead to elevated extreme 12.2 percent between 2022-23—was mut- The combination of revenue shortfalls poverty rates among farming house- ed by real growth in pensions. These (from the tax reforms and exemptions) holds in 2024 and 2025. TABLE 2 Poland / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 6.9 5.6 0.2 3.2 3.7 3.4 Private consumption 6.1 5.5 -1.0 4.8 3.6 3.1 Government consumption 5.0 0.5 2.8 5.0 4.0 3.5 Gross fixed capital investment 1.2 2.7 13.1 -0.5 7.8 5.9 Exports, goods and services 12.3 7.4 3.4 2.8 4.0 3.7 Imports, goods and services 16.1 6.8 -2.0 3.9 5.5 4.4 Real GDP growth, at constant factor prices 6.6 5.9 1.2 3.0 3.7 3.3 Agriculture -11.5 1.1 -0.9 1.6 1.1 1.5 Industry 1.9 7.5 0.7 1.8 3.5 3.1 Services 9.7 5.2 1.5 3.7 3.8 3.4 Inflation (consumer price index) 5.1 14.4 12.0 3.6 4.7 2.9 Current account balance (% of GDP) -1.2 -2.4 1.6 0.9 0.1 -0.5 Net foreign direct investment inflow (% of GDP) 3.8 3.7 2.3 2.3 2.3 2.2 Fiscal balance (% of GDP) -1.8 -3.4 -5.1 -5.1 -5.2 -4.5 Revenues (% of GDP) 42.3 40.2 41.6 41.2 41.6 42.0 Debt (% of GDP) 53.6 49.2 49.6 51.4 54.5 57.5 Primary balance (% of GDP) -0.7 -1.9 -3.0 -2.9 -2.9 -2.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 0.9 0.9 1.4 1.3 1.2 1.1 GHG emissions growth (mtCO2e) 8.0 -3.8 -3.1 1.3 1.5 0.6 Energy related GHG emissions (% of total) 88.0 87.5 87.1 87.3 87.5 87.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2012-EU-SILC and 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2011-2021) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 31 Oct 24 ROMANIA Key conditions and Recent developments challenges Economic growth decelerated to 1.5 per- cent y-o-y in the first half of 2024. Private Table 1 2023 Romania has significantly advanced consumption continued to be the primary Population, million 18.7 its economic development and EU engine of growth (up 5.3 percent y-o- GDP, current US$ billion 344.7 convergence but needs more inclu- y), supported by wage and pension in- GDP per capita, current US$ 18417.8 sive and sustainable economic creases and a pick-up in credit mainly a 1.8 International poverty rate ($2.15) growth, both economically and en- in the second quarter. Investment mo- a 3.0 vironmentally. Growth obstacles en- mentum decelerated (up 6 percent y-o- Lower middle-income poverty rate ($3.65) a 7.1 compass regional disparities, insti- y) from the double-digit expansion in H2 Upper middle-income poverty rate ($6.85) Gini index a 33.9 tutional weaknesses, skilled labor 2023, largely due to a reduction in the School enrollment, primary (% gross) b 90.8 shortages and declining active work- new construction works component. The b 75.3 ing-age population, and vulnerabili- trade deficit worsened, reflecting an in- Life expectancy at birth, years ties to natural hazards and climate creased differential between export vol- Total GHG emissions (mtCO2e) 72.6 change. Pro-cyclical fiscal measures umes (down 3.3 percent y-o-y) and im- Source: WDI, Macro Poverty Outlook, and official data. have fueled consumption, leading to ports (up 4 percent y-o-y), despite mod- a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2022). consistently high twin deficits. erating import prices. On the supply side, Romania has achieved considerable construction growth slowed to 1 percent progress in mitigating poverty and y-o-y, from 11 percent in 2023, as res- inequality, despite facing unprece- idential construction contracted by 22.2 dented challenges caused by mul- percent, while civil engineering projects Romania’s economy grew by 1.5 percent tiple crises. Despite reaching high- grew by 7.6 percent, driven by public in the first half of 2024, driven by Euro- income status, Romania's rates of investment. Industry is yet to recover pean Union (EU) funds-led investment poverty and inequality are still (down 0.6 percent y-o-y), with the energy and resilient private consumption amid some of the highest within the EU, sector down 6.4 percent y-o-y impacted with stark regional differences by diminished hydroelectric production elections. Softer growth in 2024 reflects across the country. and a fall in energy exports. Unemploy- poor performance in industry and con- A key challenge in the short term is ment remains contained at 5.1 percent struction and a worsening trade balance. to address fiscal pressures while si- in June 2024, below the EU average of Growth is expected to firm up over the multaneously tackling persistent in- 6 percent. However, recent quarterly un- medium term to near potential. Fiscal and clusion challenges. To achieve a sus- employment rates among low-educated tainable recovery and support fiscal workers continue to be on an upward current account deficits remain elevated. consolidation efforts, it is vital to im- trend. Nominal net wages grew by 12.5 Poverty is projected to decline slightly to plement the key structural reforms percent y-o-y in June 2024, above head- 6 percent in 2024, supported by strong and investment priorities under the line inflation, driven by public sector wage and pension growth. National Recovery and Resilience wage increases. Annual inflation deceler- Plan (NRRP). ated to 4.9 percent in June 2024 as a result FIGURE 1 Romania / Real GDP growth and contributions to FIGURE 2 Romania / Actual and projected poverty rates real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 30 40 60000 35 20 50000 30 40000 10 25 20 30000 0 15 20000 10 -10 10000 5 -20 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Gov. cons. Private cons. GFCF International poverty rate Lower middle-income pov. rate Exports Imports GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 32 Oct 24 of decreases in core inflation and lower en- ($6.85/day PPP) declining slowly, reaching with the resumption of the Excessive ergy prices. With faster than expected dis- 6 percent in 2024. On the downside, eco- Deficit Procedures (EDP) and the new eco- inflation, the National Bank of Romania nomic growth has slowed, and unemploy- nomic governance framework. The Euro- lowered the monetary policy rate from 7 ment is rising among those with lower ed- pean Commission and the Romanian Gov- percent to 6.5 percent through two 25-ba- ucation levels, potentially hindering ernment are expected to reach an agree- sis-point cuts in July and August 2024. Pri- poverty reduction. However, there are also ment on the medium-term fiscal adjust- vate sector credit growth accelerated to 6.7 positive signs. Strong real wage growth, ment path. To achieve a deficit under 3 percent y-o-y in June 2024, reflecting an especially in the construction sector, along percent of GDP in the medium term, a net increase in the domestic currency compo- with increases in pensions, are expected to fiscal adjustment exceeding 4 percent of nent (up 8.7 percent y-o-y). improve household incomes. Additional- GDP is needed. This translates to an aver- The fiscal deficit increased to 3.6 percent ly, the easing of inflation should enhance age yearly structural adjustment of around of annual GDP in the first half of 2024, 1.3 purchasing power, which could help 0.9 percent of GDP, under the assumption percentage points higher than in the same counterbalance the effects of slower eco- of a seven-year adjustment path. Measures period of last year. Revenues increased by nomic growth on poverty. Despite lower to balance the budget are available as sev- 13.5 percent y-o-y, driven by direct tax rev- energy prices, energy poverty continues to eral taxes that contribute significantly to enues (up 18.9 percent y-o-y). Expenditure affect most economically disadvantaged the budget have rates below the EU aver- grew by 21.2 percent y-o-y, with personnel segments of the population. age, while tax collection is still low relative expenses surging 23.1 percent y-o-y fol- to peers. Curbing major expenditure items lowing public sector wage increases. Fiscal and reducing or eliminating inefficient in- consolidation remains a much-needed pri- vestments could yield additional savings. ority. The high fiscal deficit has resulted in Outlook Giving the needed fiscal consolidation a 13.7 percentage points increase in Roma- and the labor market challenges, slow nia’s public debt-to-GDP ratio from 35.1 Growth is projected to level at around 2 poverty reduction is expected going for- percent in 2019 to 48.8 percent at end-2023. percent in 2024, reflecting continued ward. Despite recent fiscal reforms, in- However, the country maintains robust geopolitical and global market uncertain- cluding ongoing pension changes that market access, and its debt-to-GDP ratio ties affecting external demand. Economic make the system more pro-poor and remains below the Stability and Growth growth is anticipated to accelerate over the slightly more redistributive, there is still Pact debt anchor of 60 percent. medium term, driven by private consump- room to improve pro-poor fiscal policies Poverty projections for the coming period tion and EU-financed investment. Fiscal with a balanced approach to revenue and present a mixed picture, with poverty consolidation is expected to accelerate expenditure measures. TABLE 2 Romania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 5.7 4.1 2.1 2.0 2.7 3.5 Private consumption 7.2 5.8 2.8 5.5 4.0 4.1 Government consumption 1.8 -3.3 6.0 0.8 0.9 1.1 Gross fixed capital investment 2.9 5.9 14.4 6.8 7.1 7.3 Exports, goods and services 12.6 9.7 -1.4 -2.9 -0.3 0.9 Imports, goods and services 14.8 9.5 -1.4 3.9 3.8 3.7 Real GDP growth, at constant factor prices 5.3 3.6 2.0 2.0 2.7 3.5 Agriculture 13.7 -23.4 10.2 -5.0 1.1 1.1 Industry 0.9 -4.6 -2.3 0.2 0.9 2.0 Services 6.8 9.4 3.3 3.1 3.4 4.2 Inflation (consumer price index) 5.1 13.8 10.4 5.3 3.9 3.2 Current account balance (% of GDP) -7.2 -9.2 -7.0 -7.2 -7.0 -6.4 Net foreign direct investment inflow (% of GDP) 3.7 3.5 2.0 2.2 2.5 2.9 Fiscal balance (% of GDP) -7.2 -6.3 -6.6 -7.3 -6.2 -5.0 Revenues (% of GDP) 32.9 33.7 33.6 34.5 35.3 36.2 Debt (% of GDP) 48.5 47.5 48.8 51.8 54.1 54.7 Primary balance (% of GDP) -5.7 -4.7 -5.2 -6.0 -4.8 -3.6 a,b International poverty rate ($2.15 in 2017 PPP) 1.8 1.7 1.6 1.5 1.4 1.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 3.0 2.8 2.6 2.5 2.4 2.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.1 6.6 6.3 6.0 5.7 5.4 GHG emissions growth (mtCO2e) 7.6 -6.1 -5.9 -2.5 -1.4 -0.6 Energy related GHG emissions (% of total) 87.4 87.1 86.5 86.3 86.3 86.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2014-EU-SILC and 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2013-2021) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 33 Oct 24 Growth in H1 was supported by man- ufacturing (+6.7 percent) due to import RUSSIAN Key conditions and substitution and military-led activity, as well as by trade services (+5.3 percent) challenges FEDERATION supported by strong domestic demand. Nevertheless, retail trade turnover The evolution of Russia’s economy growth continued to soften compared continues to be shaped by the coun- to Q1 2024. Mining sector output fell Table 1 2023 try’s invasion of Ukraine and sanc- by 2.4 percent, largely dragged by coal a 143.7 tions. The policy response to sanctions and iron ore extraction, while natural Population, million GDP, current US$ billion 2020.3 includes sizable fiscal support, a drive gas and oil production growth rebound- GNI per capita, Atlas method, current US$ a 11610.0 toward significant industrial import ed. On the demand side, growth has Lower middle-income poverty rate ($3.65) a 0.4 substitution, and measures to seek al- been driven by private consumption, a 2.0 ternative export markets. These re- propelled by high wage growth stem- Upper middle-income poverty rate ($6.85) b sponses, as well as expanded military- ming from tight labor market conditions Gini index 35.1 c related economic activity, have effec- and continuing fiscal stimulus. Invest- School enrollment, primary (% gross) 101.9 tively raised economic growth, al- ment growth was supported by the sub- c 72.5 Life expectancy at birth, years though they also are generating high sidized mortgage program and strong Total GHG emissions (mtCO2e) 1580.9 inflation and labor market shortages. corporate lending. Sources: WDI, MPO, Rosstat. In the short to medium term, the main Labor market conditions remain tight as a/ Most recent value (2021). policy challenge is to gradually nar- unemployment reached a historic low of b/ Most recent value (2020). c/ Most recent WDI value (2019). row the positive output gap and bring 2.5 percent by end-June, driving up real inflation down to the central bank's wages by 7 percent year on year (y-o-y), target while minimizing the slowdown albeit real wage growth slowed compared Economic growth is projected at 3.2 in growth. In the medium to long to Q1 2024, when it reached 14 percent. term, the growth potential is limited Inflation remained high in H1 2024, percent in 2024, with robust growth due to adverse labor market dynamics, with annual inflation (core inflation) supported by strong consumption from market and technological access re- reaching 8.6 percent (8.7 percent), well higher wages, fiscal stimulus, and im- strictions, as well as tightening of the above the central bank's target, prompt- port substitution. Inflation has remained cross-border transactions. ing it to raise the policy rate to 19 percent in September 2024, from its above the central bank target, as domes- mid-2023 low of 7.5 percent. The main tic production and labor market tight- factor driving inflation is strong growth ness pushes prices higher. Medium term Recent developments in domestic demand, outstripping the growth is expected to decelerate to 1.1 capacity of the economy to supply suf- percent by 2026 as tight monetary poli- Economic growth of 5 percent in the ficient goods and services. first half (H1) of 2024 was supported by The current account balance remained cy tempers domestic demand. Poverty is momentum built up in late 2023; how- in surplus in H1 2024. The foreign projected to decline modestly between ever, the economy has started to show trade surplus widened due to a 2024 and 2026. signs of slowing down in mid-2024. marked decline in imports, despite FIGURE 1 Russian Federation / Real GDP growth and FIGURE 2 Russian Federation / Current account balance contributions to real GDP growth and nominal USD growth of exports and imports Percent, percentage points Percent Percent of GDP 15 45 12 10 10 30 8 5 15 6 0 0 4 -5 -15 2 -10 -30 0 2019 2020 2021 2022 2023 2024 2025 2026 2019 2020 2021 2022 2023 2024 2025 2026 Imports Exports Gross fixed investment Government consumption Export growth (nominal USD) Import growth (nominal USD) Private consumption GDP growth Current account balance (rhs) Sources: Russian Federal State Statistics Service and World Bank. Sources: Central Bank of the Russian Federation and World Bank. MPO 34 Oct 24 strong domestic demand—possibly re- 2024–2026 period as rising financing costs lated to the tightening of sanctions on weigh on private sector investment. import payments. Outlook Inflation is also projected to decline as The fiscal balance recorded a small deficit tight monetary policy is expected to per- of 0.5 percent of GDP in H1 2024, as It is presently difficult to produce growth sist, softening domestic demand pressures. the increase in spending slightly outpaced forecasts for Russia due to the significant Exports are expected to rise in the revenues. Revenues stood at 19.5 percent changes to the economy associated with medium term as major export items of GDP, bolstered by additional revenues Russia’s invasion of Ukraine, and the de- (notably crude oil and gas) will grad- from the mining sector, while spending cision by Russia to limit publication of ually recover following a dip in 2023. accelerated to 20 percent of GDP. economic data, notably related to external On the one hand, exports are estimat- Credit to the economy continued to ex- trade, financial and monetary sectors. ed to grow, on average, by 1.2 percent pand at a solid pace, further supporting Available data limits our ability to assess during the 2024–2025 period; on the domestic demand. Consumer and corpo- the economic performance. other hand, imports are projected to rate lending exhibited high growth, ex- The recent deceleration in real wage decelerate due to slowing domestic de- panding by 14 percent and 11 percent in growth, retail trade turnover, and fiscal mand and a tightening of sanctions on real terms, respectively, in H1 2024. High spending points to a softening of economic import payments. The current account wages were an important factor in sus- growth and a gradual narrowing of the surplus is expected to decrease to 2.2 taining high consumer lending, while ro- positive output gap. Growth is projected to percent of GDP in 2024 and moderate bust corporate lending is a result of state- slow for the rest of the year, reaching 3.2 to 0.7 percent by 2026. led programs. Mortgage lending has been percent for 2024. In 2025 and 2026, growth Elevated expenditures are expected to cooling, given the government’s winding is expected to slow further toward its po- keep the general government balance in a down of support programs. tential level. Private consumption growth deficit of 2.1 percent of GDP in 2024, grad- The poverty rate (at the US$6.85-2017 is expected to decrease as the tight mon- ually declining thereafter. PPP international line) remained relative- etary stance—including more stringent Poverty is expected to continue declining, ly low, at around 2 percent from 2021 to macroprudential measures—and a lessen- though marginally, and is expected to 2023. However, a significant share of the ing of real wage growth temper private de- reach 1.6 percent in 2026. However, ad- population (around 15 percent) remains mand. Gross fixed capital formation ditional conflict-related mobilizations or at risk of falling into poverty in the event growth is set to ease in the medium term stricter sanctions pose risks to poverty and of an economic shock. and average 3.4 percent during the vulnerability reduction prospects. TABLE 2 Russian Federation / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 5.9 -1.2 3.6 3.2 1.6 1.1 Private consumption 11.9 -1.1 6.0 2.8 1.4 1.2 Government consumption 2.9 3.0 3.7 3.4 2.6 2.1 Gross fixed capital investment 9.3 6.7 10.5 4.9 3.0 2.3 Exports, goods and services 3.3 -13.9 -8.2 1.0 1.2 1.5 Imports, goods and services 19.1 -11.0 16.9 2.2 2.0 2.0 Real GDP growth, at constant factor prices 6.5 -0.3 3.4 3.2 1.7 1.1 Agriculture 1.3 7.0 0.5 1.2 1.2 1.2 Industry 4.3 0.4 1.5 2.0 1.4 1.4 Services 8.0 -1.1 4.5 3.9 1.8 1.0 Inflation (consumer price index) 6.7 13.7 6.0 6.9 4.4 4.2 Current account balance (% of GDP) 6.6 10.3 2.4 2.2 1.0 0.7 Net foreign direct investment inflow (% of GDP) -1.4 -1.2 -1.3 -1.0 -0.9 -0.8 a Fiscal balance (% of GDP) 0.8 -1.4 -2.3 -2.1 -1.7 -1.3 Revenues (% of GDP) 35.4 34.2 34.5 35.9 35.2 34.9 Debt (% of GDP) 17.2 16.7 17.1 17.6 18.4 18.6 a Primary balance (% of GDP) 1.6 -0.5 -1.2 -0.7 -0.2 0.3 b,c International poverty rate ($2.15 in 2017 PPP) 0.2 0.2 0.2 0.2 0.2 0.2 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.4 0.4 0.4 0.4 0.4 0.4 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 2.0 2.1 1.9 1.7 1.6 1.6 GHG emissions growth (mtCO2e) 4.8 -2.3 2.9 3.3 1.9 1.5 Energy related GHG emissions (% of total) 90.9 90.5 90.3 90.0 89.7 89.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal and Primary Balance refer to general government balances. b/ Calculations based on ECAPOV harmonization, using 2022-VNDN. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 35 Oct 24 SERBIA Key conditions and Recent developments challenges Strong GDP growth in Q1 and Q2 2024 (4.6 and 4 percent, y/y) was driven by a recov- Table 1 2023 Growth in 2024 is projected at 3.8 ery of private sector consumption and in- Population, million 6.6 percent, y/y, higher than the previ- vestment. On the other hand, net exports GDP, current US$ billion 75.6 ously projected figure of 3.5 percent made a negative contribution to growth in GDP per capita, current US$ 11447.0 thanks to a better-than-expected per- the first half of the year due to lower-than- a 1.2 International poverty rate ($2.15) formance of the construction and ser- expected export growth, as external de- a 2.5 vices sectors in the first half of the mand weakened, and imports remained at Lower middle-income poverty rate ($3.65) a 7.5 year. However, a severe drought that a high level (in part explained by increased Upper middle-income poverty rate ($6.85) Gini index a 33.1 hit Serbia this summer had a signif- investment). Manufacturing remained re- School enrollment, primary (% gross) b 89.1 icant negative impact on agriculture, silient to external developments. Its output b 75.5 which may still cause a downward was 3.6 percent higher over the first seven Life expectancy at birth, years revision of 2024 GDP projections. On months (y/y) thanks to the good perfor- Total GHG emissions (mtCO2e) 61.4 the expenditure side, consumption mance of the food, tobacco, metals, elec- Source: WDI, Macro Poverty Outlook, and official data. and investment were the main dri- tronics, and automotive sectors. a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2022). vers of growth in the first half of Labor market indicators improved slight- 2024 while net exports had a nega- ly in the first half of 2024. The unemploy- tive contribution. Consumption start- ment rate reached 8.2 percent in Q2 2024 The growth of the Serbian economy ac- ed to recover because of the continued (a record low since Q2 2020) and the em- increase in incomes as well as a steady ployment rate continued to increase (to celerated in the first half of 2024 leading decline in inflation. In order to reduce reach a record high level of 51.4 per- to an increase in projected GDP growth the high degree of volatility associat- cent) even though informal employment for the year as a whole to 3.8 percent. ed with the agriculture (and related declined marginally. Wages increased by The incidence of poverty declined to an food industry) output, Serbia needs to 14.7 percent in nominal terms (9.2 per- introduce policy and investment mea- cent, in real terms) in H1 2024 compared estimated 6.9 percent. However, there is sures to mitigate the negative impact to the same period of 2023. a possibility of revising down the pro- of increasing climate shocks and to Poverty (based on the upper-middle in- jected growth considering the severe promote private sector participation in come line of $6.85/day in 2017 PPP) is esti- drought that hit Serbia in 2024. Poverty these measures. mated to have declined from 7.5 percent in reduction is projected to continue at a Over the medium term, under the 2021 to 6.9 percent in 2022. In 2023, pover- baseline scenario, the Serbian economy ty levels are likely to have stayed the much slower pace, as the remaining is expected to grow at around 4 per- same, as private consumption growth was poor are often characterized by chronic cent. With limited space for future modest, affected by the high inflation and unemployment and thus not benefiting stimulus packages, structural reforms the phasing out of government support from positive market trends. are needed to accelerate private sector programs, which had fueled the strong led growth. post-COVID-19 recovery of 2021. FIGURE 1 Serbia / Indexes of the level of sectoral GDP FIGURE 2 Serbia / Actual and projected poverty rates and real private consumption per capita Index, 2000=1.0 Poverty rate (%) Real private consumption per capita (constant LCU) 3.0 35 700000 Agriculture value add 30 600000 2.5 Service value add 25 500000 Industry value add 2.0 20 400000 15 300000 1.5 10 200000 5 100000 1.0 0 0 2012 2014 2016 2018 2020 2022 2024 2026 0.5 International poverty rate Lower middle-income pov. rate 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 Upper middle-income pov. rate Real priv. cons. pc Source: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 36 Oct 24 Inflation continued to gradually decline The current account deficit is expected to medium-term, driven primarily by con- in the first half of 2024, mainly due to increase to 4.1 percent of GDP in 2024. sumption and to some extent by invest- a significant decline in food-related infla- Over the first half of the year the CAD ment. There are both up and downside tion. However, the headline inflation in- already more than doubled compared to risks. Downside risks relate to the im- dex edged up again in July, due to an in- the same period of 2023. The trade balance pact of climate change on agriculture and crease in food prices, most likely because keeps widening as well as the primary in- infrastructure. On a positive side, there of the drought. The NBS kept unchanged come deficit. At the same time, net trans- could be a more significant impact of ex- the key policy rate at 6.5 percent from Ju- fers declined marginally, although still re- ports on growth, including but not limit- ly 2023 through June 2024 when it was porting a major surplus. Net FDI has con- ed to the recent private sector investment lowered for the first time. Currently, the tinued to perform strongly, remaining in the automotive sector. Inflation is ex- key policy rate is 6 percent. broadly unchanged in euro terms (at EUR 2 pected to decline gradually and to stay Budgetary revenues overperformed sig- billion in H1). Foreign currency reserves in- within the NBS target band. The fiscal nificantly in H1 2024 (up 14.1 percent in creased to a record high level of EUR 27.5 deficit is now projected at a higher level nominal terms, y/y), primarily thanks to billion by June. Overall credit decreased by than before since the government decided a higher-than-planned collection of con- 1.2 percent (y/y) through June 2024. How- to de facto suspend fiscal rules until 2029, tributions for social insurance, VAT, and ever, loans to private businesses and in the context of large-scale infrastructure excises. Over the same period, expendi- households were up by 7.3 percent and 4.8 public spending plans. tures increased by 15.2 percent in nom- percent respectively. Gross nonperforming Continued economic growth will keep inal terms. As a result, the consolidated loans declined to 2.9 percent in June 2024. bringing more Serbians out of poverty. fiscal surplus was lower than in the same However, the remaining poor are increas- period of 2023, while still reaching 0.4 ingly concentrated among pensioners, the percent of annual GDP. After a continued long-term unemployed, or those com- decline over 15 months (February Outlook pletely out of the labor force. Thus, tar- 2023-May 2024), public debt increased sig- geted social assistance or other direct chan- nificantly in June 2024 (by 2.1pp) to reach The Serbian economy is expected to nels will become essential to continue 52.6 percent of GDP. grow at around 4 percent over the poverty reduction. TABLE 2 Serbia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 7.7 2.5 2.5 3.8 4.2 4.0 Private consumption 7.9 4.0 0.8 4.0 4.2 4.0 Government consumption 4.3 0.4 0.1 8.4 4.3 3.1 Gross fixed capital investment 15.7 1.9 3.9 6.1 6.9 5.9 Exports, goods and services 20.5 16.6 2.4 6.2 6.8 5.7 Imports, goods and services 18.3 16.1 -1.1 8.6 7.1 6.0 Real GDP growth, at constant factor prices 7.7 2.2 2.6 3.8 4.2 4.0 Agriculture -5.5 -8.3 4.8 -3.0 3.4 3.4 Industry 8.9 0.1 -0.8 3.0 4.5 4.5 Services 8.8 4.5 4.1 4.9 4.1 3.8 Inflation (consumer price index) 4.0 11.9 12.1 4.5 3.1 3.0 Current account balance (% of GDP) -4.3 -6.9 -2.6 -4.1 -4.7 -5.0 Net foreign direct investment inflow (% of GDP) 6.9 7.2 5.5 5.5 5.5 5.5 Fiscal balance (% of GDP) -4.1 -3.0 -2.2 -2.2 -2.5 -2.3 Revenues (% of GDP) 43.2 43.4 42.6 43.3 43.4 43.2 Debt (% of GDP) 57.1 55.6 52.6 52.0 50.4 48.4 Primary balance (% of GDP) -2.4 -1.5 -0.4 -0.2 -0.5 -0.5 a,b International poverty rate ($2.15 in 2017 PPP) 1.2 1.2 1.2 1.2 1.2 1.1 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.5 2.4 2.3 2.2 2.1 2.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.5 6.9 6.7 6.2 5.8 5.4 GHG emissions growth (mtCO2e) -3.2 0.8 0.2 2.0 1.7 1.5 Energy related GHG emissions (% of total) 74.2 75.0 74.9 75.2 75.5 75.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 37 Oct 24 public sector, including SOEs. Resolving structural issues in the energy system, im- TAJIKISTAN Key conditions and proving regulation and competition in the telecom and aviation sectors, and remov- challenges ing inefficient tax exemptions are crucial for unlocking the country's economic po- Table 1 2023 Tajikistan is the poorest country in the tential. Strengthening the education, Population, million 10.1 ECA region, with a GNI per capita of healthcare, and social protection systems GDP, current US$ billion 12.1 US$1,440 (Atlas method) and a poverty is vital for human capital development GDP per capita, current US$ 1189.0 rate of 10.7 percent (based on the LMIC and equipping the workforce with the a 6.1 International poverty rate ($2.15) poverty line) in 2023. The country is necessary skills. Given Tajikistan’s high a 25.7 struggling to overcome structural bottle- exposure to climate change and natural Lower middle-income poverty rate ($3.65) a 66.4 necks, such as poor human capital, insuf- disaster risks, the country should also ex- Upper middle-income poverty rate ($6.85) Gini index a 34.0 ficient physical infrastructure, and weak pand on measures to build better envi- School enrollment, primary (% gross) b 95.9 institutions, hampering productive job ronmental resilience. b 71.3 creation and making the economy suscep- Life expectancy at birth, years tible to external shocks. Total GHG emissions (mtCO2e) 18.6 Tajikistan heavily depends on remittances Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2015), 2017 PPPs. (38 percent of GDP in 2023), particularly Recent developments b/ WDI for School enrollment (2017); Life expectancy from Russia, and has a narrow export (2022). base comprised mainly of primary com- According to official preliminary esti- modities. This lack of diversity makes it mates, Tajikistan's economy grew 8.2 per- vulnerable to external economic shocks, cent year-on-year (yoy) in the first half such as fluctuations in the Russian econo- (H1) of 2024. Growth was driven by strong my, shifts in migration policies, and glob- household consumption and investments, al commodity market changes. while net exports declined. Increased re- Two of Tajikistan's most pressing issues mittance inflows fueled domestic demand In the first half of 2024, Tajikistan's GDP are persistent high unemployment rates as labor migrants benefited from a tight grew by 8.2 percent due to strong remit- and weak private sector dynamism. Most Russian labor market and robust real wage tance inflows and investments. Growth is of the population has limited access to ba- growth. The economy saw broad-based sic services, such as quality education and output expansion across all sectors, with projected to exceed 7 percent in 2024 healthcare, and clean water. Deterrence in services and agriculture leading the way. and to slow over the medium term. To foreign investment and local private sector In H1 2024, Tajikistan's current account im- sustain robust economic growth, ambi- development is due to an uneven playing proved, with a 2.6 percent GDP surplus tious policy reforms are needed to facili- field for private enterprises, uncompetitive compared to a 1.9 percent deficit in the tate the transition to a dynamic private state-owned enterprise (SOE) practices, same period of 2023. Despite a widening and weak governance and rule of law. trade deficit, remittance inflows grew by sector-led development model. 50 percent yoy to US$3bn, more than off- Reform priorities for Tajikistan should fo- cus on opening the economy to fair com- setting the trade deficit increase. Foreign petition and improving governance in the direct investment (FDI) has remained low FIGURE 1 Tajikistan / Fiscal balance and public debt FIGURE 2 Tajikistan / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) -0.5 45 90 1200 80 1000 -1.0 70 40 60 800 -1.5 50 600 35 40 -2.0 30 400 20 30 200 -2.5 10 Fiscal balance (lhs) 0 0 Public and publicly guaranteed debt (rhs) 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 -3.0 25 International poverty rate Lower middle-income pov. rate 2021 2022 2023e 2024f 2025f 2026f Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance and World Bank staff estimates and projections. Source: World Bank. Notes: see Table 2. MPO 38 Oct 24 at 0.5 percent of GDP due to challenges The financial sector's earnings have im- Strong remittance inflows and elevated in the business environment. The central proved due to strong foreign exchange in- prices for Tajikistan’s major export com- bank accumulated international reserves flows. Return on Assets (Equity) increased modities are expected to maintain a sur- of US$4.2 billion by June 2024, equivalent from 3.7 (19.2) percent at end-2023 to 4.7 plus in the current account, while FDI in- to about seven months of imports. (25.2) percent. The banking sector has a flows are expected to remain subdued due Prudent monetary policy and exchange capital adequacy ratio of 21.4 percent, well to the weak business environment. rate stability reduced headline inflation to above the 12 percent minimum threshold, To ensure the stability of public finances, 3.5 percent yoy in June 2024. In August, the but it faces risks from poor asset quality. authorities intend to maintain the medi- central bank cut the policy rate to 9 per- Nonperforming loans accounted for 12.2 um-term fiscal deficit below 2.5 percent of cent (from 10 percent at end-2023), mark- percent as of mid-2024. GDP and restrict non-concessional bor- ing a third cut in 2024 as the inflation out- According to the Listening-to-Tajikistan rowing solely to finance the construction look became more favorable. survey, 3 percent of the population aged of the Rogun hydro power project (HPP). The government maintained a conserva- 15+ reported to have lost a job or busi- External and domestic risks weigh on eco- tive fiscal stance, with a budget deficit of ness, and about 2.4 percent reported to nomic prospects. A potential escalation in 0.7 percent of GDP in H1 2024 (compared be looking for a job during H1 2024. Russia's invasion of Ukraine, as well as Rus- to 0.2 percent in H1 2023). Revenue collec- A higher share of households (approxi- sia’s stricter migration policies and a new tion declined to 31 percent of GDP in H1 mately 25 percent) received remittances risk of military mobilization, could nega- 2024 from 33.5 percent the previous year. during H1 2024 compared to 17 percent tively impact labor outmigration and remit- Despite strong economic growth, tax rev- in H1 2023. tance flows. On the domestic front, slow enues were adversely affected by a reduc- progress in implementing structural re- tion in the VAT rate, from 15 percent to forms to support private sector-led growth 14 percent. This reduction, coupled with a and efficient public services could hamper decrease in grant disbursements following Outlook growth prospects. There is also pressure on a significant increase last year, resulted in public finances due to loss-making SOEs, an overall revenue decline. Concurrently, Tajikistan’s economy is projected to grow the upcoming repayment of a US$500 mil- budget expenditures were cut to 31.7 per- by 7.2 percent in 2024, supported by re- lion Eurobond, and the construction of the cent of GDP in H1 2024 from 33.7 percent mittance-induced household consumption Rogun HPP. Climate change and natural the previous year. The government cur- and investments. Inflation is projected at disasters could further impede economic tailed spending on goods and services. The 3.5 percent for 2024 and remains below development and stability. budget deficit was primarily financed the central bank’s inflation target range of Poverty, at US$3.65/day, is projected to through external borrowing. 6 percent (+/-2). further decline to 9 percent in 2024. TABLE 2 Tajikistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 9.4 8.0 8.3 7.2 5.5 5.0 Private consumption 4.4 15.1 4.9 14.6 3.2 3.0 Government consumption 4.6 -0.7 13.4 11.0 5.0 5.5 Gross fixed capital investment 12.0 11.9 22.5 13.4 5.1 2.6 Exports, goods and services 55.4 -24.0 24.8 -2.9 2.7 3.2 Imports, goods and services 20.0 4.0 29.3 12.8 5.8 3.1 Real GDP growth, at constant factor prices 9.9 9.0 9.3 7.2 5.5 5.0 Agriculture -0.3 -4.5 5.0 5.0 4.5 4.5 Industry 13.2 9.1 8.0 7.5 6.6 6.0 Services 12.8 16.9 12.9 7.9 4.7 4.0 Inflation (consumer price index) 9.0 6.6 3.7 3.5 5.2 5.4 Current account balance (% of GDP) 8.2 15.3 4.8 9.8 8.3 6.8 Net foreign direct investment inflow (% of GDP) 0.4 1.5 0.8 1.1 1.3 1.4 Fiscal balance (% of GDP) -1.1 -1.3 -1.0 -2.3 -2.4 -2.4 Revenues (% of GDP) 26.7 27.2 30.1 28.4 27.8 27.7 Debt (% of GDP) 41.9 31.8 30.5 30.2 29.6 29.0 Primary balance (% of GDP) -0.3 -0.6 -0.2 -1.6 -1.7 -1.7 a,b International poverty rate ($2.15 in 2017 PPP) 2.8 2.3 2.1 1.7 1.5 1.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 14.2 12.4 10.7 9.0 8.3 7.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 50.6 46.8 43.8 40.8 38.6 36.8 GHG emissions growth (mtCO2e) 0.0 1.9 2.3 2.3 2.0 2.3 Energy related GHG emissions (% of total) 42.4 42.8 43.3 44.1 44.7 45.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2015-HSITAFIEN. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2015) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 39 Oct 24 August 2024. Automobile sales declined by approximately 16 percent (yoy) in July. TÜRKIYE Key conditions and The labor market continues to be strong. The seasonally adjusted unemployment challenges rate fell to 8.5 percent in May, before rising to 8.8 percent in July. Labor force partici- Table 1 2023 Türkiye’s normalization of macroeconom- pation rates increased, reaching 73 percent Population, million 85.4 ic policies after the May 2023 elections for men and 37 percent for women—the GDP, current US$ billion 1119.6 has started to deliver results. Exchange highest level for women since January GDP per capita, current US$ 13106.3 rate stability supported by capital inflows 2005. The gross wages and salaries index a 0.4 International poverty rate ($2.15) together with strong monetary policy was 115.4 percent (44 percent in real a 1.4 tightening that brought the policy rate terms) higher in Q2 2024 than in 2023, Lower middle-income poverty rate ($3.65) a 7.6 from 8.5 percent in May 2023 to 50 per- due in part to large minimum wage in- Upper middle-income poverty rate ($6.85) Gini index a 44.4 cent in March 2024 helped stabilize do- creases in July 2023 and January 2024. School enrollment, primary (% gross) b 102.6 mestic markets and increase confidence The current account deficit, down to USD b 78.5 in TRY assets. 45.0 billion in 2023, continues to improve, Life expectancy at birth, years The outlook calls for careful calibration of with the 12-month cumulative deficit nar- Total GHG emissions (mtCO2e) 482.8 monetary and fiscal policies to rein in in- rowing to USD 19.1 billion by July 2024. Source: WDI, Macro Poverty Outlook, and official data. flation without a hard landing; social poli- Risk premia continue to fall with the CDS a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2021); Life expectancy cies to protect the vulnerable; and action to premia at approximately 250 in mid-July (2022). tackle structural barriers to faster econom- compared to 500 in July 2023 and nearly ic performance, including low productiv- 900 in July 2022. The Government’s com- ity growth, low labor force participation mitment to the economic program gen- and employment, and weakening FDI. erated a surge in portfolio inflows, and Macroeconomic normalization is deliver- the resulting real appreciation of the TRY incentivized firms and households to ing results: disinflation has begun; switch from FX to TRY assets. This growth is rebalancing; current account Recent developments helped the CBRT to significantly improve dynamics have improved; FX reserves are its reserves. By end-May, net reserves, rebuilding; financial markets have stabi- Despite substantial tightening of monetary excluding swaps, turned positive for the policy, the economy expanded 5.1 percent first time since early-2020. By mid-Sep- lized; and risk premia have declined. Yet, in 2023 and 3.8 percent (yoy) in H1 2024. tember, net reserves had reached USD monetary efforts need to be complemented Private consumption continued to be the 48.8 billion (USD 26.5 billion, excluding with appropriate fiscal policies. Economic main driver of growth, and the contribu- swaps). However, real TRY appreciation growth is projected to slow to 3.2 percent tion of net exports turned positive in Q1 is negatively affecting exports in recent in 2024 and 2.6 percent in 2025 as the for the first time since Q3 2022. However, months, especially lower-value products, growth momentum has slowed in both while imports of final consumption goods economy adjusts, calling for social poli- production and demand. The PMI, which remain strong. cies that protect the vulnerable and re- had increased to above the 50-threshold in- Inflation peaked at 75.5 percent in May be- duce poverty and inequality. dicating expansion in Q1, fell to 47.8 by fore easing to 52.0 percent in August, FIGURE 1 Türkiye / Real GDP growth and contributions to FIGURE 2 Türkiye / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 20 25 35000 15 30000 20 10 25000 5 15 20000 0 10 15000 -5 10000 5 -10 5000 2021 2022 2023 2024 2025 2026 Private consumption Government spending 0 0 Investment Exports 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Imports Stocks International poverty rate Lower middle-income pov. rate Growth Upper middle-income pov. rate Real GDP pc Sources: Turkstat and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 40 Oct 24 thanks to monetary policy tightening, ex- 5.2 percent of GDP in 2023. The Govern- despite the economic slowdown. Strong la- change rate dynamics, and base effects. In- ment has issued a new tax package to bor market performance and minimum flation is particularly high in some of the generate further revenue for the budget, wage hikes exceeding CPI increases are the categories making up a larger consump- including regulations to combat the infor- main drivers of continued poverty reduc- tion share of poor households. For exam- mal economy. Meanwhile, general public tion. However, minimum wage hikes are ple, rental inflation reached over 120 per- debt to GDP remains manageable, at 28.5 less likely to reach informal workers or cent in August. Expectations for inflation percent as of Q1 2024. those out of the labor force, such as the el- continue to improve; in September, market derly or parents with no access to child- participants’ expectations for the next 12 care. Moreover, relying on the minimum months stood at 27.5 percent. wage to protect the poor has other eco- Monetary policy normalization and grad- Outlook nomic consequences, notably the fueling ual unwinding of macroprudential regula- of inflation. Well-implemented and flexible tions have helped improve bank profitabil- Economic growth is projected to slow in social protection programs can mitigate ity and capital adequacy. Banks have eased the short term, to 3.2 percent in 2024 and the economic slowdown’s impact on commercial lending, but high policy rates 2.6 percent in 2025, on the back of tighter poverty. Revamping the social protection that have driven up deposit and credit in- policy and subdued global growth, before system to improve targeting and coverage terest rates are constraining loan growth. picking up at 3.8 percent in 2026. Disin- is warranted: in 2021, the share of public The banking sector's net FX position has flation started in June and is forecast to transfers to the bottom three deciles was improved, and the risk premium for exter- continue gradually, given the tight mon- lower than to the top three deciles. nal borrowing has declined, although ex- etary policy. The current account balance Risks to the outlook continue downside. ternal debt costs have increased due to is forecast to improve further in H2 2024 Inadequate growth rebalancing would global conditions. Regulatory forbearance and remain low in 2025, due to the rebal- challenge macroeconomic stabilization. is being phased out, which may impact the ance in growth composition, which will Domestic private consumption is still ro- capital ratio of some banks; however, capi- rely less on domestic consumption and bust, and there is a risk that the domestic tal buffers remain high. Tighter credit con- have greater contribution from invest- adjustment will create external imbalances ditions have begun to take a toll on house- ment and net exports. General govern- whereby recent real TRY appreciation hold credit and MSMEs, with increasing ment deficit is forecast to remain high in could further hamper exports and boost credit card defaults and a gradual rise in 2024, given the economic slowdown and non-oil imports. Mounting geopolitical insolvency and concordat filings, although earthquake recovery needs, and despite tensions would also hinder exports. The levels remain moderate. fiscal consolidation efforts. lack of significant fiscal consolidation, pri- The annualized budget deficit eased to 4.7 Poverty is projected to decline more slowly marily on the expenditure side, could slow percent of GDP in Q2 2024, after reaching in the short term, to 6.3 percent in 2024, the disinflation process. TABLE 2 Türkiye / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 11.4 5.5 5.1 3.2 2.6 3.8 Private consumption 15.4 18.9 13.6 3.3 2.3 3.6 Government consumption 3.0 4.2 2.4 1.6 1.8 1.9 Gross fixed capital investment 7.2 1.3 8.4 0.8 1.5 2.6 Exports, goods and services 25.1 9.9 -2.8 1.9 3.4 4.1 Imports, goods and services 1.7 8.6 11.8 -4.1 1.9 3.5 Real GDP growth, at constant factor prices 12.7 6.2 4.2 3.2 2.6 3.8 Agriculture -3.0 1.3 0.2 0.6 1.2 1.5 Industry 13.0 -0.6 2.7 2.4 3.1 3.9 Services 13.2 10.1 5.8 2.7 2.6 4.0 Inflation (consumer price index) 19.6 72.3 53.9 57.9 29.2 15.9 Current account balance (% of GDP) -0.8 -5.0 -4.0 -1.7 -2.1 -2.4 Net foreign direct investment inflow (% of GDP) 0.8 1.0 0.4 0.9 1.1 1.4 Fiscal balance (% of GDP) -2.6 -0.8 -6.2 -5.0 -3.4 -3.2 Revenues (% of GDP) 30.9 27.8 29.0 32.4 33.8 34.0 Debt (% of GDP) 41.5 30.3 28.4 28.5 29.6 30.8 Primary balance (% of GDP) 0.0 1.4 -3.7 -1.3 0.3 0.6 a,b International poverty rate ($2.15 in 2017 PPP) 0.4 0.4 0.4 0.4 0.4 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 1.4 1.3 1.2 1.1 1.1 1.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.6 7.1 6.6 6.3 6.0 5.7 GHG emissions growth (mtCO2e) 7.9 -5.2 -0.8 3.0 3.4 4.3 Energy related GHG emissions (% of total) 78.8 77.1 75.9 75.3 74.7 74.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2021-SILC-C and 2022-SILC-C. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2020-2021) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 41 Oct 24 facility, has provided an important anchor for EU alignment. The IMF’s Extended UKRAINE Key conditions and Fund Facility program remains on-track and acts as a stability anchor and catalyzer challenges for budgetary assistance. The authorities’ “reform matrix” provides a transparent Table 1 2023 Two and half years after Russia’s inva- tool to monitor reform implementation. GDP, current US$ billion 178.8 sion, Ukraine’s economy remains shaped Looking ahead, an extended war that is a 0.0 International poverty rate ($2.15) by active hostilities, which impact pro- now expected to last well into 2025 could a 0.2 Lower middle-income poverty rate ($3.65) duction factors and critical inputs. Con- exacerbate existing challenges: balancing a 7.1 Upper middle-income poverty rate ($6.85) currently, the policy framework has shift- growing military expenditure and decreas- a 25.6 ed from an exclusive focus on stability to- ing external assistance flows with an in- Gini index b 92.8 wards an attempt to close the output gap crease in domestic revenue mobilization School enrollment, primary (% gross) Life expectancy at birth, years b 68.6 and enhance growth potential while bal- and maintaining the economy’s growth Total GHG emissions (mtCO2e) 156.3 ancing macro accounts. momentum, boosting external competi- Since February 2022, aid inflows have tiveness, and controlling inflation. Ad- Source: WDI, Macro Poverty Outlook, and official data. a/ 2020 value, 2017 PPPs. helped Ukraine manage imbalances and dressing these challenges requires well- b/ Most recent WDI value (2022). provide social support, while a restrictive targeted policies, including efficiency-en- monetary policy contributed to exchange hancing tax policy reforms and the effec- rate stability and the mitigation of infla- tive use of foreign exchange reserves to aid tionary pressure. More recently, growth reconstruction and recovery. has picked up, as the private sector activity benefited from an exceptional harvest, tar- Ukraine’s situation remains challenging, geted investments to re-open maritime ex- even though the economy continues to port routes, and the restoration of energy Recent developments prove resilient and has narrowed the out- capacity. Increased exchange rate flexibili- put gap. Reforms and close coordination ty has also helped competitiveness. These GDP growth has proven resilient, reach- factors, combined with continued high ing 6.5 percent in Q1-2024. High fre- with international partners have mitigat- government consumption, resulted in quency indicators point to continued re- ed some of the adverse impacts on growth higher-than-expected growth in 2023 that silience from Q2 onwards, supported by potential and helped meet fiscal needs, but has proven resilient to renewed attacks. a further recovery in sectors oriented to- war-related risks and uncertainty about They have, however, also augmented price wards domestic demand and strong ex- pressure from steep increases in electricity ports. However, confidence and indus- continued external assistance remain sig- tariffs to result in increased inflation. trial output is hampered by attacks on nificant. While social assistance has The economy’s potential is expected to Ukraine’s electricity infrastructure. helped mitigate some poverty impacts, the start benefiting from structural reforms. After dropping to a low of 3.2 percent in extended duration of the war is increasing The opening of accession negotiations with April, inflation has started to increase and the toll on households. the European Union (EU) in June 2024, stood at 5.4 percent in July. This was dri- combined with the implementation of the ven by supply-side factors, especially in- Ukraine Plan under the EU’s financing creases in energy tariffs, and augmented FIGURE 1 Ukraine / Quarterly GDP growth, year-over-year FIGURE 2 Ukraine / Food inflation and food insecurity Percent Percent 30 25 19.2 20 20 9.6 10 6.2 6.3 4.7 6.5 15 2.9 0 -2.3 10 -10 -10.3 -14.6 5 -20 -30 0 -30.8 -30.6 -40 -36.6 -5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Apr-24 Jun-24 2021 2022 2023 2024 Food CPI (y/y) Insufficient food (% respondents) Source: Ukraine Statistics Office. Source: State Statistics Service of Ukraine. MPO 42 Oct 24 by a loser monetary policy and gradual mitigated poverty, as 20 percent of house- the baseline assumption as consumption exchange rate devaluation on the demand holds received conflict-related support. and reconstruction investment support side. Strong agricultural output kept food The situation remains challenging: in Q3 the demand side. Inflation is expected inflation in check. Banks continue to be 2024, only 40 percent of adults were em- to pick up in 2024 and remain in the profitable and stable. ployed, and over half of households re- high single digits throughout 2025 on the The current account deficit increased from ported worse financial well-being com- back of looser monetary policy. Improved US$2.7bn in the period from January to Ju- pared to February 2023. GDP and private consumption growth in ly 2023 to US$10.8bn in the same period 2025 may point to more economic stabil- in 2024 because of declining grant receipts, ity for households. whereas a US$1.5 bn trade deficit reduc- The current account deficit is projected at tion resulting from increased maritime ex- Outlook 6.1 percent of GDP in 2024 and expected ports and diminished imports due to land to widen in 2025 due to higher imports border blockades, provided relief. Reserves Ukraine’s economic outlook is condition- and a reduction in grants. After the war stood at USD 37.2 billion on August 1. al on the timing and quantity of external the trade deficit is expected to remain el- Following the approval of external assis- assistance receipts and the duration of evated due to reconstruction needs. The tance from Ukraine’s international part- Russia’s invasion. For 2024, growth is fiscal deficit (excluding grants) is expect- ners, the fiscal gap for 2024 has been closed projected at 3.2 percent, which balances ed to remain high until end-2025 at above since March. While higher defense expen- tailwinds resulting from positive trade, 20 percent of GDP before declining to ditures require a budget amendment that harvest, and industrial output indicators around 11.4 percent in 2026. is under preparation, the associated fiscal with the adverse impacts of lower energy This scenario is subject to exceptionally needs are expected to be met from domes- capacity—and associated power out- high downside risks due to the vulnera- tic sources. A restructuring of external ages—especially during the winter months bility of Ukraine’s economic trajectory to commercial debt has been completed and and the impact of continued attacks.Under external financing shortfalls and the pos- will generate fiscal savings of US$11 bil- an indicative scenario which assumes that sible prolongation of the active hostili- lion over the next three years. active hostilities will continue throughout ties beyond 2025. Should downside risks Poverty (measured by national standards) 2025, growth is expected to decelerate to materialize, a more stringent macroeco- was estimated to have increased by 1.8 2 percent in 2025 as the output gap is nomic adjustment could become neces- million in 2023 due to reduced employ- closed and input constraints start to bind. sary, with tradeoffs on household welfare ment and incomes. Despite labor market Starting from 2026, Ukraine’s economic whose loses had so far been mitigated by slowdowns, social assistance programs growth will accelerate to 7 percent under fiscal measures. TABLE 2 Ukraine / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 3.4 -28.8 5.3 3.2 2.0 7.0 Private consumption 6.9 -27.9 6.2 2.7 4.3 6.5 Government consumption 0.8 31.4 9.0 3.0 0.5 -4.3 Gross fixed capital investment 9.1 -33.9 52.9 15.0 11.7 26.7 Exports, goods and services -8.6 -42.0 -5.4 7.2 4.9 8.6 Imports, goods and services 14.2 -17.4 8.5 9.1 9.8 11.3 Real GDP growth, at constant factor prices 3.5 -28.8 5.3 3.2 2.0 7.0 Agriculture 14.4 -25.2 7.6 -6.0 -3.0 5.0 Industry 7.2 -42.7 4.7 5.0 3.5 10.0 Services 0.5 -24.7 5.0 4.4 2.5 6.5 Inflation (consumer price index) 9.4 20.2 12.9 5.8 8.6 7.5 Current account balance (% of GDP) -1.9 5.1 -5.4 -6.1 -6.9 -7.9 Net foreign direct investment inflow (% of GDP) 3.8 0.1 2.6 1.9 2.0 4.0 a Fiscal balance (% of GDP) -4.0 -15.6 -19.6 -22.0 -20.2 -11.4 Revenues (% of GDP) 36.5 49.8 54.8 43.0 41.5 39.4 Debt (% of GDP) 49.0 77.8 84.4 90.1 94.1 89.1 a Primary balance (% of GDP) -1.2 -12.5 -15.7 -17.6 -16.4 -8.4 a,b International poverty rate ($2.15 in 2017 PPP) .. 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 0.5 0.2 0.2 0.1 0.1 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 10.5 8.3 8.4 6.7 5.6 GHG emissions growth (mtCO2e) -0.4 -28.4 -1.8 -3.7 -1.1 0.4 Energy related GHG emissions (% of total) 72.7 66.5 68.2 68.8 69.0 68.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal Balance and Primary Balance are excluding grants in 2022-2026. b/ Calculations based on ECAPOV harmonization, using 2020-HLCS. c/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. MPO 43 Oct 24 compared to 6.2 percent in H1 2023, led by investment and private consumption. Re- UZBEKISTAN Key conditions and al consumption growth accelerated to 6.8 percent in H1, led by wage and remittances challenges growth, while real investment increased by 36.6 percent, with FDI accounting for Table 1 2023 Uzbekistan implemented bold reforms in 29 percent of this investment. Investment Population, million 36.4 recent years, liberalizing its economy and growth was driven by spending on ma- GDP, current US$ billion 101.6 improving prospects for private sector de- chinery, equipment, inventory, and con- GDP per capita, current US$ 2788.9 velopment. Uzbekistan’s reform program, struction, including solar and wind power a 2.3 International poverty rate ($2.15) together with significant fiscal support, plants, chemical and metallurgical com- a 5.0 placed it on a relatively high growth path, plexes, rail investments, and construction Lower middle-income poverty rate ($3.65) a 17.3 with an average real GDP growth per capi- of Asian Games facilities. Exports (in nom- Upper middle-income poverty rate ($6.85) Gini index a 31.2 ta of 3.4 percent over the last five inal U.S. dollar value) increased moder- School enrollment, primary (% gross) b 94.3 years—above average for lower middle-in- ately in H1 2024, by 5.5 percent compared b 71.7 come countries. Nevertheless, job creation to 24.7 percent a year earlier led by ser- Life expectancy at birth, years has lagged with just 1.1 percent average vices, food, and chemicals exports, while Total GHG emissions (mtCO2e) 201.9 growth over the last five years. But it exports of gold, textiles, and machinery Source: WDI, Macro Poverty Outlook, and official data. needs to accelerate as population growth decreased moderately. Imports expanded a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2023); Life expectancy averaged 2 percent over the last five by 11 percent in H1 2024, led by rising (2022). years and with a projected yearly net natural gas imports, machinery and equip- increase of 250,000 in the working-age ment, and intermediate industrial goods. population. To achieve sustainable, job- Overall, in H1 2024, Uzbekistan registered rich economic growth Uzbekistan needs a current account surplus of 1 percent of to continue its reforms program to re- GDP, as remittance inflows surged to 14 duce state-owned enterprise dominance percent of GDP, compared to 13 percent of in the economy, liberalize key economic GDP in 2023, offsetting the H1 trade deficit The economy is projected to grow by 6 sectors (e.g., telecoms and raw materials), of 13 percent of GDP. percent in 2024. Fiscal consolidation is and minimize the trade barriers caused Between January and August 2024, the expected to continue in the medium term, by regulatory inefficiency and gaps in sum depreciated by 1.8 percent against the public infrastructure. Faster job creation U.S. dollar due to the flow-on impact of ru- based on adjusting energy prices to cost- and productivity growth also will require ble depreciation. By August 31, 2024, inter- recovery levels and reductions in tax ben- increased labor force skills. national reserves reached US$39.2bn, ris- efits. The medium-term outlook remains ing by US$6.5bn from August 2023 and positive since ongoing ambitious reforms representing 9 months of import cover. are expected to stimulate private sector- In H1 2024, as a share of GDP, budget led growth and job creation. Recent developments revenue was 30 percent, while expendi- ture was 35.9 percent resulting in a bud- Real GDP grew by 6.4 percent year-on- get deficit of 5.9 percent—higher than 5.7 year (y-o-y) in the first half (H1) of 2024 percent in H1 2023. FIGURE 1 Uzbekistan / Real GDP growth and contributions FIGURE 2 Uzbekistan / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant million LCU) 15 20 5.4 18 5.2 10 16 14 5.0 5 12 4.8 10 0 4.6 8 -5 6 4.4 4 4.2 -10 2 2021 2022 2023 2024 2025 2026 0 4.0 Private Consumption Government Spending 2022 2024 2026 Investment Net Exports International poverty rate Lower middle-income pov. rate Stocks Growth Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations based on official data. Source: World Bank. Notes: see Table 2. MPO 44 Oct 24 Headline inflation peaked in June 2024 at in 2023 (applying the UMIC poverty line notably reduced energy subsidies and on 10.6 percent, largely due to energy tariff in- of US$6.85/day). However, poverty reduc- lending to SOEs, and higher revenue col- creases, but has since slowed to 10.5 per- tion was less than it could have been be- lection. Fiscal consolidation is expected to cent in July and August, with food in- cause income growth has been skewed in continue in the medium term, with the flation decelerating to a record low of favor of the wealthier segments of the pop- budget deficit decreasing to 3.0 percent of 2.9 percent in July, prompting the central ulation, especially in urban areas, resulting GDP by 2025, as the government reduced bank to cut interest rates by 50bps to 13.5 in an increase in income inequality in 2023. tax expenditures and anticipated privati- percent in July. Compensation measures zation proceeds support revenues. (including a cash transfer of US$21 equiv- Headline inflation is expected to decline to alent to low-income households) are ex- 9 percent in 2025 and gradually approach pected to mitigate the negative impacts of Outlook the inflation target of 5 percent in 2027. tariff increases on the poor. The government is expected to adhere to Real credit growth, y-o-y, was 18 percent Growth is projected at 6.0 percent in 2024, its debt limits, with public debt decreasing in July 2024, down from 26 percent in July moderating slightly to 5.8 percent in 2025. to 35.9 percent of GDP in 2024 and 34.6 2023, as the central bank’s new regulations Consumption growth in 2024 is expected percent of GDP in 2025. Higher remit- tightened bank underwriting standards in to remain strong as average real wages in- tances and real growth in private con- higher-risk segments (e.g., car loans; sub- crease and remittance inflows remain high. sumption will lead to further poverty re- sidized lending to family businesses). The Import growth should accelerate in 2024 duction, with the UMIC poverty rate pro- banking sector remains adequately capital- and continue buoyancy in the medium jected to decrease to 15.2 percent in 2024. ized, with a capital ratio of 17.1 percent in Ju- term to support Uzbekistan’s economic Downside risks to this outlook include a ly 2024, higher than 16.4 percent a year earli- modernization. Supported by high remit- deterioration in Russia’s economic perfor- er, and above the required 13 percent. Non- tances, the current account deficit is pro- mance, higher external inflationary pres- Performing Loans increased to 4.1 percent jected to narrow in 2024 compared to 2023. sures, and tighter-than-expected global fi- in July 2024 from 3.6 percent in July 2023. The overall fiscal deficit is expected to re- nancial conditions. Upside risks include Average real wage growth of 7.2 percent in duce to 3.7 percent of GDP in 2024 due higher global gold and copper prices, and 2023 contributed to a reduction in pover- to higher-than-expected nominal GDP in stronger productivity growth and FDI due ty from 17.3 percent in 2022 to 16.9 percent 2024 and fiscal consolidation measures, to ongoing structural reforms. TABLE 2 Uzbekistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 8.0 6.0 6.3 6.0 5.8 5.9 Private consumption 11.9 11.5 6.2 6.1 5.9 6.0 Government consumption 3.1 3.5 1.4 0.9 1.0 1.0 Gross fixed capital investment 3.1 -0.3 21.5 13.5 10.4 9.9 Exports, goods and services 13.4 24.6 7.7 5.5 9.4 11.7 Imports, goods and services 23.4 13.5 11.5 18.2 16.1 16.0 Real GDP growth, at constant factor prices 8.0 6.0 6.3 6.0 5.8 5.9 Agriculture 4.0 3.6 4.1 4.0 3.9 4.0 Industry 8.1 5.6 6.2 6.5 6.5 6.6 Services 10.3 7.5 7.5 6.7 6.3 6.4 Inflation (consumer price index) 10.8 11.4 10.0 10.9 9.1 7.8 Current account balance (% of GDP) -7.0 -3.5 -7.7 -4.6 -6.3 -6.2 Net foreign direct investment inflow (% of GDP) 3.3 3.2 2.4 3.2 3.5 4.0 Fiscal balance (% of GDP) -6.0 -4.0 -5.5 -3.7 -3.0 -3.0 Revenues (% of GDP) 25.9 30.8 29.2 29.2 29.2 29.7 Debt (% of GDP) 34.8 32.5 35.3 35.9 34.6 34.2 Primary balance (% of GDP) -5.6 -3.6 -4.7 -2.6 -1.8 -1.8 a,b International poverty rate ($2.15 in 2017 PPP) .. 2.3 2.1 2.0 1.9 1.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 5.0 4.7 4.4 4.2 4.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 17.3 16.1 15.2 14.2 13.3 GHG emissions growth (mtCO2e) 6.3 3.2 3.6 3.7 3.7 3.8 Energy related GHG emissions (% of total) 61.9 62.1 62.4 62.7 62.9 63.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-HBS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2022) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 45 Oct 24 Macro Poverty Outlook 10 / 2024