Europe and Central Asia Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Annual Meetings 2022 © 2022 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. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 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 Türkiye Bosnia and Herzegovina Montenegro Ukraine Bulgaria North Macedonia Uzbekistan Croatia Poland Georgia Romania MPO 1 Oct 22 Public debt is expected to decline further in 2022, reaching 67.9 percent of GDP, ALBANIA Key conditions and largely on account of higher nominal GDP. The energy sector SOEs represent challenges a key risk to the government’s further consolidation plans, in addition to higher Table 1 2021 Albania’s GDP growth rebounded to 8.5 costs of public works. At around 27 per- Population, million 2.8 percent in 2021, reflecting the economy’s cent of GDP, public revenues provide lit- GDP, current US$ billion 18.3 resilience following two exceptionally tle space to increase investment in pub- GDP per capita, current US$ 6447.7 large shocks: the 2019 earthquake and lic infrastructure and human capital. A a 3.9 International poverty rate ($2.15) the COVID-19 pandemic. The post-earth- Medium-Term Revenue Strategy under a 11.3 quake reconstruction supported strong preparation has the potential to increase Lower middle-income poverty rate ($3.65) a 34.2 investment growth, while consumption revenues over the medium run. Upper middle-income poverty rate ($6.85) Gini index a 36.0 benefited from the growth in employ- Growth prospects are uncertain with School enrollment, primary (% gross) b 100.2 ment and wages, and credit growth. many downside risks. Higher energy, b 78.7 Towards year-end 2021, closure of the food, and commodity prices could fur- Life expectancy at birth, years output gap and rising global prices start- ther shrink households’ purchasing Total GHG emissions (mtCO2e) 7.9 ed affecting domestic inflation. Pressures power and consumption. Additional Source: WDI, Macro Poverty Outlook, and official data. intensified after the start of the war in risks include new, vaccine-resistant a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2020). Ukraine, with food and energy prices COVID-19 variants, tighter global finan- being the most affected. Rising interest cial and trade conditions, and renewed rates have also hardened borrowing con- travel restrictions. ditions while global supply chain short- falls still persist following the pandemic Following a strong growth in Q1 2022, and contribute to inflationary pressures. GDP is likely to decelerate, as rising The global slowdown and rising infla- Recent developments inflation affects disposable income, and tion brought new trade-offs for macro- a slowdown in the global economy economic policies. While macroeconomic GDP grew by 6 percent in Q1 2022. Pri- policies were geared towards providing vate consumption, exports, and invest- translates into tighter financing condi- a stimulus during 2021, increased in- ment expanded, as business and con- tions and lower exports. Medium-term flation expectations prompted a change sumer confidence remained strong de- prospects hinge on the global recovery, in the course of monetary policy with spite increasing prices. Household con- structural reforms, and fiscal consolida- the key rate increasing 3.5 times since sumption rose by 8.6 percent yoy. Net tion. Poverty is expected to decline but March 2022. foreign demand contributed positively to Against further erosion of disposable GDP growth as exports increased by 25.3 persistent inflation could lead to small- income, social assistance is still needed percent yoy, while imports rose by 17.6. er declines in the future or to reversals to continue supporting the most vul- Gross fixed capital formation slowed of past gains. nerable, but the budget now faces in- (15.5 percent yoy vs 16.9 percent in Q4 creased refinancing and interest rate 2021) while government spending de- risks on its public debt. clined significantly with the earthquake FIGURE 1 Albania / Headline inflation and core inflation FIGURE 2 Albania / Actual and projected poverty rates and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 4 45 700000 40 3 600000 35 500000 2 30 25 400000 1 20 300000 15 200000 0 10 100000 5 -1 0 0 Inflation (CPI) Core inflation 2016 2018 2020 2022 2024 -2 International poverty rate Lower middle-income pov. rate Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Upper middle-income pov. rate Real GDP pc Sources: INSTAT and World Bank. Source: World Bank. Notes: see Table 2. MPO 2 Oct 22 reconstruction winding down. On the the government increased support to vul- business-process operations should gradu- supply side, trade and construction led nerable groups and increased the subsidies ally recover. The current account deficit growth in Q1 2022. Surveys indicate con- to the energy SOEs, while keeping the tar- is expected to reach 7.7 percent of GDP tinued growth in the following trimesters iffs for households and SMEs unchanged. in 2024 reflecting high demand for infra- on account of tourism. structure-related imports. Labor markets improved during Q1 2022. Public debt is expected to decline to 68.9 Employment grew by 3.4 percent, from percent of GDP in 2022, and more sig- 2.7 percent in the previous quarter. For Outlook nificantly over the medium term. This is the same period, unemployment fell to based on the assumption that the pri- 11.3 percent from 11.4 percent a quarter Economic activity is projected to expand mary balance turns positive in 2024 in earlier, while labor force participation in- at an average of 2.7 through 2024, below line with the fiscal rule. However, the fis- creased. Given the strong growth in GDP the pre-earthquake historical rate, follow- cal balance could further deteriorate in per capita in 2021, poverty is estimated to ing global conditions and persistent sup- a worsening international context, which have dropped from 34.4 percent in 2020 ply side shocks. Enduring geopolitical may force the government to cut public to 28.1 percent in 2021. tensions could further increase inflation, spending to prevent a hike in the debt-to- The annual inflation rate rose to 7.4 per- disrupt supply chains, and disturb finan- GDP ratio. Given Albania’s growing re- cent in June 2022, the highest since March cial markets; all of which could further liance on external financing, interest rate 2020, from 6.7 percent in the previous dim Albania’s growth prospects. In turn, and refinancing-related risks remain ele- month. Core inflation was at its peak July a sluggish job market combined with di- vated. Contingent liabilities in the form 2022 (at 7.3 percent) indicating raising in- minished purchasing power could damp- of guarantees to cover energy purchases flation expectations. The Central Bank en progress on poverty reduction. also represent a significant risk. raised its key policy rate by 50 basis points While the government plans to contain In the medium term, private consump- to 1.75 percent in August, marking the spending in line with fiscal consolidation tion is projected to return as a key dri- third hike since the start of the war in plans, higher costs of public service pro- ver of GDP growth. Private investment Ukraine. Credit to the private sector grew vision create additional pressures on could provide further support to growth at 13.8 percent yoy in H1 2022. growth. Higher spending may be needed if business climate reforms are imple- Fiscal revenues increased by 19.2 percent to guarantee energy supply through more mented. After the significant reduction yoy in H1 2022 on account of increased costly energy imports and support to the in 2021, poverty is expected to continue inflation, formalization efforts, and higher fragile energy SOEs. declining in 2022, but persistent infla- profit tax. In response to higher food On the external account, services exports, tionary pressures could hamper further prices stemming from the war in Ukraine, including tourism and fast-expanding poverty reduction. TABLE 2 Albania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 2.1 -3.5 8.5 3.2 2.3 2.5 Private Consumption 3.2 -3.5 4.2 2.8 2.2 2.4 Government Consumption 2.9 1.5 7.8 -3.3 -0.2 2.0 Gross Fixed Capital Investment -3.7 -0.9 19.8 3.9 -0.1 0.1 Exports, Goods and Services 2.6 -27.9 46.0 6.5 5.7 5.6 Imports, Goods and Services 2.3 -19.8 31.7 3.5 2.7 2.9 Real GDP growth, at constant factor prices 2.4 -2.9 8.6 3.2 2.3 2.5 Agriculture 0.6 0.3 1.5 1.5 1.2 1.2 Industry 0.9 -3.5 10.8 5.0 5.0 5.0 Services 3.8 -3.8 10.3 2.9 1.3 1.7 Inflation (Consumer Price Index) 1.4 2.2 2.6 6.7 4.0 3.5 Current Account Balance (% of GDP) -7.9 -8.5 -7.7 -7.9 -8.1 -7.7 Net Foreign Direct Investment Inflow (% of GDP) 7.5 6.7 6.4 6.3 6.4 6.4 Fiscal Balance (% of GDP) -1.9 -6.7 -4.5 -3.8 -4.7 -3.8 Debt (% of GDP) 67.4 75.9 74.0 68.9 67.4 66.9 Primary Balance (% of GDP) 0.1 -4.6 -2.6 -1.3 -1.1 0.0 a,b International poverty rate ($2.15 in 2017 PPP) 3.5 3.9 2.6 2.2 2.0 1.8 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 10.3 11.4 7.8 6.9 6.2 5.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 32.4 34.4 28.1 26.0 24.5 23.1 GHG emissions growth (mtCO2e) -4.8 -8.7 -1.7 -4.2 -4.4 -4.0 Energy related GHG emissions (% of total) 47.7 44.5 44.6 42.9 40.7 38.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2016-SILC-C and 2018-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 3 Oct 22 by 11 and 22 percent, respectively, while mining contracted by 11 percent, partly re- ARMENIA Key conditions and flecting the closure of the Teghut mine in mid-March 2022 following the Ukraine- challenges Russian war. According to the official sta- tistics, agriculture contracted in real terms Table 1 2021 Despite the twin shocks of COVID-19 and by 1.8 percent (yoy), partly reflecting con- Population, million 3.0 the war in Ukraine in 2020, the Armenian straints relating to land and irrigation. GDP, current US$ billion 13.9 economy has shown resilience thanks to After some moderation in late 2021, infla- GDP per capita, current US$ 4670.3 prudent macroeconomic management tion picked up again in early 2022, and a 0.4 International poverty rate ($2.15) (flexible exchange rate, active inflation tar- reached 10.3 percent (yoy) in June 2022, a 6.9 geting regime; effective fiscal rule), and a prior to easing to 9.3 percent in July. Food Lower middle-income poverty rate ($3.65) a 53.5 sound financial sector. and fuel price increases have contributed Upper middle-income poverty rate ($6.85) Gini index a 25.2 In early 2022, the country was expected to about two-thirds of total inflation in the School enrollment, primary (% gross) b 91.2 to be negatively impacted by the war and year to date. In response, the Central Bank b 75.2 the associated sanctions, given the strong of Armenia (CBA) has increased the policy Life expectancy at birth, years economic linkages with Russia and the in- rate three times in 2022, to 9.5 percent. Total GHG emissions (mtCO2e) 9.6 crease in global commodity prices. How- During the first half of 2022, the budget Source: WDI, Macro Poverty Outlook, and official data. ever, the economy has performed better balance has remained in surplus, at 0.9 a/ Most recent value (2020), 2017 PPPs. b/ Most recent WDI value (2020). than anticipated, supported by strong do- percent of the annual projected GDP, com- mestic demand and large money transfers pared to a planned deficit of 1.5 percent. In and visitors from Russia. It is unclear this period, total revenues grew by 24 per- whether these inflows are temporary and cent (yoy) in nominal terms while expen- could be reversed. ditures grew by just 5 percent (yoy), a de- Armenia’s long-standing structural bottle- cline in real terms. While capital expendi- Growth has surprised on the upside and necks include closed borders with two of its tures have increased by 30 percent, recur- is expected to reach 7 percent in 2022, four neighbors, low productivity and firm rent expenditures just grew by 3 percent, prior to slowing in 2023. The economy competitiveness, and skills mismatches. partly due to some savings in the procure- ment of goods and services. While faster has benefited from a surge in money growth in outlays is expected during the transfers and visitors from Russia that is second half of the year, the budget is likely expected to subside. Risks to this outlook Recent developments to remain under-executed. are mostly on the downside, related to The current account deficit (CAD) has the duration and severity of the conflict, Contrary to expectations, the economic widened in the first half of 2022, as goods rebound has continued in 2022, with real import growth has outpaced exports (49 inflationary pressures, and the tensions GDP growing by 11 percent (yoy) during vs. 36 percent, yoy), driven by higher at Armenia’s borders. the first half of 2022. This was mostly food and fuel import prices and the eco- driven by services (16 percent growth, nomic recovery. Remittances declined in yoy), in particular tourism, finance, and nominal terms, but this was compensated IT. Manufacturing and construction grew by a 2.5-fold increase in total net money FIGURE 1 Armenia / GDP growth, fiscal and current account FIGURE 2 Armenia / Actual and projected poverty rates and balances real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant million LCU) 8 80 2.50 70 4 2.00 60 0 50 1.50 40 -4 1.00 30 20 -8 0.50 10 -12 0 0.00 2017 2018 2019 2020 2021 2022e 2023f 2024f 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Real GDP growth, % change CAB, % of GDP International poverty rate Lower middle-income pov. rate Fiscal balance, % of GDP Upper middle-income pov. rate Real GDP pc Sources: Statistical Committee of Armenia, Central Bank of Armenia, and World Source: World Bank. Notes: see Table 2. Bank staff projections. MPO 4 Oct 22 transfers from abroad (mostly driven by forecast for 2022 to 7 percent. Growth is ex- subside and inflation targeting helps keep Russia). The net positive arrivals (single pected to be supported by services, and, expectations anchored. entry) of Russian visitors in this period to a lesser extent, by industry. The Based on the forecasted macroeconomic increased by about 21 percent compared slowdown in trading partners will likely impact, poverty could reach 43.1 percent to the same period in 2019 (pre-pandem- result in slower growth in 2023. Agri- of the population in 2022 (measured by ic). FDI increased by 4.5-fold in the first culture growth, on the other hand, is the upper middle-income poverty line quarter of 2022, mostly driven by invest- expected to remain flat in 2022, while of $6.85). Poverty is forecasted to con- ments into the financial sector. As a result picking up in the medium term, sup- tinue declining due to strong economic of these trends, international reserves in- ported by policies in the government’s performance. However, the higher food creased to USD 3.5 billion by end-July five-year program. and energy prices may have a neg- (4.7 months imports). After a short depre- The deficit is expected to be lower than ative distributional impact, dispropor- ciation period at the onset of the Ukraine planned in 2022 (at around 2 percent tionately hurting the poor. Moreover, war, the dram has recovered vis-à-vis the of GDP). As the economy decelerates in the impacts can have a long-lasting ef- USD and by mid-August it was 18 per- 2023, the fiscal stance may loosen, with fect, as lower-income households may cent stronger (yoy), while remaining al- consolidation expected to continue in be forced to reduce food consumption most flat against the Ruble. 2024 and 2025. Public debt (excluding and investments in assets, hampering The unemployment rate declined to 14.8 CBA) is expected to decline by the end of human capital accumulation. percent by end-March 2022 (compared to 2022 below the fiscal rule’s statutory limit Downside risks include continued or 16.7 percent in March 2021). of 60 percent of GDP. heightened clashes with Azerbaijan, a The CAD is projected to widen in 2022 due protracted Ukraine conflict, a slowdown to weaker external demand and rising im- in main trading partners, and monetary port prices and will remain elevated in the tightening in advanced economies. On Outlook medium term, at above 6 percent of GDP. the upside, the significant influx of in- Inflationary pressures are expected to ternational visitors from Russia, if sus- The strong economic performance in recent ease in the remainder of 2022 and in the tained, could provide a longer-term boost months has led to an upgrade of the growth coming years, as external price pressures to the economy. TABLE 2 Armenia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 7.6 -7.2 5.7 7.0 4.3 5.2 Private Consumption 11.5 -13.9 3.7 8.9 4.2 5.4 Government Consumption 12.9 9.2 8.4 -4.1 4.4 7.1 Gross Fixed Capital Investment 4.4 -1.5 6.3 18.3 8.1 7.1 Exports, Goods and Services 16.0 -33.5 16.6 16.3 8.7 9.2 Imports, Goods and Services 11.6 -31.5 12.9 18.6 9.0 9.7 Real GDP growth, at constant factor prices 7.7 -6.8 5.5 7.0 4.3 5.2 Agriculture -5.8 -3.7 -0.6 0.0 2.0 3.5 Industry 10.5 -2.5 3.4 3.6 4.5 5.1 Services 9.7 -9.6 8.0 10.3 4.6 5.5 Inflation (Consumer Price Index) 1.4 1.2 7.2 8.5 6.7 4.8 Current Account Balance (% of GDP) -7.3 -3.8 -4.0 -7.0 -6.7 -6.4 Net Foreign Direct Investment Inflow (% of GDP) 1.7 0.7 2.5 2.7 2.9 3.2 Fiscal Balance (% of GDP) -0.8 -5.1 -4.6 -2.3 -3.3 -2.8 a Debt (% of GDP) 53.7 67.4 63.4 61.3 61.0 59.9 Primary Balance (% of GDP) 1.6 -2.4 -2.0 0.3 -0.8 -0.4 b,c International poverty rate ($2.15 in 2017 PPP) 1.0 0.4 0.2 0.2 0.2 0.2 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 9.8 6.9 5.7 4.5 3.7 3.1 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 52.3 53.5 48.9 43.1 39.7 36.0 GHG emissions growth (mtCO2e) 5.5 -10.8 7.3 7.1 6.8 6.5 Energy related GHG emissions (% of total) 59.9 56.3 60.5 62.1 63.5 64.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Includes Governement and CBA debt. b/ Calculations based on ECAPOV harmonization, using 2020-ILCS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 5 Oct 22 AZERBAIJAN Key conditions and Recent developments challenges Real GDP expanded by 6.2 percent in the first half of 2022 (yoy). The energy Table 1 2021 Azerbaijan is at a critical juncture in its sector edged up, by 0.2 percent (yoy), Population, million 10.2 development journey. The current eco- driven by an expansion in natural gas GDP, current US$ billion 54.6 nomic model is unlikely to deliver the production, while crude oil production GDP per capita, current US$ 5367.1 growth necessary for Azerbaijan to meet fell. Higher-than-expected growth in the a 95.8 School enrollment, primary (% gross) its long-run goals. Azerbaijan’s integra- non-energy sector (9.6 percent, yoy) was a 73.1 tion into the global economy is largely supported by recovery in traditional ser- Life expectancy at birth, years Total GHG emissions (mtCO2e) 56.7 limited to the energy sector, and rela- vices amid removal of COVID-19 re- Source: WDI, Macro Poverty Outlook, and official data. tively inefficient state-owned enterpris- strictions and by increased domestic de- a/ Most recent WDI value (2020). es remain present in several sectors. In mand due to the release of pent-up con- addition, structural headwinds – in the sumption as well as fiscal expansion. form of declining oil reserves, falling The war in Ukraine has had a relatively population growth, and an aging popu- muted impact on the economy, with lation – are expected to dampen long- some positive effects on the transport run growth prospects. sector. Double-digit growth rates were While the poverty rate has been stable at recorded in transport, hospitality, ICT, The rebound in economic activity in about 5-6 percent over the past decade, and non-oil manufacturing. 2021 continued in the first half of 2022, households remain vulnerable to shocks. On the demand side, investments fueled by strong activity in non-energy Providing greater access to quality ser- inched up by 0.7 percent during the vices in higher education and health ser- first half of 2022. Consumption was sup- sectors. Recovering domestic demand vices is essential to enhance inclusive ported by solid nominal wage growth supported growth, while high global en- growth in the longer term. (13.5 percent, yoy) owing to public sec- ergy prices boosted external and fiscal Accelerating growth is possible by tor wage increases, soaring remittance accounts. Risks to the outlook have be- focusing on improving productivity inflows from Russia (2.3 times, yoy), in the non-oil/gas sectors and build- and robust consumer lending. come balanced. However, the war in ing human capital. The newly ap- Inflation jumped to 13.7 percent (yoy) Ukraine could increase poverty and in- proved socio-economic development by July and has been broad-based, dri- equality given the high food inflation and strategy emphasizes the need to tran- ven by high import prices. Food inflation the larger share of household budgets sition to a private-sector-led econom- rose the most, by 20.3 percent (yoy). To ic model and aims at attaining green- counter inflation, the central bank in- spent on food among the less well-off. er growth, inclusion, and social jus- creased the policy rate twice in the first tice, and a more competitive human half of 2022, raising it by 50 basis points capital base. Private sector growth in total to 7.75 percent, but with mut- will require a level playing field and ed impact on inflation as the monetary access to skilled labor. transmission is weak, including due to FIGURE 1 Azerbaijan / Non-oil GDP growth and oil price FIGURE 2 Azerbaijan / Official poverty rate and unemployment rate US$/bbl Percent Percent of population Percent 120 12 10 10 10 100 8 8 8 80 6 6 6 4 60 2 4 4 40 0 -2 2 2 20 -4 0 -6 0 0 2014 2016 2018 2020 2022 2024 2010 2012 2014 2016 2018 2020 2022* Crude oil price, avg (lhs) Non-oil GDP growth (rhs) Official poverty rate (lhs) Unemployment rate (rhs) Sources: State Statistical Committee of Azerbaijan and World Bank staff estimates. Source: State Statistical Committee of Azerbaijan. Note: The World Bank has not reviewed the official poverty rates for 2013–20. MPO 6 Oct 22 dollarization and an underdeveloped in- remaining in double digits. Export ter-bank money market. growth will remain strong, propelled by The trade balance recorded a surplus of Outlook high prices, while import growth is ex- 32.5 percent of GDP in the first half of pected to ease beyond 2022, in line with 2022, supported by high energy prices. Real GDP growth is projected to reach the moderation in domestic demand. Exports doubled compared to a year 4.2 percent in 2022, and to slow to an The fiscal surplus is projected to mod- ago (with 90 percent of the increase in average of 2.7 percent during 2023-24. erate gradually over 2022-2024, reflecting oil and gas exports due to price effects), A moderate decline in crude oil pro- the projected path in oil and gas rev- while imports rose by 18 percent. CBA duction is expected to be offset by ex- enues. The new fiscal rule should help reserves increased by 4.2 percent while pansion in natural-gas production, with to avoid pro-cyclicality during the current State Oil Fund (SOFAZ) reserves leveled growth in the energy sector stabilizing commodity boon while reducing non-oil off as higher revenues were offset by the at 0.1 percent. In non-energy sectors fiscal balance in the medium term. loss in asset value. growth is projected to average 4.6 per- Implementation of the new socio-eco- The fiscal balance was in surplus of cent during 2023-24 as service sectors’ nomic development strategy is likely to 6 percent of GDP as higher energy growth will converge to the pre-COVID require additional public spending in cer- prices boosted the fiscal revenues levels. On the demand side, consump- tain areas, which will need to be recon- while fiscal spending saw a rise by tion is expected to moderate as house- ciled with the fiscal rule. 12.5 percent in nominal terms (a slight holds’ real incomes are negatively af- There are upside risks to the outlook drop in real terms). Higher energy fected by high inflation, and invest- such as the possibility to ramp up nat- prices prompted the government to re- ments are projected to moderate. ural gas production, enabled by the vise the budget in June and increase Inflation is projected to ease in 2023 and MoU signed with the EU, and the pos- spending by around 2 percent of GDP, 2024, while remaining significantly above sible adoption of reforms to foster non- largely on public investment. the CBA’s target range of 4+/-2 percent, oil sector growth in line with the new The financial sector has demonstrated and is expected to have negative distribu- socio-economic development strategy. resilience as the credit portfolio ex- tional impacts, as the less well-off are dis- Downside risks include continued or panded steadily while non-performing proportionately affected. heightened clashes with Armenia, a pro- loans declined to 3.5 percent as of High energy prices in the medium tracted Ukraine conflict, the slowdown June. The dollarization rate stabilized term are expected to bolster the external in main trading partners, and monetary at 50 percent. sector, with the current account surplus tightening in advanced economies. TABLE 2 Azerbaijan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 2.5 -4.3 5.6 4.2 2.8 2.6 Private Consumption 4.2 -5.1 7.0 4.5 4.0 3.6 Government Consumption 7.9 4.8 3.8 7.4 4.2 3.1 Gross Fixed Capital Investment -2.4 -7.1 -6.0 3.0 3.2 3.3 Exports, Goods and Services 1.5 -8.1 5.6 3.2 1.7 1.8 Imports, Goods and Services 2.2 -10.5 2.5 3.2 2.7 2.7 Real GDP growth, at constant factor prices 2.5 -4.4 5.6 4.2 2.8 2.6 Agriculture 7.3 1.9 3.3 1.1 2.0 2.2 Industry 0.4 -5.2 4.1 2.7 1.5 1.3 Services 5.1 -4.4 8.6 7.3 5.0 4.6 Inflation (Consumer Price Index) 2.7 2.8 6.7 12.5 9.5 8.0 Current Account Balance (% of GDP) 9.1 -0.5 15.2 24.5 16.7 13.4 Net Foreign Direct Investment Inflow (% of GDP) -2.9 -1.5 -4.1 -1.6 -1.1 -1.1 Fiscal Balance (% of GDP) 9.0 -6.5 4.2 9.3 4.3 2.3 Debt (% of GDP) 18.8 18.4 16.2 11.8 10.7 11.0 Primary Balance (% of GDP) 9.7 -5.7 4.8 9.7 4.6 2.6 GHG emissions growth (mtCO2e) 6.2 2.0 5.1 5.2 3.9 4.0 Energy related GHG emissions (% of total) 64.9 63.8 65.2 65.2 65.1 65.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 7 Oct 22 projected to decrease in both 2022 and 2023. However, this scenario is subject BELARUS Key conditions and to uncertainties related to the ongoing Ukraine-Russia war and its economic challenges repercussions for the country and the re- gion. Also, forecasting is affected by an Table 1 2021 In recent years, Belarus’s economy has increasing lack of access to important da- Population, million 9.4 faced a series of external and domestic ta, including on the production and trade GDP, current US$ billion 68.4 shocks related to the COVID-19 pandemic of sanctioned commodities, the structure GDP per capita, current US$ 7294.5 and packages of economic sanctions of foreign reserves, and fiscal accounts. a 1.3 Upper middle-income poverty rate ($6.85) adopted in the aftermath of the disputed a 24.4 2020 elections and in response to Be- Gini index b 95.3 larus’s involvement in Russia’s military School enrollment, primary (% gross) Life expectancy at birth, years b 74.2 invasion of Ukraine. While 2020-21 re- Recent developments Total GHG emissions (mtCO2e) 61.7 strictive measures had a limited negative impact on the economy, the expanded In the first half of 2022, real GDP declined Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2020), 2017 PPPs. sanction packages of 2022 affect com- by 4.2 percent y/y as exports continued to b/ Most recent WDI value (2020). modities exports, generating a loss of up fall and domestic demand weakened. Lo- to one-third of merchandise export rev- gistics and supply chain constraints led enues, which is equal to about 18 percent imports to fall faster than exports (7.3 vs of 2021 GDP. Increased trade with Russia 4.4 percent y/y in H1 2022 in nominal US$), (by 23 percent y/y in US$ nominal terms improving trade balance and containing in H1 2022) – driven by higher prices exchange rate pressures. After a short- Recession deepens as exports are ham- rather than volumes – curb these losses lived depreciation in March, the BYN/US$ pered by sectoral sanctions and disrup- only partially. Yet, preferential gas and oil rate bounced back, falling below its pre- tions of trade with Ukraine. As inflation prices cushion the impact of these exter- war level. Sales of FX by non-residents – picked up, real interest rates fell, helping nal shocks by containing cost pressures close to US$900 million on a net basis over generated by sanctions and related sup- January-July 2022 – helped to maintain the to alleviate credit constraints for enter- ply-side bottlenecks as well as lowering exchange rate stable. prises, but stretching household budgets. energy bills for industrial consumers. CPI inflation picked up in March and re- A contraction of economic activity and While businesses seek adaptation to a mains elevated at 18.1 percent y/y as of Ju- higher poverty are projected in 2023 as sanctions-shaped environment, the au- ly 2022. Higher inflation has lowered real thorities count on the effects of the 2022 interest rates, but the subsequent increase businesses continue to face supply-side support package for the economy, which in corporate borrowing has not translated bottlenecks, while the effects of policies to includes some business liberalization into higher investment, as companies seek support the economy and promote import measures. At the same time, import-sub- to fund ongoing activities. substitution are yet to materialize. stitution policies are expected to alleviate The assessment of fiscal situation is pre- supply-side constraints and boost domes- vented by the lack of publicly available da- tic manufacturing. As the effects of these ta on budget execution through 2022. The measures are yet to materialize, GDP is GFS data for Q1 2022 show a considerable FIGURE 1 Belarus / Foreign reserves FIGURE 2 Belarus / Actual and projected poverty rates and real private consumption per capita US$ bn Poverty rate (%) Real private consumption per capita (constant LCU) 10000 40 6000 9000 35 8000 5000 30 7000 4000 6000 25 5000 20 3000 4000 15 3000 2000 10 2000 1000 1000 5 0 0 0 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Gross international reserves Upper middle-income pov. rate Real priv. cons. pc Reserve assets in foreign currency* Source: NBRB. Source: World Bank. Notes: see Table 2. Note: *gross reserves net of monetary gold and SDR. MPO 8 Oct 22 decline in tax revenues from foreign trade, Russia at the amount of RUB100 bn, which while reduction of other tax revenue oc- is equivalent to US$1.5 bn. curred on a smaller scale. Outlook In this environment, accommodating In mid-July international rating agencies monetary policy to support credit expan- reported about the sovereign default as in- The outlook is driven by the effects of ex- sion, coupled with increased lending terest payments on 2027 Eurobonds were ternal restrictions imposed on Belarus’s through the Development Bank could made in the national currency instead of economy and adjustment strategies by limit the magnitude of economic down- FX and in September Fitch has downgrad- businesses and the government. The use turn, but elevate risks for financial and ed four Belarussian sovereign Eurobonds of suboptimal transportation routes and fi- macroeconomic stability going forward. to 'D' and affirmed Belarus's Default Rat- nancing mechanisms increases transaction Recession will put the growth of real ing at 'RD'. The Ministry of Finance costs and weakens the price competitive- wages on hold, while higher inflation claimed this was due to sanctions prevent- ness of exports. Sanctions against the fi- will further bite real household incomes, ing bondholders from collecting payments nancial sector deprive banks of possibili- decreasing purchasing capacity of the rather than inability to service. Although ties to borrow from abroad. In this situa- population and weakening household from the beginning of 2022 gross foreign tion, external financing needs could only consumption. Poverty and household currency reserves declined by US$962 mln, be met via bilateral borrowing – from Rus- vulnerability are expected to increase in reaching US$7.56 bn by August 1, they re- sia and/or affiliated financial institutions. 2022 and 2023. main equivalent to two months of goods The lack of certain inputs creates con- The medium-term prospects will be and services imports. However, restricted straints for producers, only partially allevi- shaped by the patterns of adjustment to access to international financial markets ated by ‘parallel’ imports occurring with- the sanctions regime and spillovers from makes meeting a US$800 mln principal out the consent of the trademark or copy- the Russian economy, also being affect- payment on Eurobonds due 28 February right holder. Announced import substitu- ed by various restrictions. To enter new, 2023 much more challenging. tion policies – initially focusing on making ‘unsanctioned’ markets, Belarusian pro- Declining real household incomes in 2022 auto components – are unlikely to address ducers have to address numerous chal- have not yet translated into poverty in- these immediate supply-side bottlenecks. lenges related to costs, logistics, and sup- crease. The number of households below To finance these policies, authorities seek ply chains. Given structural weaknesses the national poverty line fell in 2021 and to attract US$1.5 bn from Russia. Earlier accumulated in the past, all these factors remained at 4 percent in Q1 2022, very this year, it has been announced that Be- make the timing and sustainability of the close to 2021 levels. larus seeks to place government bonds in recovery uncertain. TABLE 2 Belarus / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 1.4 -0.9 2.3 -6.2 -2.3 2.5 Private Consumption 5.1 -1.4 2.6 -4.5 -1.8 3.1 Government Consumption 0.4 -1.1 -0.5 -1.8 -1.5 1.3 Gross Fixed Capital Investment 6.2 -6.8 -5.6 -12.1 -2.7 4.9 Exports, Goods and Services 1.0 -3.2 9.5 -11.8 2.1 6.2 Imports, Goods and Services 5.2 -7.9 5.8 -13.7 3.5 8.0 Real GDP growth, at constant factor prices 1.5 -0.9 2.3 -6.2 -2.3 2.5 Agriculture 3.0 4.9 -4.2 -2.4 3.5 1.9 Industry 1.4 -0.7 6.5 -7.9 1.5 4.5 Services 1.3 -2.0 0.2 -5.5 -6.3 0.9 Inflation (Consumer Price Index) 4.7 7.4 10.0 18.7 11.9 7.2 Current Account Balance (% of GDP) -1.8 -0.2 2.6 1.4 0.1 -1.2 Net Foreign Direct Investment Inflow (% of GDP) 2.0 2.1 1.7 3.3 2.2 2.3 Fiscal Balance (% of GDP) 2.5 -1.7 0.0 -1.1 -0.3 0.0 Debt (% of GDP) 37.5 41.1 36.0 50.5 54.6 51.2 Primary Balance (% of GDP) 4.3 0.0 1.6 0.4 1.1 1.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 2.4 1.3 1.2 1.4 1.5 1.3 GHG emissions growth (mtCO2e) -2.1 -2.3 -3.4 -7.1 -3.6 1.7 Energy related GHG emissions (% of total) 85.9 85.6 85.2 85.3 85.6 86.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2020-HHS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 9 Oct 22 achieve with the country’s low invest- ment rates and growth model that re- BOSNIA AND Key conditions and lies on private consumption. The pandemic, the Russia-Ukraine war, challenges HERZEGOVINA and persistent internal political tensions have inflicted a significant cost on BiH’s BiH has been a potential EU candidate economy. As a result, BiH is unlikely country since 2016. To become a can- to catch up with the pre-pandemic fore- Table 1 2021 didate country, 14 reform priorities casted growth levels. Population, million 3.3 need to be addressed as endorsed by Implementation of structural reforms GDP, current US$ billion 21.3 the EU Council in December 2019. remains sluggish due to political fric- GDP per capita, current US$ 6517.2 These priorities reflect reforms in the tions, pressures from frequent elec- Life expectancy at birth, years a 77.5 areas of democracy, the rule of law tions, corruption that pervades all lev- Total GHG emissions (mtCO2e) 22.9 and fundamental rights, and public els of society, and fragmentation of re- administration. In parallel, economic sponsibilities between the two entities Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent WDI value (2020). criteria for accession require more and cantons. Because of the resulting progress on the fragmentation of the poor welfare prospects, BiH exhibits internal market and of the state insti- one of the highest emigration rates in tutional set-up, on the oversized pub- the Western Balkans. lic sector, and on weak state supervi- sory and regulatory institutions. The authorities built fiscal buffers prior After accelerating to 7.5 percent in to the pandemic by running fiscal sur- Recent developments pluses between 1 and 3 percent of GDP 2021, real GDP growth is expected to from 2015 to 2019. These surpluses Real GDP rebounded 7.5 percent in slow to 4.0 percent in 2022. Inflation, helped rein in the current account 2021, and strong economic activity con- meanwhile, surged to 16.7 percent in deficits, financed by FDI inflows, and tinued in H1 of 2022 with real output July 2022 (yoy) driven by food and en- contributed to macroeconomic stability. growing 5.9 percent (yoy), with invest- ergy prices, creating risks for poverty Macroeconomic stability has been ments surging 24 percent, while private maintained over the past decade large- consumption stayed robust, supported reduction. Annual inflation is expected ly facilitated by three economic an- by remittances and credit growth. to reach 11 percent in 2022 compared chors: the currency board linked to Inflation jumped to 12.3 percent during to 2 percent in 2021. Delayed structur- the euro, the state-wide collection of January-July of 2022 compared to 0.4 al reforms could take off following the indirect taxes through ITA, and EU percent during the same period last membership prospects. Despite real in- year, weakening real disposable income. general election in October 2022. come growing around 3 percent annu- Sharply rising inflation was mainly dri- ally since 2015, per capita GDP has re- ven by higher food and transport prices, mained at one-third of the EU27 av- which surged to 25 percent and 34 per- erage. Faster convergence toward the cent respectively in July 2022 (yoy), EU27 average will be difficult to putting disproportionate stress on lower FIGURE 1 Bosnia and Herzegovina / Real GDP growth and FIGURE 2 Bosnia and Herzegovina / Labor market contributions to real GDP growth, 2019-2024 indicators, 2021-2022 Percent, percentage points Percent of GDP 8 60 Q1 2021 Q2 2021 Q3 2021 6 48.1 Q4 2021 Q1 2022 50 47.4 4 40.1 38.4 40 2 30 0 19.1 20 16.7 -2 10 -4 2019 2020 2021e 2022f 2023f 2024f 0 Agriculture Industry Services GDP growth Activity rate (15-89) Emp. Rate (15-89) Unemp. Rate (15-74) Sources: BiH Agency for Statistics (BHAS) and World Bank staff calculations. Sources: LFS 2021 - 2022 report and World Bank staff calculations. MPO 10 Oct 22 income groups, and generating risks of inflows, mainly into the foreign-owned Phased-out pre-election spending poverty reduction in 2022. banking sector, which remained stable and one-off expenditures in response Nevertheless, improvements in labor during the first half of 2022 as au- to the price shock will be in part market participation and the employment thorities in both entities acted swiftly offset by higher interest payments. rate continued throughout the first half of to address concerns surrounding one However, a return to fiscal surplus is 2022, although high unemployment per- Russian bank affected by sanctions. expected by 2024. sists at about 17 percent. Considering energy market disruptions Stronger tax revenues supported by high by the war in Ukraine, inflationary inflation was more than offset by higher pressures are now assumed to last spending, which is expected to result in Outlook longer than initially expected. Hence, a fiscal deficit of 1.2 percent of GDP in inflation is projected at close to 11 per- 2022.1 This compares to a deficit of 0.3 Real GDP is set to decelerate to 4.0 cent in 2022, stabilizing in 2023-24 at percent of GDP last year, and 5.3 per- percent in 2022 as private consump- rates seen prior to the pandemic, at cent of GDP in 2020. Expenditures in tion growth halves due to weakening around 2 percent and lower. 2022 are driven by social measures soft- real disposable income. Over the Downside risks dominate the outlook. ening the inflationary impact on house- medium term, real output growth is Protracted effects of the war in Ukraine holds and pre-election spending, includ- projected to reach 3.2 percent by 2024 could have a negative impact on ag- ing wage hikes and robust growth in driven largely by private consumption gregate demand through depressed con- capital expenditures. Public debt hovers supported by remittances and a tight- sumer and business confidence. Further- around 35 percent of GDP. ening labor market. Investment in en- more, war-related uncertainties and Adverse terms of trade helped widen ergy and infrastructure (windmills, sanctions can dampen the recovery in the merchandise deficit by 46 percent Corridor Vc, etc.) will add to the the EU, adversely impacting demand in the first half of 2022. The current growth stimulus over the medium for BiH exports, except for energy. Ad- account deficit is therefore expected to term, although not to the same extent verse labor market developments across broaden to 3.4 percent of GDP in 2022 as in 2021 and 2022. Strong exports are the EU could also limit remittances in- compared to 2.3 percent in 2021. Ex- likely to be offset by higher imports flows (about 8 percent of GDP), which ternal financing largely entails net FDI in part for infrastructure projects. As support private consumption. Finally, general elections are completed, and geopolitical risks could further aggra- results implemented, the attention of vate domestic political frictions with ad- 1/ BiH draft Global Fiscal Framework for 2022-2024 policy makers could turn to the struc- verse consequences for the much-needed and World Bank staff estimates. tural reform agenda for EU accession. structural reform push. TABLE 2 Bosnia and Herzegovina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 2.8 -3.1 7.5 4.0 2.8 3.2 Private Consumption 2.8 -4.5 4.0 2.0 2.5 2.3 Government Consumption 2.6 0.5 6.1 0.5 0.7 0.5 Gross Fixed Capital Investment 2.4 -20.9 35.5 25.1 3.9 2.7 Exports, Goods and Services -0.3 -8.5 5.0 10.0 7.0 7.2 Imports, Goods and Services 0.2 -13.4 8.0 12.0 5.0 3.5 Real GDP growth, at constant factor prices 2.8 -3.1 7.5 4.0 2.8 3.2 Agriculture 2.9 -1.5 3.4 3.5 3.1 3.1 Industry 1.9 -3.0 2.0 2.6 3.2 3.2 Services 3.2 -3.3 10.2 4.6 2.6 3.2 Inflation (Consumer Price Index) 0.6 -1.1 2.0 11.0 2.0 0.5 Current Account Balance (% of GDP) -2.9 -3.9 -2.3 -3.4 -5.7 -5.4 Net Foreign Direct Investment Inflow (% of GDP) 3.5 2.0 3.3 3.0 3.2 3.4 Fiscal Balance (% of GDP) 1.9 -5.3 -0.3 -1.2 -0.3 0.3 Debt (% of GDP) 34.5 40.2 37.8 35.6 35.2 34.9 Primary Balance (% of GDP) 2.8 -4.0 1.0 -0.4 0.5 1.1 GHG emissions growth (mtCO2e) -5.7 -8.1 2.4 3.6 1.4 1.3 Energy related GHG emissions (% of total) 86.8 85.8 85.7 86.1 86.1 86.0 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 22 Bulgaria, with the key channels of influ- ence being imported price inflation and BULGARIA Key conditions and security of natural gas supply. After Rus- sia’s Gazprom – previously the dominant challenges gas provider to Bulgaria – unilaterally cut supplies in April 2022, the govern- Table 1 2021 The long-term challenges facing Bulgaria ment has been trying to secure alternative Population, million 6.9 include negative demographic trends, in- supplies. Uncertainty on the sufficiency GDP, current US$ billion 80.2 stitutional and governance weaknesses of gas for the coming heating season re- GDP per capita, current US$ 11664.6 and suboptimal public services, with large mains, however. Even if a potential short- a 0.9 International poverty rate ($2.15) variation in quality and access across the age will not have a significantly disrup- a 2.8 regions. Institutional gaps have also hin- tive impact on the economy, it may inflict Lower middle-income poverty rate ($3.65) a 7.2 dered private sector expansion as they lead high costs on several industrial con- Upper middle-income poverty rate ($6.85) Gini index a 40.3 to resource misallocation away from the sumers, as well as household consumers School enrollment, primary (% gross) b 85.9 most productive firms. Progress on inclu- of gas and heating, and force emergency b 73.6 sive growth and shared prosperity has switching to alternative energy sources. Life expectancy at birth, years been limited given high rates of poverty Total GHG emissions (mtCO2e) 48.1 and inequality of incomes and opportuni- Source: WDI, Macro Poverty Outlook, and official data. ties. The latter are reinforced by the lowest a/ Most recent value (2019), 2017 PPPs. b/ WDI for School enrollment (2019); Life expectancy level of relative intergenerational mobility Recent developments (2020). of education in the EU-27, meaning that the education of children is highly corre- GDP growth exceeded expectations in lated with that of their parents and the ed- the first half of 2022, with the economy ucation system does little to give children expanding by 4.5 percent y/y. The main Following robust growth in the first half from disadvantaged backgrounds a better growth driver on the expenditure side start in life. In addition, inadequacies in remains final consumption on the back of 2022, the Bulgarian economy is set to the targeting, coverage and generosity of of labor market recovery, coupled with slow down in line with global and region- the social security system limit its role increased government spending. The la- al trends. The spike of inflation on energy as a redistributive mechanism. Tackling bor market continued to trend back to- and food prices is already outpacing wage these challenges will require enforcement wards its pre-Covid readings, with the of the rule of law and good governance, employment rate up by 0.3pp y/y to growth and may increase poverty. The fis- investment in human capital, and re- 53.7 percent in Q2 of 2022, and unem- cal position remains strong but is likely moval of hindrances to competition and ployment down by 0.9pp to 4.7 per- to worsen in the remainder of 2022, as private investment while improving pub- cent. Yet, investment continues to dis- new anti-inflationary measures take ef- lic investment management. Prompt eu- appoint with negative growth rates. fect. Political instability may weaken the rozone accession – officially targeted for The export expansion was outpaced by 2024 - can also contribute to faster con- import growth, leading to widening reform agenda and reduce the country’s trade and current account deficits. vergence to EU living standards. ability to fully absorb EU funds. More recently, the shock of the war in Bulgaria had one of the highest inflation Ukraine has had an adverse impact on rates among EU countries with the CPI FIGURE 1 Bulgaria / Real GDP growth and contributions to FIGURE 2 Bulgaria / 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 30 18000 10 16000 25 14000 5 20 12000 0 10000 15 8000 -5 10 6000 -10 4000 5 -15 2000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022f2023f2024f 0 0 Imports Exports 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross fixed capital formation Private consumption International poverty rate Lower middle-income pov. rate Public consumption GDP Upper middle-income pov. rate Real GDP pc Sources: World Bank and Bulgarian National Statistical Institute. Source: World Bank. Notes: see Table 2. MPO 12 Oct 22 reaching 17.3 percent y/y in July. Im- 2017PPP poverty line is projected to de- ported inflation of tradable energy and cline from 7.1 percent in 2021 to 6.8 per- food prices was the key factor behind Outlook cent in 2022. Despite that, the potential the recent inflationary spike. The WB- for downside risks remains high, particu- estimated core inflation (i.e., energy and Bulgaria’s growth projection for 2022 has larly in the context of the war in Ukraine. food prices excluded) has also picked increased to 2.9 percent on better-than-ex- Rising food and energy prices continue to up as a result of second-round effects, pected performance in the year to date. put pressure on poorer Bulgarians who reaching 9.1 percent y/y in July. Given Growth deceleration is forecasted to start spend a disproportionately high share of that the nominal wage growth (11.6 in H2 of 2022 and continue in 2023, in line their income on these items. Social assis- percent), on average, has already been with global and EU trends. Going forward, tance and wages not keeping pace with falling behind y/y inflation (13.1 per- reforms and investment under the National inflation will further undermine the pur- cent) in the first half of 2022, purchasing Recovery and Resilience Plan and the EU chasing power of households. Poverty is power is likely to be eroded. Multiannual Financial Framework will help projected to remain relatively unchanged The fiscal position remained strong in sustain growth. Yet, risks remain titled to at 6.7 percent in 2023, though downside the first seven months, but a worsening the downside and further downward revi- risks are likely to persist. of the general government balance is ex- sions are likely in case of prolonged supply Separately, Bulgaria’s outlook is marred pected going forward. Following a BGN and price shocks in international markets. by the latest bout of political instability 1.65bn surplus in the year to August (1.1 Inflation is projected to remain elevated that started with a no-confidence vote percent of the government’s GDP pro- and end 2022 in double digits, with a grad- against the government in June. Early jection), recently passed anti-inflationary ual reduction in 2023. The fiscal deficit is elections are scheduled on October 2, measures – including indirect tax reduc- likely to expand to 4.2 percent of GDP due which will reveal whether the country tions for energy consumers, pension in- to the expected slowdown of the economy will attain some degree of political sta- creases and energy price subsidies - will and recently approved anti-inflationary bility.If not, the political crisis will impact negatively both on the revenue measures. The current account deficit is al- linger as it did in 2021, which may well and the expenditure sides of the bud- so expected to widen in 2022, to 2.7 percent negatively impact the pace of absorp- get in the coming months. The projected of GDP, as import prices soar. tion of EU funds and structural reforms, slowdown of the economy in H2 is also Amidst better-than-expected growth for slowing Bulgaria’s convergence towards to tone down revenue growth. 2022, poverty as measured by the US$6.85 average EU incomes. TABLE 2 Bulgaria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 4.0 -4.4 4.2 2.9 1.7 3.3 Private Consumption 6.0 -0.4 8.0 4.3 2.1 3.9 Government Consumption 2.0 8.3 4.0 13.2 4.1 0.7 Gross Fixed Capital Investment 4.5 0.6 -11.0 -4.8 1.5 4.6 Exports, Goods and Services 4.0 -12.1 9.9 8.5 3.4 6.9 Imports, Goods and Services 5.2 -5.4 12.2 11.3 4.2 6.5 Real GDP growth, at constant factor prices 3.7 -4.5 3.6 2.9 1.7 3.3 Agriculture 4.1 -3.3 6.1 5.4 1.8 4.0 Industry -0.1 -8.2 6.6 7.4 5.2 7.9 Services 5.2 -3.2 2.4 1.1 0.4 1.4 Inflation (Consumer Price Index) 3.1 1.7 3.3 14.4 6.8 3.6 Current Account Balance (% of GDP) 1.9 -0.1 -0.4 -2.7 0.1 1.4 Net Foreign Direct Investment Inflow (% of GDP) 2.0 4.5 1.7 4.4 2.1 3.6 Fiscal Balance (% of GDP) -1.0 -2.9 -2.9 -4.2 -3.3 -2.5 Debt (% of GDP) 20.1 24.8 25.1 28.6 29.5 28.0 Primary Balance (% of GDP) -0.4 -2.4 -2.4 -3.9 -3.0 -2.2 a,b International poverty rate ($2.15 in 2017 PPP) 0.9 1.1 0.9 0.8 0.8 0.8 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.8 3.0 2.8 2.6 2.4 2.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.2 7.6 7.1 6.8 6.6 6.2 GHG emissions growth (mtCO2e) -2.7 -3.4 7.3 3.7 3.6 4.1 Energy related GHG emissions (% of total) 82.7 80.5 78.0 76.7 74.7 73.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 13 Oct 22 at a subdued pace, risks to the outlook are tilted to the downside. The main chal- CROATIA Key conditions and lenges pertain to the implications of the war in Ukraine, particularly, gas imports challenges from Russia, decline in real incomes as a result of rising inflation, monetary poli- Table 1 2021 Croatia is set to join the eurozone and cy tightening, rising financing costs, and Population, million 3.9 the Schengen area in 2023. While these uncertainty. In addition, a slowdown in GDP, current US$ billion 67.7 achievements are expected to strengthen key trading partners like Germany could GDP per capita, current US$ 17402.4 the country’s resilience and bring long- also have a negative impact on exports. a 0.3 International poverty rate ($2.15) term economic benefits, raising potential Furthermore, monetary tightening by the a 0.6 growth will still primarily depend on ECB might be stronger than currently ex- Lower middle-income poverty rate ($3.65) a 2.4 prudent national policies. Croatia’s rela- pected. Lower growth and higher infla- Upper middle-income poverty rate ($6.85) Gini index a 29.0 tively low productivity growth remains tion would require additional fiscal sup- School enrollment, primary (% gross) b 93.2 a key obstacle for faster convergence to- port, with negative consequences for the b 77.7 wards the average EU income levels. Data elevated debt level. Life expectancy at birth, years suggests that the sectoral composition of Total GHG emissions (mtCO2e) 16.4 Croatia’s economy and relatively large Source: WDI, Macro Poverty Outlook, and official data. role of low-skilled services such as a/ Most recent value (2019), 2017 PPPs. b/ WDI for School enrollment (2019); Life expectancy tourism explain only a small part of the Recent developments (2020). lagging productivity. The main challenges lie within sectors and are related to mar- After a marked rebound in 2021, real ket frictions and barriers to competition GDP in Croatia continued to expand between firms as well as low investment strongly in the first half of 2022. The GDP in Croatia continued to strongly in R&D and low technology adoption country benefited from the reopening of rates. This highlights the need to increase economies after the COVID-19 lock- expand in the first half of 2022 despite the dynamism of the Croatian business downs, with pent-up demand and con- high and rising inflation and geopoliti- environment, reduce market inefficien- sumer savings built up during the pan- cal tensions. Exports of goods and ser- cies, level the playing field, and promote demic boosted tourism, the most impor- vices maintained double-digit growth, investment. In addition, demographic tant sector in the economy. Exports of forecasts suggest that strengthening long- goods and domestic demand also re- and domestic demand remained robust. term growth will also require policies to mained strong despite rising global un- Looking ahead, economic activity is like- mitigate the negative economic impact of certainties and increasing prices. Employ- ly to slow down towards the end of the a declining and aging population. Some ment continued to increase with the year and in 2023 with rising uncertain- of these challenges will be tackled largest job gains in tourism and ICT. The ties in external environment and infla- through reforms included in the National growth in nominal wages accelerated but Recovery and Resilience Plan and invest- not enough to offset the negative im- tion weighing on real incomes and ex- pact of inflation on real incomes. The an- ments finance from different EU funds. ternal demand. Poverty is expected to While the economy is expected to contin- nual increase in CPI reached 12.3 per- have declined to 1.6 percent in 2022. ue growing over the medium-term, albeit cent in July, showing that underlying 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) 16 9 140000 12 8 120000 8 7 100000 6 4 5 80000 0 4 60000 -4 3 40000 -8 2 20000 -12 1 2015 2016 2017 2018 2019 2020e 2021 2022f 2023f 2024f 0 0 Final consumption Gross fixed capital formation 2009 2011 2013 2015 2017 2019 2021 2023 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 22 price pressures remain strong and broad- prices are almost universal. Results from the erosion of real incomes. Meanwhile, based. The largest contribution came the World Bank’s Rapid Assessment Sur- investments will be supported by the from food and energy which surged by vey in April 2022 show that more than 90 EU funds. However, risks are tilted to around 20 percent. Despite real exports percent of Croatians expressed these con- the downside due to high uncertainty, a growing strongly, the current account cerns. Nearly 80 percent of Croatians stat- slowing global economy, and potential- deficit widened in the first half of the ed they would cut back spending. The ly costlier financing. Inflation is expected year, following a deterioration in the fiscal support packages introduced earlier to decline gradually with improvements terms of trade, which can largely be this year could help. Although economic in the supply chain and base effects, but linked to the increase in food and energy growth is strong, poverty will decline on- CPI growth might remain relatively ele- prices. The fiscal deficit, on the other ly modestly from 1.9 percent in 2021 to vated and reach 2 percent only after 2024. hand, narrowed in the first half of 2022 1.6 percent in 2022. The current account balance is projected due to robust revenue growth and a re- to remain in surplus owing to continued duction in pandemic-related support to growth in exports and an eventual im- firms and households. The government provement in the terms of trade. At the has, however, introduced fiscal support Outlook same time, the fiscal deficit is projected to schemes to ease the negative economic stay below 2 percent of GDP, as addition- and social impact of soaring energy In the backdrop of a strong first-half al increases of public sector wages, social prices from April this year, which will economic performance and indications benefits, and the health care budget are add up to 1.0 percent of GDP. Additional that tourism could exceed pre-pandemic expected. Nonetheless, the public debt-to- support package worth 4.2 percent of levels, real GDP growth in 2022 is ex- GDP ratio is expected to remain firmly on GDP was announced in September, but pected at 6.4 percent. However, econom- a declining trend, given still favorable in- its fiscal implications are expected to be ic activity is likely to moderate by the terest-growth rate differential. contained. Improved fiscal performance end of the year and the weak growth is Positive economic growth projection and the increase in nominal GDP led to a projected to carry over to 2023, before translates in poverty reduction in the reduction in the debt-to-GDP ratio to 74.3 returning to the pre-pandemic trend in next couple of years. However, after a percent in May 2022 compared to 79.6 2024. The strong growth in the export fall to 1.6 percent in 2022 due to strong percent at the end of 2021. of goods and services witnessed in 2021 growth and government support mea- Soaring food and energy prices hurt con- and 2022 is also expected to moderate sures, poverty is expected to decrease sumers, especially the poorest and most with weaker growth prospects in the only marginally over the following two vulnerable who spend above 60 percent of EU and globally. Personal consumption years, reaching 1.5 percent by 2024. The their budget on these essentials. Worries is likely to continue to increase next poorest Croatians remain vulnerable to about the economy, food prices, and energy year but at a decelerated pace given the high level of food and energy prices. TABLE 2 Croatia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 3.5 -8.1 10.2 6.4 1.8 2.6 Private Consumption 4.1 -5.3 10.0 4.4 1.1 2.5 Government Consumption 3.3 4.1 3.1 3.0 3.2 1.5 Gross Fixed Capital Investment 9.8 -6.1 7.6 7.1 4.6 2.8 Exports, Goods and Services 6.8 -22.7 33.3 25.0 3.4 5.1 Imports, Goods and Services 6.5 -12.3 14.7 21.5 4.1 4.7 Real GDP growth, at constant factor prices 3.6 -6.3 8.8 6.6 1.8 2.6 Agriculture 1.8 3.6 5.5 3.5 3.0 3.3 Industry 4.8 -1.6 6.7 3.5 1.2 3.0 Services 3.3 -8.4 9.8 7.8 1.9 2.4 Inflation (Consumer Price Index) 0.8 0.2 2.6 10.1 3.9 2.3 Current Account Balance (% of GDP) 3.0 -0.1 3.3 2.2 1.8 1.7 Net Foreign Direct Investment Inflow (% of GDP) 6.1 1.4 4.8 5.2 2.5 3.2 Fiscal Balance (% of GDP) 0.2 -7.3 -2.9 -1.8 -1.4 -1.8 Debt (% of GDP) 71.1 87.3 79.6 70.9 67.7 66.1 Primary Balance (% of GDP) 2.4 -5.3 -1.3 -0.5 -0.2 -0.8 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) 0.6 0.7 0.6 0.5 0.5 0.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 2.4 2.9 1.9 1.6 1.6 1.5 GHG emissions growth (mtCO2e) -1.1 -12.8 4.6 3.0 1.0 0.9 Energy related GHG emissions (% of total) 86.8 85.1 84.7 84.4 83.8 83.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 15 Oct 22 at 10.5 percent (yoy) in the first half of 2022. Growth has been broad-based, GEORGIA Key conditions and driven by transport, energy, hotels and restaurants, and industry. Construction challenges permits increased by 15.6 percent during the first half of 2022 (yoy), suggesting a Table 1 2021 Over the past decade, Georgia has had a suc- recovery in domestic investment. Population, million 3.7 cessful development record, underpinned After unemployment increased to 20.6 per- GDP, current US$ billion 18.7 by prudent economic management. Growth cent in 2021, labor markets have started to GDP per capita, current US$ 5039.4 averaged 4 percent per annum between 2011 recover, with unemployment decreasing to a 5.8 International poverty rate ($2.15) and 2021. The poverty rate declined from 69 18.1 percent in Q2 2022. a 21.4 percent in 2011 to 53 percent in 2021 (using After peaking in June, inflation has eased Lower middle-income poverty rate ($3.65) a 58.3 the international upper-middle-income line slightly, reaching 10.9 percent (yoy) in Upper middle-income poverty rate ($6.85) Gini index a 34.5 at $6.85 per capita per day 2017 PPP). August. Higher food and energy prices School enrollment, primary (% gross) b 99.4 Nevertheless, structural challenges persist (as well as utility tariffs) account for most b 73.9 notably weak productivity and difficulties of the inflation this year. According to Life expectancy at birth, years to create high-quality jobs. Many Georgians high-frequency surveys from May 2022, Total GHG emissions (mtCO2e) 17.4 in rural areas remain engaged in low-pro- about three-quarters of the respondents Source: WDI, Macro Poverty Outlook, and official data. ductivityagriculture.Humancapitalforma- from low-income households reported a/ Most recent value (2020), 2017 PPPs. b/ Most recent WDI value (2020). tion remains weak, and poor learning out- having reduced food consumption in re- comes and skills are a problem for doing sponse to rising prices. The National businessandfirmgrowth. Bank of Georgia (NBG) has kept the Due to trade openness and reliance on in- monetary policy rate unchanged since come from tourism, Georgia is vulnerable March, at 11 percent, after gradually in- to external and global shocks, as shown creasing the rate since March 2021 by a Growth averaged double digits during the by recent events. High dollarization and total of 300 bps. first half of 2022, and employment is re- dependency on external savings increase During January-July 2022, exports grew by covering. In addition to robust domestic the risks associated with currency depre- 36 percent (yoy) in nominal terms. Mer- ciation. Still, the swift post-pandemic re- chandise exports growth was driven by demand, Georgia has benefited from a bound and the recovery from the initial both increased demand for key commodi- strong influx of money transfers from impact of the Ukraine war and associated ties (copper ore, ferroalloys, nitrogen fertil- Russia, as well as from the recovery of sanctions have demonstrated the growing izers) and higher prices. Imports expanded tourism. The growth forecasts for 2022 resilience of Georgia’s economy. by 34 percent (yoy), leading to the widen- have been upgraded, while the current ing of the trade deficit by 33 percent (yoy). This has been partly compensated by the account deficit is expected to narrow. recovery in tourism arrivals and a surge in Significant risks persist, although they Recent developments net volume of money transfers (69 percent, have become more balanced. yoy) driven by inflows from Russia. These Economic activity has been stronger than comprise both remittances and transfers expected, with real GDP growth estimated (Figure 1) from non-nationals. FIGURE 1 Georgia / Money inflow by country of origin FIGURE 2 Georgia / Actual and projected poverty rates and real GDP per capita Million US$ Poverty rate (%) Real GDP per capita (constant LCU) 1400 80 16000 1200 70 14000 Others RF EU US 60 12000 1000 50 10000 800 40 8000 600 30 6000 400 20 4000 200 10 2000 0 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 International poverty rate Lower middle-income pov. rate 2019 2020 2021 2022 Upper middle-income pov. rate Real GDP pc Source: National Bank of Georgia. Source: World Bank. Notes: see Table 2. MPO 16 Oct 22 Banking sector indicators remain healthy. In the medium term, growth is expected to government of Georgia is expected to com- Return on assets (ROA) and return on eq- stabilize around potential. ply with the fiscal rule by 2023. The au- uity (ROE) reached 3.1 percent and 24.9 Inflation will remain in double digits in thorities intend to reduce government debt percent by end-July, respectively. NPLs 2022, although price pressures are expect- to around 40 percent over the medium declined to 1.9 percent in July, from 2.3 ed to diminish towards the end of the term while also increasing the share of do- percent in December 2021. year. Inflation would decline in 2023 and mestic debt to close to 30 percent, which Tax collection by the general govern- beyond, as international oil prices and would reduce FX vulnerabilities and sup- ment increased by 33.6 percent (yoy) supply-side bottlenecks ease. The long- port capital market development. The au- during the first half of 2022, supported term fixed-price contracts for gas supply thorities are also pursuing further tax ad- by the recovery in consumption. Mean- and a shared border with Russia are ministration improvements and a reduc- while, public expenditures grew by 9.3 expected to help offset any commodity tion in tax expenditures. percent (yoy) in nominal terms during price spikes. Monetary policy is expected Risks to this outlook are broadly balanced. the first half of 2022, (a reduction in real to remain tight until inflationary pres- On the downside, persistent inflation cou- terms). The fiscal deficit during Janu- sures subside. Inflation is likely to have pled with the tightening of global financial ary-June was about 0.6 percent of GDP, regressive impacts, disproportionately af- conditions could impact the lari, potential- overperforming the fiscal consolidation fecting lower-income households and ly affecting macro-financial stability due to path planned for the year. The pub- those reliant on incomes from social as- the high levels of dollarization. The Russ- lic debt stock has continued to decline, sistance. These may have longer-term ian economy could also suffer a more pro- benefiting from the contained deficit welfare impacts through losses in human nounced slump next year, affected by pro- and the appreciation of the lari. capital and other assets. tracted conflict and sanctions, which On the external side, despite the widening would negatively affect tourism and remit- trade deficit, the current account balance tances in Georgia. Domestic political un- is expected to improve in 2022, supported certainty could increase volatility and af- Outlook by tourism and by the large net money fect business confidence, as well as the inflows. This unanticipated windfall from pace of planned reforms. On the upside, Projections have been upgraded on ac- the conflict is nonetheless expected to sub- money inflows could last longer than ini- count of the strong performance recorded side by the end of the year. tially expected, and Georgia could benefit during 2022 so far, with growth projected Following its temporary suspension in the from some trade diversion as transport to reach 8.8 percent by the end of the year. aftermath of the COVID-19 outbreak, the corridors are reconfigured. TABLE 2 Georgia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 5.0 -6.8 10.4 8.8 4.2 5.0 Private Consumption 7.2 8.8 8.7 6.6 2.2 3.8 Government Consumption 5.7 7.1 7.7 -4.8 4.8 5.2 Gross Fixed Capital Investment -0.1 -16.5 -7.6 8.4 0.1 3.1 Exports, Goods and Services 9.8 -37.6 30.5 20.0 12.0 13.0 Imports, Goods and Services 6.6 -16.6 12.8 13.0 6.0 9.0 Real GDP growth, at constant factor prices 5.1 -6.6 10.3 8.8 4.2 5.0 Agriculture 0.7 8.1 0.1 3.0 5.0 4.0 Industry 2.7 -6.8 5.9 6.0 5.0 4.0 Services 6.3 -8.1 12.9 10.2 3.9 5.4 Inflation (Consumer Price Index) 5.0 5.2 9.6 10.6 7.0 4.0 Current Account Balance (% of GDP) -5.5 -12.4 -10.5 -7.5 -6.6 -6.4 Net Foreign Direct Investment Inflow (% of GDP) 6.0 3.5 5.9 6.1 4.8 5.0 Fiscal Balance (% of GDP) -3.4 -9.8 -7.1 -3.2 -2.8 -2.6 Debt (% of GDP) 41.8 60.1 49.4 42.3 40.4 40.1 Primary Balance (% of GDP) -2.2 -8.2 -5.8 -1.9 -1.6 -1.5 a,b International poverty rate ($2.15 in 2017 PPP) 4.8 5.8 4.2 3.5 3.2 2.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 18.5 21.4 17.4 14.8 13.8 12.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 54.2 58.3 52.7 47.7 45.6 42.6 GHG emissions growth (mtCO2e) 2.9 -3.4 2.0 3.4 3.7 1.4 Energy related GHG emissions (% of total) 54.0 53.8 55.0 57.3 59.3 60.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2020-HIS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 17 Oct 22 It reached 3.4 percent yoy in H1, from 4.1 percent in 2021. Household spending is ex- KAZAKHSTAN Key conditions and pected to have weakened in H1 as inflation accelerated and real incomes contracted by challenges 2.5 percent yoy over May to July. Retail sales growth slowed to 1.2 percent yoy in Table 1 2021 Since the 2000s Kazakhstan has seen im- the same period. Investment grew by 3.6 Population, million 19.0 pressive economic growth driven by the percent yoy in H1 as FDI rebounded in the GDP, current US$ billion 197.1 first generation of market-oriented reforms, oil and gas sector after two years of de- GDP per capita, current US$ 10387.9 abundant mineral resources extraction, and cline. On the supply side, manufacturing a 14.3 Upper middle-income poverty rate ($6.85) strong FDI. Sustained economic growth has and services both contributed to growth. a 27.8 transformed the country into an upper mid- A sharp increase in international oil, gas Gini index b 100.3 dle-income economy, commensurately rais- and metal prices were a boon to exports, School enrollment, primary (% gross) Life expectancy at birth, years b 71.4 ing living standards and reducing poverty. driving a trade balance improvement and Total GHG emissions (mtCO2e) 270.2 This progress, however, masks vulnerabili- flipping the current account into surplus ties and unevenness in the country’s devel- in H1 2022 (of US$6.6 bn, compared to a Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2017 PPPs. opment model. Slowing economic growth, deficit of US$2.8 bn in H1 2021). b/ Most recent WDI value (2020). growing inequality and elite capture, and Consumer price inflation reached 16.1 per- weak institutions reflect the flaws of the re- cent yoy in August, almost double the rate source-based and state-led growth model a year earlier, driven by rising costs of food. and raise the risk that Kazakhstan could be- The authorities tightened monetary policy come stuck in the “middle-income trap”. and imposed price caps on staple products The January protests have strengthened and limited fuel and utility price increases. GDP growth is projected to decelerate the authorities’ resolve to push for re- Since January, the tenge exchange rate to 3 percent in 2022 as real incomes forms. Disruptions arising from war in against U.S. dollar depreciated 10 percent. are squeezed by high inflation and dis- Ukraine have strengthened efforts to di- The central bank raised the policy rate in July ruptions caused by the war in Ukraine. versify trade and logistics routes. Kaza- to 14.5 percent, its fourth hike this year, and khstan needs to strengthen competition scaled up interventions in the FX market. FX Rising inflation negatively impacts low- and human capital, and improve public reserves, as a result, fell by 4.8 percent y-o-y income households, putting at risk the sector and SOEs performances. The coun- in August but remain comfortable. prospects of poverty reduction. In 2023, try should also initiate reforms in carbon After the social unrest in January, the gov- the growth momentum is expected to and energy pricing, strengthen social pro- ernmentintroducedfiscalsupportmeasures tection, and invest in climate adaptation. estimated at 3 percent of GDP, to be financed strengthen and inflation to moderate. partly by additional withdrawals from Na- Stronger slowdown in major trading tional Oil Fund. These measures include in- partners economies and disruptions in creased spending on social programs, trans- oil transportation pose downside risks Recent developments ferstolocalgovernments,infrastructureand to the outlook. food security oriented projects. As a result, Growth slowed in 2022, mainly due to the thefiscaldeficitin2022isprojectedtoremain negative spillovers from the war in Ukraine. littlechangedat2.6percentofGDP. 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 10 70 Actual 8 60 Forecast 6 50 4 40 2 30 0 -2 20 -4 10 2018 2019 2020 2021 2022 2023 Consumption Investment 0 Net exports Real GDP growth 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Sources: Statistical Office of Kazakhstan and World Bank staff estimates. Source: World Bank staff estimates. MPO 18 Oct 22 The banking system has proved resilient so result in the shutdown of the Caspian pipeline will not be disrupted. Consumer far. With sanctions on Russia from March, Pipeline Consortium (which carries about spending is expected to gather steam as in- subsidiaries of Russian banks experienced 80 percent of Kazakhstan’s oil exports) flation subsides, whereas exports are pro- difficulties with FX transactions and ulti- leading to large economic and fiscal rev- jected to remain subdued, due to weaken- mately sold their subsidiaries to Kazakh enue losses. Inflationary pressure may ing demand from China and the eurozone. banks and institutions. In July, bank loan further erode incomes and exacerbate so- The current account is expected to return growth to households slowed (especially for cial tensions. Tightening global financial to balance over 2023 and 2024 as commod- mortgages), while lending to firms have conditions could increase risk aversion, ity prices stabilize and demand for import- contracted in real terms. Weakening econo- reduce inflows of FDI, and put pressure ed capital and consumer goods strengthen. my has started affecting banks’ asset quality, on the tenge exchange rate. The poverty rate is expected to continue to with NPLs increasing to 3.8 percent in July. Economic growth is expected to deceler- decline in 2023-24, as growth picks up and Official unemployment rate remained un- ate to 3 percent in 2022, as economic ac- inflation subsides. changed at 4.9 percent and real wages tivity has been affected by lower-than-ex- The government plans to reduce budget rose by 8.9 percent in Q2, despite high pected production of oil, high inflation expenditures and embark on a long-de- inflation. The poverty rate is expected to and monetary policy tightening that is layed consolidation plan. While expendi- decline further to 15.5 percent in 2022 constraining consumer spending and pri- ture is projected to fall to pre-pandemic from a high of 25.6 observed in the midst vate sector borrowing. levels, efforts to raise in tax collection and of the pandemic. The poverty line for Inflation is expected to moderate a crack-down on graft in the customs sys- Kazakhstan was updated from the previ- through 2023 but remain above the tar- tem are expected to increase tax revenues. ous $5.5 in 2011 PPP to a new $6.85 level get range, which may warrant tighter Thus, the fiscal deficit is expected to de- based on 2017 PPP. monetary policy. crease to 2.2 percent of GDP in 2023 from In 2023-24, GDP growth is expected to ac- 2.6 percent this year. celerate to 3.5 and 4.0 percent (below ex- The authorities are seeking to accelerate pectations prior to the war in Ukraine), reforms to combat corruption and mon- Outlook aided by additional oil coming on stream ey-laundering, strengthen competition from the Tengiz expansion project. The and reduce the influence of vested in- There are several downside risks to the outlook is conditional on the assumption terests and monopolies, and increasing growth outlook. The Ukraine war could that crude oil shipment through the CPC human capital. TABLE 2 Kazakhstan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 4.5 -2.5 4.1 3.0 3.5 4.0 Private Consumption 6.1 -3.8 5.1 3.2 3.7 3.8 Government Consumption 15.5 12.8 -1.1 1.7 0.8 0.9 Gross Fixed Capital Investment 13.8 -0.3 2.6 3.3 3.4 4.0 Exports, Goods and Services 2.0 -12.1 2.0 1.4 3.8 5.0 Imports, Goods and Services 14.9 -10.7 -2.7 3.0 3.3 3.6 Real GDP growth, at constant factor prices 4.5 -2.5 3.9 3.1 3.5 4.0 Agriculture -0.1 5.6 -2.2 2.3 2.6 2.6 Industry 4.1 -0.4 3.6 2.1 3.6 5.1 Services 5.2 -4.5 4.6 3.9 3.6 3.4 Inflation (Consumer Price Index) 5.3 6.8 8.0 14.0 8.2 6.3 Current Account Balance (% of GDP) -4.0 -3.8 -2.9 2.1 0.4 0.8 Net Foreign Direct Investment Inflow (% of GDP) 3.1 -3.4 -0.9 -2.2 -2.6 -2.5 Fiscal Balance (% of GDP) -1.3 -3.3 -2.7 -2.6 -2.2 -1.9 Debt (% of GDP) 19.6 24.9 23.7 23.9 24.1 23.9 Primary Balance (% of GDP) -0.3 -2.2 -1.5 -1.1 -0.8 -0.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 12.7 25.6 16.7 15.5 14.1 12.4 GHG emissions growth (mtCO2e) -1.4 4.3 -4.7 1.3 1.5 2.2 Energy related GHG emissions (% of total) 76.4 76.6 75.5 76.1 76.3 76.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2018-HBS. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 19 Oct 22 needs are limited. Continued public investment under-spending is a lost KOSOVO Key conditions and opportunity to close faster the looming infrastructure gap. challenges As a unilaterally Euroized economy, Kosovo has limited room to mitigate the Table 1 2021 With a history of strong growth com- impact of rising inflation, exacerbated by Population, million 1.8 pared to peers, Kosovo exits the the war in Ukraine. Despite high levels GDP, current US$ billion 9.2 COVID-19 crisis facing a renewed im- of spending on social protection, the so- GDP per capita, current US$ 5209.0 perative: addressing key structural bot- cial assistance scheme is inflexible and a 34.2 Upper middle-income poverty rate ($6.85) tlenecks to enhance competitiveness and can provide only limited protection for a 29.0 support sustainable and inclusive the most vulnerable. Rising inflation is al- Gini index b 71.1 growth. During the past years, Kosovo so exerting upward wage pressures. Per- Life expectancy at birth, years Source: WDI, Macro Poverty Outlook, and official data. experienced economic growth with lim- sistence of energy and food price pres- a/ Most recent value (2017), 2017 PPPs. ited firm-level productivity growth and sures could further erode disposable in- b/ Most recent WDI value (2020). higher-quality job creation, in a context comes and hurt more the less well-off of persistent structural informality and who spend a larger share of their budget high trade deficit. Given the initial low on these essential items. base, new post-pandemic momentum in exports could be leveraged to break the circle of consumption-driven growth that Global inflationary pressures interrupted relies on diaspora inflows. Recent developments Kosovo’s boisterous recovery path. Real Low labor force participation and em- GDP growth is expected to decelerate to ployment, especially among women, con- After reaching a record of 10.5 percent in 3.1 percent in 2022 following a slowdown tinue to remain a strong binding con- 2021, GDP growth moderated to 3.2 per- in investment and private consumption. straint to growth and poverty reduction. cent in H1 of 2022, driven by domestic de- The labor market continues to be also mand and exports. On the production side, Exports continued to boost growth. In the characterized by informality and skills the service sector – driven by remittances, current context, support to mitigate the mismatches: firms increasingly report dif- credit growth, and higher public transfers impact of surging energy and food prices ficulties in filling vacancies. – was the main contributor to economic should be targeted towards the most vul- Outdated power generation capacity re- growth. Inflation soared reaching 13 per- mains a key source of vulnerability. Rising cent (y-o-y) in August 2022, triggered by nerable. Over the medium-term, acceler- energy import costs represent a key chal- an increase in import prices. Food and ated implementation of structural reforms lenge for 2022 and could adversely impact transport price increases surpassed 20 per- in energy, education, social protection, the fiscal position given the higher need to cent by August 2022, disproportionally im- and healthcare is critical to enhance in- subsidize electricity imports. Kosovo has a pacting the most vulnerable. clusive and sustainable growth. good track record of prudent fiscal man- The average number of pension contribu- agement. However, without access to tors for the first half of 2022 suggests an in- international financial markets, re- crease of 8 percent (y-o-y) in formal employ- sources to cover growing development ment. For the same period, the number of FIGURE 1 Kosovo / Consumer price inflation FIGURE 2 Kosovo / Actual and projected poverty rates and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 135 80 6000 Total HICP 130 70 5000 HICP: Food and non-alcoholic beverages 60 125 4000 50 120 40 3000 115 30 2000 20 110 1000 10 105 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 100 Upper middle-income pov. rate Real GDP pc 2021-01 2021-04 2021-07 2021-10 2022-01 2022-04 2022-07 Source: Kosovo Statistics Agency. Source: World Bank. Notes: see Table 2. MPO 20 Oct 22 registered job-seekers at employment cen- July. Bank capital buffers and asset quali- price increases and upward pressures on ters dropped by 32 percent (y-o-y). ty remain adequate, with non-performing interest rates. Exports – particularly for manufactured loans remaining stable at 2.1 percent. Consumer inflation is expected to aver- goods – increased by 29.4 percent (y-o-y) age 12.1 percent in 2022, before moder- in July. Diaspora-driven service exports al- ating gradually over the medium-term. so increased by 46 percent by May; and With high import inflation leading to a travel data suggest a positive momentum Outlook nominal increase in the level of trade continued during the summer season. imbalances, and with slowing remit- Against a significant increase in prices, GDP growth in 2022 is expected to tances, the current account is expected merchandise imports – which represented slow down below potential to 3.1 per- to deteriorate until 2023. In the medi- 53.4 percent of GDP in 2021 –increased cent. Inflationary pressures are expect- um-term, non-debt creating FDIs and nominally by 26 percent until July 2022, ed to subdue purchasing power, slow- external lending will be the key source further exacerbating Kosovo’s structurally ing private consumption growth. Net of financing for the current account. high trade deficit. After declining by 0.3 exports are expected to drive growth. The fiscal deficit is expected to reach 0.8 percent (y-o-y) between January and June, On the other hand, investment - dri- percent of GDP in 2022. Further spending remittance inflows have plateaued. ven by a plunge in public capital on energy subsidies could, however, in- Supported by inflation and formalization, spending and a slowdown in construc- crease the deficit. Over the medium-term, total tax revenues increased by 15.4 (y- tion - should subtract from growth. compensation of employees, transfers, and o-y) percent until end-August, 2022. Cur- On the production side, services – a gradual improvement in capital invest- rent spending increased by 17.6 percent supported by higher diaspora demand, ment execution, are expected to drive for the same period and is expected to credit growth, and public transfers - spending and push the fiscal deficit above continue increasing as the government are expected to be the main driver of 2 percent of GDP. implements over 4.5 percent of GDP in growth. After a significant reduction Over the medium-term, there is a pressing inflation-mitigation and energy subsidy in 2021, poverty is expected to mar- need to preserve fiscal buffers by contain- measures. Capital spending remained ex- ginally decline in 2022, but the contin- ing spending on untargeted transfers to re- ceptionally low with an execution rate of uation of inflationary pressures could spond to the changing macroeconomic en- 17 percent by end-August, and almost 30 lead to a stagnation of poverty rates. vironment, and accelerate implementation percent lower than a year before. The medium-term outlook remains posi- of structural reforms in energy, education, The banking sector remained stable, with tive. However, it is also mired by down- social protection, and healthcare to en- the annual change in loans at 18 percent in side risks related to food and energy hance inclusive and sustainable growth. TABLE 2 Kosovo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 4.8 -5.3 10.5 3.1 3.7 4.2 Private Consumption 5.6 2.5 7.6 0.5 1.9 3.4 Government Consumption 10.1 2.1 9.1 3.0 5.1 2.0 Gross Fixed Capital Investment 2.9 -7.6 10.7 -2.3 8.5 5.9 Exports, Goods and Services 7.6 -29.1 78.7 11.5 6.0 8.0 Imports, Goods and Services 4.5 -6.0 32.8 1.4 5.2 5.5 Inflation (Consumer Price Index) 2.7 0.2 3.4 12.1 4.0 3.0 Current Account Balance (% of GDP) -5.7 -7.0 -8.3 -11.3 -13.1 -12.3 Net Foreign Direct Investment Inflow (% of GDP) 2.7 4.2 3.9 3.7 4.9 5.0 Fiscal Balance (% of GDP) -2.9 -7.6 -1.3 -0.8 -1.6 -2.1 Debt (% of GDP) 17.0 22.0 21.5 20.9 21.9 23.2 Primary Balance (% of GDP) -2.6 -7.1 -0.9 -0.4 -1.1 -1.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 28.9 32.4 26.4 25.0 23.3 21.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2017-HBS. Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2017) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 21 Oct 22 KYRGYZ Key conditions and Recent developments challenges REPUBLIC The Kyrgyz economy has so far proved more resilient than expected to the The Kyrgyz Republic has experienced spillovers of the war in Ukraine. Real GDP volatile growth in the past decade. The grew 7.7 percent during January-July, yoy, Table 1 2021 economy remains heavily dependent on driven by gold production (43.1 percent Population, million 6.7 gold production (10 percent of GDP and 35 growth, yoy), agriculture (8.4 percent), GDP, current US$ billion 8.3 percent of exports), remittances (25 percent construction (3.6 percent), and services (3.5 GDP per capita, current US$ 1235.8 of GDP), and foreign aid. percent). Domestic demand was support- International poverty rate ($2.15) a 1.3 The Kyrgyz economy was heavily im- ed by remittance inflows (7.5 percent a 18.7 pacted by the COVID-19 pandemic in growth in US$ terms) from Russia, aided Lower middle-income poverty rate ($3.65) a 2020 as GDP contracted by 8.4 percent by a strong Russian ruble. Upper middle-income poverty rate ($6.85) 67.6 a and the poverty profile deteriorated. The Gold was mainly purchased by the Central Gini index 29.0 last two years have also seen significant Bank, reducing gold exports in the first b 102.6 School enrollment, primary (% gross) political and governance upheavals, with half of the year. As a result, total exports b 71.8 Life expectancy at birth, years a new Constitution shifting back to a declined by 40.5 percent, yoy, while im- Total GHG emissions (mtCO2e) 10.1 presidential form of governance, and ports grew by 68.7 percent, yoy, mainly Source: WDI, Macro Poverty Outlook, and official data. snap parliamentary and presidential elec- driven by fuel and consumer goods. This a/ Most recent value (2020), 2017 PPPs. tions. Political uncertainties continue to led to an increase in the current account b/ Most recent WDI value (2020). hamper the government’s ability to im- deficit to an estimated 15 percent of GDP. plement reforms. The nationalization of The Central Bank also sold US$217 million the largest gold producer, Kumtor Gold of forex reserves in Q1 to avoid sharp fluc- Company, dented investor confidence. tuations of the Som and purchased US$46 The economy has so far proved more New risks have emerged following Rus- million in Q2. As of end-June 2022, gross resilient than expected to spillovers sia’s war in Ukraine and subsequent reserves are about 5 months of imports. from Russia’s war in Ukraine. Growth sanctions on Russia. Inflation increased to 13.8 percent in July While there has been some progress to- from 11.2 percent in December 2021, dri- accelerated to 7.7 percent in January- wards fiscal consolidation in recent years, ven by global food and fuel prices. To com- July 2022 and is projected to be 4 per- broadening the tax base and improving the bat inflation, the Central Bank gradually cent in 2022. Inflation has increased public spending efficiency remain key raised the policy rate from 8 to 14 percent and is expected to reach 15 percent in challenges. The private sector is hindered between December and March. Credit by an excessive bureaucratic burden. Ac- growth slowed to 9.6 percent in June 2022 2022 and moderate thereafter. The fiscal celerating economic growth will require from 11.8 percent in December 2021, main- deficit is projected to widen this year stronger institutions and policies to foster ly due to a decline in FX loans. but decline to under 3 percent of GDP private sector growth, spur international The fiscal position was solid in the first 7 in the medium term. trade, and improving the commercial months of 2022. The budget ran a surplus soundness of the energy sector. of 1.4 percent of GDP, slightly better than FIGURE 1 Kyrgyz Republic / Headline, food and fuel inflation FIGURE 2 Kyrgyz Republic / Actual and projected poverty rate and real GDP growth Percent Percent of population Percent 80 35 15 Headline Food 30 60 10 Fuel 25 40 5 20 15 20 0 10 0 -5 Real GDP growth (rhs) 5 Poverty rate, $3.65/day PPP (lhs) -20 0 -10 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 2007 2009 2011 2013 2015 2017 2019 2021 e 2023 f Source: Kyrgyz authorities. Source: Kyrgyz authorities and World Bank staff. MPO 22 Oct 22 the previous year. Total revenues in- The current account deficit is projected to creased to 45.9 percent of GDP from 38.6 be 12.7 percent of GDP in 2022, reflecting percent a year ago, driven by higher tax Outlook the fall in gold exports, with a decline in receipts. At the same time, spending in- 2023-24 reflecting an export revival. creased to 44.5 percent of GDP from 37.2 GDP growth for 2022 is expected to be 4 The fiscal deficit is expected to widen percent a year ago driven mainly by cap- percent, because of moderate growth of in 2022 due to the increases in social ital outlays. The surplus, along with the the gold sector in the second half of the transfers and public sector salaries in appreciation of the Som, helped reduce year. On the demand side, consumption H2 2022. The deficit is expected to public debt to below 50 percent of GDP will be supported by remittances and in- narrow to under 3 percent of GDP in July 2022. vestments spurred by high public outlays, over 2023-24 mainly thanks to higher The COVID-19 pandemic increased the while net exports are expected to con- revenues from the mining sector and poverty rate from 11.7 percent in 2019 to tribute negatively to growth. GDP growth containment of expenses. 18.7 percent in 2020 (at the US$3.65 a day, is expected to remain at 4 percent in 2023 High food prices and job insecurity will 2017 PPP). Poverty is estimated to have de- and 4.5 percent in 2024, assuming that the continue to be the most significant chal- teriorated further in 2021, mainly due to economy adjusts to the spillovers from the lenge that impact and deepen poverty in increased food prices, lower real incomes, Russian sanctions. 2022. The poverty rate will likely increase and limited job opportunities. High infla- Inflation is expected to remain elevated at up to 25.5 percent (3.65$ a day, 2017PPP). tion is the most significant immediate con- about 15 percent by end-2022, driven by The government’s measures, such as in- cern for the welfare of the population. The further food and energy price increases. creases in pensions and scaling up and public sector salary increases in April and With the Central Bank expected to keep extension of the coverage of the social August 2022 and enhancement to the social its policy rate at the current level to bring protection program targeted to the poor assistance program (targeted to the poor), inflation down to its target range of 5-7 will help to mitigate the adverse effects have softened the negative impact of the percent, inflation is projected to gradually produced by the loss of labor incomes food price increase on the population. moderate to 7 percent by end-2024. and higher inflation. TABLE 2 Kyrgyz Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 4.6 -8.4 3.6 4.0 4.0 4.5 Private Consumption 0.8 -8.3 13.5 3.6 4.0 4.3 Government Consumption 0.5 0.9 0.3 0.7 0.8 0.6 Gross Fixed Capital Investment 7.1 -16.2 -3.6 14.7 14.0 11.3 Exports, Goods and Services 16.2 -27.3 24.5 12.1 12.0 12.5 Imports, Goods and Services 6.1 -28.0 39.1 14.0 14.3 12.1 Real GDP growth, at constant factor prices 3.6 -8.4 3.6 3.9 4.1 4.5 Agriculture 2.5 0.9 -5.0 4.4 2.0 2.5 Industry 6.6 -7.0 7.2 10.0 8.7 8.0 Services 3.2 -16.5 10.4 0.7 3.5 4.4 Inflation (Consumer Price Index) 1.1 6.3 11.9 15.2 8.0 6.0 Current Account Balance (% of GDP) -12.1 4.8 -8.7 -12.7 -11.8 -10.2 Net Foreign Direct Investment Inflow (% of GDP) 3.8 -7.5 7.0 1.9 2.7 2.6 Fiscal Balance (% of GDP) -0.5 -4.2 -0.3 -3.2 -3.0 -2.8 Debt (% of GDP) 51.6 67.7 60.3 55.2 52.3 50.9 Primary Balance (% of GDP) 0.5 -2.9 1.4 -1.7 -1.6 -1.6 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 1.3 1.3 1.2 1.2 1.1 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 11.7 18.7 21.8 25.5 24.7 23.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 63.7 67.6 67.3 67.0 66.6 66.2 GHG emissions growth (mtCO2e) -7.8 -20.9 -6.7 -5.3 1.1 -0.1 Energy related GHG emissions (% of total) 69.5 64.0 62.0 61.4 61.8 60.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2009-KIHS, 2019-KIHS, and 2020-KIHS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2009-2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 23 Oct 22 and the propagation of economic and energy shocks have been a traditional MOLDOVA Key conditions and risk for a small open economy like Moldova. Persistent inequality of op- challenges portunity limits the ability of low- income households to access public Table 1 2021 Moldova’s economic outlook after the services, reducing their resilience Population, million 2.6 Covid-19 pandemic and robust recov- and cementing low intergenerational GDP, current US$ billion 13.7 ery in 2021 has been overtaken by the mobility. Moldova remains one of the GDP per capita, current US$ 5233.5 war in Ukraine and a rapid surge in poorest countries in Europe. a 0.0 International poverty rate ($2.15) inflation. Russia’s invasion of Ukraine a 0.4 poses major threats to the economic Lower middle-income poverty rate ($3.65) a 14.7 prospects of Moldova through the Upper middle-income poverty rate ($6.85) Gini index a 26.0 overall stability of the macro-fiscal Recent developments School enrollment, primary (% gross) b 106.3 framework, trade and remittances b 72.0 channels, and increasing geopolitical GDP expanded by 1.1 percent in the Life expectancy at birth, years risks undermining domestic and for- first quarter of 2022 due to a strong Total GHG emissions (mtCO2e) 13.9 eign investment appetite. Key infra- export performance (36.9 percent). In- Source: WDI, Macro Poverty Outlook, and official data. structure networks are primarily con- vestment declined by 6.1 percent due a/ Most recent value (2019), 2017 PPPs. b/ Most recent WDI value (2020). nected to Ukraine despite recent ef- to a deterioration of confidence as the forts to better connect the country to war escalated and the monetary poli- the EU. The surge in inflation repre- cy tightened. On the production side, sents the biggest challenge for author- trade, financial activities, and health ities. Monetary policy faces a trade- were the most buoyant sectors, while The war in Ukraine and the recent off between controlling inflation and spillovers from the war have started drought have brought significant chal- supporting economic activity, as well affecting the manufacturing sector. lenges to the Moldovan economy. Trade as potential pressure on the domestic The monetary stance has tightened sig- disruptions, lower foreign inflows, and currency while maintaining sufficient nificantly since 2021 when the policy levels of international reserves. Moldo- rate was just 2.5 percent and now it has high inflation have a significant toll on va’s fiscal position is confronted with reached 21.5 percent. The scope was to private consumption and investment. the need to mitigate the eroding pur- counteract high food and energy prices, GDP will contract by 0.7 percent in chasing power of the households due culminating with an inflation rate of 2022, with a slow recovery in the subse- to inflation with the need to support 33.6 percent in July 2022, and stabilize quent years provided that the war does the ambitious medium-term reform the exchange rate, which has lost 8 per- program to address low productivity cent of its value against USD since the not escalate further. Over eleven thou- growth, persistent structural and gov- beginning of the war. The current ac- sand people are projected to fall below ernance weaknesses, significant state- count deficit doubled in the first quar- the poverty line. owned enterprises footprint, low com- ter of 2022, reaching 17.1 percent of petition, uneven playing field, and tax GDP as the cost of energy imports distortions. Extreme weather events expanded quickly, while remittances FIGURE 1 Moldova / Actual and projected macroeconomic FIGURE 2 Moldova / Actual and projected poverty rates and indicators real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 15 45 60000 40 10 50000 35 5 30 40000 25 0 30000 20 -5 15 20000 -10 10 10000 5 Real GDP, % change -15 0 0 Current account balance, % GDP Fiscal deficit 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -20 International poverty rate Lower middle-income pov. rate 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Upper middle-income pov. rate Real GDP pc Source: Author's calculations based on national statistics. Source: World Bank. Notes: see Table 2. MPO 24 Oct 22 decreased by 9.4 percent. The CAB debt is expected to increase but stabilize deficit was financed primarily by re- just above 40 percent of GDP in the serve assets and FDI. The external Outlook medium term. debt marginally decreased and Poverty as measured by the US$6.85 reached 64 percent of GDP. GDP growth is expected to contract in 2017PPP poverty line is expected to in- The fiscal position proved to be re- 2022. The negative impact on private crease from 10.9 percent in 2021 to 11.4 silient with a deficit was smaller than consumption and investments is partly percent in 2022. With growth anticipated expected in the first half of 2022 (1.2 compensated by a positive contribution to accelerate in 2023, poverty is projected percent of GDP) thanks to an in- from net exports and a large fiscal im- to fall to 10.1 percent in 2023. crease in revenues by 19.4 percent. pulse. Growth is expected to slowly re- Downside risks remain high due to Spending has increased by 18 per- bound to 2.6 percent in 2023 and reach- Moldova’s proximity to the war in cent, driven by social spending (30 ing potential only in 2024. High infla- Ukraine and the uncertainties related to percent) and subsidies (39 percent). tionary pressures will persist throughout energy or natural gas prices and sup- As a result, public and publicly guar- 2022 and 2023 with the inflation rate plies. With the cold season approaching, anteed debt decreased to 30 percent remaining above the NBM target of 5 inflationary pressures could further of GDP, with the authorities refi- percent +/-1.5 percent. Current account erode consumer confidence and deterio- nancing only the existing debt. is expected to be higher than in the rate the twin deficits. High input costs Amidst a more favorable labor mar- pre-Covid period reflecting high import and dry weather conditions may reduce ket conditions, poverty using the prices and will rely on financing from agricultural yields, resulting in additional US$6.85 2017PPP poverty line is pro- foreign debt instruments. inflationary pressures and dumped eco- jected to have fallen from 18.3 per- The fiscal deficit is estimated to reach nomic activity. Despite a 40 percent in- cent to 10.9 percent in 2021. Recov- 5.9 percent of GDP in 2022 and remains crease in deposits, escalation of the con- ery in the labor market continued in- higher than pre-Covid-19, as the author- flict may put under stress the banking to the first quarter of 2022 with the ities will need to protect the popula- system, which still has to fully recover number of employed up by 3.8 per- tion from increasing prices, support the from the 2014 banking fraud. Finally, cent and the number of unemployed refugees and bolster investments and higher interest rates may pose roll-over down by around 30 percent. the reform program. As a result, public risks on the domestic market. TABLE 2 Moldova / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 3.7 -7.4 13.9 -0.7 2.6 4.2 Private Consumption 3.2 -8.3 15.5 0.6 3.7 4.4 Government Consumption 1.3 3.1 3.8 2.6 1.3 2.1 Gross Fixed Capital Investment 11.9 0.4 1.7 -1.2 3.3 4.3 Exports, Goods and Services 8.2 -9.6 17.5 15.9 4.1 4.3 Imports, Goods and Services 6.2 -5.0 19.2 10.2 4.6 3.9 Real GDP growth, at constant factor prices 4.0 -7.6 15.6 -0.8 2.6 4.2 Agriculture -2.3 -26.4 45.0 -5.4 6.0 6.3 Industry 7.1 -4.3 8.3 0.3 2.2 4.9 Services 4.3 -4.8 13.6 -0.2 2.0 3.4 Inflation (Consumer Price Index) 4.7 4.1 5.1 30.1 12.5 6.2 Current Account Balance (% of GDP) -9.3 -7.7 -11.6 -16.2 -10.4 -9.0 Net Foreign Direct Investment Inflow (% of GDP) 4.2 1.3 1.6 0.4 1.4 2.5 Fiscal Balance (% of GDP) -1.4 -5.3 -1.9 -5.9 -4.9 -4.4 Debt (% of GDP) 27.5 36.4 33.8 38.2 39.7 41.7 Primary Balance (% of GDP) -0.7 -4.5 -1.1 -4.6 -3.7 -3.4 a,b International poverty rate ($2.15 in 2017 PPP) 0.0 0.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.4 0.5 0.3 0.3 0.3 0.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 14.7 18.3 10.9 11.4 10.1 8.3 GHG emissions growth (mtCO2e) 0.8 -5.6 8.9 -1.1 1.8 2.7 Energy related GHG emissions (% of total) 63.6 63.5 65.4 64.8 65.1 65.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2019-HBS. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 25 Oct 22 and additional increases of social spend- ing resulting in a wider-than-planned fis- MONTENEGRO Key conditions and cal deficit in 2022 and beyond. An adopt- ed increase of the minimum monthly challenges pension from €150 to over €250 (effective September 2022), without compensating Table 1 2021 The pandemic has exposed Montene- reform measures, is further weakening Population, million 0.6 gro’s vulnerabilities to external shocks. pension system sustainability and equity. GDP, current US$ billion 5.9 These stem from the open and service- In August, there was a vote of no con- GDP per capita, current US$ 9438.7 based nature of the economy and its fidence in the government - the second a 18.5 Upper middle-income poverty rate ($6.85) small size, but also from the country’s government to collapse in 2022. The com- a 36.9 choice of strategies and policies. While plexity and fragility of the political land- Gini index b 101.7 the economy had a strong recovery in scape exacerbates already high uncertain- School enrollment, primary (% gross) Life expectancy at birth, years b 75.9 2021, growing by 13 percent, it remains ties, slows the reform process, and diverts Total GHG emissions (mtCO2e) 3.3 below its 2019 level and is now facing focus from imminent economic chal- new challenges from global geopolitical lenges. Prudent fiscal policy based on Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2017 PPPs. and economic uncertainties. continuous public debt reduction and b/ Most recent WDI value (2020). Given unilateral euroization, Montenegro policies to support growth is of critical relies on fiscal policy and structural re- importance in such environment. forms to maintain macroeconomic stabil- ity. However, the debt-financed highway While still recovering from the pandem- construction, the pandemic, and a lack of commitment to fiscal targets have in- Recent developments ic, Montenegro is facing renewed head- creased fiscal vulnerabilities and in- winds. Growth is estimated at a strong creased public debt, which peaked at 105 In 2022, economic activity was driven by 6.9 percent in 2022, led by private con- percent of GDP in 2020. Despite a signifi- an increase in real disposable incomes sumption. Inflation surged to new highs cant decline to 84 percent of GDP in 2021, owing to further recovery in tourism, em- public debt remains high. ployment growth, and household lend- but its adverse impact on the cost of liv- In January 2022, Montenegro started im- ing. As a result, by June, retail trade ing was largely mitigated by an increase plementing a tax reform program that grew by 20 percent y/y, while the num- in real disposable incomes. Due to the aims to reduce inequalities and increase ber of tourist overnights increased by tax reform and increased social spend- growth in the medium term. It removes 150 percent y/y, reaching 91 percent of healthcare contributions, introduces per- the 2019 level. However, industrial pro- ing, the fiscal deficit is expected to sonal income tax allowance, progressive duction declined by 2.3 percent as unfa- widen to 5 percent of GDP in 2022. personal and corporate income taxation, vorable hydrological conditions affected High public debt and a deteriorating and increases the net monthly minimum electricity generation. global environment require near-term wage from €250 to €450. The program Administrative data show employment fiscal consolidation. also poses significant fiscal risks, further reached a record high in July. The reg- amplified by the Parliament’s rejection of istered unemployment rate declined from several revenues compensating measures 22 percent in July 2021 to 16 percent in FIGURE 1 Montenegro / Real GDP growth and contributions FIGURE 2 Montenegro / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 20 30 6000 15 25 5000 10 5 20 4000 0 15 3000 -5 -10 10 2000 -15 5 1000 -20 2017 2018 2019 2020 2021 2022e 2023f 2024f 0 0 Final consumption Gross fixed capital formation 2012 2014 2016 2018 2020 2022 2024 Change in inventories Net exports Upper middle-income pov. rate Real GDP pc GDP growth Sources: MONSTAT and World Bank. Sources: World Bank. Notes: see Table 2. MPO 26 Oct 22 July 2022. Poverty (income below $6.85/ fiscal deficit from 1.9 percent of GDP in These factors, together with exports of day in 2017PPP) is projected to decline to 2021 to an estimated 4.9 percent of GDP tourism and transport services are project- 17.1 percent in 2022. in 2022. Public debt is estimated to re- ed to support a reduction in the current ac- Inflation peaked at 15 percent y/y in Au- main high at 73.4 percent of GDP in 2022. count deficit to 9.7 percent of GDP in 2024. gust, led by a surge in food (26.2 per- The fiscal balance is expected to moder- cent y/y) prices. The inflationary impact ate over the medium term but will re- on households has been largely mitigat- main elevated at 4 percent of GDP in ed by a wage increase through the tax Outlook 2023 and 2.7 percent of GDP in 2024, reform program. due to higher social and capital spend- The financial sector is performing well. The unfavorable global economic outlook ing. As a result, public debt will stay By July, lending and deposits increased and high uncertainty are weighing on high at around 72 percent of GDP in 2023 by 4.4 and 20.4 percent y/y, respectively. Montenegro’s recovery prospects. Growth and 2024. Given the tightening of glob- The average capital adequacy ratio was at is expected to moderate to 3.4 percent in al financial conditions and Montenegro’s 18.9 percent, while non-performing loans 2023 and further to 3.1 percent in 2024, as sizable financing needs of around 9 per- increased to 6.9 percent of total loans private consumption growth slows. The cent of GDP in 2023, Montenegro will re- from 6.3 percent a year earlier. projections do not assume that the re- quire very careful debt management and By June, the growth of exports outpaced maining sections of the highway will start stronger control over its expenditures. that of imports, supported by further by 2025, as fiscal space is limited. Tourism The outlook is surrounded with multiple tourism recovery and higher metal and is expected to continue recovering in downside risks. High geopolitical uncer- electricity prices. Net income accounts 2023, although deteriorating growth tainties and swelling global inflation weak- further reduced the current account prospects in the EU and the region can en growth prospects in Montenegro and deficit, which was largely financed by net slow its recovery. its trading partners. Inflationary pressures FDI and reserves. Inflation is expected to decelerate to 5.9 are accelerating monetary tightening Shortfall in social security contributions percent in 2023 and further to 2.6 percent which translates into more expensive ex- and personal income tax, new spending in 2024. While higher energy prices are dis- ternal financing. Political instability and commitments (child and mothers’ bene- proportionally affecting the poor, they are delays in government formation are major fits, pensions), clearance of health insur- also supporting a reduction in the trade domestic risks. The severity of challenges ance arrears, and high capital spending deficit as Montenegro’s growing electricity ahead requires strong political commit- are expected to drive an increase in the capacities are used for energy exports. ment and actions to mitigate these risks. TABLE 2 Montenegro / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 4.1 -15.3 13.0 6.9 3.4 3.1 Private Consumption 3.1 -4.6 4.0 9.1 3.1 2.9 Government Consumption 1.0 0.8 0.5 0.2 0.0 0.5 Gross Fixed Capital Investment -1.7 -12.0 -12.3 1.2 3.3 4.4 Exports, Goods and Services 5.8 -47.6 81.9 27.1 5.1 4.1 Imports, Goods and Services 2.7 -20.1 13.7 18.6 3.8 3.6 Real GDP growth, at constant factor prices 4.2 -14.4 13.2 6.9 3.4 3.1 Agriculture -2.2 1.1 -0.5 -2.0 0.1 0.1 Industry 5.6 -12.0 0.3 2.0 4.0 4.5 Services 4.5 -16.9 19.9 9.4 3.6 2.9 Inflation (Consumer Price Index) 0.4 -0.3 2.4 12.3 5.9 2.6 Current Account Balance (% of GDP) -14.3 -26.1 -9.2 -10.2 -10.3 -9.7 Net Foreign Direct Investment Inflow (% of GDP) 6.2 11.2 11.7 10.3 9.0 7.9 Fiscal Balance (% of GDP) -2.7 -11.0 -1.9 -4.9 -4.0 -2.7 Debt (% of GDP) 76.5 105.3 84.0 73.4 72.7 71.9 Primary Balance (% of GDP) -0.5 -8.3 0.5 -3.3 -2.2 -0.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 17.9 20.0 18.0 17.1 16.7 16.3 GHG emissions growth (mtCO2e) 2.5 -17.4 3.9 2.6 0.4 0.6 Energy related GHG emissions (% of total) 69.3 65.8 67.8 69.3 69.7 69.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2015-SILC-C and 2019-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2014-2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 27 Oct 22 revenues at 32 percent of GDP are still below the EU peers’ average. Public NORTH Key conditions and debt remained elevated at 61 percent of GDP at the end of 2021, amidst sharply challenges MACEDONIA increasing financing costs. The focus of the reform agenda needs Just as the economy started to recover to be geared towards boosting tax com- from a pandemic-induced recession, the pliance, restructuring spending while Table 1 2021 energy crisis and the war in Ukraine cut launching the green transition, improving Population, million 1.8 the recovery short and amplified infla- the efficiency of public investment man- GDP, current US$ billion 13.9 tionary pressures in early 2022. Energy agement, and ensuring the resilience of GDP per capita, current US$ 7556.6 and food prices have soared, while the the financial sector. Given limited fiscal International poverty rate ($2.15) a 3.4 minimum wage increase of 18.5 percent resources, widespread state aid through a 7.1 in March 2022 further fueled inflationary direct budget transfers, temporary subsi- Lower middle-income poverty rate ($3.65) a expectations. Double-digit inflation is dies, and broad tax exemptions that are Upper middle-income poverty rate ($6.85) 20.8 a weighing on economic growth prospects not cost-effective or sustainable, should Gini index 33.0 and is exacerbating balance sheet vulner- be revised and redirected toward long- b 98.2 School enrollment, primary (% gross) abilities for both sovereign and corporate term growth-supporting spending. b 75.7 Life expectancy at birth, years borrowers. Poverty reduction (using the Total GHG emissions (mtCO2e) 11.3 upper middle income class poverty line Source: WDI, Macro Poverty Outlook, and official data. of US$6.85/day at 2017 PPP) is likely to a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2020). stall in 2022 given rising food and en- Recent developments ergy prices that hurt the poor relative- ly more, as they spend a larger share of After a 4-percent growth in 2021, output their income on these items. increased by 2.6 percent in H1 2022, As the war in Ukraine and the energy Although non-performing loans do not helped by a continued recovery in in- crisis dim growth prospects, inflation yet point to increased insolvency, wors- vestments and a moderate consumption is heading towards all-time highs, dis- ening firm performance is affecting the stimulus. Imports surged, leading net outlook for the banking sector. Sequential exports into negative territory. Growth proportionately eroding real incomes of crises have markedly reduced fiscal space was driven by services, as industry the poor. With limited fiscal space, ele- for additional emergency support. The struggled, and construction saw a fur- vated public debt, and increased cost recent shocks have worsened fiscal sus- ther decline in activity. of financing, fiscal support needs to tainability and reduced fiscal space for The census-adjusted activity rate declined target the most vulnerable. Monetary supporting growth in North Macedonia. to 55.3 percent in Q2 2022, led by a drop General government spending with the in female participation. The employment policy tightened to tame inflationary roads company reached 40 percent of rate stood at 47.3 percent in Q2 2022 pressures. Medium-term growth is ex- GDP; yet, low spending efficiency and and remained below the pre-pandemic pected to moderate, but risks are sig- high mandatory spending (80 percent of peak. The unemployment rate decreased nificantly tilted to the downside. spending) undermine the contribution of to 14.5 percent, but the youth unemploy- spending to growth. At the same time, ment rate remained high at 30.9 percent. FIGURE 1 North Macedonia / Fiscal performance FIGURE 2 North Macedonia / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 70 1 45 300000 60 40 -1 250000 35 50 30 200000 40 -3 25 150000 30 -5 20 20 15 100000 -7 10 10 50000 5 0 -9 0 0 2018 2019 2020 2021 2022H1* 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Guarantees Foreign debt International poverty rate Lower middle-income pov. rate Domestic debt Fiscal deficit with PESR (rhs) Upper middle-income pov. rate Real GDP pc Sources: North Macedonia State Statistics Office, Ministry of Finance, and World Source: World Bank. Notes: see Table 2. Bank staff calculations. Note: * Central government on a 12-month rolling basis. MPO 28 Oct 22 The banking sector remained stable, but arrears remained high at 3 percent of GDP and lifting inflation at the same time. the liquidity and the capital adequacy ra- in Q2 2022 owing to health sector, state en- With looming stagflation risks, the coun- tios decreased to 20.5 and 17 percent in terprises, and local governments. try will need to start delivering on reform Q1 2022, respectively. Credit growth con- promises that can reinvigorate the poten- tinued at 9.7 percent in July 2022, led by tial growth momentum over the medium accelerated corporate and mortgage lend- term. Policy efforts need to be geared to- ing. Consumer price inflation surged to Outlook wards restoring fiscal and financial sus- 16.8 percent in August 2022, with food tainability whilst building social and cli- and energy prices rising by more than Output growth over the medium term is mate resilience that will reduce the coun- 20 percent. To tame inflation expectations, expected to moderate and downside risks try’s vulnerability to shocks and revamp the Central Bank increased the main pol- remain elevated. The 2022 growth fore- the country’s long term growth prospects. icy rate four times within a year to 2.5 cast is downgraded further to 2.1 per- At the current juncture, heightened polit- percent until August 2022. The pegged cent as the energy and Ukraine crisis ical uncertainty and a parliamentary im- exchange rate remained stable with FX continue to take a toll on the domestic passe, following the results of the local interventions to contain sustained pres- economy. Disruptions related to the war elections and a removal of obstacles for sures, leading to a more than 20 percent in Ukraine, overstretched supply chains, opening the EU accession negotiations, loss of reserves since mid-2021. mounting inflationary and wage pres- amidst a food and energy crisis, may With the supplemental budget in May, the sures and the intensifying energy supply lead to delays in reforms implementation government’s projected fiscal deficit for crisis continue to weigh on the outlook. needed to boost potential growth and 2022 increased by 1 p.p. to 5.3 percent of The baseline scenario is built on the as- consolidate public finances. Moreover, GDP, marked by a rise in current expen- sumption that the impact of the energy lower domestic and external demand, ditures along with cuts in capital expen- crisis and the war in Ukraine on the do- high input costs and liquidity shortages ditures. Total revenues surged by close to mestic economy will gradually subside could lead to further layoffs and increase 14 percent y-o-y helped by inflation which while inflationary pressures tail off over poverty, stretching already tight public fi- led to a decline in public and publicly the forecast horizon. However, the under- nances. Finally, tightening financial con- guaranteed debt towards 55.4 percent of lying assumptions are significantly tilt- ditions may affect financing options and GDP in June 2022. However, expenditure ed to the downside, dampening growth, costs going forward. TABLE 2 North Macedonia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 3.9 -6.1 4.0 2.1 2.7 2.9 Private Consumption 3.7 -4.5 5.9 6.2 2.9 2.8 Government Consumption 2.5 6.4 4.1 1.0 0.3 0.2 Gross Fixed Capital Investment 8.7 -14.8 6.8 20.0 8.0 8.0 Exports, Goods and Services 8.9 -10.9 12.3 11.0 7.2 6.1 Imports, Goods and Services 9.5 -10.0 12.9 16.5 7.0 6.0 Real GDP growth, at constant factor prices 3.8 -5.2 2.5 2.1 2.7 2.9 Agriculture 0.1 -3.2 -1.2 1.8 2.0 1.5 Industry 3.4 -9.1 -2.4 1.6 4.8 5.3 Services 4.4 -3.9 4.7 2.3 2.1 2.2 Inflation (Consumer Price Index) 0.8 1.2 3.2 12.1 6.1 3.0 Current Account Balance (% of GDP) -3.3 -3.4 -3.5 -9.8 -5.0 -3.0 Net Foreign Direct Investment Inflow (% of GDP) 3.2 1.5 3.7 3.3 3.4 3.4 Fiscal Balance (% of GDP) -2.1 -8.3 -5.4 -5.2 -4.1 -3.6 Debt (% of GDP) 49.2 61.0 60.8 59.4 59.9 61.4 Primary Balance (% of GDP) -1.0 -7.1 -4.1 -3.9 -2.6 -2.2 a,b International poverty rate ($2.15 in 2017 PPP) 2.8 3.2 2.7 2.7 2.5 2.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 7.6 8.1 6.3 6.2 6.1 5.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 19.1 20.8 16.1 15.9 15.4 14.9 GHG emissions growth (mtCO2e) 8.6 -2.4 2.7 1.1 0.7 -0.2 Energy related GHG emissions (% of total) 71.9 71.5 72.6 72.9 72.9 72.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2019-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 29 Oct 22 arising from aging. Over the medium term, a key challenge is a tightening labor sup- POLAND Key conditions and ply made more acute by the aging popula- tion. The large influx of displaced people challenges from Ukraine could help address the labor market tightness. Achieving decarboniza- Table 1 2021 The well-diversified Polish economy has tion commitments is another challenge. In- Population, million 37.8 proven to be one of the most resilient in stitutional strengthening is needed for sus- GDP, current US$ billion 661.7 the EU, recovering strongly in 2021 after tained and inclusive growth and for nar- GDP per capita, current US$ 17487.0 a relatively small contraction in GDP of rowing regional disparities. a 0.4 International poverty rate ($2.15) 2.2 percent in 2020. a 0.5 A sound macroeconomic framework, ef- Lower middle-income poverty rate ($3.65) a 1.6 fective absorption of EU investment Upper middle-income poverty rate ($6.85) Gini index a 30.3 funds, a sound financial sector, better Recent developments School enrollment, primary (% gross) b 97.2 access to long-term credit, and access to b 76.6 European labor markets have supported Economic growth remained strong in the Life expectancy at birth, years long-term inclusive growth and pover- first half of 2022, well above potential Total GHG emissions (mtCO2e) 308.1 ty reduction. Strong domestic labor mar- GDP growth, expanding nearly 7 percent Source: WDI, Macro Poverty Outlook, and official data. kets and increases in median and bot- year-on-year. This follows a 5.9 percent a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2020). tom 40 real incomes have supported pri- GDP recovery in 2021 from the COVID- vate consumption. With an improving related 2020 recession. Household con- business environment, Poland integrated sumption expanded by 6.4 percent year- well into regional value chains (RVCs). on-on-year in the first half of 2022, in- Higher private investment, an improved vestment rose 6.2 percent, and there was Poland’s GDP grew 7 percent in the first innovation ecosystem, and further up- a significant contribution to growth from half of 2022 as investment surprised to grading of RVCs are needed to boost rebuilding of inventories.. the upside and the boom in private con- productivity and growth. Private consumption benefitted from the sumption continued. The risk of a techni- The full economic impact of the ongoing tight labor market with continued employ- COVID-19 remains uncertain as new vari- ment growth, record low unemployment, cal recession is looming, however, due to ants emerge amidst a vaccination rate of 67 increased labor force participation and strong inflationary pressures and policy percent of the adult population. strong wage growth. It was also supported uncertainties. The war in Ukraine contin- The unprecedented policy response to by pent-up demand and demand from the ues to affect the economy, through com- mitigate the impacts of the COVID crisis nearly 1.4 million displaced Ukrainians in modity prices, trade, and confidence ef- and high inflation have narrowed the Poland. High capacity utilization and available policy space. strong corporate balance sheets supported fects channels. The large influx of dis- Increased spending and tax expenditure investments so far. placed Ukrainians. The share of the pop- efficiency is needed to rebuild fiscal Robust domestic demand growth fueled ulation at risk of poverty is expected to buffers, accommodate higher spending on import growth while supply side disrup- remain elevated through 2024. health, defense, the green transition, and tions and lower external demand from to prepare for the growing fiscal burden Russia, Ukraine, and Belarus weighed on FIGURE 1 Poland / Real GDP growth and contributions to FIGURE 2 Poland / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 14 70000 8 12 60000 6 10 50000 4 8 40000 2 6 30000 0 4 20000 -2 2 10000 -4 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Net exports GFCF 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Inventories Private cons. Statistical disc. International poverty rate Lower middle-income pov. rate GDP Upper middle-income pov. rate Real GDP pc Sources: GUS and World Bank staff calculations. Source: World Bank. Note: see Table 2. MPO 30 Oct 22 export growth, jointly contributing to a investors’ income from capital investments Higher energy and food prices will weigh negative contribution from net exports. in Polish enterprises. on household demand and will affect Inflation has continued to accelerate The unwinding of the large 2020 fiscal heavily poorer segments, who devote 50 markedly since mid-2021, reaching more stimulus and the strong increase in tax rev- percent of their monthly spending on food than 16 percent in August, sharply higher enues brought the general government and energy. Minimum wage growth is ex- than the targeted range. Hikes in energy deficit to 1.9 percent of GDP in 2021, down pected to be outstripped by inflationary and agricultural commodities as well as from 6.9 percent of GDP in 2020. pressures, leading to a decline in the real continued disruptions in supply chains fu- Poverty rates declined in 2021, reversing minimum wage in 2022, which will be eled inflation. Price increases continued to the rise linked to the COVID-19 pandemic moderated by the phased adjustment of accelerate notwithstanding the fiscal pack- in 2020; the Gini coefficient of inequality the minimum wage in 2023. While mea- age aimed at limiting inflation. however continued the upward trajectory sures under the Anti-inflation Shield, 14th- High inflation triggered a faster than ex- visible since 2017. month pension, and energy subsidies will pected monetary policy tightening, with The financial sector remains well capital- soften household impacts, the share of the the central bank raising its reference rate ized and has limited direct exposure to population at risk of anchored relative by 665 basis points since October 2021. Russia, Ukraine, or Belarus. poverty is expected to remain elevated at Meanwhile, the zloty depreciated 15.4 per- 1-2 percentage points above 2021 levels. cent so far this year. Sharply higher import prices and larger Temporary protection was given to 1.4 mil- primary income outflows are expected to lion Ukrainian refugees, granting them Outlook result in a deterioration in the current ac- temporary residence and access to the la- count deficit to 4.2 percent of GDP in 2022, bor market and key public services (health, Economic growth is expected to decelerate with a moderate improvement over education), social assistance, and housing. to 4 percent in 2022 and to 1.6 percent in 2023-2024 as terms of trade improve. The current account widened sharply to 2023, on account of high inflation, mone- The fiscal deficit is expected exceed 3.5 3.9 percent of GDP in the year-to-June tary policy tightening, negative confidence percent of GDP, as a result of the structural 2022, on account of sharply higher import effects related to the war in Ukraine, and tax reform (Polish Deal), the temporary prices in particular for energy and inter- slowing demand in key trading partners. impact of the anti-inflation measures, and mediate goods. The trade account record- Supply-side disruptions, high input costs, the public assistance provided to Ukrain- ed a 2.7 percent of GDP deficit over this and uncertainty related to the war in ian refugees. The fiscal cost of these pack- period, compared with a 2.4 percent sur- Ukraine will affect private investments. ages is estimated at 1 percent, 1.7 percent, plus during the year-to-June 2021. Mean- The National Recovery and Resilience Plan and 0.4 percent of GDP respectively in while, the primary income account deficit is expected to support public investment, 2022. With increased geopolitical risks, de- increased slightly to 5 percent of GDP over but any delays in disbursements represent fense spending is also expected to increase this period, on account of strong foreign a downside risk. over the coming years. TABLE 2 Poland / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 4.7 -2.2 5.9 4.0 1.6 3.0 Private Consumption 3.9 -2.8 6.0 4.0 1.3 2.8 Government Consumption 6.5 4.9 3.4 1.2 2.4 4.5 Gross Fixed Capital Investment 6.1 -4.9 3.8 4.9 -0.1 4.9 Exports, Goods and Services 5.2 0.0 11.8 3.4 4.0 4.8 Imports, Goods and Services 3.0 -1.1 15.9 3.7 3.0 5.5 Real GDP growth, at constant factor prices 4.6 -2.2 5.6 4.0 1.6 3.0 Agriculture -0.8 13.9 1.9 1.9 1.1 1.2 Industry 2.2 -4.3 11.4 5.1 3.0 3.3 Services 6.0 -1.7 2.9 3.6 0.8 3.0 Inflation (Consumer Price Index) 2.3 3.4 5.1 13.2 10.1 4.9 Current Account Balance (% of GDP) 0.5 2.9 -0.7 -4.2 -3.6 -2.3 Net Foreign Direct Investment Inflow (% of GDP) 2.0 2.1 3.8 3.6 2.2 2.4 Fiscal Balance (% of GDP) -0.7 -6.9 -1.9 -3.6 -3.5 -2.6 Debt (% of GDP) 45.6 57.1 53.8 51.7 49.3 47.5 Primary Balance (% of GDP) 0.6 -5.6 -0.8 -2.2 -1.9 -1.2 a,b International poverty rate ($2.15 in 2017 PPP) 0.4 0.4 0.3 0.3 0.3 0.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.5 0.5 0.5 0.4 0.4 0.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 1.4 1.6 1.5 1.6 1.5 1.4 GHG emissions growth (mtCO2e) -5.2 -6.2 2.6 -0.5 -2.5 -1.7 Energy related GHG emissions (% of total) 91.6 91.7 91.3 91.0 90.7 90.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2008-EU-SILC and 2019-EU-SILC. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2007-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 31 Oct 22 and Next Generation EU funds alongside reforms supported by these programs ROMANIA Key conditions and will be crucial to a sustainable recovery while aiding fiscal consolidation efforts. challenges Table 1 2021 Romania has achieved impressive success Population, million 19.2 in growth and prosperity over the past Recent developments GDP, current US$ billion 284.9 two decades. However, the shocks in- GDP per capita, current US$ 14872.7 duced by the COVID-19 pandemic and The Romanian economy grew by 5.8 per- a 2.5 International poverty rate ($2.15) the war in Ukraine exposed the structural cent in H1, 2022, supported by strong a 5.1 vulnerabilities of the economy, including private consumption (up 7.5 percent y- Lower middle-income poverty rate ($3.65) a 11.3 persistent poverty and disparities in eco- o-y) in response to the phasing-out of Upper middle-income poverty rate ($6.85) Gini index a 35.1 nomic opportunity across regions and be- COVID-19 restrictions, higher wages, and School enrollment, primary (% gross) b 87.5 tween urban and rural areas, structural lower unemployment. Investment b 74.4 rigidities in the product and labor mar- showed signs of recovery (up 2.2 percent Life expectancy at birth, years kets, weaknesses in fiscal policy and sig- y-o-y) boosted by new construction Total GHG emissions (mtCO2e) 71.7 nificant institutional constraints hindering works. Robust private consumption cou- Source: WDI, Macro Poverty Outlook, and official data. the efficient use of resources. pled with global value chain disruptions a/ Most recent value (2019), 2017 PPPs. b/ Most recent WDI value (2020). Poor and vulnerable households have and the terms of trade shock led to a been disproportionally affected by rising widening goods trade deficit. The pri- food and energy prices, despite the cap- mary income balance also deteriorated, ping of gas and electricity prices to re- adding to the already sizable current ac- duced levels, until March 2023, for house- count deficit. On the supply side, growth holds with lower average monthly con- was led by the ICT sector (up 23.9 percent The Romanian economy performed better sumption. The strong economic rebound y-o-y), which benefited from businesses than expected, growing at 5.8 percent in helped reduce the share of the Romanian adopting digital technologies. Construc- the first half of 2022 on the back of robust population living on less than $6.85 a day tion bounced back (up 2.8 percent y-o-y), at 2017 PPP prices to 11.7 percent in 2022 supported by the revival of the non-res- private consumption performance and from 12.1 percent in 2021. idential buildings segment. The econom- early signs of investment recovery. The key challenges in the short term are ic recovery and labor supply constraints Prospects depend on the evolution of the to contain the socio-economic effects of the reduced unemployment to 5.3 percent in war in Ukraine and its impact on the Eu- conflict in the region and the COVID-19 June 2022 from the height of the ropean economy. The fiscal deficit is on a flare-ups. Significant inflationary pres- COVID-19 pandemic of 6.7 percent in sures led to monetary policy tightening, June 2020. Labor shortages coupled with downwards trend, but it remains elevat- following an accommodative stance. Ele- higher inflation led to wage increases, with ed. Poverty is expected to decline to vated external imbalances add to the cur- nominal net wages up by 12.3 percent y- 11.7 percent in 2022. rency pressures and markets’ risk aver- o-y in June 2022. Meanwhile, annual infla- sion. Maximal and effective absorption of tion accelerated to 15 percent in July 2022, the EU Multiannual Financial Framework led by soaring electricity, gas, and central 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 45 60000 40 20 50000 35 30 40000 10 25 30000 20 0 15 20000 -10 10 10000 5 -20 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gov. cons. Investment Private cons. International poverty rate Lower middle-income pov. rate Imports Exports GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 32 Oct 22 heating prices (up 35.6 percent). Inflation- households in the bottom 40 percent in- Romania is strongly integrated. Roma- ary pressures prompted the National Bank dicated they would have to sacrifice oth- nia’s capacity to absorb the EU funds of Romania to gradually increase the mon- er expenses to cope with food and energy will be critical to a sustainable, green, etary policy rate to 5.5 percent in early Au- inflation. The war in Ukraine and further and inclusive recovery process. The siz- gust 2022. Nevertheless, private sector disruptions to the global supply chains able investment and reforms under the credit growth remained strong, up by 17.5 will continue to affect the economies of Resilience and Recovery Facility, the mul- percent y-o-y in June 2022, led by loans to host countries for Romanian migrants, re- tiannual financial framework 2021-2027, non-financial corporations. ducing remittances. Thus, despite eco- and other EU-funded programs should The fiscal deficit decreased to 1.7 percent nomic and employment recovery, poverty partially mitigate the impact of higher in- of GDP in H1, 2022, 1.2 percentage points is expected to have declined only mod- terest rates and uncertainty on private in- lower than in the same period of last estly to 11.7 percent in 2022 and remains vestment. The sizable funds should also year. Higher revenues (up 22.9 percent y- above the pre-crisis level. alleviate some of the fiscal pressures re- o-y), especially from VAT (up 26.6 percent sulting from the war and heightened en- y-o-y), off-set the 14.3 percent y-o-y in- ergy and food prices. Over the medium crease in expenditure, but fiscal pressures term, fiscal deficits will remain elevated. remain significant as recurrent expendi- Outlook The fiscal consolidation efforts remain ture and energy subsidies could swell the critical and should address the large deficit this year. The economy is projected to expand by structural deficit, which requires reforms An economic and employment rebound 4.6 percent in 2022, with projections sub- to strengthen revenue mobilization and meant that most workers have returned ject to a high degree of uncertainty. A increase spending efficiency. to work, helping to bring household la- global slowdown and a possible recession Poverty is projected to decline to the pre- bor income close to the pre-crisis level. in the main trading partners could impact crisis level by 2024. However, rising food However, the Rapid Household Survey Romania’s growth in 2023. Growth and energy prices and declining remit- in June 2022 showed that 75 percent of prospects hinge on several factors, includ- tance incomes could mean a longer re- Romanians were still worried about the ing the new COVID-19 flare-ups, the dy- covery process for vulnerable population economy. Moreover, rising food and ener- namics of inflation, especially related to segments in the coming years. A pro- gy prices have depleted households’ real energy and food prices, and the severity tracted war in Ukraine may significantly purchasing power, especially among the of the conflict in the region and its im- weaken growth and lead to an increase poor and vulnerable. Nearly 90 percent of pact on the European economy in which in poverty in the short run. TABLE 2 Romania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 4.2 -3.7 5.9 4.6 3.2 3.9 Private Consumption 3.9 -5.1 7.9 7.6 5.8 6.9 Government Consumption 7.3 1.8 0.4 1.1 0.9 0.8 Gross Fixed Capital Investment 12.9 4.1 2.3 3.9 6.9 7.0 Exports, Goods and Services 5.4 -9.4 12.5 6.5 6.7 7.1 Imports, Goods and Services 8.6 -5.2 14.6 9.8 10.0 10.3 Real GDP growth, at constant factor prices 4.0 -3.5 5.6 4.6 3.2 3.9 Agriculture -5.0 -14.9 13.5 -7.5 6.0 2.1 Industry -0.1 -2.2 3.7 0.8 1.3 3.4 Services 7.1 -3.2 6.1 7.4 3.9 4.2 Inflation (Consumer Price Index) 3.8 2.6 5.1 13.3 9.7 4.8 Current Account Balance (% of GDP) -4.9 -5.0 -7.0 -9.2 -7.9 -6.8 Net Foreign Direct Investment Inflow (% of GDP) 2.3 1.4 3.0 3.6 3.7 3.7 Fiscal Balance (% of GDP) -4.3 -9.3 -7.1 -6.6 -5.6 -4.7 Debt (% of GDP) 35.3 47.2 48.8 51.2 52.5 53.3 Primary Balance (% of GDP) -3.2 -7.9 -5.6 -4.9 -4.0 -3.1 a,b International poverty rate ($2.15 in 2017 PPP) 2.5 2.9 2.7 2.6 2.5 2.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 5.1 5.7 5.5 5.3 5.1 4.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 11.3 12.7 12.1 11.7 11.3 10.8 GHG emissions growth (mtCO2e) -1.9 -10.4 2.2 2.6 2.4 2.3 Energy related GHG emissions (% of total) 91.9 92.1 92.2 92.6 92.9 93.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2009-EU-SILC and 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection based on elasticities calibrated on 2009-2019 growth periods and rapid assessment data, allowing for elasticities to vary between periods of contraction, recovery and expansion. MPO 33 Oct 22 led to a collapse in domestic demand and export volumes. As the ruble depre- RUSSIAN Key conditions and ciated sharply and inflation spiked, low- er real wages contributed to a deep, sus- challenges FEDERATION tained decline in retail sales volumes—a proxy for private consumption—which The sanctions imposed on Russia follow- remains 9 percent lower by July (yoy). ing its war in Ukraine are having sig- Investment is also estimated to have fall- Table 1 2021 nificant adverse economic impacts, albeit en, exacerbated by the departure of Population, million 144.1 less severe in the short term than first many foreign investors. a 4.1 expected. The initial shock was mitigat- The drop in domestic demand would Upper middle-income poverty rate ($6.85) Gini index b 36.0 ed by the authorities’ strong fiscal re- have been even greater had the govern- School enrollment, primary (% gross) c 104.2 sponse (3 percent of GDP), capital con- ment not mitigated the impact with a c 71.3 trols, monetary tightening, swift action fiscal support package amounting to 3 Life expectancy at birth, years to stem financial sector risks, as well as percent of GDP, including boosting so- Sources: WDI, MPO, Rosstat. a/ Most recent value (2020), 2017 PPPs. high FX inflows driven by the surge in cial benefits, providing subsidized loans b/ Most recent value (2020). global commodity prices. The combina- and tax breaks, and raising minimum c/ WDI for School enrollment (2019); Life expectancy tion of smaller accessible international re- wages. The increase in expenditures was (2020). serves (as half of Russia’s US$630bn in- financed by oil/gas revenues (25.1 percent ternational reserves were frozen because up in real terms January–August, yoy), of sanctions), the suspension of its fiscal and a reduction in the federal budget Russia’s economy will contract by 4.5 rule, and the reduction in domestic non- surplus to US$1.9 billion from US$14.5 percent in 2022, less than initially ex- oil/gas revenues, all imply that Russia is billion over the same period. This has pected thanks to the strong fiscal re- now more exposed if fossil fuel prices exacerbated the vulnerability of Russia’s and/or volumes fall as the global econo- public finances to a drop in global energy sponse and the surge in energy prices my cools down. Moreover, the sanctions prices and/or volumes—as non-oil/gas which helped increase fiscal revenues. have led to a dramatic drop in total im- revenues dropped by 14.7 percent in real The economy has experienced a sharp ports, restricting access to new technolo- terms yoy and the federal non-oil deficit drop in imports, and a fall in real in- gies and equipment, and external financ- grew to US$106.9 billion from US$59.2 comes. The recession will continue in ing, and thereby dampening medium- to billion last year. long-term growth prospects. After an initial spike to 17.8 percent yoy 2023 due to the sanctions and reduced in May, the rebound in the ruble and fiscal expansion. Thereafter the economy falling domestic demand led to a grad- is expected to stabilize. However, medi- ual but steady consumer price deflation um to long-term growth is expected to Recent developments to 14.3 percent yoy by August. With price pressure easing, the central bank be very low as Russia has lost access to Following the Russian invasion of more than unwound the monetary tight- key sources of productivity. Ukraine, GDP dropped by 4.1 percent ening (to 20 percent) it introduced in (yoy) in Q2, as the shocks to confidence, February, cutting the policy rate to 7.5 transaction systems, and supply chains percent by mid-September. FIGURE 1 Russian Federation / Real GDP growth and FIGURE 2 Russian Federation / Actual and projected contributions to real GDP growth poverty rate and real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 10 25 400000 350000 5 20 300000 15 250000 0 200000 10 150000 -5 100000 5 -10 50000 2019 2020 2021 2022 2023 2024 Stat error Import 0 0 Export Change in inventories 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Gross fixed capital formation Consumption Upper middle-income pov. rate Real priv. cons. pc GDP growth Sources: Rosstat and World Bank. Source: World Bank. Notes: see Table 2. MPO 34 Oct 22 The current account surplus reached wages have weakened by 3.2 percent to Agriculture is expected to expand 1.8 US$183 billion over January to August June (yoy), possibly reflecting increasing percent in 2022, industrial production to 2022, triple its level the year before, as labor demand to substitute for lost capital contract by 2.2 percent, and services to surging commodity prices and lower im- and technology. The official poverty rate contract the most deeply. ports more than compensated for a fall in was 13.0 percent in H1 2022, similar to its Moderate growth is expected in 2024 as export volumes and discounts on Russ- level in the same period in previous years. the economy stabilizes from the sanctions ian oil. Imports from some countries in- shock and sees a gradual recovery in cluding Turkiye and India grew but did domestic demand and exports. Potential not offset the sharp drop in imports from growth is expected to be very low—if not sanctioning countries, resulting in an Outlook negative—as Russia has lost access to key overall contraction of 22 percent in Q2, sources of productivity, which will in- yoy. Oil export volumes fell slightly (by The outlook is developed under assump- creasingly hamper economic growth and 0.4 mb/d in August - IEA) as exports to tions that the war and sanctions will con- poverty reduction. China, India, and Turkiye largely offset tinue as in recent months. GDP is ex- Consumer price inflation will rise to 13.9 reductions to sanctioning countries. Gas pected to decrease by 4.5 percent in 2022 percent over 2022 and remain above the export volumes to the EU, China, and and by a further 3.6 percent in 2023, as Central Bank’s target of 4 percent until Turkey fell 37 percent amidst Russia’s the economy continues to contract due to 2024. Russia’s banking system experienced unilateral changes in contract terms and the impact of sanctions, including those a significant loss of 1.5 trillion rubles dur- pipeline shutdowns. The surplus was coming into force at the end of this year ing H1 2022, 13 percent of its aggregate matched by substantial capital outflows (notably the EU partial oil ban and to a capital, which, while not jeopardizing by non-residents (US$62bn) and residents lesser extent the oil price cap). A declin- banking sector solvency, may hamper its (US$68bn, which may include sales of of- ing economic base and higher expendi- ability to support the economy. ficial reserves), which have been regis- ture are expected to turn the general gov- Poverty is expected to increase to nearly 4 tered as large financial inflows in several ernment surplus into a 1.8 percent deficit percent (UMIC poverty rate) in 2023, while countries in the neighboring region. in 2022. Consumption recovery will be meager growth in 2024 will preclude Since a brief crash in February, the ruble weak this year as real wages remain sub- poverty reduction. more than recovered because of capital dued and further fiscal stimulus is limited Russia is vulnerable to lower demand for, controls and current account strength and as the authorities strive to limit the size and prices of, energy and extractives com- has been stable since. Russia’s interna- of the deficit, including by increasing tax- modities, which may manifest through tional reserves have fallen about 10 per- es. Looser monetary policy will have lim- weaker global growth. Additional risks cent (US$65bn) since the start of the war. ited positive effect on credit growth as arise from the partial mobilization an- Official unemployment is near record the banking sector faces large losses and nounced in September, which could damp- lows at 3.9 percent (sa) and employment uncertainty. The EU’s ban on Russian oil en domestic demand, and increase labor increased by 0.4 percent (yoy) but real will reduce exports in H2 2022 and 2023. market and financial sector pressures. TABLE 2 Russian Federation / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 2.2 -2.7 4.8 -4.5 -3.6 1.6 Private Consumption 3.8 -7.3 9.5 -4.7 -2.4 1.6 Government Consumption 2.4 1.9 1.5 2.1 1.6 1.0 Gross Fixed Capital Investment 1.0 -4.6 6.9 -3.9 -5.6 3.2 Exports, Goods and Services 0.7 -4.1 3.5 -12.3 -9.1 1.6 Imports, Goods and Services 3.1 -11.9 16.9 -20.8 3.3 5.0 Real GDP growth, at constant factor prices 2.2 -2.4 4.6 -4.4 -3.6 1.6 Agriculture 3.5 0.2 -1.3 1.8 1.4 1.4 Industry 1.6 -2.3 4.9 -2.2 -3.1 1.3 Services 2.4 -2.7 4.9 -5.9 -4.2 1.7 Inflation (Consumer Price Index) 4.5 3.4 6.7 13.9 5.9 4.5 a Fiscal Balance (% of GDP) 1.9 -4.0 0.8 -1.8 -2.1 -3.1 Debt (% of GDP) 14.3 20.0 17.9 15.0 15.7 17.0 a Primary Balance (% of GDP) 2.7 -3.2 1.7 -0.8 -1.0 -2.1 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 0.0 4.1 2.9 3.5 3.8 3.5 GHG emissions growth (mtCO2e) 2.4 -4.1 0.8 -7.9 -3.2 0.6 Energy related GHG emissions (% of total) 91.6 91.5 90.6 91.2 90.2 89.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Fiscal and Primary Balance refer to general government balances. b/ Calculations based on ECAPOV harmonization, using 2020-HBS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 35 Oct 22 SERBIA Key conditions and Recent developments challenges Solid GDP growth in Q1 and Q2 (4.3 and 3.9 percent, y/y) was driven by consump- Table 1 2021 After a strong recovery in 2021 several tion and better-than-expected export per- Population, million 6.9 domestic and international factors caused formance. As a result, the employment GDP, current US$ billion 63.0 an economic slowdown. Growth in 2022 rate increased and reached a record level GDP per capita, current US$ 9180.9 is forecasted at 3.2 percent with risks tilt- of 50.9 percent, and unemployment de- a 12.1 Upper middle-income poverty rate ($6.85) ed to the downside. The key challenge clined, to 9.2 percent in Q2 2022. Wages a 34.5 is the performance of the Serbian energy increased by 13.5 percent in nominal Gini index b 97.7 sector and availability of electricity and terms in the first half of the year com- School enrollment, primary (% gross) Life expectancy at birth, years b 74.2 gas in the winter of 2022/23. Another pared to the same period of 2021. Total GHG emissions (mtCO2e) 59.8 challenge will be the availability of fi- Poverty (defined as income under $6.85/ nancing the fiscal deficit since interest day in 2017 PPP) is estimated to have de- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2017 PPPs. rates increased significantly over recent clined slightly from 12.2 percent in 2020 b/ Most recent WDI value (2020). months and subscription rates to auc- to 10.5 percent in 2021. Wage subsidies tions of T-bills remain low. Inflation is and cash transfers to citizens helped to on the rise, eroding the incomes of the avert a spike in poverty in 2020. In 2021, poor in particular. poverty reduction resumed due to strong Over the medium term, the Serbian econ- economic growth and improving labor omy is expected to slow down and re- market conditions, though it was partly The Serbian economy continued to grow turn to the pre-pandemic growth levels countered by an output decline in agri- in 2022 despite major challenges, do- only after 2024. However, Serbia still culture, rising inflation at the end of the mestic and from abroad. Poverty inci- faces challenges that limit its potential year, and the phasing out of government dence declined to an estimated 10.5 per- growth both in the short and medium support programs. to long term. Most importantly, Serbia Inflation has increased despite the intro- cent. Growth is expected to decelerate needs to further remove bottlenecks for duction of price controls related to food in 2023 and the risks to the growth private sector investment including to- and energy. It reached 12.8 percent in Ju- outlook are clearly tilted to the down- ward greener growth. These include a ly 2022. In the same month, food prices side. Poverty reduction is expected to deteriorating governance environment, a were 20.3 percent higher than a year ear- lack of infrastructure, and an unreformed lier. Rents for housing increased at a sim- stagnate as well, as income gains are education sector, which creates skills ilar level (20.5 percent). Over the summer eroded by high inflation and rising food mismatches in the labor market. With months, the government decided to in- prices in particular. limited space for future stimulus pack- crease the prices of electricity and gas ages, structural reforms are needed to which will push inflation even higher and bring the economy back to sustained increase the costs of living. growth, boost jobs and incomes and Budgetary revenues overperformed in strengthen resilience to shocks. 2022 thanks to higher than planned FIGURE 1 Serbia / Value added by sector FIGURE 2 Serbia / Actual and projected poverty rates and real GDP per capita Index 1=2010 Poverty rate (%) Real GDP per capita (constant LCU) 2.5 35 900000 800000 30 2 700000 25 600000 20 500000 1.5 15 400000 300000 1 10 200000 5 100000 0.5 0 0 2000 2003 2006 2009 2012 2015 2018 2021 2024 2012 2014 2016 2018 2020 2022 2024 Agriculture value added Service value added Upper middle-income pov. rate Real GDP pc Industry value added Source: World Bank staff calculations. Source: World Bank. Note: see Table 2. MPO 36 Oct 22 collection of VAT and CIT. In the first percent annually before the war in in June 2022) may face upward pres- half of the year, total revenues were high- Ukraine and increases in international sure if downside risks materialize. er by 15.2 compared to the same period prices started. The growth was expect- Poverty reduction is expected to gradu- of 2021. Over the same period, expendi- ed to be underpinned by broad-based ally decline or stagnate in 2022. The war tures increased by 13 percent. As a result, growth in consumption, investment, and in Ukraine continues to pose a signifi- the consolidated fiscal deficit decreased trade. However, the war in Ukraine, cant downside risk for household wel- significantly in 2022 reaching an estimat- increase in international commodity fare in Serbia. While Serbia’s economy ed 0.2 percent of GDP in the first half prices, drought, and breakdowns in op- is expected to continue to grow, con- of the year. Public debt remained broad- erations of EPS thermal power plants tributing to income growth for house- ly stable throughout 2022 and stood at in 2021/2022 have brought projected holds, rising inflation will limit pur- around 57 percent of GDP. growth downwards. Growth for 2022 is chasing power. Particularly, rising ener- The current account deficit (CAD) is now expected to reach 3.2 percent, still gy prices would disproportionately af- widening in 2022 (increase by 370 percent driven primarily by consumption. Fur- fect the poor. Poverty in 2022 is pro- in the first half of 2022 compared to the ther downward revisions are possible jected at 9.9 percent, slightly lower same period of 2021). The CAD reached depending on the performance of the than its 2021 level, though it could EUR 2.7 billion in the first half of 2022 energy sector and the impact of the be revised upward depending on the compared to EUR 0.6 billion in the same poor agriculture season. length and severity of the war’s eco- period of 2021 (or 4.4 percent of GDP Over the medium term, the economy nomic impacts. The pace of labor mar- in H1 2022 compared to 1.1 percent of is expected to grow steadily at around ket recovery remains critical for re- GDP in H1 2021).This deterioration, by 3 percent annually, supported by con- sumed poverty reduction. and large, was driven by a major increase sumption and investment. Foreign di- The outlook also crucially depends on in energy imports (of EUR 2.2 billion). rect investment is expected to continue the domestic reform agenda and its im- playing a key financing role as Serbia plementation. In particular, the ongoing continues to integrate into EU-centric crisis in the domestic energy sector manufacturing value chains. Inflation serves to highlight the importance of Outlook is expected to decline gradually as effective oversight and management of commodity prices normalize. The state-owned enterprises, as well as the The Serbian economy was expected banking sector is expected to remain risks to public finances associated with to continue to grow at around 4-4.5 resilient, although NPLs (at 3.3 percent contingent liabilities. TABLE 2 Serbia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 4.3 -0.9 7.4 3.2 2.7 2.8 Private Consumption 3.7 -1.9 7.6 4.6 4.1 3.7 Government Consumption 2.0 2.9 2.6 3.8 4.5 2.7 Gross Fixed Capital Investment 17.2 -1.9 12.5 5.0 2.8 4.4 Exports, Goods and Services 7.7 -4.2 19.4 8.0 5.0 5.0 Imports, Goods and Services 10.7 -3.6 19.3 9.0 6.2 5.8 Real GDP growth, at constant factor prices 4.4 -0.8 7.3 3.2 2.7 2.8 Agriculture -1.7 2.2 -5.4 -5.5 4.5 3.4 Industry 5.9 -0.6 7.8 1.0 4.5 4.5 Services 4.4 -1.2 8.7 5.3 1.6 1.9 Inflation (Consumer Price Index) 1.9 1.6 4.0 11.5 9.2 3.7 Current Account Balance (% of GDP) -6.9 -4.1 -4.4 -10.2 -9.4 -8.0 Net Foreign Direct Investment Inflow (% of GDP) 7.7 6.3 6.8 6.0 5.8 5.7 Fiscal Balance (% of GDP) -0.2 -8.0 -4.1 -4.0 -2.7 -1.7 Debt (% of GDP) 52.8 57.8 57.2 58.1 58.2 56.5 Primary Balance (% of GDP) 1.8 -6.0 -2.4 -2.3 -0.7 0.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 12.1 12.2 10.5 9.9 9.3 8.8 GHG emissions growth (mtCO2e) 0.6 -3.3 0.0 -0.5 3.1 2.7 Energy related GHG emissions (% of total) 74.1 73.5 73.4 73.4 74.1 74.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2014-EU-SILC and 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2014-2019) with pass-through = 0.6 based on GDP per capita in constant LCU. MPO 37 Oct 22 led by strong household consumption and private investment, whereas exports re- TAJIKISTAN Key conditions and mained flat. Strong remittance inflows proved to be the main driver of robust do- challenges mestic demand as a result of the increase in the number of labor migrants and a fa- Table 1 2021 Over the last decade (2011–21), Tajikistan vorable exchange rate (as the appreciation Population, million 9.8 experienced strong economic perfor- of the Russian Ruble increased the value GDP, current US$ billion 8.7 mance, with a growth rate averaging of remittances). Led by services and indus- GDP per capita, current US$ 897.1 above 7 percent. Growth has translated try, the economy reported a broad-based a 6.1 International poverty rate ($2.15) into improved living standards, with the expansion of output across sectors. a 25.7 poverty rate falling from 32 percent in The trade deficit widened to 26.7 percent Lower middle-income poverty rate ($3.65) a 66.4 2009 to an estimated 14.6 percent in 2021 of GDP in H1 this year compared with Upper middle-income poverty rate ($6.85) Gini index a 34.0 (at the international poverty line of $3.65 17.6 percent a year earlier. Strong de- School enrollment, primary (% gross) b 100.9 a day; 2017 PPP). Yet, Tajikistan remains mand for consumption and investment b 71.3 the poorest economy in the ECA region, goods drove imports. In contrast, global Life expectancy at birth, years with a GNI per capita of US$1,150 (Atlas price surges for minerals and strength- Total GHG emissions (mtCO2e) 19.7 method) in 2021. ening Russian demand for agricultural Source: WDI, Macro Poverty Outlook, and official data. With its young and fast-growing popu- products offset the 40 percent decline in a/ Most recent value (2015), 2017 PPPs. b/ Most recent WDI value (2020). lation, Tajikistan has enormous econom- export of precious metals (following sub- ic potential. To unlock key constraints, stantial inventory sales over the past two the government needs to expedite struc- years). Foreign private investment was tural reforms to strengthen the rule of about 25 percent higher y/y, albeit from law, increase public sector efficiency and a low base in 2021. External buffers re- transparency, and promote private sector main adequate at about 8 months of im- Contrary to earlier expectations, the development through a better investment port cover as of June 2022. economy grew by 7.4 percent year-on- climate, trade connectivity, access to fi- The sale of food reserves, the postpone- year (y/y) in the first half of 2022, despite nance, and competition framework, espe- ment of increases in utility tariffs, and the cially in the telecom, aviation, and energy limited depreciation of the somoni con- the war in Ukraine. Full-year GDP sectors. It will also be critical to enhance tained headline inflation at 8.3 percent growth is expected at 4.2 percent. This is environmental resilience and ensure suf- y/y ending in June. The somoni broadly expected to result in a reduction in ficient investment into human capital and followed the path of the ruble – i.e., ini- poverty. Medium-term growth prospects better protection for poor households. tially depreciating at the onset of the war will remain muted unless the government in Ukraine and later re-gaining value against major currencies. adopts substantive structural reforms. The authorities balanced the government Recent developments budget in the first half of the year. Vigor- ous domestic activity and import expan- Tajikistan's economy grew 7.4 percent year- sion led tax and non-tax receipts to ex- on-year (y/y) in the first half (H1) of 2022, ceed targets. The share of social sectors 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) 0.0 60 90 1000 80 900 -0.5 50 70 800 -1.0 700 40 60 600 -1.5 50 30 500 -2.0 40 400 20 30 300 -2.5 20 200 -3.0 10 10 100 0 0 -3.5 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Fiscal Balance (lhs) Public Debt (rhs) Upper middle-income pov. rate Real GDP pc Source: World Bank staff estimates and projections. Source: World Bank staff estimates. MPO 38 Oct 22 (education, healthcare, and social protec- by resilient remittances. After a slight de- The 2022 fiscal deficit is expected at 2.2 tion) in total budgetary spending re- cline in March, the share of households percent of GDP, subject to lower remit- mained at 40 percent. Aided by develop- receiving remittance income rebounded tances, weaker growth, and a ramp-up in ment partners, the authorities plan to in- sharply and stood at 16 percent by July. countercyclical expenditures in the year's crease social allocations sustainably to as- In July, the share of respondents to second half. To ensure the sustainability sist vulnerable households. In line with the "Listening-to-Tajikistan" (L2T) sur- of public finances, the authorities plan the long-term development strategy, pub- vey who self-classified themselves as to keep the medium-term fiscal deficit at lic investment was focused on energy and "poor" stood at around 42 percent (up around 2.5 percent of GDP. transport. At about 40 percent of GDP, from 39 percent in June), and the share External and domestic risks weigh on and in light of its low export earnings, of respondents assessing local economic the economic growth prospects. Geopo- Tajikistan's risk of external and overall conditions as "good" stood at 82 percent litical risks are elevated due to the on- public debt distress remains high. (nearly unchanged over the same period going war in Ukraine, the unresolved The liquidation of problem banks, Tajik- in 2021). Although L2T reported an border dispute with the Kyrgyz Repub- sodirotbank and Agroinvestbank, has overall improvement in food security in lic, and the uncertain political situation improved the banking sector indicators. H1 2022, most food insecurity (going a in neighboring Afghanistan. While inten- By June 2022, the share of non-per- whole day without eating; being hun- sifying sanctions on Russia could ham- forming loans in total loans declined gry but not eating; running out of food; per inward remittances, on the positive from 13.4 percent to 11.4 percent a year and eating less) remained concentrated side Tajikistan may be able to further in- ago, and the ratio of capital to risk- among low-income respondents. crease the export of agricultural products weighted assets, at 25.1 percent, was to Russia, and textiles, precious metals, more than double the minimum require- and minerals to other countries. ment of 12 percent. During the first 7 Domestic risks primarily relate to po- months of 2022, household wages and Outlook litical challenges in advancing private self-employment income declined, with sector reforms, promoting public sector the share of households receiving in- Economic performance is expected to transparency and accountability, and come declining from about 14 to 10 be stronger than initially anticipated addressing vulnerabilities in the social percent and those receiving self-employ- in 2022. Full-year GDP growth is ex- and environmental sectors. ment and agricultural income declining pected to be 4.2 percent. Inflation is Poverty is expected to fall from an es- from 12 to 7 percent, respectively. How- expected to remain in single digit for timated 14.6 percent in 2021 to 13.6 ever, this decline in income was mitigated the year as a whole. percent in 2022. TABLE 2 Tajikistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 7.4 4.4 9.2 4.2 4.8 4.5 Private Consumption 5.0 3.4 8.0 3.6 6.1 5.6 Government Consumption 0.7 2.3 7.1 2.0 3.3 4.4 Gross Fixed Capital Investment 8.9 -4.6 15.0 9.6 5.7 8.3 Exports, Goods and Services 21.5 21.8 35.0 -17.5 4.8 3.5 Imports, Goods and Services 6.4 -0.4 25.0 -9.0 6.0 4.5 Real GDP growth, at constant factor prices 8.7 4.3 9.0 4.2 4.8 4.5 Agriculture 7.1 8.8 6.6 3.5 3.0 3.0 Industry 13.6 9.7 22.0 4.5 4.0 4.0 Services 4.9 -4.0 -5.2 4.2 7.4 6.3 Inflation (Consumer Price Index) 8.0 8.6 9.0 8.5 8.2 7.8 Current Account Balance (% of GDP) -2.2 4.3 8.4 4.2 3.9 3.2 Net Foreign Direct Investment Inflow (% of GDP) -2.3 -0.4 -0.4 -1.0 -1.7 -2.3 Fiscal Balance (% of GDP) -2.3 -3.1 -1.4 -2.2 -2.3 -2.4 Debt (% of GDP) 43.1 50.3 42.9 41.9 41.3 39.9 Primary Balance (% of GDP) -1.4 -2.3 -0.5 -1.0 -1.1 -1.2 a,b International poverty rate ($2.15 in 2017 PPP) 4.0 3.7 2.8 2.7 2.5 2.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 17.5 16.4 14.6 13.6 12.8 12.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 56.8 55.5 51.1 49.8 48.4 46.5 GHG emissions growth (mtCO2e) 5.3 2.4 10.8 6.6 6.8 6.9 Energy related GHG emissions (% of total) 44.2 44.9 47.0 48.3 49.8 51.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2015-HSITAFIEN. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2015) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 39 Oct 22 The services sector led production side contributions to GDP growth. Although TÜRKIYE Key conditions and real interest rates remain deeply negative, private investment growth slowed due to challenges price and exchange rate uncertainty and a deteriorating outlook. The manufactur- Table 1 2021 The authorities continue to loosen mone- ing PMI has remained below the 50.0 Population, million 84.1 tary policy to stimulate the economy, cut- threshold since March, and economic con- GDP, current US$ billion 814.5 ting interest rates six times since Septem- fidence has deteriorated in the manufac- GDP per capita, current US$ 9679.1 ber 2021, while intervening in currency turing, service, and retail sectors. Despite a 0.4 International poverty rate ($2.15) markets and introducing regulatory mea- annual CPI inflation rising for the 15th a 2.2 sures to tackle macroeconomic instability. consecutive month to 80.2 percent in Au- Lower middle-income poverty rate ($3.65) a 12.6 While the economy grew 7.5 percent yoy gust, with food and non-alcoholic bever- Upper middle-income poverty rate ($6.85) Gini index a 41.9 in real terms in 2022H1, inflation climbed age prices rising even faster at 90.3 per- School enrollment, primary (% gross) b 97.1 to a 24-year high, the lira depreciated fur- cent, the central bank lowered the bench- b 77.9 ther, the current account deficit widened, mark interest rate to 13 percent in August Life expectancy at birth, years banks’ capital buffers declined, and real- and 12 percent in September after keep- Total GHG emissions (mtCO2e) 499.2 ized and contingent fiscal liabilities are ing it at 14 percent since December. Ac- Source: WDI, Macro Poverty Outlook, and official data. mounting from policy measures seeking to cording to the September Survey of Mar- a/ Most recent value (2019), 2017 PPPs. b/ Most recent WDI value (2020). dampen the impact of macroeconomic de- ket Participants, expected CPI in 12 and velopments on firms and households. The 24 months’ time remains high at 36.7 and impact of the Russia-Ukraine war has been 21.2 percent, respectively. Robust economic activity in the first half modest and largely felt through higher External pressures are mounting and ex- food and energy import costs that added ternal buffers remain low. The lira lost a of 2022 was driven by strong private-sec- inflationary pressure and widened the cur- third of its value this year after a sharp de- tor and export performance and loose rent account deficit, while financial inflows cline in 2021, and the nominal current ac- monetary policy despite soaring inflation, from Russia have reportedly increased. count deficit was 13 times higher in July a weakening currency, and a widening 2022 than in July 2021 on the back of high energy prices, putting further pressure on current account deficit. GDP growth is the currency. Gross foreign exchange re- expected to moderate to 4.7 percent in Recent developments serves remain low at US$113.7 billion 2022, with a risk investor confidence may (about 4 months of import coverage) in falter, intensifying pressure on the Lira Stronger than anticipated private con- early September and net reserves exclud- and corporate and bank balance sheets. sumption drove rapid growth in the first ing swaps between the central bank and half of the year as rising inflation expecta- other banks remain deeply negative. Cred- Despite a strong jobs recovery, post- tions fueled purchases of durables despite it risk premia, reflected in CDS spreads, Covid poverty rates are receding slowly inflation eroding real incomes. Merchan- surged to a 19-year high in July. as lower-income households’ budgets are dise export growth and tourism revenues Deteriorating conditions have elevated cor- hit by rising energy and food prices. remained robust, supported by a weaker porate and financial sector vulnerabilities. currency and resilient external demand. While financial regulatory measures helped 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 30 30000 15 25 25000 10 20 20000 5 15 15000 0 10 10000 -5 -10 5 5000 2019 2020 2021 2022 2023 2024 0 0 Private Consumption Government Spending Investment Exports 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 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 22 curb credit growth, and real credit growth recorded its highest level in nearly three and external demand weakens, at the is negative, nominal credit growth remains years, reaching 53.1 percent in July. The same time as government policies to high at 70.2 percent yoy in August. High gross wages/salaries index for formal em- stimulate the economy ahead of the market risk premia are keeping consumer ployees in the industry, construction, June 2023 elections continue. and commercial lending rates elevated, but trade and service sectors increased in Despite the labor market and economic re- measures introduced to penalize banks that line with CPI inflation in 2022Q2. covery in 2021, the poverty rate is project- lend at high rates brought down commer- Exchange rate depreciation and policies to ed to remain above pre-2019 levels due to cial lending rates to 21.0 percent (weighted mitigate the impact of inflation—including persistently high inflation. Inflation affects average) by early September. High-interest public wage increases, VAT cuts on food the lowest income households the most as margins and required holdings of inflation- and energy, and a deposit scheme that they spend a higher share of income on indexed government securities supported compensates holders for lira deprecia- items like food that face higher than aver- commercial bank profits, which grew over tion—have cost the government significant age inflation. Projections using an updat- 500 percent yoy in August. However, offi- fiscal resources. However, the central gov- ed upper-middle-income country poverty cial numbers show a gradual erosion of ernment fiscal deficit narrowed to 1.6 per- line of $6.85 per person per day (2017 PPP banks’ capital buffers to 18 percent in July, cent of GDP in 2022H1 as high inflation terms) estimate the poverty rate falling especially at state banks (16.1 percent in Ju- boosted nominal government revenues. from 11.7 percent in 2021 to 11.4 percent in ly), despite forbearance measures intro- Although debt levels remain moderate, the 2022 and 11.1 percent by 2024. duced during the Covid pandemic, due to share of FX-denominated central govern- External risks remain elevated given the FX depreciation. Banks increased holdings ment debt has risen to 68 percent, increas- growing current account deficit, high FX- of government securities to comply with re- ing vulnerability to FX shocks. share of public debt, low FX reserves, high cent regulatory requirements, which, in ad- external financing requirements, and con- dition to reserve holdings and currency tinued loosening amid tightening global swaps with the central bank, raise spillover liquidity. There is a risk investor confi- risks between the financial and fiscal sec- Outlook dence may falter, intensifying pressure on tors. Corporations have deleveraged, but the Lira, external balances, and corporate the magnitude of currency depreciation After expanding 11.4 percent in 2021, the and bank balance sheets. Any additional puts pressure on their balance sheets. economy is expected to grow 4.7 percent monetary policy loosening could exacer- Labor market recovery continued into in 2022 and 2.7 percent in 2023. Economic bate external and domestic imbalances and 2022. Employment increased by 1.5 million activity is expected to weaken in the financial stability concerns. Uncertainty (or 5.2 percent) between July 2021 and July second half of 2022 as macroeconomic around the duration of the Russia-Ukraine 2022, with female and youth (ages 15-24) volatility intensifies, inflation erodes the war, the Covid pandemic, and the path of employment expanding faster than aver- purchasing power of households that rising interest rates in advanced economies age. The labor force participation rate can no longer frontload consumption, further clouds the outlook. TABLE 2 Türkiye / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 0.8 1.9 11.4 4.7 2.7 4.0 Private Consumption 1.5 3.3 15.3 12.0 3.0 3.6 Government Consumption 3.8 2.5 2.6 3.2 4.0 2.4 Gross Fixed Capital Investment -12.5 7.4 7.4 -1.0 1.0 5.5 Exports, Goods and Services 4.2 -14.4 24.9 8.0 3.5 6.0 Imports, Goods and Services -5.0 6.7 2.4 4.0 4.5 7.5 Real GDP growth, at constant factor prices 0.9 1.2 11.9 4.7 2.7 4.0 Agriculture 3.3 5.7 -2.9 0.5 1.0 1.5 Industry -3.0 1.1 13.0 3.5 2.5 4.5 Services 2.5 0.8 13.1 5.7 3.0 4.0 Inflation (Consumer Price Index) 15.2 12.3 19.6 75.0 45.0 32.0 Current Account Balance (% of GDP) 0.7 -4.9 -1.7 -6.3 -4.9 -3.7 Net Foreign Direct Investment Inflow (% of GDP) 0.9 0.6 0.9 0.7 0.7 1.0 Fiscal Balance (% of GDP) -3.0 -3.9 -2.6 -3.8 -4.4 -3.0 Debt (% of GDP) 32.6 39.7 41.8 36.8 36.1 35.2 Primary Balance (% of GDP) -0.5 -1.1 0.0 -0.9 -0.5 0.7 a,b International poverty rate ($2.15 in 2017 PPP) 0.4 0.4 0.6 0.7 0.8 0.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.2 2.2 1.9 1.8 1.7 1.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 12.6 12.5 11.7 11.5 11.4 11.1 GHG emissions growth (mtCO2e) -2.3 -0.8 9.4 2.6 -0.5 1.5 Energy related GHG emissions (% of total) 80.5 79.4 80.0 79.6 79.1 78.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on ECAPOV harmonization, using 2011-HICES and 2019-HICES. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2011-2019) with pass-through = 1 based on GDP per capita in constant LCU. MPO 41 Oct 22 (US$2.2 bn) and the most critical recon- struction needs (US$3.4bn). UKRAINE Key conditions and Over the medium run, prospects for at- tracting additional external funding are challenges uncertain. Donors have committed US$16.7bn of support to Ukraine for Table 1 2021 After Ukraine regained control of Kyivs- 2H2022. These funds, if fully disbursed, GDP, current US$ billion 201.9 ka oblast in April, the active combat is lo- are sufficient to cover non-military fiscal a 7.1 Upper middle-income poverty rate ($6.85) calized mainly in the southern and east- needs only, with other expenditures to be a 25.6 Gini index ern parts. The war, however, still affects covered by monetization, which since the b 99.0 School enrollment, primary (% gross) about 20 percent of Ukraine’s territory. war started reached US$9.7bn in Septem- b 71.2 As of August, the government lost control ber. In case disbursements are delayed, Life expectancy at birth, years Total GHG emissions (mtCO2e) 192.8 over two oblasts (2.5 percent share in Ukraine faces a trade-off between contin- Source: WDI, Macro Poverty Outlook, and official data. GDP), while active fighting continued uing monetization or cutting social ex- a/ Most recent value (2020), 2017 PPPs. within three other oblasts (15 percent in penditures further. Both scenarios have b/ WDI for School enrollment (2014); Life expectancy GDP). 7mn people have become refugees, negative social impacts. (2020). and another 7mn displaced internally. With the war continuing, Ukraine is facing three key macro-critical challenges: high fiscal financing needs amidst the inability Recent developments to mobilize domestic revenues and in- The ongoing Russian invasion in creasing reliance on monetary financing; In Q2 2022, Ukraine’s GDP shrank by Ukraine continues to inflict substantial deteriorating asset quality in the financial 37.2 percent YoY, following an estimated sector; and a weaker external position. 45 percent contraction in March. After economic and social losses due to exten- Despite significant efforts to reduce fiscal the localization of the active combat in sive damages to productive assets and needs, their size remains large over the April, economic activity has shown signs infrastructure, limited market access, medium term. Expenditures have been of improvement, even though it remains and labor force dislocations. Since April, trimmed to the level of critical public much below the prewar level. Consumer services. Ukraine reached an agreement price inflation has accelerated rapidly, economic activity has started to gradually with external creditors (commercial and reaching 23.8 percent YoY in August, improve. Nevertheless, in the baseline majority of bilateral) for a debt payments with high food price inflation hurting scenario, Ukraine’s GDP is expected to deferral for two years. However, fiscal fi- families, particularly the poor. contract by 35 percent in 2022 if the nancing needs – consisting of the deficit The government has continued providing (excluding grants) and debt repayments essential public and social services amidst status quo continues until the end of the - are expected to grow from US$4bn per a significant drop in revenues. Real tax year without additional economic shocks. month in 1H22 to US$4.5bn per month revenues fell by 30 percent YoY during in 2H22 (US$2bn excluding military ex- March-June. Although non-essential pub- penditures). In addition, the government lic spending has been reduced to the min- could also face the costs of gas purchases imum, total expenditures have been grow- by Naftogaz for the heating season ing sharply by about 40 percent per month FIGURE 1 Ukraine / State budget general fund revenue, FIGURE 2 Ukraine / Actual and projected poverty rate and expenditure, and debt amortization in 2022 real GDP per capita US$ Billion Poverty rate (%) Real GDP per capita (constant LCU) 10 35 30000 30 25000 8 25 20000 6 20 15000 15 4 10000 10 2 5 5000 0 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Mar Apr May Jun Jul Aug Sep-f Oct-f Nov-f Dec-f Upper middle-income pov. rate Real GDP pc Revenues Excluding Grants Grants Expenditure Debt amortization Sources: MoF and World Bank estimates. Note: f = forecast Source: World Bank. Notes: see Table 2. MPO 42 Oct 22 in real terms. The resulting fiscal deficit banks’ capital position. The war may also The current account is expected to turn has been met by a combination of external impact the solvency position of nonbank- negative in 2022 at 0.5 percent of GDP funding and monetization. ing financial institutions. despite large grants accounted as a sec- The war generated immediate balance of ondary income. Exports are estimated to payments pressures. Exports fell precipi- decline around 30 percent YoY in 2022 tously as the Black Sea ports have been in nominal terms and around 60 per- completely closed until July. Despite re- Outlook cent in real terms with tepid recovery in sumption of agricultural exports via Black the medium term. Imports are to recover Sea ports under the UN-brokered deal, Even though the active combat is current- much faster than exports as restrictions their capacity is rather limited, while im- ly localized, the duration of the war is on imports have been lifted since July, ports have recovered fast starting in May. uncertain, and downside risks are high. while there is a need to purchase gas On the capital account, pressures have Our status quo scenario extrapolates es- and other energy resources. In this sta- emerged from the withdrawal of foreign timated economic activity in 3Q22 into tus quo scenario, the CAD will broaden exchange by Ukrainian refugees. Since the the medium term. Thus, assuming the gradually in the medium term due to an beginning of the war, the NBU has spent military and economic situation does not acceleration of imports and only a modest around US$12bn on currency interven- change substantially, GDP is expected to recovery of exports. tions. This has eroded international re- contract 35 percent in 2022 with a grad- The poverty and social impacts of the serves, which declined to US$ 22.4bn at the ual rebound of 3-4 percent in the medi- war will be massive. Under the baseline end of July from a prewar level of US$ um term. This scenario does not include scenario, the population share with in- 29bn. In August reserves improved to any potential upside effects of a large re- come below the national poverty line US$25.4bn thanks to donor support. construction activity as well as possible may reach nearly 60 percent in 2022, up As a result of the war, banks face height- downside risks related to a deterioration from 18 percent in 2021. Based on the ened operational, liquidity, credit, prof- of the security situation and/or energy global line of US$6.85 a day (2017PPP), itability and solvency risks. The recent fi- shortage during the winter season. Infla- poverty is projected to increase from 5.5 nancial stability report issued by the NBU tion is expected to accelerate to 30 percent percent in 2021 to 25 percent in 2022, estimates at least 20 percent losses of the by the year-end, and real wages to drop with high downside risks if the war and loan portfolio with significant impacts on by 10 percent YoY. energy security situations worsen. TABLE 2 Ukraine / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 3.2 -3.8 3.4 -35.0 3.3 4.1 Private Consumption 10.9 1.7 7.7 -28.0 10.0 10.0 Government Consumption -13.6 -0.7 1.8 16.7 5.0 3.0 Gross Fixed Capital Investment 11.7 -21.3 7.6 -80.0 20.0 30.0 Exports, Goods and Services 7.3 -5.8 -10.4 -60.0 40.0 35.0 Imports, Goods and Services 5.7 -6.4 12.7 -40.0 34.0 28.5 Inflation (Consumer Price Index) 4.1 5.0 10.0 30.0 20.0 15.0 Current Account Balance (% of GDP) -2.7 3.4 -1.1 -0.5 -4.3 -4.5 a Fiscal Balance (% of GDP) -2.1 -5.6 -4.0 -22.8 -18.6 -11.5 Debt (% of GDP) 50.2 60.4 50.7 66.8 a Primary Balance (% of GDP) 1.0 -2.7 -0.5 -19.9 -15.1 -10.3 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.1 7.1 5.5 25.4 23.3 GHG emissions growth (mtCO2e) -4.9 -10.2 -2.9 -35.1 -3.3 -1.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal Balance and Primary Balance are excluding grants in 2022-2024. b/ Calculations based on ECAPOV harmonization, using 2020-HLCS. c/ Projection using neutral distribution (2020) with pass-through = 1 (High (1)) for 2022 and 0.7 for 2023 based on GDP per capita in constant LCU. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. MPO 43 Oct 22 in industry and services. Investment (mostly in energy production, fertilizers, UZBEKISTAN Key conditions and and infrastructure) grew by 9.4 percent. The value of exports (in US$) grew by challenges 40.5 percent yoy, led by a more than doubling of gold exports. Non-gold ex- Table 1 2021 Uzbekistan has pursued an ambitious ports were 22.5 percent higher, driven Population, million 35.0 initial set of trade and price liberalization by natural gas, textiles, food, machinery, GDP, current US$ billion 69.2 reforms in recent years. However further transport, and tourism. Imports expand- GDP per capita, current US$ 1980.2 reforms are needed to continue to spur ed by 27.4 percent as prices of imported a 100.1 School enrollment, primary (% gross) productivity, private-sector-led growth, food and energy rose, as did domestic a 71.8 and job creation. The focus should shift demand. Food exports were 41 percent Life expectancy at birth, years Total GHG emissions (mtCO2e) 168.0 to addressing weak factor markets, high higher, machinery and equipment 29 per- Source: WDI, Macro Poverty Outlook, and official data. trade and transit costs, dominant state- cent, and service imports 65 percent, yoy. a/ Most recent WDI value (2020). owned enterprises, the weak regulatory Contrary to earlier expectations, remit- environment, and further strengthening tance inflows doubled as a share of GDP market incentives and sustainability in in H1 to 16.7 percent, due to favorable agriculture and across the economy. exchange rate movements with the Russ- The government recognizes the need ian Ruble, and more labor migrants go- for a more inclusive transition. Accord- ing abroad, mostly to Russia. These dri- ing to the new national poverty line, vers narrowed the current account deficit about 17 percent of the population was to just 1.4 percent of GDP in H1 2022, Despite the fallout from the war in in poverty in 2021. The recent reform compared to 4.8 percent in H1 2021. Ukraine, Uzbekistan is expected to grow efforts to expand the coverage and The fiscal deficit declined from 5 percent strengthen the targeting of social assis- of GDP in H1 2021 to 4.2 percent in by 5.3 percent in 2022. Fiscal consolida- tance will be key to supporting those H1 2022, supported by higher revenues tion is continuing albeit on a more that may otherwise fall behind. from gold exports. International reserves gradual trajectory given the need to increased by $1.5 billion in the year to cushion the impact of new shocks this July to $35.6 billion and remain ample, equivalent to 11 months of imports. year. The medium-term outlook remains Recent developments Higher costs of food, fuel, and logistics positive provided that the ambitious on- drove CPI inflation up to 12.3 percent in going economic reforms will continue to Despite the uncertain regional outlook, June 2022 (against 10.9 percent in June invigorate private sector-led growth. GDP grew by 5.4 percent in the first half 2021). In March-May 2022 the Som depre- (H1) of 2022, led by strong remittances, ciated by 7 percent against the US$. In re- exports, and investments. Real wages in- sponse to exchange rate pressures and an creased by more than 6 percent yoy in uncertain inflation outlook, the Central the second quarter.On the supply side, Bank (CBU) initially hiked the policy rate stronger growth in construction and by 300 bps to 17 percent. In June and July, agriculture partly offset slower growth the stabilization of the exchange rate, the FIGURE 1 Uzbekistan / GDP growth, inflation, and FIGURE 2 Uzbekistan / Poverty, GDP per capita, and small unemployment business development Percent GDP per capita, US$ Percent 20 2,500 70 GDP growth 17.5 CPI inflation 60 2,000 Unemployment rate 14.5 50 15 13.9 12.9 1,500 40 11.3 10.8 30 1,000 10 10.5 20 9.3 9.0 9.4 9.0 9.1 500 7.4 10 5.7 5 5.4 0 0 5.3 4.4 2017 2018 2019 2020 2021 1.9 Small business, % of GDP GDP per capita, US$, lhs 0 Total incomes of population per capita, US$, lhs 2017 2018 2019 2020 2021 2022e National poverty rate, % of population, rhs Source: Uzbekistan official statistics. Source: Uzbekistan official statistics. Note: The national poverty line is more am- bitious (67 percent higher) than LMIC poverty line. MPO 44 Oct 22 recovery of foreign exchange inflows, and in H1 2022, though still elevated among increases in response to pressure from ris- the growth of domestic deposits enabled youth and women, and in lagging regions. ing food price priorities and the impacts the CBU to cut the policy rate to 15 percent. of the war in Ukraine. Continued growth Decreasing capital buffers and more cau- and expanded social protection programs tious lending policies of banks following are expected to sustain poverty reduc- the war in Ukraine slowed credit growth Outlook tion, with the national poverty rate pro- to 14 percent in end-June 2022 yoy from jected to fall to 14.5 percent in 2023, and 23 percent the year earlier. Stricter capital Growth is expected to slow to 5.3 percent 12.2 percent in 2024. adequacy regulations and increased loan in 2022. Increased logistical challenges Nonetheless, expenditure consolidation loss provisions enacted in 2021, partly linked to sanctions on Russia are expected is expected to resume in future years, mitigated by stronger profits and recapi- to dent private consumption growth. Pri- supported by both revenue mobilization talization of a few state-owned banks, re- vate investment and exports are expected and spending efficiency. The govern- duced the banking sector’s total capital to grow strongly, and the current account ment is expected to continue adhering adequacy ratio (CAR) slightly, from 17.7 balance improve, as Uzbekistan benefits to its overall debt limits, with public percent at the end-H1 2021 to 17.0 percent from strong global commodity prices debt and total external debt gradually at the end-H1 2022, relative to a required (gold, copper, natural gas) and increasing falling to 32 and 55 percent of GDP, re- CAR of 13 percent. While the banking remittances. FDI is not expected to pick spectively, by end-2024. system remains resilient overall, a few up in 2022, with the trade deficit financed The risks to the outlook are tilted to the banks are in vulnerable positions, and largely by official borrowing. downside, including a prolonged war and several are in need of additional loan Higher revenues from commodity exports further sanctions on Russia, and tighter- loss provisions for non-performing loans and slower public investment spending than-expected global financial conditions. (NPLs). NPLs spiked from 2 percent in will see the fiscal deficit decline from 6.2 There is a risk from reform inertia in this end-2020 to 6.2 percent in August 2021, percent of GDP in 2021 to 4.4 percent in more complex phase of economic reforms, but gradually decreased since then to 4.9 2022, nevertheless higher than the 2022 that is compounded by the difficult inter- percent in H1 2022. budget target of 3 percent due to higher so- national environment. Potential positive Higher remittances contributed to an ex- cial protection, health, education, and in- surprises include higher global gold, nat- pected decline in the poverty rate of 1.25 frastructure spending. An anticipated fis- ural gas, and copper prices and stronger percentage points, to 15.7 percent in 2022. cal consolidation by 2023 is now expected productivity growth arising from ongoing The unemployment rate fell to 8.8 percent to be delayed as targeted social protection structural reforms. TABLE 2 Uzbekistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 5.7 1.9 7.4 5.3 4.9 5.1 Private Consumption 5.3 0.1 11.6 4.8 4.6 5.3 Government Consumption 5.7 1.4 3.4 8.1 1.6 6.6 Gross Fixed Capital Investment 38.1 -4.4 5.2 9.4 9.0 9.2 Exports, Goods and Services 16.2 -20.0 12.7 18.6 16.1 14.8 Imports, Goods and Services 13.3 -15.0 23.1 18.3 15.6 16.2 Real GDP growth, at constant factor prices 5.7 1.9 7.4 5.3 4.9 5.1 Agriculture 3.1 2.9 4.0 3.7 3.6 3.9 Industry 8.3 2.5 7.9 3.8 4.8 5.1 Services 5.6 0.9 9.2 7.3 5.7 5.8 Inflation (Consumer Price Index) 14.5 12.9 10.8 11.3 10.9 9.6 Current Account Balance (% of GDP) -5.8 -5.0 -7.0 -3.2 -3.9 -4.0 Net Foreign Direct Investment Inflow (% of GDP) 3.9 2.9 3.0 1.4 2.0 3.1 Fiscal Balance (% of GDP) -3.9 -4.4 -6.2 -4.4 -3.5 -3.0 Debt (% of GDP) 29.7 37.6 35.8 34.4 33.4 32.1 Primary Balance (% of GDP) -3.4 -3.3 -5.1 -3.4 -2.5 -2.0 a,b National poverty rate 22.8 17.0 15.7 14.5 13.4 GHG emissions growth (mtCO2e) 2.7 -6.2 -3.4 -1.1 -0.6 0.4 Energy related GHG emissions (% of total) 60.8 58.8 57.4 56.5 55.8 55.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Poverty lines are expressed in 2017 PPP, resulting in changes from earlier editions that used 2011 PPP. See pip.worldbank.org. a/ Calculations based on the Household Budget Survey of UzbeksitanActual data: 2018, 2019, 2021. Nowcast: 2022. Forecasts are from 2023 to 2024. b/ Projection using point to point elasticity at regional level with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 45 Oct 22 Macro Poverty Outlook 10 / 2022