World Bank2017-06-012017-06-012012-12https://hdl.handle.net/10986/26832After two years of fragile recovery from the global recession, as a group the six South East European countries (SEE6) Albania, Bosnia and Herzegovina (BIH), Kosovo, FYR Macedonia, Montenegro, and Serbia are experiencing a double-dip recession in 2012. Deteriorating external conditions, the impact of the severe winter on economic activity, and a continuing rise in unemployment early in the year took a toll on consumption, investments, and exports. In this fragile environment, Serbia, Albania, and Montenegro in particular will need to persevere in reducing fiscal deficits and bringing down debt, even as they must continue to improve the investment climate and reform labor markets and the public sector. In all SEE6 countries, public sector arrears pose special challenges to fiscal management and the private sector, and there are unfinished, structural reforms agendas. After two years of deep crisis, a sluggish recovery, rising unemployment and poverty, and a continuing recession even with the best efforts on fiscal consolidation and structural reforms, which must continue there is a danger that SEE6 countries are caught in a vicious circle that reinforces the cycle of long-term austerity, low if not negative growth, high debt, and even higher risks of social upheaval. To prevent this outcome, this report argues, SEE6 governments need to redouble their efforts to accelerate fiscal and structural reforms. These countries have largely exhausted their fiscal space and reduced public investment (except Kosovo, an outlier) to a fraction of what is needed to maintain public capital stock in critical infrastructure. Private investment is suppressed by the lack of productive, complementary public investments, slow credit recovery, and depressed domestic demand. External demand is minimal, and exports are not only too few, they are prevented from becoming an immediate, new engine of growth by infrastructure, finance, and other deficiencies. If such accelerated reforms materialize, external support well-coordinated and targeting the region as a whole, not just individual countries from the European Union (EU) and global international financial institutions (IFIs) could help ease the transition to a more sustained growth in medium term. In November 2012, the European Investment Bank, the European Bank for Reconstruction and Development, and the World Bank announced 30 billion in financing for Central and South East European countries over the next two years. In SEE6 countries, this timely initiative would likely be delivered via the Western Balkans Investment Framework (WBIF) and other IFI resources. Investment Promotion Agency (IPA) resources will also be important, especially in supporting institutional reform and rural development. By focusing on major infrastructure of regional significance (rail, highways, energy, and gas) and on jobs and small and medium enterprises, the efficiency of investments, growth, and employment could be substantially heightened. However, additional financing for growth and jobs could prove effective only if accompanied by intensified fiscal and structural reforms, especially in the areas of investment climate, labor markets, and governance.en-USCC BY 3.0 IGOACCESS TO MARKETSAGRICULTURAL ACTIVITIESAGRICULTURAL OUTPUTAGRICULTURAL PRODUCTIONARREARSASSET QUALITYAUCTIONSBAILIFFBANK LENDINGBANK LINKAGESBANK LOANBANKING SYSTEMSBANKRUPTCYBASIS POINTSBENEFIT ANALYSISBIDSBINDING CONSTRAINTBONDBOND SPREADSBORROWING COSTSBUDGET CONSTRAINTSBUDGETINGBUSINESS CONFIDENCECAPITAL ADEQUACYCAPITAL FLOWSCAPITAL STOCKCAPITALIZATIONCARBONCASH FLOWCENTRAL BANKCHEMICAL INDUSTRYCLIMATE CHANGECOALCOMMERCIAL REGISTRYCOMMODITY PRICESCOMPETITIVE TENDERSCONFIDENCE OF LENDERSCONTINGENT LIABILITIESCOUNTRY RISKSCPICREDIT CRUNCHCREDIT DEFAULTCREDIT DEFAULT SWAPCREDIT GROWTHCREDIT INFORMATIONCREDIT LINECREDIT MARKETCREDITWORTHINESSCURRENCY MISMATCHESCURRENT ACCOUNTCURRENT ACCOUNT DEFICITSDEBT LEVELSDEBT RESTRUCTURINGDEFICITSDEPOSITDEPOSIT INSURANCEDEPOSITORDEVELOPING COUNTRIESDIVERSIFICATIONDOMESTIC CREDITEARNINGSECONOMIC ACTIVITYECONOMIC CLIMATEECONOMIC CRISISECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC OPPORTUNITIESECONOMIC SITUATIONECONOMISTSEDUCATION SYSTEMSELECTRICITY GENERATIONEMERGING MARKETSEMPLOYEREMPLOYMENT OPPORTUNITIESENERGY CONSUMPTIONENERGY EFFICIENCYENFORCEMENT OF CONTRACTSENVIRONMENTALENVIRONMENTAL PROTECTIONEQUALITYEQUITY ISSUESEQUITY MARKETSETHNIC GROUPSETHNIC MINORITIESEXPENDITUREEXPORT GROWTHEXPORT PERFORMANCEEXTERNAL BORROWINGEXTERNAL DEBTEXTERNAL SHOCKSFINANCIAL GLOBALIZATIONFINANCIAL INTERMEDIATIONFINANCIAL MARKETFINANCIAL MARKETS DEVELOPMENTSFINANCIAL OPENNESSFINANCIAL RESOURCESFINANCIAL SAFETYFINANCIAL SERVICESFINANCIAL SYSTEMFINANCING REQUIREMENTSFISCAL DEFICITFISCAL DEFICITSFISCAL POLICYFLOATING EXCHANGE RATEFOREIGN BANKSFOREIGN CAPITALFOREIGN CURRENCYFOREIGN CURRENCY DEBTFOREIGN CURRENCY LOANSFOREIGN DIRECT INVESTMENTFOREIGN INVESTMENTSFOREIGN INVESTORSGLOBAL ECONOMYGLOBALIZATIONGOVERNMENT BUDGETSGOVERNMENT REVENUESGRACE PERIODHIGH UNEMPLOYMENTHOUSEHOLDSHUMAN CAPITALINCOME TAXINEQUALITIESINFLATIONINSTITUTIONAL REFORMINSURANCEINTERNATIONAL BONDINTERNATIONAL BOND ISSUESINTERNATIONAL FINANCIAL INSTITUTIONSINTERNATIONAL FINANCIAL MARKETSINVENTORYINVESTMENT BANKINVESTMENT CLIMATEINVESTMENT FUNDSINVESTMENT RATESINVESTOR PROTECTIONSJOB CREATIONLABOR FORCELABOR FORCE PARTICIPATIONLABOR FORCE SURVEYLABOR MARKETLABOR MOBILITYLEGAL ENVIRONMENTLEGAL FRAMEWORKLENDERSLIMITED ACCESSLIQUIDITYLIVING STANDARDSLOANLOAN MARKETSLOAN QUALITYLOAN-TO-DEPOSIT RATIOSLOSS OF CONFIDENCEMACROECONOMIC CONDITIONSMACROECONOMIC STABILITYMARKET CONFIDENCEMARKET DISTORTIONSMETALSMINIMUM CAPITAL REQUIREMENTMINIMUM WAGENONPAYMENTNONPERFORMING LOANSOILOIL PRICESPAYMENT OBLIGATIONSPENSIONSPERSONAL INCOMEPOLITICAL STABILITYPRICE CHANGESPRICE VOLATILITYPRIVATE INVESTMENTPRIVATE INVESTORSPRIVATIZATIONPUBLIC DEBTPUBLIC FINANCESPUBLIC INVESTMENTPUBLIC SPENDINGREAL WAGESRECESSIONREGISTRATION FEEREGULATORY BARRIERSREMITTANCESREPAYMENTRESERVESRETURNRETURN ON ASSETSRISK MANAGEMENTRULE OF LAWSAFETY NETSAVINGSSHAREHOLDERSOCIAL SECURITYSOVEREIGN DEBTSOVEREIGN RATINGSTATE GUARANTEESSTOCKSSTRUCTURAL UNEMPLOYMENTTAXTAX COLLECTIONSTAX TREATMENTTRADE BALANCETRADINGTRANSACTIONTREASURYUNEMPLOYMENTUNEMPLOYMENT RATESWAGESReportWorld Bank10.1596/26832