Publications

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    ABSTRACT: URL: http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2014/04/01/000158349_20140401135537/Rendered/PDF/WPS6828.pdf The principal focus in the substantial literature on impediments to economic development has been on the inadequacies of policies and governance. However, successful economic development requires effectiveness of markets and incentives for investment, which in turn require trust. This paper reports on trust in a development context. The paper uses trust experiments, a post-experiment survey, and econometric analysis relating trust to identity and other personal attributes in the setting of Montenegro, a small, recently-independent, post-socialist, post-crisis society. External validity was sought by providing sufficient material reward to balance identity-related expressive motives and by having two groups of subjects, one usual university students and another group that, while also students, was somewhat older and had had greater market or commercial experience. The paper reviews cultural priors that can be expected to affect trust and distinguishes between generalized trust that can be socially beneficial and particularized trust that can be disadvantageous for development. The empirical results suggest that trust among private individuals is not an impediment to development in Montenegro. As a result, policy reform can improve economic and social outcomes. However, the results redirect the focus to issues of governance and political entrenchment as potential explanations for impediments to development.
    04/2014; World Bank Policy Research Paper Series(No. 6828):58.
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    ABSTRACT: Recent economic developments The South East Europe (SEE6) region exited from recession in the first half of 2013, supported by a nascent recovery in the Euro area. Industry––especially manufacturing exports and energy––drove the recovery. The region experienced a welcome surge in exports in 2013, particularly car exports from Serbia. Favorable weather conditions supported a strong contribution of agricultural output to economic growth and helped weaken inflationary pressures. However, domestic demand remained depressed in most of the region, reflecting high unemployment, sluggish growth of household incomes and credit, and a difficult investment climate. Only in Kosovo and FYR Macedonia did public investment contribute to some strengthening of domestic demand. Beyond these short-term factors, a slowdown in productivity growth and rising unit labor costs adversely affected economic growth, lowering competitiveness and demand for labor. Unemployment in the region, at about 24 percent on average , began to decline in the first half of 2013 from its peak crisis levels. While employment grew in Albania, FYR Macedonia and Montenegro, it remained depressed in Serbia and Bosnia and Herzegovina. But even where employment has recovered meaningfully since 2010, the gains were not broad-based and mostly concentrated in services Near-term economic growth will be too weak to support substantial gains in employment. As export performance strengthened and imports declined, current account balances narrowed. The gradual recovery in the Euro Area helped the combined (weighted average) goods exports of SEE6 to grow by close to 13 percent (year-on-year), making a strong positive contribution to overall economic growth. Export growth picked up everywhere, propelled by new foreign direct investment (FDI)-based export capacity. However, the sustainability of this high export growth is uncertain in view of the region’s narrow export base and competitiveness issues. Weak domestic demand depressed imports in all countries but Serbia, where their rise was led by raw materials and parts used in export-oriented industries. FDI remained sluggish in SEE6, rising only by 0.7 percent of gross domestic product (GDP), but its share of financing of the current account increased. Remittances continued to be resilient overall, but the Greek crisis began to take its toll, especially on Albania. Foreign banks’ deleveraging from SEE6, rising non-performing loans (NPLs) and weak credit growth underpinned the need for vigorous reforms to reduce vulnerabilities in the financial sector. European banks continued to deleverage and reduced their exposure to the SEE6 region. With the aim of improving their resilience and supervisory capacity, the SEE6 countries made some progress in implementing banking reforms over the past year. Banks remained well-capitalized with actual capital-adequacy ratios above the regulators’ requirements in all six countries. Liquidity was high at 25-35 percent of total assets. However, NPLs reached worrisome levels at above 20 percent of total loans in Albania and Serbia and about 18 percent in Montenegro. Their rise stemmed from the sluggish state of the economy, weak insolvency regimes and widespread payment indiscipline in the private sector, exacerbated by public sector arrears to businesses in some of the SEE6 countries. In this environment, despite ample liquidity and cuts in policy rates, banks remained reluctant to extend new loans. As a result, credit growth slowed in most SEE6 countries. Fiscal deficits remained high and public debt increased in 2013. The SEE6 average fiscal deficit is expected to remain at elevated levels at 4.2 percent of GDP in 2013 (compared to 4.1 percent of GDP in 2012). Structural rigidities in public expenditures, the weak tax base, and depressed fiscal revenues contributed to this outcome. Despite some fiscal consolidation efforts, the SEE6 governments did not address key rigidities such as the high public sector wage bill (averaging over 9 percent of GDP) and the poorly targeted social transfers (at 12.5percent of GDP on average). As a result, the pace of the fiscal adjustment remained insufficient to reverse the adverse debt dynamics in some countries. Average public debt increased in SEE6 and is expected to reach 45 percent of GDP by end-2013, from 42 percent a year earlier. Public debt remained at above 60 percent of GDP in Albania, Montenegro, and Serbia. Economic Growth Rates, 2012-2014 2012 2013f 2014f Albania 1.6 1.3 2.1 Bosnia and Herzegovina -1.1 0.8 2.0 Kosovo 2.7 3.0 4.0 FYR Macedonia -0.4 2.5 3.0 Montenegro -2.5 1.8 2.5 Serbia -1.7 2.0 1.0 SEE6* -0.7 1.8 1.8 Memo item: Euro Area -0.6 -0.4 1.1 Source: World Bank staff projections. Note: Weighted average Growth Outlook and Risks With depressed demand, uncertain export prospects, and significant external risks, the SEE6 short-term outlook remains frail. After the bounce-back of the regional economy in the first half of 2013 and taking into account the latest high-frequency data, economic growth for the year is expected be around 1.8 percent by the end of the year. Net exports will continue to drive growth in SEE6 in the short-term. However, given the limited export base of the SEE6 economies and the uncertain new FDI-driven export capacity, sustained export-led recovery is by no means assured. Much depends on a lasting recovery of external demand. In contrast, unfavorable labor market conditions, a poor investment climate, and difficult credit conditions that depress consumption and investment will keep a lid on the overall economic activity. Therefore, weighted real GDP of the SEE6 region is now expected to grow 1.8 percent in 2014, about one percentage point less than the earlier, mid-2013 estimate. The slowdown is driven by the Serbian economy, which is now expected to expand by only 1 percent in 2014 (compared to a 2 percent mid-2013 estimate) because of the planned fiscal consolidation and declining private consumption. In contrast to Serbia, economic growth in the other five SEE countries is expected to firm up in 2014 and exceed the pace of economic expansion of 2013. Risks to the SEE6 near-term outlook are on the downside. Main external risks relate to the pace of the increase in global interest rates and sovereign borrowing costs arising from a possible tapering of quantitative easing in the U.S.; the Euro Area recovery; and deleveraging and the potential exit of parent banks from the SEE6 countries. Internal risks relate to “reform fatigue” that may delay policy implementation, and daunting fiscal and debt challenges in several countries. Also, slow resolution of NPLs, arrears accumulation in some countries, and depressed credit growth could further dampen prospects for growth. Beyond this difficult short-term horizon, how can SEE6 raise their longer-term growth prospects? While maintaining macroeconomic stability remains a top policy priority, structural reforms will have to be pursued with vigor. The nascent export-led growth of 2013 is a positive development, but sustaining it will be a challenge. In addition to the need to improve their fiscal positions, reduce public debts, and strengthen banking systems, SEE6 face significant structural challenges in improving productivity and competitiveness, including in the areas of the investment climate, the labor market, and the public sector. Overcoming these challenges is possible. A similar structural transformation challenge has been successfully met by the Baltics, Poland, the Czech Republic, and Slovakia, among other countries. They began their transition two decades ago under unfavorable conditions and now enjoy dynamic, open, and export-oriented economies with large FDI and associated transfer of technology and know-how. With the recent progress of candidate countries Montenegro and Serbia, and the agreement between Serbia and Kosovo presaging greater stability and security, the perception of the regional investor risk may decline gradually over time. Croatia’s accession to the European Union (EU), the opening of the accession process of Serbia, and the progress made by Montenegro, as well as recent political changes in the region, may provide a renewed impetus for reforms. The time to use that opportunity is now.
    December 9, 2013 edited by Gallina Vincellete, Zeljko Bogetic, Abebe Adugna, 12/2013; World Bank.
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    Zeljko Bogetic
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    ABSTRACT: This report focuses on the impact of demographic change on public services and public finance. It identifies the main channels, the risks and the challenges the government is likely to face. It discusses the implications of different policy options and identifies reform opportunities. It starts by describing Bulgaria’s demographic transformation and how it is likely to affect economic behavior and macro-economic outcomes (Chapter I). Labor-market and education policies are important to stem the decline in the labor force and support productivity growth. They are discussed in Chapter II and III, respectively. Improving Bulgaria’s health-care system, analyzed in Chapter IV, will be essential to address the health care demands of an aging population in a sustainable and equitable manner. How to meet the long-term care needs of an aging population will be discussed in Chapter V. The state of Bulgaria’s pension system and options for reform are outlined in Chapter VI. The sector analysis of the preceding chapters will be combined in a coherent macro-model to simulate the impact of demographic change on growth under different scenarios and shocks in Chapter VII.
    edited by Doerte Domeland, 08/2013; World Bank, Washington D.C..
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    Zeljko Bogetic, Olasupo Olusi
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    ABSTRACT: This paper presents the results of an empirical analysis of firm-level productivity growth in Russia’s manufacturing sector during the period 2003-08 using a rich Amadeus database as well as the 2004 and 2008 EBRD/World Bank Business Enterprise and Performance surveys (BEEPs). The results show that productivity grew steadily between 2003 and 2008, with an annual growth rate averaging 4 percent over the period, showing no signs of a slowdown from the previous period after the 1998 crisis. Firm characteristics such as size, location, age, and the structure of firm ownership are important determinants of productivity, as evidenced by positive effects of scale economies (large firm effect), agglomeration (Moscow-city effect), private ownership, and a firm’s industry dominance. Supplemental analysis of the quality of infrastructure–water, electricity, transport, and the internet–using BEEPS data show that infrastructure quality gaps reduce firm productivity with water supply gaps having the largest impact.
    World Bank Policy Research Paper Series No. 6572. 08/2013;
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    Zeljko Bogetic, Atsede Aemro-Selassie
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    ABSTRACT: After the double-dip recession, as a group the six South East European countries (SEE6)––Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia––are now making a fragile recovery. Last year the recession in the Eurozone had adverse impact on external demand and foreign direct investment (FDI) in SEE6 and the severe winter and a summer drought crippled agriculture and affected trade, energy, and economic activity overall. Now, output is beginning to bounce back. Exports are recovering in Serbia, the largest SEE6 economy; weather conditions are much improved; and in some countries dynamism is revving up in electricity, tourism, and related sectors. However, the recovery in SEE6 is still tentative. In some countries nonperforming loans, sluggish credit recovery, continued deleveraging, and fiscal consolidation are exerting a drag—and recovery in SEE6 is unlikely to accelerate as long as the Eurozone remains in recession. Although global economic and financial conditions have continued to improve, the Eurozone is expected to be in recession in 2013 (at –0.6 percent growth). Global GDP is now projected to expand by 2.2 percent in 2013, 3.0 percent in 2014, and 3.3 percent in 2015. While growth in high-income countries will be a feeble 1.2 percent in 2013 (slowly rising to 2.0 in 2014 and 2.3 percent in 2015), growth in low- and middle-income countries will be 5.1 percent in 2013, accelerating slowly to 5.6 percent in 2014, and 5.7 percent in 2015. Gross capital flows to low- and middle-income countries are 60 percent higher than what they were a year ago—pointing to an end to the most serious effects of Eurozone deleveraging on those countries, including the SEE6 economies. Within this context, the SEE6 region is projected to grow 1.7 percent in 2013, signaling the end of the 2012 double-dip recession. Even though growth will in general be fragile, it will be on the upswing in all six countries. Kosovo again is expected to have the highest growth (3.1 percent), thanks to major public investments and a significant inflow of remittances. Next in the growth line is Serbia, at a projected 2 percent, in part reflecting the base effect from last year’s recession. Since Serbia accounts for 45 percent of the region’s economy, growth there is crucial to the region’s performance. Serbia is expected to benefit from increased FDI, solid performance from FIAT, and a return to normal agricultural output, which dropped nearly 20 percent in 2012; and as investors become more confident based on possible opening of EU accession negotiations later in the year, more FDI can be expected. Albania is projected to grow at about 1.6 percent, as it did last year, supported by a steady export performance. FYR Macedonia’s economic growth is expected to be moderate and will come mostly from FDI exports and public investments. Modest growth is expected in Montenegro partly because electricity and agriculture are recovering but mainly because tourism is surging ahead. In Bosnia and Herzegovina growth is likely to be tepid this year; the projection is just 0.5 percent. Unfortunately, numerous issues related to the BIH business environment will continue to constrain FDI flows there, as well as the prospects for expansion of domestic businesses. Against the backdrop of this tentative and fragile recovery, SEE6 countries should, as argued in the last report, intensify their efforts to reform structural areas. Fiscal consolidation efforts should become easier now that the output and revenue outlook is improving. The investment climate needs to be improved substantially, especially in the main areas of weaknesses: construction permits and licenses, barriers to entrepreneurship, and skills and infrastructure. Its neighbors could learn from FYR Macedonia, which continues to have the most favorable investment climate in the region as measured by the Doing Business indicators. ii One of the main worries in this nascent recovery is that SEE6 economies are plagued by high unemployment, especially youth unemployment, and they are not creating jobs fast enough to absorb new entrants into the labor force. In fact, the jobs situation is worse than the dismal unemployment figures suggest because so many leave the region to work elsewhere. In part, this is the legacy of periods when some SEE6 countries suffered significantly from regional dislocations that delayed reforms. Emigration continues as the current environment for doing business exacerbates the difficult labor market conditions. What SEE6 countries now need to do is to sustain the fragile recovery and push for job creation. This will require aggressive job-oriented policies. Recent World Bank research on jobs in low- and middle-income countries in Europe and Central Asia suggests that the policy agenda for job creation would best be targeted to four areas: fostering entrepreneurship, improving skills, managing internal and international mobility, and reducing institutional disincentives to job creation. Accelerating reforms in these areas is imperative if there is to be hope for more, better, and more diverse jobs in SEE6 countries.
    World Bank. 06/2013;
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    ABSTRACT: This paper provides an analysis of the export potential and export diversification of Montenegro. Based on this analysis as well as a review of international experience and field discussions, the paper also provides policy recommendations for exploiting its considerable export potential and engendering export diversification. The Product Space (PS) methodology is used to identify prospective comparative advantage by making inferences from the revealed pattern of trade. The indicated products in which Product Space methodology points to export potential have links to information available to entrepreneurs and producers that can be expected to be reflected in private investment decisions and decisions regarding entry into export markets. The analysis shows that Montenegro currently has a limited and highly concentrated export base but it is also in the middle of a major transformation towards a much more tourism and services based economy. The policy challenge is how to foster this process to fully tap into its potential for exports and diversification. Exports allow entrepreneurs and producers in small economies to expand beyond the limitations of the domestic market size. Successful export potential has been realized in other countries through openness in international trade and allowing the private sector to judge profitable opportunities. Thanks to its superior geographic location, adequate human capital and infrastructure base, and natural resources, Montenegro has been found to possess substantial export potential, which could turn into its major growth engine. To convert this potential into success, Montenegro will need to rebalance the role of government policy and improve local incentives towards entrepreneurship and exports. The important policy role of government in Montenegro is to correct mismatches between educational preferences of students and the human-capital requirements for export success. The other important role of government is to foster greater infrastructure connectivity (especially via air, rail and roads, but also the greater use opportunities offered by sea trade and port logistics services). The government also should maintain and promote an open trading regime and flexible, neutral regulatory environment. Finally, the government should avoid subsidizing particular firms or sectors at the expense of taxpayers or other firms or sectors. This would likely distort incentives and channel local private and public resources into rent-seeking as opposed to efforts to improve skills, products, and productivity.
    Journal of Central Banking Theory and Practice. 05/2013; 2(1):19-34.
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    Zeljko Bogetic
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    ABSTRACT: This note discusses the external environment, economic outlook, and key policy challenges for the six South East European Countries (SEE6)—Albania, Bosnia and Herzegovina (BIH), Kosovo, the former Yugoslav Republic (FYR) of Macedonia, Montenegro, and Serbia—as they seek to reignite economic recovery. After two years of fragile recovery from the global recession, as a group, SEE6 countries experienced 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. The rise in unemployment continues to threaten the social fabric. Credit recovery and fiscal consolidation are under threat. Nonperforming loans (NPLs)—thought to be stabilizing only a few months ago—are again on the rise. As a result, both within and outside the region, the environment has become much more difficult to navigate, and the policy trade-offs necessary to stabilize economies and reignite growth have become more difficult to make. To overcome these challenges, SEE6 countries need more intensive policy reform to reduce public debt and accelerate structural reforms, especially in fiscal consolidation and the financial sector, labor markets, and business environment. Additional external financing from international financial institutions (IFIs) for growth and jobs could prove effective, but only if accompanied by intensified fiscal and structural reforms.
    Economic Premise, World Bank. 01/2013;
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    ABSTRACT: 1. This report is intended to provide analytical support to the Government of Montenegro and inform its development strategy as it embarks on the next stage of the EU integration process. It provides answers to specific questions of importance for charting Montenegro’s macroeconomic and structural policies for the years ahead. For example, what have been the relative roles of different growth drivers, and how will they need to change in the new international environment? How can fiscal policy help ensure sustainability? What challenges must financial sector reforms overcome to ensure robust credit recovery? How can Montenegro best go about becoming better connected to world markets? Do exports have potential to be a new driver of growth and diversification? How can Montenegro better connect, internally and externally, to unlock productivity gains based on competitive advantages? What regulatory, investment climate, and institutional reforms will be needed to support more sustainable future growth? This executive summary provides an overview of the main conclusions and the resulting broad policy agenda; detailed analysis can be found in the chapters devoted to the three building blocks of the future growth model for Montenegro: sustainability, connectivity, and flexibility. 2. Montenegro has made major progress in recent years in increasing per capita income and reducing poverty, advancing structural reforms, and preparing for EU membership, which is the government’s main objective. Since 2003 Montenegro has trebled its gross national income per capita (World Bank Atlas method), from $2,400 to $7,160 in 2012. It now has the highest per capita income among the six South East European countries. The national poverty headcount fell from 11.3 percent in 2005 to 6.6 percent in 2010, the last year for which official data are available, and it still has less inequality of income (Gini coefficient 24.3) than the average for Europe and the Central Asian countries (31.9). Structural reforms in the public sector, the financial sector, and the investment climate have helped it advance on many comparative metrics, such as World Bank governance indicators, financial sector soundness measures, and Doing Business indicators. In 2011 Montenegro became the member of the World Trade Organization (WTO) and in June 2012 it entered into formal negotiations on accession to EU membership. 3. Yet despite considerable progress, the global crisis has exposed Montenegro’s vulnerabilities and called into question the sustainability of its growth pattern. The period 2006-08 in the immediate aftermath of independence was characterized by unsustainably large inflows of foreign direct investments (FDI) and inexpensive capital, which fueled a domestic credit consumption boom and a real estate bubble. With the economy overheated and growing at 7 percent, the bubble burst late in 2008. In 2009 real GDP shrank by almost 6 percent, triggering a painful deleveraging and a difficult recovery that is not yet complete. As a result, growth in 2010–11 averaged only 2.9 percent and for 2012 is only half a percent, and unemployment is very high at almost 20 percent. Moreover, the base for Montenegro’s growth is narrow. It has relied on factor accumulation rather than productivity, and exports are concentrated in a handful of metal products with little value added. As a result, with the “new normal” international environment of more limited capital inflows and slow credit recovery, with unemployment high and consumer debt suppressing consumption, and with external demand sluggish, it has become clear that the old pattern cannot deliver the growth performance seen a few years ago. 4. What kind of growth model could drive Montenegro’s next stage of development in what is bound to be a much more competitive international environment? This report addresses this question using an eclectic approach to analyzing Montenegro’s growth constraints that combines several analytical approaches, such as growth accounting, sectoral analyses, and institutional and microeconomic analyses using firm and household surveys. This growth analytics approach recognizes that no single method of analyzing growth constraints is likely to provide comprehensive answers to the main growth questions. The report provides insights into growth-oriented fiscal and financial sector policies, exports, investment climate, and infrastructure policies that have the potential to improve growth prospects and prepare Montenegro for the next stage of prosperity. The overarching approach is to analyze macrofinancial as well as structural constraints and bottlenecks to growth and use the analysis as a basis for formulating actionable policy recommendations that will help Montenegro better prepare for the next stage of prosperity. Specifically, the report emphasizes the critical role of fiscal and financial sector sustainability in ensuring the macroeconomic stability and sustainability that are fundamental to long-term growth. At the same time, it recognizes the importance of Montenegro’s connectivity––via trade, infrastructure (physical and informational), and human capital––with world markets, and of regulatory and institutional flexibility for improving Montenegro’s long-term growth.
    World Bank, Washington D.C. edited by Zeljko Bogetic, 12/2012; World Bank.
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    ABSTRACT: After 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. The risks noted in the June report have materialized. Credit recovery and fiscal consolidation are under threat. Nonperforming loans (NPLs)––thought to be stabilizing only a few months ago––are again on the rise. As a result, both within and outside the region the environment has become much more difficult to navigate, and the policy trade-offs necessary to stabilize economies and reignite growth are tougher. After growing by about 2 percent annually in 2010–11, the combined real GDP of SEE6 will shrink –0.6 percent in 2012, with real output in Serbia declining by as much as 2 percent. Also, it is now clear that even in the best of circumstances, the road to sustained recovery will be arduous: growth in 2013 is now expected to average 1.6 percent and the risks may be formidable. Among the clouds on the horizon for 2013 are the global impact of the U.S. “fiscal cliff,” the uncertain recovery of the Eurozone, and high commodity prices—risks to which all the SEE6 countries are highly vulnerable. Also worrisome for its households is the risk of a new food price shock, which could exacerbate poverty and put pressure on the middle class.
    The World Bank. 12/2012;
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    ABSTRACT: After they achieved 2.2 percent growth in 2011, early indications are that the economies of the six countries in South East Europe (the SEE6: Albania, Bosnia and Herzegovina (BIH), Kosovo, FYR Macedonia, Montenegro, and Serbia) are slowing drastically and can expect at best 1.1 percent growth in 2012. Economic conditions in the Eurozone are holding back economic activity and depressing government revenues in SEE6 countries. With both public debt and financing pressures high, most countries in the region need to embark on major fiscal consolidation programs if they are to reverse their adverse debt dynamics and avoid financing problems down the road. The good news is that in general the SEE6 financial sectors are still relatively well placed, despite elevated risks and vulnerability to adverse shocks, especially the possibility of contagion if the Greek crisis should intensify. In SEE6, levels of non-performing loans (NPL), though high, seem at least to be stabilizing, capital buffers and provisioning look solid, and liquidity is adequate in most of the region. But given the significant risks in the Eurozone associated with the Greek crisis, it cannot be overemphasized that the authorities must continue to demand that banks build up their buffers to make the sector more resilient. The bad news is social: SEE6 countries have the highest unemployment and poverty rates in Europe. Moreover, what growth there was during the nascent recovery in 2010-11 was largely jobless. At about 23 percent, the average unemployment rate in SEE6 is more than twice the Western Europe average, and is highly concentrated among youth and long-term unemployed, with devastating impact on human capital. Pre-crisis poverty reduction gains are being reversed, and after large shocks and depleted household buffers and savings, the middle class has become more vulnerable. With growth prospects much more moderate than before the crisis and with social pressures high, it is urgent that SEE6 country governments adopt a more ambitious structural reform agenda for growth and jobs. Yet even with the difficult short-term situation, SEE6 countries now have historic opportunity to board the European “convergence train” and over the long term reduce their per capita income gap with developed European Union countries. All earlier entrants were able to “catch up quickly.” In principle, the same “convergence train” is now pulling into the EU candidate countries in SEE6; but these gains are not automatic, they will materialize only if country policies and reforms facilitate them. The long-term SEE6 structural reform agenda must leverage greater trade and financial integration and reform labor markets and the public sector.
    World Bank. 06/2012;
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    ABSTRACT: The risks to the global economy are growing and so are risks to Russia’s growth. Russia’s short-term economic and fiscal situation remains favorable because of high oil prices with an almost balanced budget this year. But the balance of macroeconomic risks has shifted toward an uncertain growth path as inflation pressures subside and external risks rise sharply. The large non-oil fiscal deficit requires concerted medium-term fiscal adjustment to reduce vulnerability in the face of new shocks, to replenish fiscal buffers, and to move toward a longer-term sustainable level of non-oil deficits. With heightened external risks because of the slowdown in the United States and the European Union, the sovereign debt crisis in Europe and attendant decline in oil prices, we now expect Russia’s real GDP to grow 4 percent in 2011 (down from 4.4 percent expected in June). Although the aggregate, short-term unemployment picture is favorable, unemployment remains very high in many regions, especially in the North Caucasus district, reflecting investment climate, and structural factors. After five years of little improvement in poverty, with more moderate growth than before the crisis, further gains in poverty will be more difficult, requiring a concerted effort at improving the effectiveness of public expenditures and the targeting of social programs.
    09/2011;
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    ABSTRACT: Russia has seen even higher oil windfall in the past few months, which translates into likely fiscal surpluses 2011 and 2012. The government should not miss the opportunity provided by a large oil windfall to substantially improve its long-term fiscal position, further reduce inflation, and, therefore, ensure a strong basis for durable stability and healthy growth in the future. Rising domestic demand and credit activity are increasingly supporting solid growth. As a result, we maintain the growth outlook for Russia at 4.4 percent in 2011 and 4.0 percent in 2012, closer to the post-crisis long-term potential growth. Overall, labor market conditions improved recently while poverty was broadly flat during and after the crisis, but unemployment and poverty in many regions remain difficult. Further reductions in poverty will require greater policy focus and persistence in implementing more effective and targeted programs, especially in the poorest regions. Two new special-topic analyses focus on export diversification in Russia, and food and energy inflation in Europe and Central Asia region. In the first, results show that productivity is key to exports and that lack of competition and entrepreneurial innovation are relevant obstacles to the emergence of new, potentially exportable products. In the second, it is shown that food and energy prices in Russia and other countries in Europe and Central Asia are contributing significantly to consumer price inflation, complicating anti-inflation policy and poverty reduction.
    06/2011;
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    Zeljko Bogetic
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    ABSTRACT: Russia is likely to witness robust but jobless recovery in the short term. Reforms aimed at modernizing public sector, strengthening financial sector, improving investment climate and diversifying the economy have become all the more important as a result of the crisis. The Russian economy is likely to rebound by about 5 to 5.5 percent in 2010, followed by more moderate growth of 3.5 percent in 2011, led mainly by the revival of domestic demand.
    04/2011;
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    Zeljko Bogetic
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    ABSTRACT: After a 4 percent growth in 2010, Russia’s real output is expected to grow 4.4 percent in 2011, increasingly driven by domestic demand. The country emerged from the global recession with lower-than-expected unemployment and poverty. Although in the short term, high oil prices will help Russia’s export and fiscal revenues, there is no room for complacency. The challenge is to sustain reforms under the conditions of a new oil windfall. Economic policy should focus on the short-term objective of controlling inflation and making medium-term adjustment towards a long-term, sustainable level of non-oil fiscal deficit and a more productive, diversified economy. Improving the efficiency of public expenditure to create fiscal space for productive infrastructure and strengthening the investment climate for the private sector remain among key long-term challenges.
    03/2011;
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    Zeljko Bogetic
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    ABSTRACT: With heightened uncertainties and moderating global and Western European growth and oil prices, and volatile capital flows, Russia is likely to grow by 4.2 percent in 2010, followed by 4.5 percent in 2011 and 3.5 percent in 2012 as domestic demand expands in line with gradual improvements in the labor and credit markets. Unemployment situation is likely to get worse before it gets better later in 2011. Fiscal risks have risen with likely expenditure pressures and downside risks to oil. While there is huge diversity across regions in the patterns of labor market recovery, smaller regions with a larger share of SMEs, better investment climate, more FDI, and stronger financial sector presence tend to show a more robust recovery.
    11/2010;
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    Zeljko Bogetic
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    ABSTRACT: The passage of Russia’s “Great Recession” provides an opportunity for academics and policy makers to reflect on policy lessons that could help policy makers deal with future crises, including how to handle the triple challenges—fiscal, financial, and social—in the aftermath of the crisis. This SmartLesson offers some tentative policy lessons that could help policy makers in Russia and other resource-rich countries meet these challenges in the future. These tentative lessons are only emerging and are aimed at stimulating debate, based on the broader international experience with this crisis and the ongoing reexamination of policy consensus on economic policy.
    IFC Smart Lessons, International Finance Corporations, Washington D.C. 07/2010;

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