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The Western Balkans: Impact of the Crisis on Living Standards Jane Armitage Country Director and Regional Coordinator for South East Europe The slowdown is sharpest in ECA compared with other emerging regions GDP growth (annual percent change) 8.0 6.0 2009 2010 4.0 2.0 0.0 LAC CEE Easia MENA South Asia SSA -2.0 -4.0 -6.0 2 Impact of the Crisis on Poverty (i) Western Balkans simulations Impact of the Crisis on Poverty (ii) % increase in poverty due to the crisis Households are affected by the crisis in multiple ways and at different times Financial Market Product Market Labor Market Government Services Credit Market Shock Relative Price Shock Income/Employme nt Shock Education, Health, SP Service Shocks 5 Increase in poverty is tightly linked to changes in the labour market – Example, Serbia Trends in poverty, percentage of population Changes in labour market indicators Oct 08-April 09, percentage points 8.0 3.0% 7.0 2.0% 6.0 1.0% 5.0 4.0 0.0% Employment rate 3.0 -1.0% 2.0 -2.0% 1.0 0.0 2008_Q3 2008_Q4 2009_Q1-Q2 -3.0% Unemployment rate Inactivity rate Remittances – Kosovo example On average each month they are equivalent to 2/3 of monthly wage (€ 224) 300 Figure Remittances last month by area (€) Urban National 239 224 187 200 125 They account for 30 percent or more of household monthly expenditure - more in rural areas Rural 125 100 100 0 median mean BUT more than half the households expect large reductions in remittances The crisis weakened Governments’ abilities to support households given sharp increases in fiscal deficits (in percentage of GDP) 8 6 4 2 2007 0 Albania -2 -4 -6 -8 Bosnia FYR M acedonia Montenegro Serbia 2009 Social protection spending, second only to the OECD ECA spends a lot on public pensions (percent of GDP) 9 But reasonable targeting Not all goes to poor, but accuracy compares favorably with programs in other regions 10 Going forward o Further support from the development partners is needed. o This includes both financing and technical assistance in order to strengthen institutions and implement reforms which were pending for a while, but now we see renewed interest from the governments. o The World Bank provides significant budget support (DPL operations) along with a number of investment operations and technical assistance activities. o Amounts of DPLs per country are: • Albania USD 30 million, TBD • Bosnia USD 96 million, TBD • Croatia USD 290 million • Kosovo (SEDPP) USD 85 milion • Macedonia USD 30 million • Montenegro USD 85 million, TBD • Serbia two DPLs USD 100 million each