World Bank: BiH must reduce public sector, utilize private sector potential

SARAJEVO, (Patria) - Albania, Bosnia and Herzegovina, Montenegro, Kosovo, North Macedonia and Serbia – six Western Balkan countries – expect economic growth in 2021, after the biggest recession that hit the region during 2020. After this recession caused by the COVID-19 pandemic, which resulted in an estimated 3.4 percent decline in growth in the region last year, the Western Balkan region is expected to achieve 4.4 percent growth in 2021. In the further period, growth is expected to slow down to 3.7 in 2022 and 2023, with the prolonged consequences of the pandemic continuing to affect smaller investments and employment in the region, according to the latest Regular Economic Report of the World Bank for the Western Balkans.

Bosnia and Herzegovina (BiH) was hit by the worst recession in the last 25 years in 2020, with a 4.3 percent decline in economic growth, largely due to an increase in new COVID-19 cases, a drop in consumption, investment, and foreign demand. Although we expect economic growth in BiH to reach 2.8 percent in 2021, the dynamics and course of recovery are extremely uncertain, the report notes.

"We know that much can and should be done now to reduce the vulnerabilities that the crisis has highlighted – such as weaknesses in the health and education sectors and the business environment," says Emanuel Salinas, World Bank Country Manager for Bosnia and Herzegovina and Montenegro.

"Now is the time to work not only on recovering from the crisis but also on developing long-term solutions that will build a more resilient, inclusive economy in the post-pandemic period.

The report recommends that BiH continue on the reform path towards addressing long-standing issues – entrenched structural and institutional problems. BiH needs to enable the utilization of the private sector's potential and reduce the large presence of the public sector, while prioritizing international integration through investment and exports.

"We are certainly noticing some positive trends in the region, spurred by the swift action of many countries to mitigate the worst consequences of the pandemic, but the consequences of the pandemic on health and economic devastation will continue to be felt," stated Linda Van Gelder, World Bank Regional Director for the Western Balkans.

"The rollout of vaccinations, along with increased confidence, consumption, and trade, will also help maintain this momentum, but countries must continue to carefully direct efforts towards introducing and strengthening policies that lead to growth, protect health, and strengthen human capital."

The pandemic has halted decades of progress in increasing wages and reducing poverty in all countries of the region, and labor markets in the Western Balkans have only recovered half of the losses caused by the pandemic – leaving a large number of unemployed and forcing many to completely leave the labor market. Although the unemployment rate has decreased – from 13.5 percent in 2019 to 12.6 percent in 2020 – this is mainly due to increased inactivity, with the total job loss in the Western Balkans reaching almost 70,000 by the end of 2020. Furthermore, these losses have disproportionately affected more vulnerable population groups in the region, including women and youth – with the youth unemployment rate reaching 33.6 percent in 2020, halting a five-year downward trend.

According to the report, public policies in the region should remain clearly focused on combating the pandemic, mitigating social impacts, and stimulating recovery. All countries should ensure that their health systems have adequate resources for the procurement and distribution of vaccines, testing, treatment, personal protective equipment, and the adaptation and maintenance of health facilities. Investments in education, digitalization, and other infrastructure projects, as well as green initiatives, should also be a priority, as they can accelerate the necessary transition to lower carbon dependency as countries emerge from the pandemic.