World Bank on the Western Balkans: High Public Spending, Insufficient Jobs

WASHINGTON, (Patria) - According to data from the latest Regular Economic Report for the Western Balkans 'Reforms Need Acceleration', economic growth in the Western Balkans is accelerating from 2.6 percent in 2017 to 3.8 percent in 2018, with a projected average of 3.7 percent in 2019-20. However, these prospects are subject to growing external and domestic risks, including geopolitical and trade disputes and a slower-than-expected pace of structural reforms, the World Bank announced.

According to the report, countries in the region now have an opportunity to advance reforms to mitigate these risks due to increasing public demand for greater economic opportunities. Despite stronger growth in 2018, fewer new jobs were created in the region, reflecting limited private sector dynamism. Only 96,000 jobs were created in the Western Balkans in 2018, mainly in manufacturing and services, compared to 171,200 jobs created in 2017. The unemployment rate decreased in 2018 but remains high, especially for women and youth. In some countries, the decline in unemployment resulted from increased labor force inactivity and emigration, rather than from newly created jobs.

“Policymakers in the region should implement reforms that will lead to sustainable growth and encourage job creation,” says Linda Van Gelder, World Bank Director for the Western Balkans.

“Fast-growing companies create the largest number of jobs in the Western Balkans, but there are few such companies, especially compared to other small transition economies in Europe.

"Removing barriers that hinder small businesses from competing and growing will open opportunities for people – encouraging entrepreneurship and innovation, strengthening employment growth, and unleashing the human capital potential of this dynamic region."

The report emphasizes that countries committed to fiscal consolidation have seen a decrease in public debt, and preserving these results is crucial. In most countries, public debt remains high, and public spending is dominated by large expenditures on public sector wages and untargeted social programs. Therefore, improving the efficiency and fairness of public spending, as well as strengthening revenue mobilization, remain priorities for Western Balkan countries.

In this context, according to the report, it is vital for Western Balkan countries to advance reforms aimed at increasing productivity, stimulating growth, and creating jobs. The report examines policy options in areas such as competition policy, taxation, financial sector diversification, and economic connectivity. The report also examines human capital challenges in the region. If left unaddressed, these challenges will severely limit growth prospects and poverty reduction. For example, investing in early childhood development would help improve outcomes in primary and secondary education, and would also equip students with the skills employers seek.

Better targeted social assistance programs would help poor and vulnerable households protect themselves from shocks, while more efficient health systems would help combat the rise of non-communicable diseases and reduce out-of-pocket health expenditures for citizens.