A Commission report published today acknowledges that the Western Balkans (1) achieved another year of good economic performance in 2003, with GDP growth estimated slightly above 4% and inflation below 5%. Public finances maintained a positive trend of fiscal consolidation, recording an estimated average regional deficit of around 4% of GDP. However, external imbalances remain fairly large in all the Western Balkan countries, with an estimated average current account deficit of around 8% of GDP. In 2003, FDI flows to the Western Balkans are estimated to have reached almost EUR 3 billion. The countries of the region made some steps forward in the process of market-oriented reforms, in particular in the area of privatisation of Small and Medium sized Enterprises (SMEs) and trade liberalisation. However, considerable progress is still needed in areas such as large-scale privatisation, public administration reform and management of public finances, access to finance for SMEs, rule of law, establishment of a transparent legal framework and promotion of a business-friendly environment.
The report on "The Western Balkans in Transition" published today is prepared by the Commission's Directorate-General for Economic and Financial Affairs. As in the previous years, "the Western Balkans in Transition" gives an overview of recent macroeconomic and structural developments for the countries of the region. Countries in the region have very dissimilar levels of development and living standards, with Croatia clearly above the average of the other four countries. Some of the highlights of this issue are the following:
- The Western Balkans achieved another year of good economic performance in 2003, with GDP growth estimated slightly above 4% for the fourth year in a row. Inflation continued to decline in 2003 and is estimated to have been below 5% for the first time since the disintegration of the former Yugoslavia in the early nineties, down from 29% in 2001 and 7 % in 2002.
- Public finances slightly improved in 2003, maintaining the positive trend of fiscal consolidation since 2000. The general government deficit for 2003 in the region is estimated at around 4% of GDP on average.
- External imbalances remain fairly large in all the Western Balkan countries. For the whole region, the 2003 current account deficit is estimated to have averaged around 8% of GDP, whereas the trade deficit reached an estimated 28% of GDP.
- In 2003, Foreign Direct Investment flows to the Western Balkans are estimated to have reached almost EUR 3 billion, which is equivalent to around EUR 130 per capita or 5.4% of regional GDP, with Croatia clearly in the lead. While the Western Balkans attracted on average per year much less per capita FDI (EUR 80) than the acceding countries (EUR 236) in 1997-2002, in terms of annual average FDI to GDP ratio (3.9%) they come close to the acceding countries' average (4.9%).
- Although the countries of the region made some steps forward in the process of market-oriented reforms and in approaching EU standards, further progress is still needed. Substantial progress has been made in the area of the privatisation of SMEs, which is almost complete in most of the countries and is continuing at a good pace in Serbia and Montenegro. Another area where good progress was achieved is trade liberalisation.
- However, considerable progress is still needed to establish an attractive framework conducive to investment and sustainable growth, driven by private sector development. There are several areas where the scope for improvement is still large, such as the completion of the privatisation process of large state or socially owned enterprises; the reform of the public administration and the management of public finances; and improvement in the access to finance for small and medium sized enterprises. The respect of the rule of law, and the establishment of a transparent legal framework and its enforcement, remain key conditions for the promotion of a business-friendly environment. The reform of the cadastre and the clear definition of ownership rights over land is still an outstanding issue in most of the countries of the region.
The publication issued today includes a regional economic overview, a section on Foreign Direct Investment and a section on each of the countries of the Western Balkans.
The relations of Western Balkan countries with the EU are progressing in the framework of the Stabilisation and Association process (SAp). The EC assistance provided under CARDS (Community Assistance for Reconstruction, Development and Stabilisation) accompanies the Stabilisation and Association process notably through institution building and rapprochement with the community "acquis", or body of law. The EC is expected to commit about EUR 5 billion over the period 2000-2006. In addition, EC macro-financial assistance finances exceptional balance of payments needs and supports reforms in the context of IMF programmes.
The process of stabilisation and structural reforms has also been extensively supported by the International Financial Institutions (IFIs) through macroeconomic support and technical assistance. IMF programmes are currently in place in all countries of the region.
The full report is available on:
For further information on the Western Balkans:
The EU's relations with South Eastern Europe (Western Balkans) - Overview
(1) The Western Balkans include Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Serbia and Montenegro (SCG) and Kosovo (SCG).