Remarks by ECA Vice President Laura Tuck
It is my pleasure to be with you today. This is my first visit to the European Commission as the incoming Vice President for the Europe and Central Asia region.
I understand that in the past few years the cooperation between our institutions has become increasingly substantive, especially in the Western Balkans. The Country Days, which are now a regular feature of our cooperation, helped our institutions understand each other’s perspectives, priorities, and instruments. The evolution of the Country Days testifies to the changed quality of our partnership – from exchange of views in the early days to genuine joint work today.
I can also speak for all my colleagues in expressing our deep appreciation for the progress that we have made in our cooperation with European IFIs through a variety of mechanisms such as the Vienna Initiative, the Joint Financial Action Plan, and the Western Balkans Investment Framework. We also see the results of our cooperation to date as an indication of how much more we could achieve by combining our efforts and respective comparative advantages in areas of common interest.
Our meeting today provides an opportunity to build on our strong foundation of collaboration in the Western Balkans. I look forward to hearing your perspectives on the challenges facing the Western Balkans and on further policy reforms and priority investments, where our collaboration can bring added value.
In terms of support for reforms, we can achieve a lot through joint policy dialogue. Our policy dialogue in the Western Balkans is shaped by both current problems and long-term challenges affecting the countries.
Since 2009 the Western Balkans have experienced a double dip recession, with only the most fragile of recoveries expected in 2013. On average, about one in four economically-active individuals is unemployed, with even higher figures for youth and women. These unemployment levels are even more worrying, considering that less than 40% of the working-age population actually participates in the labor force.
About a third of households in the Western Balkans live in poverty—with an average of 7-8% living in extreme poverty. These rates are more than double those of the new EU member states. And we have evidence of increasing poverty since 2008. In Albania, for example, the national poverty headcount fell from 25% in 2002 to 12% in 2008, but then rebounded to 14% by 2012.
Fiscal space is exhausted in most countries, precluding stimulus responses to address the economic and social crisis. Albania, Montenegro, and Serbia, in particular, find themselves with unsustainably high debt levels and in vulnerable budgetary positions.
Recovery over the longer term will require a more favorable external environment, but also a growth model anchored in higher productivity. In all six countries, the low rates of employment reflect narrow production bases and high external deficits. Goods and services made in the Western Balkans are often not competitive even on domestic markets. Firms tend to be constrained in their attempts to increase productivity and profitability by regulatory barriers and other business climate bottlenecks, including poor infrastructure, lack of access to finance, and inconsistent implementation of laws and regulations.
In response to these challenges, the World Bank Group has focused its policy dialogue with the Western Balkans on three priority areas.
First, we have provided technical support and policy-based lending and guarantees to shore up macro-fiscal and financial sector stability. Our highest priorities today include supporting public enterprise reform and working with the IMF and the EBRD to enhance the stability of the banking system in Serbia. Equally important is providing policy-based budget support for fiscal consolidation and financial sector reform as part of the new Albanian Government’s ambitious reform agenda.
Second, we have focused our policy dialogue on structural reforms to improve competitiveness and the business climate. We support policy measures to strengthen skills, innovation, property rights, and productivity in key sectors like agriculture across the entire region. This area of reform has been of high priority in Kosovo and FYR Macedonia. Both countries have been recognized among the world’s top reformers in this year’s Doing Business report; Kosovo’s ranking has improved by 40 places in the past two years. Our joint support for this reform agenda in Kosovo as part of a multi-donor budget support operation has contributed to this success.
Even in Bosnia and Herzegovina, where political constraints tend to limit the potential for macro-fiscal reforms, we have been able to find common ground across the entities on investment climate reform to support private sector growth.
The third area which we consider a priority for structural reforms is fostering social inclusion through more effective social spending. We have used some innovative instruments in support of our policy dialogue, including conditional cash transfer programs for education in FYR Macedonia and a results-based, sector-wide approach to modernize social assistance in Albania.
I see considerable opportunities to enhance our joint policy messaging in these three reform areas. Despite prolonged difficulties in the Eurozone and a less optimistic outlook for EU enlargement, the EU integration process and the shared political orientation towards eventual membership continue to provide critical policy anchors for structural reforms in the Western Balkans. This shared aspiration serves – to some extent – as a counterweight to political legacy issues that undermine national cohesion, regional cooperation, and economic development.
Indeed, where we have collaborated upstream in recent years for joint messaging on policy reform, the results have been positive and powerful. Our joint efforts to facilitate the clearance of public sector arrears in FYR Macedonia are an example where joint dialogue has supported a substantial fiscal consolidation. Our joint messaging in the all-important energy sector in Kosovo is another example, where together we have supported a cleaner, more competitive and more diversified energy strategy than would have otherwise been possible. In the financial sector, it is fair to say that the worst possible outcomes of deleveraging in the Balkans have been avoided thanks to our collective engagement through the Vienna Initiative.
Given these experiences, I am very pleased that our Country Director for the Western Balkans and her team came to Brussels in May and committed to greater joint policy dialogue and joint messaging with the EU and European IFIs.
We are also encouraged by the new strategic approach for the Instrument of Pre-Accession Assistance, or IPA II. The multi-year approach--with its emphasis on sector selectivity and a strong focus on measurable results—is similar to our own country programming model. As such, it should provide a better framework to enhance our alignment with the EU integration process and identify key areas where the World Bank can effectively complement EU support for priority reforms and investments.
The World Bank—like other multilateral development banks—relies on a country-based model in which government and local stakeholders implement themselves their projects and programs. This implementation model places a premium on governance and the strengthening of country systems and capacities. The World Bank provides implementation support to enhance our client countries’ ability to absorb external financing and achieve results. By working together, we can improve the absorption and effectiveness of all sources of external financing. An example of successful collaboration involves the World Bank, EC and EBRD in joint financing of the rural road rehabilitation program in Albania. Another is the use of single or multi-donor trust funds to leverage more financing for programs with demonstrated results. The Serbia Innovation Fund is such an example.
It seems that our thinking on efficient ways to deliver development assistance is evolving in the same direction. The EC's new "sector approach" is consistent with the lessons we draw from the World Bank’s development work around the world. In places where development agencies are plentiful and country capacities low, we have moved toward sector-wide approaches, or SWAps, to align all donor support around a national program, and provide joint implementation support based on unified procedures and reporting requirements. We have also found that linking disbursements to measurable results can focus implementation efforts, while helping to gradually improve local capacities. The World Bank has now taken this idea further by introducing a new financing instrument, the Program for Results. This instrument links disbursements to measurable results for a particular sector or program and allows countries to use their own procurement and safeguard procedures -- provided a clear plan is in place for their further strengthening.
We believe the Program for Results has potential in the EU candidate countries, both as a vehicle for joint funding by the Bank, the EU and European IFIs, and as a mechanism for bringing local capacity and procedures in line with EU norms. In Europe, we are currently working on Program for Results operations in Croatia and Moldova. We are also laying the analytical foundations for possible Program for Results operations in Serbia and Macedonia. We would like to work jointly with the EU to identify and design future results-based programs in the Western Balkans.
We have increasingly flexible instruments, which are increasingly well adapted to pooling multiple sources of funds, supporting national priorities, and focusing on achievement of measurable results. However, our instruments are best deployed within a collaborative framework. Through the Western Balkan Investment Framework (WBIF), the EU has taken the lead in establishing a forum and a mechanism to work with all the IFIs represented here today to provide a platform for joint analysis and investment support. The World Bank has participated as an “associate member”, with a role that has evolved over time from narrowly consultative to a more active engagement in sector development programs and project preparation. To date, the Western Balkan Investment Framework has approved ten initiatives for World Bank implementation, including, an update on the Regional Balkans Infrastructure Study and a feasibility study on the Southeast Europe gas ring. Many of these initiatives are now underway, and should prove beneficial for all institutions seeking to support reforms and investments in the Western Balkans.
The World Bank is now participating in the WBIF Task Force and currently reviewing the scope and modalities of WBIF engagement. In our view the WBIF has been a good platform for dialogue among international financial institutions on priority sector programs and for coordinating financing. We believe that the role of the WBIF could usefully be expanded in future to operationalize the increasingly sector-oriented and results-based approach of both the EU institutions and the World Bank.
To conclude, let me reiterate a few key points. First, economic recovery in the Western Balkans depends on sustained macro-fiscal stabilization and deepening of key structural reforms. Second, the EU integration process remains a key policy anchor for these countries, and joint policy messaging by our institutions to reinforce priority reforms is both desirable and feasible. Third, our strategies and instruments are evolving in similar ways to selectively support priority sector programs, build country capacities, and focus on measurable results. In this respect, the World Bank’s new Program for Results instrument may offer potential for greater collective engagement. Fourth, our instruments are best deployed within a collaborative framework, and the WBIF can be further strengthened to fulfill this role. With this, let me close by reaffirming our commitment to strengthening our partnership to eliminate extreme poverty and boost shared prosperity in the Western Balkans.