Neoclassicism in the Balkans

Transcription

1 Neoclassicism in the Balkans Vladimir Gligorov Vienna, May 12, 21

2 Neoclassical Growth> Stylized Foreign investment driven because of higher productivity in capital scarce countries Investments mostly in the tradable sector (i.e. industry) Trade and current account deficits initially large, but than closing down over time Foreign debt to GDP ratio should stabilize and start declining with the narrowing of the current account deficit Employment growth slow or non-existent for a prolonged period of time (productivity driven growth), but eventually strong Fiscal constraint lax

3 Growth GDP per capita Average annual growth rates, -21 and 22-28, in % EU-15 EU-27 AT BE DK FI FR DE IE LU NL SE UK GR IT PT ES BG CY CZ EE HU LV LT MT PL RO SK SI HR MK TR AL BA ME RS RU UA EU-15 EU-27 AT BE DK FI FR DE IE LU NL SE UK GR IT PT ES BG CY CZ EE HU LV LT MT PL RO SK SI HR MK TR RU UA Source: wiiw Annual Database incorporating national statistics, Eurostat.

4 Key Condition The country should be an interest rate taker the relevant world interest rate should apply E.g.> euro interest rate should be the anchor for domestic interest rates That implies that shocks should be absorbed by the exchange rate In the Balkans, as a rule, exchange rates are fixed and the arbitrage process in the money and the asset markets cannot function properly

5 Different Transition Underdeveloped tradable sector High trade and current account deficits Growing private and foreign debts Unreformed public sectors Depressed labour markets

6 6 Industrial production, =1 1995=1 2= AL BA BG HR MK ME* RO RS* NMS-8 Note: Until data refer to Serbia and Montenegro. Source: wiiw Annual Database incorporating national statistics. wiiw

7 Trade balance of goods and services (BOP) in % of GDP NMS-5 Baltics SEE NMS-5: CZ, HU, PL, SK, SI. Baltics: EE, LV, LT. SEE: BG, RO, HR, MK, BA (from ), RS (from 1999), ME (from 21). Source: wiiw Annual Database incorporating national statistics, Eurostat. Source: wiiw Annual Database incorporating national statistics, Eurostat.

8 Current account in % of GDP NMS Baltics SEE NMS-5: CZ, HU, PL, SK, SI. Baltics: EE, LV, LT. SEE: BG, RO, HR, MK, BA (from ), RS (from 1999), ME (from 21). Source: wiiw Annual Database incorporating national statistics, Eurostat.

9 Trade balances of goods and services and income balances, in % of GDP 3 Trade balance Income Transfers Current account HR MK RS TR UA Source: wiiw Annual Database incorporating national statistics, Eurostat.

10 Trade balances of goods and services and income balances, in % of GDP 6 Trade balance Income Transfers Current account CZ HU PL SK SI Source: Eurostat, wiiw calculations.

11 Trade balances of goods and services and income balances, in % of GDP 15 Trade balance Income Transfers Current account BG RO EE LT LV Source: Eurostat, wiiw calculations.

12 Savings and investment in % of GDP public saving private saving public investment private investment NMS-5 Baltics SEE NMS-5: CZ, HU, PL, SK, SI (from 2-27). SEE: BG (2-26) and RO (from 24-27). Source: Eurostat, wiiw calculations.

13 15 1 Debt in % of GDP Gross external debt Public debt, EU-def. Private debt (loans) NMS Baltics SEE NMS-5: CZ, HU, PL, SK, SI. Baltics: EE, LV, LT. SEE: BG, RO, HR. Source: wiiw Annual Database incorporating national statistics, Eurostat.

14 Debt in % of GDP Gross external debt Public debt Private debt Bulgaria Romania Slovenia Croatia Source: wiiw Annual Database incorporating Eurostat statistics.

15 Debt in SEE in % of GDP Gross external debt Public debt Montenegro Serbia Source: wiiw Database incorporating national statistics.

16 Debt in SEE in % of GDP Gross external debt Public debt Albania Bosnia and Herzegovina Macedonia Source: wiiw Database incorporating national statistics.

17 17 wiiw Spring Seminar, 19 March 21 A New Growth Model After the Crisis? Bank loans to non-financial private sector annual changes in % 12 HR MK TR AL BA ME RS RU UA BA, Montenegro Mär.8 Jun.8 Sep.8 Dez.8 Mär.9 Jun.9 Sep.9 Dez.9 Ukraine Source: National Bank of the respective country, wiiw calculation. wiiw

18 18 wiiw Spring Seminar, 19 March 21 A New Growth Model After the Crisis? Employment growth in SEE annual change in % AL BA HR ME MK RS TR NMS-1 Source: wiiw Database incorporating national statistics, Eurostat. wiiw

19 19 wiiw Spring Seminar, 19 March 21 A New Growth Model After the Crisis? Unemployment rates in SEE in %, LFS AL BA HR ME MK RS TR NMS-1 Source: wiiw Database incorporating national statistics, Eurostat. wiiw

20 A Problem and an Advantage Neoclassical growth requires openness current and capital market liberalization and labour market flexibility> that may lead to more volatility due to external and internal shocks The advantage is that fiscal constraint is lax because real interest rate on the debt tends to be below the real growth rate

21 Consequences Public and private savings tend to be low and consumption tends to be high However, social welfare is high and inequality does not widen dramatically

22 Growth in the Balkans Investments mainly in services, raw materials and metals, and some labour intensive industries Thus, tradable sector is weak However, savings are still low and unemployment is high

23 The Crisis and the Dilemma Even if the countries were at the initial phase of growth that is characterised by large external imbalances, the crisis has cut the stylized path short In addition, increased risks may become a permanent feature, which will mean that neoclassical growth will lead to stagnation The dilemma is whether to work on the reduction of risks or to change the growth paradigm? The alternative is some version of mercantilism

24 Policy Challenges Assuming that a switch to mercantilism with high savings and current account surpluses is not manageable There is still the need to significantly strengthen the tradable sector Which implies, in the first place, a real exchange rate adjustment Which, however, is hard to do via nominal devalutation because of high euroization

25 The Alternative Risk reduction measures Public sector restructuring Regional investments

26 The Outside (I) IMF could be useful if it were to provide a framework for real exchange rate depreciation through nominal devaluation Otherwise, high risk of external and internal shocks are not something that the IMF can address with its instruments

27 Outside (II) Multilateral creditors would be helpful in development projects and in support of entrepreneurship There will be investment gap and creditor risks that they could fill and take on

28 Outside (III) The EU main role is to stabilise long term risks with accession policies In the medium term, IPA funds should play an important role Also, medium term fiscal planning can address some of the main internal shocks The short term external shocks are more difficult to handle though the euro anchor would be useful

29 Conclusion Structural adjustment will be needed with a rather rigid policy framework That is, main support should be expected from structural reforms That could lead to slow recovery over the medium term There are social and political risks to that scenario