The Western Balkans region is rebounding from the COVID-19-induced recession of 2020, thanks to a faster-than-expected recovery in 2021, says the latest edition of the Western Balkans Regular Economic Report, Greening the Recovery.
The outlook for the region has improved significantly, with GDP growth now projected to reach 5.9 percent in 2021, after a 3.1 percent contraction in 2020. Growth in the region is projected at 4.1 percent in 2022 and 3.8 percent in 2023.
In Bosnia and Herzegovina, real GDP is expected to grow 4 percent in 2021 after contracting 3.2 percent in 2020. As BiH’s economy rebounds in 2021, improvements in labor market participation and employment will remain key for growth to translate into poverty reduction.
Addressing bottlenecks causing persistent long-term unemployment, such as enhancing formal labor market participation, especially for women, and reducing skills mismatches for youth will be key. The report also notes that institutional and governance reforms remain important challenges on Bosnia and Herzegovina’s development path and on the road to EU membership.
“The COVID-19 pandemic has made the implementation of much needed structural reforms in BiH all the more urgent,” says Christopher Sheldon, World Bank Country Manager for Bosnia and Herzegovina and Montenegro. “The World Bank is committed to helping the governments in BiH develop long-term solutions that will build a more resilient, inclusive economy in the post-pandemic era, by improving human capital, enhancing the efficiency of the public sector, enabling the growth of the private sector and reducing the vulnerabilities of the country to climate change.”
The regionwide recovery is due to strength in both domestic and external demand. A sharp rebound in domestic consumption and in travel across Europe helped boost remittances as well as tourism inflows during the 2021 peak summer season. A strong recovery in advanced economies also provided a boost to demand for the region’s exports.
However, the recovery remains fragile. Early warning signals from the labor market call for close policy attention. Job losses from the recession and its aftermath have disproportionately affected women and youth, which may set back efforts to raise the region’s perennially low rates of labor force participation. Youth unemployment rose to 37.7 percent in 2021, up 5.4 percentage points from June 2020, further worsening youth employment prospects.
“As the Western Balkans countries look to a post-pandemic future, their policy approach will need to focus on addressing key impediments to job creation and economic transformation, including green transition,” said Linda Van Gelder, World Bank Country Director for the Western Balkans. “All six countries would benefit from reforms in the business environment, governance, and digitalization, which would contribute to growth and close the gap with EU countries.”
The report also looks at the macro-fiscal challenges and drivers of greening the region’s growth. The Western Balkans now find themselves at a key decision point regarding the impending green transition.
Global strides toward climate action are causing fundamental changes in society. Consumer and investor preferences are shifting, green technologies and new business models are disrupting more markets, and green policies are reshaping economic landscapes. As such, greening a country’s economy is becoming a decisive factor in international competitiveness and the ability to attract international finance and investments.
The Western Balkans are no exception. Still characterized by a development model tilted toward familiar brown industries, moving toward a green growth pathway is far from easy, especially in the short term. Yet, the green transition offers significant opportunities for the Western Balkans – including closer integration into Euro-centric global value chains and access to significant EU resources to help fund a green transition.
Effectively managing this green transition, including the many policy tradeoffs, will need to be a core focus of policy attention for the Western Balkans in the years ahead.