Following Historic Recession, Gradual Recovery Expected in Kosovo and Across Western Balkans, Says New World Bank Report

New Delhi: Growth in Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia – the six countries of the Western Balkans – is expected to return in 2021, in the wake of the region’s worst economic downturn on record during 2020. Following the economic devastation brought on by the COVID-19 pandemic that resulted in an estimated contraction of growth in the region of 3.4 percent last year, the Western Balkans region is expected to grow by 4.4 percent in 2021. Going forward, growth is expected to moderate to 3.7 in 2022 and 2023, with lingering damage from the pandemic continuing to depress investments and employment in the region.

“We are certainly seeing some positive trends around the region, boosted by swift action taken by many countries to contain the worst impacts of the pandemic, but the health and economic devastation of the pandemic will continue to have an impact, ” says Linda Van Gelder, World Bank Regional Director for the Western Balkans. “The introduction of vaccines, coupled with improvements in confidence, consumption, and trade, will also help keep this momentum going, but countries must remain vigilant in their efforts to introduce and reinforce policies that can lead to growth, protect health outcomes, and boost human capital.”

Kosovo’s economy recorded its first contraction in 2020, driven by a significant drop in diaspora-related exports of travel services and investment. The contraction was mitigated by government policy support measures, coupled with increases in remittances and goods exports. The budget deficit more than doubled in 2020, reaching 7.6 percent of GDP in 2020, up from 2.9 percent in 2019, driven by lower revenues and recovery support measures. Kosovo’s financial sector weathered the pandemic well. By end-2020, capital adequacy was above regulatory requirements and the non-performing loan rate had increased slightly, compared to a year earlier.

Economic recovery in Kosovo too will be gradual: in line with the global trend, real activity will reach pre-pandemic levels only in 2022. Recovery will be spearheaded by a rise in exports and consumption. Economic growth is projected to remain over 4 percent in the medium term. The projected outlook is based on assumptions of relaxed mobility between Europe and Kosovo, no further strict local containment measures, a recovery in Euro Area growth, and an increase in base metal and mineral prices.

“Economic activity is expected to pick up in 2021, but global and domestic risks are significant, among them delays in vaccine procurement and distribution, international travel restrictions, and reinstatement of strict containment measures”, said Massimiliano Paolucci, World Bank Manager for Kosovo and North Macedonia. “Addressing long-standing structural impediments to growth and investing in human capital are vital to foster a resilient recovery and sustainable growth,” he added.

The pandemic halted a decade of progress in boosting incomes and reducing poverty in the countries of the region and labor markets in the Western Balkans have recovered just half of their pandemic losses – leaving large numbers of people unemployed and forcing many others to drop out of the labor market all together. Although the unemployment rate declined – from 13.5 percent in 2019 to 12.6 percent in 2020 – this was primarily the result of increased inactivity, with overall job losses around the Western Balkans reaching nearly 70,000 by the end of 2020. Furthermore, these losses disproportionately impacted the more vulnerable populations in the region, including, women and youth – with the youth unemployment rate rising to 33.6 percent in 2020, disrupting a five-year trend of decline.

According to the report, policy efforts in the region need to stay tightly focused on fighting the pandemic, limiting social damage, and nurturing recovery. All countries should ensure that their health care systems are adequately resourced for vaccine purchase and distribution, testing, therapies, personal protective equipment, and upgrading and maintain health care facilities. Investments in education, digitalization and other infrastructure projects, and green initiatives should also be prioritized, as they can accelerate the necessary transition to lower carbon dependence as countries emerge from the pandemic.

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