POLICY RESPONSES OF THE WESTERN BALKANS COUNTRIES TO THE GLOBAL ECONOMIC CRISIS AND THEIR SOCIAL AND LABOR MARKET IMPACT
MIHAIL ARANDARENKO and PAVLE GOLICIN The Faculty of Economics, University of Belgrade/the Foundation for the Advancement of Economics and Public Policy Research Centre, Belgrade, Serbia.
[email protected] [email protected]
Paper prepared for presentation at the World Bank International Conference on Poverty and Social Inclusion in the Western Balkans WBalkans 2010 Brussels, Belgium, December 14-15, 2010
Copyright 2010 by author(s). All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.
1. Introduction The Western Balkan countries have experienced global economic crisis with some delay, sheltered at first from its impact by the doubtful virtues of their peripheral position and largely autarchic, underdeveloped economies. When the crisis eventually arrived in the last quarter of 2008, it was soon clear that it came here to stay. While the recorded GDP decline in 2009 overall was not as dramatic as in most other European regions, even optimistic projections claim that the recovery will be long and slow. Much of the modest, very slowly and gradually accumulated labor market and social gains from the ‘good years’ of 2000-2008 have already been lost and this process might continue, even alongside with the GDP recovery in the coming years. Still, we feel that the unfortunate reversal in labor market and social indicators experienced by most countries in the region has come as a consequence of two intertwined group of factors. The first group could not be avoided, and is related to the straightforward transmission mechanisms linking GDP decline with less employment and more poverty. The second group of factors, however, has to do with the way policy makers decided to adjust their economies to the new ‘crisis’ reality and to try to cushion its effects on various economic agents and social groups; and also with their strategic decisions how to get out of the crisis and how to proceed once the crisis is over. It is this second group, policy responses to the crisis and post-crisis strategies, which is a focus of our attention. This paper aims to analyze in a generalized, ex ante fashion, the impact of policy responses of the Western Balkans countries to the global economic crisis on labor market indicators and poverty and inequality. Before doing that, we look at the trends in economic and social indicators that are currently available. Our paper is not an evaluation; it is mostly based on a hypothetical reasoning. An attempt to evaluate anti-crisis measures of the regional governments would be premature and over-ambitious. We have been further discouraged by the lack of data, comparable or
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sometimes any reliable data at all, which is a notorious problem in the region. Thus, we use the data for informative and illustrative purposes only, and in this approach we are not alone (Bartlett, 2010, Jovicic, 2009, Stiblar, 2010, Stubbs et al, 2009, Uvalic, 2010, Arandarenko and Golicin, 2009). 2. Impact of the Crisis on Western Balkans The first clear indicator of economic crisis was industrial production, which started to fall significantly already by the end of 2008, even in those countries with high overall growth. Due to the collapse in export demand, industrial production fell even faster than GDP. In Montenegro, despite the gross domestic product (GDP) growth of 6.9% in 2008, industrial production declined by 2% in the same period. By October 2009, compared to the same month in 2008, industrial production was especially hit, falling for instance by 38% in Montenegro, 9.8% in Macedonia, 8.5% in Croatia, and 6.6% in Serbia (EC, 2009), clearly indicating a dramatic slowdown of the economy. The consequences of the global economic crisis rather soon began to show at the labor market as well. According to the most recent data from the Labor Force Survey (LFS) for Serbia in April 2010, the working-age population employment rate amounted to 47.2%, which represents a decline of 6.1 percentage points compared to October 2008; historically, a record low for Serbia since the total number of employed workers declined by around 368,000 from the pre-crisis period until April 2010. The data from the RAD survey (based on establishment data) are showing the same trends, as formal employment continued to decline from September 2008 up till now, which is primarily a result of decrease in the number of wage employees. Similar, although less dramatic situation can be found elsewhere in the region. In Croatia, for instance, the number of wage employees declined by 2.4% in May 2009 compared to May 2008. In the same period, the number of employees in manufacturing faced even steeper decline by 9%, which is worse than 6%, as it was the case in Macedonia.
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Apart from Albania and Kosovo under UNSC 1244 which have maintained an increasing trend of the previous few years, all other countries have recorded less robust GDP growth in 2008 and decline in 2009, as seen in table 1. Table 1. GDP by Countries Forecasts for growth in 2009, initially suggesting that the region would avoid the most serious consequences of the crisis, were revised downwards on a number of occasions. The latest IMF World Economic Outlook update from October 2010 showed that GDP for the whole Central and Eastern Europe declined by 3.6% in 2009. At the country level, negative trend is also clearly demonstrated; Croatia and Montenegro being worst hit among the Western Balkans countries in 2009 with a GDP fall of 5.8% and 5.7% respectively. The economies of the Western Balkans were late in entering the crisis, and could also be late in getting out of it (Stiblar, 2010). Looking at the crisis timeline, the lowest point across the board was probably hit at the end of 2009 and the beginning of 2010, as the countries were fully influenced by the stop in foreign financing and reduction in exports due to reduced activity in the exporting partner countries. The IMF projections for 2010 and 2011 illustrate that the stabilization will be uneven and the recovery is also expected to be sluggish. There are signs of normalization in 2010, with positive growth, albeit small, everywhere except for Montenegro and Croatia. As it is generally considered that the full impact of a crisis on the labor market is conveyed with a certain delay and that a decline in employment can last much longer than a decline in the GDP, the significant implications of the crisis in terms of labor markets, poverty and vulnerability can be still expected to come to full tilt. So far, the adjustments of the main labor market indicators were unusually quick and strong in Serbia. Data on employment trends vis-à-vis GDP during the economic crisis indicate that the GDP decline in Serbia led to a much greater fall in employment than in other countries (Foundation for the Advancement of Economics, 2010). Whereas GDP altogether fell by 4.7% during the crisis,
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employment dropped by 12.5% (total decline refers to the Q1 2008 – Q1 2010 period), with employment elasticity consequently standing at a very high level of 2.6. In comparison, there was merely a mild drop in employment in Croatia (employment elasticity stood at 0.2), although it suffered a much graver recession than Serbia. Such an adverse effect of the crisis on Serbia suggests that the crisis also absorbed the effects of the ongoing transition and privatisation, impacting on the labor market perhaps as strongly as the economic crisis. The strong link between labor market outcomes and poverty implies that during the crisis large fall in employment led to a significant increase in the poverty rate (although sometimes cushioned by the increase in informal employment). Some of the estimates of increase in poverty (Armitage, 2009) show in 2009 that 5.8 million people in the Western Balkans were below the 5-dollar-a-day poverty line, which is 0.8 million more compared to the pre-crisis projections. The poverty loss ratio (which refers to the difference between postcrisis and pre-crisis projections), shows that the increase in poverty due to the crisis goes from 96.9% in Croatia and 68.2% in Bosnia to 14.9% in Albania and Montenegro and 12.9% in Macedonia. If the pre-crisis period is characterized as the period of poverty reduction, what followed after can be certainly described as the time of deteriorating living standards and increasing poverty. In other words, the crisis has cancelled gains in the social welfare achieved during the years of economic growth before the crisis. 3. Policy responses 3.1. Context of the crisis The governments in the region only belatedly recognized that the global financial crisis might strongly hit their own countries. The first direct effects of the crisis were felt in the last quarter of 2008, at the time when budget proposals, based on rather optimistic growth projections and ambitious public investment projects, could not be easily withdrawn and rewritten. In those countries which were facing the elections at various levels in early to mid
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2009 (four out of seven – Croatia, Montenegro, Macedonia and Albania), there was an additional political economy reason for the ruling parties to shy away from pessimism and belt tightening strategies. However, even with no elections on the horizon, coalition governments with still fresh pre-election promises and composed of parties with differing socio-economic agendas, such in Serbia, also found it hard to quickly adjust to the new reality. Practically everywhere, governors of central banks proved to be much more pessimistic (or realistic in hindsight) than finance ministers, despite the fact that both groups of policymakers had the same pieces of information at their disposal. Response to the crisis throughout the region was thus typically piecemeal, with governments trying to solve its outbreaks and manifestations as they arise, one at a time, rather than attempting early on to prepare a consistent overall strategy. The nature of the crisis, and its complex interaction with underlying structural features of the economies of the region, meant that the room for manoeuvre for the region’s governments and central banks was extremely limited. Many traditional anti-recessionary policy instruments were not available, and there was a very little fiscal room for the stimulus measures, and even less for labor market and social policy programs. 3.2. Measures to Tackle the Banking and Currency Crises Since the crisis’ first outbreak took the form of a mild to moderate bank panic episode in October 2008, accompanied by strong downward pressures on local currencies, especially in Serbia, all governments and central banks reacted rather quickly to restore confidence in banks and, where needed, stabilize local currencies. The deposit insurance guarantees for individual savings accounts were increased manifold, typically following the EU countries, to EUR 50,000. Serbia went even further, quickly changing its personal income tax law, temporarily relieving saving deposits in foreign currency from taxation. Following some other Eastern European countries, in order to stabilize its local currency, the dinar, and also to curb inflation, still a major concern at the time, the Serbian National Bank increased
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the interest rate by 2.5 percentage points in a single move in October 2008. Croatia and Bosnia and Herzegovina followed suit. On the other side of the spectrum, facing the deflation, Albanian National Bank lowered its interest rate. Serbia and Croatia spent significant foreign currency reserves defending their currencies, Serbia apparently to no much avail. Trying to revive its crumbling stock exchange, hastily left by most foreign participants, Serbia also cancelled the tax on capital gains, only to see a further free fall in its stock exchange indexes. As the situation in foreign currency market and banking sector started to stabilize, and inflation pressures to weaken, in early 2009 the moves throughout the region were made in opposite direction, toward more relaxed monetary policy, including lowering of interest rates. However, in much of the region, there was a little room for discretionary monetary policy, either as a result of currency board arrangements and the use of the Euro as a legal tender, or as a result of de facto exchange rate pegs. Therefore, monetary policy continued to be constrained by the weak foreign exchange inflows and refinancing difficulties. 3.3. Measures to Restore or Preserve the Growth Momentum – Stimulus Packages After it became clear that the crisis was quickly spreading from the financial to the real sector, bringing powerfully down industrial production and exports throughout the region, the next set of measures was designed by most governments with the idea to restore the growth momentum. However, since at that time the governments were becoming increasingly aware that both internal and external sources of financing were drying up, these measures, although marketed to the public as major incentive packages pumping the economies with cheap investment and/or liquidity credits, providing various subsidy schemes and cancelling significant debts, were typically only little more than symbolic, often poorly targeted support for special groups. Examples include energy price subsidies in Montenegro, conditional moratorium on payment of social contribution arrears in Macedonia, or subsidies for the purchase of locally produced cars and durables, such in Serbia.
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Another widely applied strategy was to present measures planned well before the crisis, such as personal income tax and/or social security contribution reductions, large public infrastructure projects, or simplification of administrative procedures, as being designed specifically to tackle the crisis. In most of the countries, government officials were hoping that investments would continue and that large infrastructure projects - such as hydro-plant building and development of the largest beach in Montenegro or road constructions in Albania, especially highway to Kosovo - would increase demand and consequently growth. Moreover, these projects are usually expected to have a positive impact on the employment opportunities, transport and movement of goods, reduction of poverty and better regional development and regional integration. 3.4. Measures to Adjust to the New Fiscal Reality – Budget Revisions By the end of January 2009 it become clear that growth would be negative, widening thus the gap between the already committed expenditures and falling revenues. Serbian and Croatian finance ministries worked around the clock to prepare budget revisions to curb the looming deficits, in Serbian case necessary to secure stand-by arrangement with the IMF. Bosnia and Herzegovina also needed stand-by arrangement with the IMF, which was, especially in the Federation entity, conditioned by severe cuts in spending. Montenegro and Macedonia governments only belatedly admitted the need to re-balance the budget. The most heated and most revealing debates – both at expert level and involving general public – included two major groups of dilemmas in downward budgetary adjustments. The first group was rather technical, for example, by how much to cut the deficit and whether predominantly through tax increases or by way of expenditure cuts. The second was distributional, which groups would have to take disproportional burden of the adjustment, and which strata should be spared. For example, Serbian left-of-centre coalition government had played for some time, encouraged by the IMF, with the idea to introduce ‘solidarity surtax’ as one of the main sources to close the gap between the revenue and expenditure side, without
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hurting the poor much. The design was however so unfortunate (and the proposal was also presented in a very clumsy fashion) that it immediately caused widespread public outcry, and the proposal was quickly withdrawn and later buried. Instead, a new plan was launched in April 2009, relying almost exclusively on severe cuts in public spending, including reduction in above-average salaries of members of public and local administration, but relying mostly on cuts in ‘discretionary’ spending of the ministries and many public agencies. To boost the revenue side, excise taxes on oil have been increased and new excise tax on mobile impulses introduced, supposedly to put the tax burden more on the richer classes. 3.5. Labor Market Policy Measures Despite the fact that the first signs of worsening labor market conditions were rather quickly felt throughout the region, only a few countries reacted by increasing their typically very limited funds for active labor market programs (ALMPs). In Serbia, the available modestly allocated budget for ALMPs officially remained unchanged (at some EUR 35 million, or only 0.12% of GDP), but was augmented by almost the same amount to be spent exclusively in the province of Vojvodina, which decided to channel significant portion of its privatization proceeds to ALMPs. The ALMP budget was restructured to respond to the new reality; i.e. the bulk of funds were streamlined to only two measures, apprenticeship programme and public works programme, aimed respectively at two groups of labor force members expected to be hardest hit by the crisis – youth without a previous work experience and long-term unemployed facing the poverty risk. In 2010, the overall budget for ALMPs in Serbia decreased, as was the case in Croatia as well. 4. Distributional and Labor Market Impacts of Crisis Measures Loosely following the principles of Poverty and Social Impact Analysis developed by the World Bank, which refers to the analysis of the distributional impact of policy reforms on the well-being or welfare of different stakeholders, with particular focus on the poor and vulnerable, we have analysed policy responses of the Western Balkans countries to the global
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financial crisis. To that purpose, we have assembled an inventory (necessarily incomplete) of the actions taken by the Governments in four main policy areas: monetary policy and banking, fiscal policy, growth revival, and labor market and social policy, and then tried to assess the likely impact of each action on distribution and poverty, as well as on labor market outcomes. Although having mostly regressive impact on distribution and poverty and with a negative impact on labor demand, monetary, exchange rate and banking policy measures prevailed early in the crisis. In all countries, set of these measures included multiple increase in guaranteed deposits in order to restore confidence in banking sector, which had neutral to regressive impact on distribution and poverty (being favorable for persons with large personal saving deposits). Croatia and Serbia also defended local currency by sale of foreign currency reserves and increase of the reference interest rate. Both interventions had negative impact on labor demand, while also respectively being positive for middle class members with foreign denominated debts and potentially harmful for debtors (typically the poor and lower middle classes and middle class members with mortgages). Regressive impact on distribution coupled with the effect on widening the budget deficit - was particularly emphasized by the temporary removal of tax on interest on saving deposits in foreign currency and tax on capital gains, as well as profit tax exemption for retained profits. Fiscal policy measures followed the suit. Together with monetary interventions, they had the largest scope, usually with regressive effects. Value added tax (VAT) increase, introduced in Kosovo under UNSCR and Croatia, and also contemplated in Serbia, is a clear cut example of very regressive and anti-poor measure because of higher spending propensity of the poor and inflation pressures. Moreover, it is negative on labor demand because of increase in business costs; while being positive on labor supply only in case if families strive to preserve their real income. Pension freezes/cuts also had moderately regressive impact on distribution, since pensioners on average belong to lower income groups. On the other hand,
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increases in excises on oil and luxury products, launched in Serbia and Croatia in order to boost the fiscal revenues, had primarily progressive impact on distribution (potentially, however, regressive in case of inflation triggered by the increase of oil prices). Salary freezes and/or cuts in public sector had been neutral to progressive, protecting employment in public sector in short term (with a delayed positive impact on private sector labor demand) and being mildly negative for labor supply in public sector because of low supply elasticity of public sector workers. Cuts in public administration and public sector employment carried out in Serbia, Croatia and Bosnia and Herzegovina, will probably disproportionally affect female employment, since women make up a majority of public sector workers (Krstić et al, 2010). Array of stimulus packages, albeit with various impacts on distribution and poverty, usually had large distortion effects by putting certain categories in more favourable position than the others. In Serbia, for example, some of the measures, such as subsidizing interest rates for commercial banks’ credits to firms and citizens for buying domestic durable goods had implicit regressive impact on distribution (since more beneficial for workers with higher incomes) but positive on labor demand and supply. Other however, such as bailouts of large firms such as Copper Mining and Smelting Complex Bor - had potentially progressive impact on distribution (since protecting workers with ‘bad’, supposedly low paid jobs) but perhaps crowding out more targeted measures aimed at the poor. Conditional moratorium/write-off of penalty interest on social contribution arrears, introduced in Macedonia, also had been somewhat progressive (since protecting employees in troubled firms), but contributed to the erosion of financial discipline by sending wrong signals to the firms, who were the main beneficiaries of that measure. Public investment in infrastructure projects, used in all countries to boost the aggregate demand had been positive for labor demand, coupled with progressive labor market impact if increasing demand for low wage labor. At the end of the policy board, labor market and social policy measures had been of small scale, despite their expected positive impact on both distribution and labor market. In
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Serbia, ALMPs had been focused on emergency public works and subsidized apprenticeship programs for unemployed youth. The first measure had clear positive impact on distribution (since targeting the poorest and most vulnerable labor force members), while effect of the second depended on design (regressive if participants are largely university graduates, more progressive if most participants with lower education levels). The former was also positive for labor supply (but mainly in short run) and the latter increased labor demand (but potentially with significant substitution and replacement effects, since some firms may opt to substitute present workers for apprentices). Following the new Employment law in mid 2009, average unemployment benefits in Serbia were reduced and their duration shortened. Emergency cash payments to the poor – progressive on distribution and negative for labor supply - were not used enough. Specialized food shops for the poor were however established in Serbia. 5. New growth models and their distributional impact 5.1. New Growth Models The two largest economies in the region, Croatia and Serbia, have in 2010 embraced new growth models. Program documents (Croatian adopted by the Government in April 2010, Serbian still in a semi-official status as of October 2010) both acknowledge that the crisis has revealed the weaknesses and unsustainability of the ‘old model’ based on consumption, demand, deficits and growing external and internal imbalances and call for a more balanced, investment-driven, export-oriented growth model. Not only in Croatia and Serbia, but also in most other Western Balkans countries, the global crisis has revealed structural weaknesses and inability of effective adjustment to external shocks. The need for the model has also been officially recognized in Montenegro and Bosnia and Herzegovina, but perhaps less so in Macedonia and Albania, given their internal political dynamics and relative formal success in facing the crisis. By introducing Economic Recovery Program (ERP) in April 2010, the Croatian Government for the first time openly recognized limitations and drawbacks of the previous
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growth model, which was focused on domestic demand and the accumulation of external imbalances. In a way, ERP is less an anti-recession program, and more a list of structural reforms, aiming to reduce the role and share of the state in the economy. ERP intends to lower the Government's share in GDP by enhancing private sector effectiveness, reducing taxes and simplifying tax administration, reshaping the current state subsidy schemes and boosting investment activity. The program envisages to lower public sector expenditures and to reduce the number of public sector employees by 5%. It also aims to redirect budgetary resources to targeted social transfers and economically viable capital investments, and reduce government intervention in economic activities through further privatization and professional management of public enterprises and government institutions. Structural reforms should be encompassing, including speeding up of the implementation of reforms in judiciary, health care, pension insurance, and state and local governments. The program gives a detailed list of goals and consequent measures (for example, fiscal such as income tax rates, abolition of income tax relief's except for R&D, selling of Government’s shares in companies, etc), including the ones focused on more dynamic labor market (emphasizing flexicurity as a common goal of social partners and improvement of skills and knowledge) and social policy (under the pillar dealing with responsibility towards future generations). Serbian Post-Crisis Model of Economic Development is still an unofficial, expert document, although coordinated by a chief economic advisor to the Prime Minister and endorsed by the PM at its public presentation. Unlike its Croatian counterpart, it is based on explicit quantitative assumptions and macroeconomic projections. The silver lining of the proposed strategy is the replacement of the consumptionbased growth with the investments-based growth. The target parameters are: increase of the share of fixed investment in GDP to 25% in 2015 and 28% in 2020 (with average annual
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growth of 9.7%), reduction of the share of consumption in GDP from 92.5% in 2011 to 81% in 2020, increase of the share of exports in GDP, from 27.6% in 2009 to 65% in 2020, and significant reduction of the deficit of current transactions in the payment balance from 7.1% in 2010 to 3.3% of GDP in 2020. This should result in the average annual real growth of GDP of 5.8%. The value of GDP in 2020 would reach EUR 52.7 billion, or almost EUR 8,000 per capita. Within this dynamics, up to the end of the observed period, the productivity would have cumulative growth by 50.4% and employment by 16.9% or about 430 000 new jobs. According to the assumptions of the new model, industrial production average increase in the period 2011-2020 is projected to 6.9% annually, processing industry to 7.3%, construction to 9.71%, agriculture 3.4% and services to 5.51%. A massive increase in investments, from 4.9 billion EUR in 2009 to almost 15 billion EUR in 2020, should enable production growth. FDI should play an important role and should reach EUR 2.3 billion annually. To get there, it is required that the final internal demand, in order to ensure sustainability of external debt, should grow slower than the GDP by more than 1 percentage point on average. Fiscal stability is to be achieved through gradual reduction of fiscal deficit, from current 4.5 percent of GDP to 1 percent of GDP by 2015. While public expenditures will be reduced, public revenues will remain rather stable expressed as a share in GDP. 5.2. Distributional and Labor Market Impact of Croatian and Serbian Growth Models Fiscal reforms envisaged by the two programs will inevitably have rather strong labor market and distributive consequences. Although their current fiscal positions seem not to differ dramatically, the two countries have adopted different approaches to fiscal stabilization and restructuring. Unlike the Serbian model whose primary goal is to reduce budget deficit, Croatian model has the reduction and reorganization of public expenditures in its focus, although it also cares about the ‘acceptable’ level of budget deficit. Both models envisage the
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introduction of an independent Fiscal Council. Croatian model implicitly introduces reduction of share of public revenues in GDP, by calling for reduction in personal income tax and especially in the so-called para-fiscal revenues, such as local and special taxes. On the other hand, Serbian model proposes a strong shift from the taxation of labor to the taxation of consumption, under the condition of revenue neutrality. Concretely, it advocates for a significant increase in the VAT rate (from 18 to 21 or 22 percent), alongside with the decrease in the rates of social security contributions by some 20-30 percent, and possibly some additional cuts in Serbian flat personal income tax, whose rate is already low. The purpose of this reform, according to the program, is to make labor, especially low-skilled, more attractive, and to discourage consumption. The authors also claim that the increase in VAT would make imports more expensive, hence further encouraging export orientation. Looking more closely at the labor market and distributional impact of the two models, however, one finds more potentially problematic features in the Serbian model. First, the proposed labor tax reduction is of the across-the-board type, with all formally employed workers benefiting from it. True, in one of the alternatives, it significantly extends personal allowance, thus reducing more the tax wedge for the lower-paid workers. As is well known, the impact of reduction of labor taxes on employment is not straightforward, and depends on the empirical shape of skills-differentiated labor supply and sectoral labor demand curves. If all the ‘gains’ from labor tax reduction are appropriated by the workers through higher net wages, then there would be no increase in employment; if net wages remain the same, then there is a room for employers to increase investment from higher profits, and consequently to employ new workers. In practice, workers and employers will divide the gains, but the exact ratio remains uncertain, as well as the question if and to what extent the employers would use their enlarged profits to expand their activity. Further complication related to labor market and distributional effects arises because of a specific nature of Serbian labor market, which is, like other Western Balkans labor
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markets, characterized by very low formal employment levels and high informality. According to LSMS from 2007, informal employment (defined precisely as persons not paying SSC) is estimated at around 35% of total employment. Those workers tend to have much lower incomes and their families are at much greater risk of poverty. With the overall formal employment at a historical minimum of around 1.8 million people, in a country of 7.4 million, it means that the potential gains from a decrease in SSC burden will be felt by roughly half the population, while the losses from the increase in the VAT rate will be borne by all. The impact on poverty and income inequality will be clearly negative. Those who will be clearly worse off, with no gains whatsoever by definition will be the families without formally employed members. Among the net losers will most likely be families with only one formal employee and more than three members – roughly, the more dependants, such as children, the larger the overall welfare loss of the family. Such families tend to be found more frequently in poorer regions, rural areas, among the deprived Roma ethnic minority etc. Pensioners and all persons above working age as a group will also only experience losses, and as a consequence old-age poverty will increase. Even in a long term perspective, the job absorption capacity of formal Serbia will remain very limited – according to optimistic projections of the Post-crisis model, total employment will by 2020 increase by only slightly more than 400,000 jobs (most of which formal), with most of the jobs created after 2015. Therefore, we can rather confidently conclude that the significant increase in the VAT rate will widen the divide between the first and the second Serbia – one privileged and formal, another vulnerable and informal. We would assess the impact of such a measure on inequality and poverty as very serious to dramatic.
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6. Conclusions Our analysis indicates that the Western Balkans governments could have paid more attention to the labor market and distributional impact of their anti-crisis measures. Equally important, they should have these effects high on the agenda while preparing their post-crisis growth strategies. It would be very encouraging if the ultimate goals of these strategies would be expressed in terms of job creation and reduction in poverty and inequality, following the example of Europe 2020 strategy.
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References Arandarenko, M. and Golicin, P. (2009). Social and Labour Market Impact Analysis of Policy Responses of the Western Balkans Countries to the Global Economic Crisis. in: A. Prascevic et al, eds: Economic Policy and Global Recession, Vol I, Faculty of Economics, University of Belgrade. Armitage, J. (2009). The Western Balkans: Impact of the Crisis on Living Standards, presentation at the conference: The Western Balkans: Overcoming the Economic Crisis from Regional Cooperation to EU Membership. Swedish EU Presidency, European Commission and Regional Cooperation Council Conference, Brussels. Bartlett, W. (2010). The Social Impact of the Global Economic Crisis in the Western Balkans with a Focus on the Republic of Macedonia. Pecob’s Papers Series, July 2010 No.1. European Institute, London School of Economics and Political Science. Foundation for the Advancement of Economics (2010). Employment and Wages. Quarterly Monitor, No. 21, April-June 2010. International Monetary Fund (2010). Recovery, Risk and Rebalancing. World Economic Outlook, October 2010. Jovičić, M. (2009).
The Onset of the Economic Crisis in the West Balkans.
International Scientific Conference on Economic Policy and Global Recession. Faculty of Economics, Belgrade. Krstić, G., Arandarenko, M., Nojkovic, A., Vladisavljević, M. and Petrović, M. (2010). Position of Vulnerable Groups in Serbia's Labor Market. Foundation for the Advancement of Economics. Stubbs, P., Arandarenko, M. and Jorgoni, E. (2009). The Social Impacts of the Global Economic Crisis in the Western Balkans. A White Paper for UNDP.
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Štiblar, F. (2010). The Social Western Balkans in a Turmoil of Global Crisis. Pecob’s Papers Series, October 2010 No.4. European Institute, London School of Economics and Political Science. Uvalić, M. (2010). The Impact of the Global Economic Crisis on Southeast Europe. 11th bi-annual EACES Conference. Tartu, Estonia.
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Tables Table 1. GDP by Countries Country
GDP 2007
2008
2009
2010*
2011*
Albania
5.9
7.7
3.3
2.6
3.2
Bosnia and Herzegovina
6.1
5.7
-3.1
0.5
3.0
Croatia
5.5
2.4
-5.8
-1.5
1.6
Macedonia, FYR
6.1
5.0
-0.8
1.2
3.0
Montenegro
10.7
6.9
-5.7
-1.8
4.5
Serbia
6.9
5.5
-3.0
1.5
3.0
Kosovo under UNSC 1244
4.0
5.4
4.0
4.6
5.9
Source: International Monetary Fund (IMF), World Economic Outlook, October 2010. Note: * GDP projections.
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