THE WORLD BANK, INTERNATIONAL FINANCIAL INSTITUTIONS AND DEVELOPMENT PROCESSES IN SOUTHEAST EUROPE
THE WORLD BANK, INTERNATIONAL FINANCIAL INSTITUTIONS AND DEVELOPMENT PROCESSES IN SOUTHEAST EUROPE
Djuro Krcic
PhD, Secondary school «Nikola Tesla» Kotor Varos Banja Luka,
Republic of Srpska, Bosnia and Herzegowina
ABSTRACT
The limits of the testing are demonstrated in this research using a specific model of connection patterns. The operational environment's limitations are generally related to the lack of a very long series of data with a good standardized connection and the inability to fully manage all external impact variables in terms of policies, institutional capacity, and other elements. The prices of equities traded on controlled exchanges should not be predicted by publicly available macroeconomic data under the weak variant of the efficient market hypothesis. Future prices in the general market equilibrium "random walk" away from previous prices under the assumption of fair competition and behavioral homogeneity. This means that future prices are independent and cannot be predicted purely from the observation of historical prices. Due to the restricted availability of daily free-float data and the absence of corporate activities to assess it, the semistrong (or event) version of capital market efficiency is seldom examined in academic research. The existence of transaction and information costs in the pertinent markets, which cast doubt on the existence of fully efficient capital markets, prevents the strong form of capital market efficiency from being tested.
Keywords: South East Europe, West Balkan, liquidity, privatization, World Bank, market.
This science paper aims to increase understanding of the traits, possibilities, and hazards of the many financial systems being adopted in a few Southeast European capital markets. This study aims to provide additional context and empirical evidence to help foster the development of innovative financial products by provoking discussion about how a small capital market economy can compete against market giants and what market failures are necessarily inherited by emerging markets. A tiny, emerging capital market may be naturally hedged when there are overextended swings in frantic times in established electronic capital markets (Kleinman, 2013), serving as a worldwide example of a greater balance in combined effort between electronic- and human-led professional participants in the financial sector.
Strengthening the norms of corporate governance and transparency may present a chance to enhance how these capital markets operate. Harmonizing legislative and regulatory standards with efficient enforcement is an example of what to do. Integration of the chosen markets can increase operating efficiency and give scalable exposure and internationalization, which can widen and deepen the investor bases in each market.
Reorganizing nonperforming assets, such as corporate debt that has been harmed by an economic downturn or financial crisis, into a framework that makes it easier to find a resolution for these assets, may also present a chance to boost liquidity. To increase liquidity, closed privatization funds may be converted to open-end ones, for instance, or structural products like mortgages and other asset-backed securities could be introduced to capitalize on the current trend of issuing and trading debt instruments. With these advancements, political support for structural and policy changes is likely to follow in the medium term, enabling the completion of the planned privatizations of the systemic players already listed on stock exchanges as well as the inclusion of more local insurance and pension funds—as well as other institutional investors—into the capital markets. This will open the door for the development of a regionally and centrally located counterparty for contractual enforcement, contributing to an improvement in the intrinsic capital markets' level of safety.
Academics, investors, and politicians have long been interested in the connection between the financial system and economic performance. As a result, there is a substantial body of literature that offers proof of the relationship between macroeconomic fundamentals and financial markets. However, the most of it is concentrated on developed nations. Research on this link is scarce in developing countries, and much less so in Southeast Europe's frontier capital markets. And the outcomes of the study that is now accessible vary greatly. This is mostly due to the fact that Southeast Europe's capital markets are still developing, therefore there is insufficient evidence to support the relationship between stock performance and the economy. This has hindered research and led to methodological discrepancies.
Empirical studies on how macroeconomic variables affect the financial markets can help countries increase their economic production by demonstrating how it enhances savings, liquidity, buying power, and managerial efficiency. Researchers first focused on the connection between total economic production and the banking industry's function as an intermediary in the frontier financial industry. But over time, focus has switched to the connection between economic production and what has emerged as a major financial sector, especially the capital markets. Initial studies on the capital markets focused on the approximate degree of development as measured by market size and turnover, while later studies focused on the macroeconomic connection to stock prices.
Regarding the connection between the financial system and the growth of the overall economy, economists' opinions and the findings of various empirical studies diverge, but for developed markets, the perception of a positive impact predominates (Fama E. F., 1981; Chen, Roll, & Ross, 1986; Dumas, Campbell, & Ruiz, 2003). Studies on the relationship between macroeconomic indicators and capital markets often adhere to the axiom that, over time, increasing amounts of economic activity should be reflected in stock prices (Fama E. F., 1990; Shapiro, 1988).
Generally speaking, research on the correlation between macroeconomic variables and the values of exchange-traded equities in emerging nations is scant and unreliable. It is necessary to do more research employing a larger data collection, improved statistical techniques, and more developed and standardized performance.
It is feasible to do a comparison analysis with prior studies in other developing and advanced economies by investigating the dynamics of the link between macroeconomic fundamentals and the performance of stock markets in the chosen Southeastern European nations. Lazarov, Miteva-Kacarski, & Nikoloski, 2016; Drazenovic & Kusanovic, 2016; among others) and the relationship between the impact of macroeconomic indicators on capital market prices (Barbic & Condic-Jurkic, 2011; Megaravalli & Sampagnaro, 2018; Lee & Wang, 2015).
This study offers the first multivariate model test on statistically significant cointegrating correlations, testing for the existence of the weak form of capital market efficiency in the chosen Southeastern European nations. The findings demonstrate the markets' inefficiency with regard to the apparent absence of an a priori incorporation of macroeconomic data in available stock prices.
In Bosnia and Herzegovina, North Macedonia, and Serbia, this is the first research to examine the importance of the dynamic connection and directional influence of macroeconomic variables on regulated stock market prices. This study improves the multivariate model test and dynamic panel testing methodologies for Croatia and Slovenia. Finally, this study pioneers the use of novel indicators in the intrinsic research markets, including the GDP per capita, the industrial production index, the exchange rate, and the balance of payments net financial account (BOPNFA). The model's robustness is increased with additional data and more standardized performance in later years of what would otherwise still be regarded as frontier capital in this most recent and thorough study on the topic.
There is proof that, under certain methodological assumptions, the values of exchange-traded assets are correlated with the performance of macroeconomic factors. 1) The present value model (PVM) for valuations, the international CAPM that also takes into account foreign exchange risk, the arbitrage pricing theory (APT), and the theoretical capital asset pricing model (CAPM); 2) using data regression in vector autoregression (VAR), the vector error correction model (VECM) cointegration test, ordinary least squares (OLS), the pooled mean group (PMG), fixed effects, and random effects estimations; 3) checking for the existence of the relationship and erroneous causality in the Granger short-term relationship causality test and the Johansen long-run cointegration test.
The peculiarities of the Southeastern European marketplaces, in which long-run fixed coefficients represent the common qualities in the legacy and the new mutual infrastructure, make the PMG technique particularly suitable for this empirical investigation. This includes shared racial, cultural, and linguistic traits, the acceptance of global brands, progress toward the single market and EU membership, and the most advantageous trade partnerships. However, the short-run heterogeneities are also reflected in the varying levels of economic development in individual countries, with Croatia and Slovenia leading the pack as high-income nations with diverse economic structures. Finally, the development of their capital markets by innovation or sheer size also captures the short-run heterogeneities.
The conventional panel model association problem can be resolved while presenting the multiplicity between macroeconomic variables—the BOPNFA, in the (1) formula below—and stock indices. This study makes use of the panel PMG model as follows: SMI = μit +λi SMI t-n + βt GDPPC it-n + βt FX it-n+ βt MMIR it-n+ βt HICP it-n+ βt IPI it-n + βt BOPNFA.
Second, a crucial presumption for the coherence of the autoregressive distributed lag model (ARDL) is that the explanatory variables may be considered exogenous and that the residual of the error-correction is serially uncorrelated. The ARDL (p,q) delays for the dependent (p) and independent variables (q) can be included in the error-correction form to satisfy these requirements. Thirdly, the use of the dynamic panel approach helps prevent biases in the average estimators by resolving the heterogeneity issue, therefore the relative size of the timeseries (T) and sample size (N) is significant.
Because of the clear empirical influence of the value of the macroeconomic indicators on the value of the stock indexes, the results imply a stable long-run link and indicate that capital markets are weak or inefficient. According to the findings, the macroeconomic variables are predicted to have an influence on the stock index's long-run equilibrium value in one calendar year quarter by around 8.8 percent. Once the equilibrium level of the long-run model connection is attained, the deviating influence is then modified.
In the future, it will be crucial to include and endogenize more qualitative components into studies of the development nexus for Southeast European capital markets, including event studies and governance indicators. Additionally, it would be critical to conduct panel multivariate model testing of the relationships under the reverse direction order, replicate studies on the effects of structural reforms on other Southeastern European nations, include a larger data set for longer time periods, and update tests on the selected time intervals and statistical methodologies.
Despite improvements during the 2000s, Western Balkan nations had an average normalized citation rate per document in 2003–10 that was 0.67, less than half the EU–27 average of 1.27 and below the global average of 1. In comparison to the rest of the area, Albania has a comparatively limited number of high-quality scientific publications. It leads the Western Balkans from 2003 to 2010 in terms of the number of citations per document (4.03). While Albania (0.72) and Serbia (0.74) both have the highest adjusted impact averages for the time period, respectively.
Croatia produces the most publications per person in the area, although their caliber is below average. Nevertheless, the quality has significantly increased over the 2000s, going from a normalized citation score of 0.52 in 2003 to 0.71 in 2010. The Innovation Union 2013 study lists further encouraging signs. For instance, Croatia has more international scientific copublications per million people than the EU average.
The six South East European nations—Albania, Bosnia and Herzegovina (BiH), North Macedonia, Montenegro, and Serbia—must function in a challenging international setting. Expectations for global growth are dampened by political, institutional, and regulatory uncertainties in mature nations, persistently low commodity prices, and unusually low interest rates. The European Union (EU), a significant market for SEE6 exports, is predicted to expand this year by just 1.9 percent, which is even less than the 2 percent growth seen last year. Growth is weak everywhere. The outcome of the British referendum to leave the EU, the ongoing refugee crisis, pressure on Italian banks, political unrest in Turkey, and the ongoing Greek crisis have all contributed to increased unease across Europe. Brexit has reignited the discussion over the EU's future and its possible effects on member nations that are seeking to join. However, the SEE6 nations continue to make strong progress toward their goals of joining the EU, with some of them starting new chapters this year.
Despite the external environment, SEE6 growth is becoming more stable. We anticipate that strong investment and rebounding household spending will cause growth to increase from 2.2 percent in 2015 to 2.7 percent in 2016. The regional increase is a result of growth that has resumed, particularly in Serbia but also in Albania (Table A). Growth is still being driven by investment, particularly in Albania, Montenegro, and Serbia. After a period of restraint, consumption also increased, mostly due to improvements in the labor markets in Albania and Serbia as well as FYR Macedonia and Montenegro, as well as greater public pay and transfers.
The creation of jobs in the private sector is nevertheless supported by labor market reforms and resilient economic development. Reduced labor market rigidities, along with greater economic development, led to a 4.7 percent increase in employment in Serbia in the first half of 2016. The formalization process helped Albania increase employment by 6.7%. With the exception of FYR Macedonia and Montenegro, employment in all SEE6 nations is still below pre-crisis levels despite recent gains. Except for Montenegro, where it increased as a result of recent public policy decisions, unemployment decreased in the majority of nations. The regional average, at roughly 25%, is still high, though.
The short-term prognosis for SEE6 is at risk, and external positions are particularly at risk. The current account deficit (CAD) for the area is predicted to remain at 6.4 percent of GDP in 2016, up from 2015, as greater deficits in Serbia's neighbors balance Serbia's smaller deficit. This trend is being driven by higher trade deficits, declining remittances, and dividend payments to nonresident investors in Albania, Montenegro, and Kosovo. Wider CADs in Bosnia and Herzegovina (BiH) and FYR Macedonia are explained by lower income inflows and remittances. Despite declining as a percentage of GDP in 2016 after increasing in 2015, net inflows of FDI continue to fund a sizable component of CADs.
The public and publicly guaranteed (PPG) debt of nations that persisted in fiscal reduction measures stabilized for the first time since the start of the global crisis. As a result of successful fiscal consolidations, the average fiscal deficit in the area dropped from 3.6 percent of GDP in 2015 to 3.4 percent in 2016. Albania, Bosnia and Herzegovina and Serbia, who are continuing their fiscal consolidation efforts and are anticipated to post low or falling budget deficits this year and declining public and publicly guaranteed (PPG) debt for the first time since 2009, were the main drivers of these outcomes. In contrast, the budgetary situations in Kosovo, FYR Macedonia, and Montenegro are anticipated to deteriorate, resulting in higher PPG debts.
Lending to the private sector is gradually recovering in the majority of SEE nations. As economic activity picked up, Serbia's credit growth recovered. Similar to Kosovo, new lending has increased due to reduced interest rates in Albania, notably for consumer goods. In FYR Macedonia and Kosovo, credit growth was solid, however declining confidence had an impact on business lending in the first half of 2016. Due to low credit demand from the corporate sector and tight supply circumstances in BiH, credit growth has been slower in Montenegro. Despite being profitable, liquid, and well-capitalized, the region's banks nonetheless have greater non-performing loan (NPL) levels than they had prior to the crisis.
The SEE6 has promising near-term economic prospects, but the dangers emphasize the necessity of structural changes for a successful shift from domestic to foreign sources of growth. The region's growth is anticipated to increase from 2.7 percent in 2016 to 3.6 percent in 2018 as a result of higher internal demand—investment fueled by consumption—and rebounding exports. However, growth predictions for the SEE6 will continue to be impacted by the EU's economic development expectations as well as other regional concerns.
Political instability is escalating the risks as the majority of nations either exit or enter the election cycle, yet the start of a new political cycle presents a chance to pursue structural changes. Potential growth in SEE6 is being hampered by persistently high unemployment, an unfavorable economic and political climate, poor public service delivery, and little global integration.
Developments for SEE61 in the near future are heavily reliant on variables that are mainly out of the governments' control in SEE6. As this article is being written, leaders of the major EU nations are still working to put into place a set of credible policies to create an orderly process for managing Greece's sovereign debt, to stop risks from spreading to other economies in the euro zone, to recapitalize banks affected by likely write-downs of the country's debt, and to create a more unified and effective fiscal framework for euro zone (EZ) states. Investor and corporate confidence has been rattled, and consumers have continued to be apprehensive due to doubt over their capacity to properly complete this procedure, a string of ratings downgrades, stock market volatility, and ambiguity regarding US deficit plans.
The majority of analysts have already lowered their predictions for US and EU growth by 1% or more. We anticipate SEE6 to increase by 2.5 percent in 2011 and 2.1 percent in 2012, which is much less than the pre-2008 averages of 6-10 percent. Even these conservative growth forecasts are predicated on the ability of European leaders to handle the issue without a disorderly default and without creating a chain reaction. The performance of the SEE6 and the rest of the globe might be far worse, though, if the policy makers fail and the crisis worsens.
The SEE6 will be informed about the consequences of a further global recession and the escalating EZ crisis via a number of means. The SEE6 nations' major trading partners are the EU and the EZ countries in particular; trade with the EU accounts for between 30% and practically half of their respective GDPs. In addition to trade, the EU is the region's greatest overall contributor of FDI, with net FDI inflows totaling more than 2% of the SEE6 GDP. In addition to the fact that the percentage of foreign banks in the overall assets of the region's banking system is relatively high (at around 89 percent of the total), the existence of foreign banks also presents another possible avenue of transmission of the EZ crisis to the SEE6.
Currently, the SEE6 nations' banking systems seem robust, with strong liquidity and sizable capital buffers, but things might change quickly, especially for single banks. Greek and Italian-owned banks make up a disproportionately large portion of the SEE6 region's banks. Although these banks face less risk in their own sovereign debt market, Austrian banks are also widely present in the area. Further strain on the finances of their respective parent banks may put pressure on their local subsidiaries to give liquidity or dividends to their parents, in addition to requests from across the EU to enhance the capital of prominent banks.
Additionally, the number of non-performing loans (NPLs) increased significantly throughout the SEE6 nations starting in 2009. NPLs are still substantially above pre-crisis levels despite certain nations, but not all of them, seeing a recent stabilization. These variables may result in yet another credit crunch in the area. Local subsidiaries, on the other hand, seem to be currently liquid and well-capitalized. Additionally, as the majority of these banks are subsidiaries rather than branches, local SEE6 authorities must oversee and control them, making a speedy unwinding of their positions unlikely. Additionally, compared to the EU10 nations, SEE6 banks have a lower total reliance on foreign finance.
This partially reflects the fact that domestic deposits are the primary source of funding for foreign-owned banks in SEE6. There are presently no signs of a run on deposits similar to the one that preceded the turmoil in 2008, but the situation has to be carefully watched. However, as the direct foreign borrowing by the real sector in SEE6 amounts to around 18% of GDP, foreign finance is a significant source for banks' support of real sector loans. FDI and portfolio flows often make up a more reliable source of finance. However, since the second half of 2008, FDI to SEE6 has slowed and is currently at roughly 60% of pre-crisis levels.
The government must restore budgetary buffers and be ready to further consolidate spending in the event that income projections are not met due to deteriorating global conditions. The fiscal position is still precarious. The SEE6 nations depleted the small buffers built up during the pre-crisis period of robust growth and brisk income during the past few years. No country, with the exception of Kosovo, possesses large deposits that may be accessed. Additionally, the local capital markets are weak, and although banks currently seem to have plenty of liquidity, this may quickly alter in the event of a more pronounced downturn in economic activity.
Additionally, the SEE6 nations will continue to have trouble accessing international capital markets. This indicates that only a few of the SEE6 nations still have the capacity to respond to the crisis' deepening by fiscal stimulus or even by enabling automatic stabilizers to function, and many of them should speed up fiscal consolidation, especially reforms to improve longer-term fiscal sustainability. The exchange regimes used by numerous SEE6 nations also limit monetary policy in those nations.
The growth strategy based on closer ties to the EU in terms of trade, labor markets, and institutions continues to be the most effective one for the SEE6 region over the long run, notwithstanding recent volatility. The recent events have taught us two fundamental lessons that will help the SEE6 more fully reap the rewards of this growth strategy. The first is that future growth will need to be driven less by the externally financed consumption and investment in real estate and other bubble assets that characterized the pre-2009 period and more by investment and productivity improvements that enhance competitiveness and productive capacity.
In 2011, the worldwide economic recovery that had started in 2010 started to wane. The Tohoku tragedy in Japan and high oil prices were blamed for the falloff in the first half, but by the end of July, Tohoku's short-term impacts had started to wane and industrial production throughout the world had begun to increase.
But since August, the European Union's sovereign debt crisis, the US's sluggish growth, and a downturn in China and other significant developing countries have all put growing strain on the world economy. The most recent projections and leading indicators indicate a further decline in European economy. However, there is still a chance of a US double-dip recession and a more severe downturn in the BRICs. Growth is also largely anticipated to slow in developing Europe.
When the 2009 financial crisis hit, domestic demand decreased, and net exports were the only thing driving growth. The primary cause of the steep decline in domestic demand was a decrease in investment. As a result, imports decreased and slowed more than exports, which helped net exports contribute positively (5.8 percentage points) to growth. SEE6 as a whole faced a recession in 2009 that reduced GDP by 1.7 percent, or 7.6 percentage points, from the growth rate prior to the crisis in 2008. Not all nations were equally impacted; FYR Macedonia saw a moderation while Albania and Kosovo managed to escape a recession.
In 2010, growth recovered, but at a somewhat slower rate than it had been prior to the crisis (1.6 percent vs. 5.1 percent). Even though the region's GDP increased by just 1.6% in 2010, net exports remained to be the region's main driver of growth, adding 3.1 percentage points, while domestic demand continued to be a drag on growth (-1.7 percentage points).
The current account deficits (CAD), which in certain SEE6 economies had reached unsustainable levels by 2008, have dramatically decreased since then, mostly as a result of a slower recovery of imports than exports, but with some regional variation. The SEE6 region's high pre-crisis import levels were fueled by elevated local demand brought on by the 2008 economic boom. A CAD of 19.2% of GDP for SEE6 was achieved in 2008 as a result of this, a slowdown in exports in Bosnia and Herzegovina, Albania, and Serbia, as well as a fall in exports in Kosovo, FYR Macedonia, and Montenegro in the last quarter of 2008. However, as imports decreased more than exports in all countries in 2009 and export growth accelerated the following year, both the traditional and emerging market.
The SEE6 authorities must strengthen their budgetary buffers and be ready to further consolidate their spending should the income estimates not be met due to deteriorating global conditions. The fiscal position is still precarious. The SEE6 nations depleted the small buffers built up during the pre-crisis period of robust growth and brisk income during the past few years. No country, with the exception of Kosovo, possesses large deposits that may be accessed. Additionally, the local capital markets are weak, and while banks currently seem to have plenty of liquidity, this may quickly alter in the event of a more pronounced downturn in economic activity.
Prior to the global financial crises of 2008–2009, the SEE6 nations had quite divergent fiscal strategies. During this time, the average budget deficit in the region was rather low. This concealed important regional disparities nonetheless. Bosnia and Herzegovina consistently maintained surpluses whereas Albania consistently had deficits that were near to or higher than 3% of GDP. FYR Macedonia's budget remained essentially balanced; Kosovo and Montenegro's deficits at the beginning of the monitored period were replaced by surpluses; and Serbia's budget switched from being balanced to being in deficit.
If not for the robust income growth brought on by rising domestic demand, fiscal deficits from 2005 to 2007 would have been bigger (and surpluses smaller). With the exception of FYR Macedonia and Serbia, all nations had an increase in revenues as a proportion of GDP. At the same period, most nations saw a rise in spending (as a % of GDP), with Serbia and Montenegro reporting the biggest increases.
The relatively small deficits, when combined with the strong GDP growth, led to a significant decrease in the ratio of government debt to GDP (despite the fact that some SEE governments acknowledged liabilities, such as restitution in FYR Macedonia and war damages and claims for frozen foreign currency deposit claims in Bosnia and Herzegovina).
By the end of 2008, the government debt in SEE6 was 33.9 percent of GDP8, which was substantially below the Maastricht threshold of 60 percent of GDP and comparable to the average for the EU10 countries (36 percent of GDP). With a government debt of 55% of GDP, Albania stood out as an anomaly due to its ongoing deficits. On the other hand, Kosovo did not declare any government debt at the end of 2008, which was due to both historical factors and a cautious fiscal strategy.
Despite rather uneven economic results after 2008, fiscal performance has declined in every country. 2009 saw the SEE6 nations' average growth go negative as exports and capital inflows plummeted, however there were significant regional variations. All nations' fiscal balances deteriorated, highlighting the vulnerabilities brought on by the pre-crisis period's over-reliance on the country's expanding domestic demand. In 2008 and 2009, the average budget deficit rose to 2.7 percent of GDP and 4.6 percent of GDP, respectively. All nations had a decline in revenue as a percentage of GDP, with Montenegro suffering the most (Kosovo and Albania saw growth). However, all nations (apart from Serbia) had an increase in spending as a percentage of GDP, with Kosovo seeing the largest increases. The SEE6 economies failed to boost growth in 2010, which resulted in a little amount of budget adjustment.
Albania made the biggest adjustment, reducing the budget deficit from almost 7% of GDP in 2009 to 3% of GDP in 2010. Montenegro made the next highest adjustment, at 1.5 pp of GDP, while Bosnia and Herzegovina made the next largest adjustment, at 1.4 pp of GDP. The majority of the adjustment in these nations was borne by expenditures.
In the SEE6 economies, the average budget deficit decreased to 3.8 percent of GDP. The deficits in Serbia and Kosovo, however, widened. While Serbia's deficit only slightly widened due to failing collections, Kosovo's deficit expanded dramatically as a result of rising capital expenditures. As a result, by 2010, the SEE6's government debt reached 38.4% of GDP. However, the fiscal accounts and government debt did not deteriorate as much as they did in the EU10 nations, where government debt rose to 47.1% of GDP.
Government debt levels, with the exception of Albania, remain below 50% of GDP, although there are considerable vulnerabilities due to outside factors. The debt is structured well, with little exposure to commercial borrowing and, consequently, low debt servicing expenses. The public debt as a proportion of yearly government income, at about 111.4 percent of GDP, is nonetheless close to the average for the EU10 nations even if the public debt as a percentage of GDP is lower. Again, Albania has the worst economy, with debt exceeding yearly receipts by more than two to one.
The majority of the SEE6 nations have passed regulations restricting the amount of governmental debt.
The authorities' dedication to these goals has not yet been put to the test. Legislation has been used to limit government debt in Albania, Kosovo, and Serbia; FYR Macedonia and Montenegro have used strategy-level papers to accomplish so.
. Kosovo had a little surplus in the first half of the year and a modest loss in the third. By the end of the year, Kosovo's fiscal accounts are likely to perform much better assuming there are no major expenditure binges. The budget for Bosnia and Herzegovina was essentially balanced, albeit this understates the country's actual financial situation because it excludes off-budget spending on foreign-financed projects. In the first half of 2011, the budget deficits in the other SEE6 nations were about 2% of GDP. Albania, FYR Macedonia, and Montenegro all look to be on pace to fulfill their deficit objectives by the end of the year as their deficits seem to have decreased in the third quarter.
The SEE6 countries' severe funding difficulties serve to support the need for budgetary restraint. Recent moves by Albania toward shorter-term debt have been accompanied by a minor rise in yields. Additionally, in recent months there hasn't been much demand for government debt paper with maturities greater than two months, which has caused problems for Serbia. In addition, North Macedonia made the decision to draw money from the Precautionary Credit Line with the International Monetary Fund in spring 2011 in response to an early election at home and a very unpredictable international environment.
In addition to the $400 million loan guaranteed by the IBRD earlier this year, Serbia was able to issue a $1 billion global bond recently. In April 2011, Montenegro released a 180 million euro Eurobond. FYR In March 2011, Macedonia borrowed EUR 220 million from the IMF's PCL, and before the end of the year, it must borrow EUR 130 million using an IBRDguarantee. While Albania should be able to cover the remaining deficit through a combination of deposit reduction and inflows on foreign-financed projects, Kosovo has substantial deposits from which to draw. The finance sources for Bosnia and Herzegovina are anticipated to be small. The majority of the SEE6 nations have stable outlooks and respectable ratings, though not investment grade, when it comes to access to foreign private funding. Even if the quality of the stimulus may be in dispute, most nations boosted their spending. In the first half of 2011, FYR Macedonia boosted spending by about 6% in real terms, which also included some front-loading of expenses.
The rise in spending was intended to fund transfers, health care, and capital projects. In the third quarter, these trends slowed down, and actual spending decreased. Spending climbed by roughly 3.8 percent in Montenegro, mostly as a result of changes to labor laws that raised salaries and pension benefits. These adjustments have already increased the growth rate of expenditures in the third quarter and are anticipated to have a medium-term impact on spending on these goods.
Similarly, Albania increased spending by 3.5 percent in real terms in the first half of the year with social transfers accounting for half of the increase in spending. Tighter control over spending was introduced in the third quarter in order to ensure that the annual deficit target is met. Overall spending increased by 3.3 percent in real terms in Kosovo, however, reflecting relatively slow spending in the first quarter. Expenditures increased strongly in the second quarter and most recently reflect a surge in capital spending but also higher spending on wages and salaries. Expenditures from the Bosnia and Herzegovina budget were down in real terms reflecting lower spending on goods and services and subsidies. Similarly, expenditures fell in real terms in Serbia, though gains from wage and pension restraint were insufficient to compensate for the underperformance in revenues resulting in a higher deficit. Furthermore, gains may be short-lived given upcoming indexation of pensions and wages in October 2018. The SEE6 continues to face a significant long-term challenge in improving job possibilities.
In the SEE6, unemployment is often high and is especially prevalent among young people. Additionally, a large portion of the jobless is long-term, which deteriorates abilities. Additionally, a number of nations have aging populations, active migratory patterns, and low participation rates, particularly for women. Since 2008, employment has been declining and unemployment has been growing in the countries worst impacted by the crisis (Serbia, Montenegro, and Bosnia and Herzegovina), and these trends are projected to turn very slowly as the economies recover. Overall, the crisis's effects have been slightly less severe than in EU10.
Conclusion: The World Bank has operated in Europe for more than 60 years, and during that time, its involvement has grown along with the continent's growth. After helping with post-World War II reconstruction, it gradually turned the focus of its activities to assistance for development. It has historically and now given money, information, and aid to nations looking to join the European Union.
This briefing begins by examining the World Bank's complicated organizational structure, the operation of its several components, and the various forms of investment and help it provides its customers in order to provide readers a clearer understanding of how the World Bank now aids in the development of European nations.
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