Europe Report 02.09.2021

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General presentation of the macroeconomic factors in Western Balkan
Albania, Montenegro, North Macedonia and Serbia

The Balkan nation of Albania transitioned from Communist rule to multiparty democracy in 1991. Services and agriculture dominate the economy and employ more than half of the workforce, but tourism is increasingly important. Economic freedom has increased steadily in Albania, and its 2020 score matches its highest, which was recorded in 2014. The economy is considered moderately free and continues to register a healthy rate of GDP growth. Government spending has amounted to 29.1 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 1.6 percent of GDP. Public debt is equivalent to 68.6 percent of GDP. The judiciary is independent but subject to political pressure, while public
administration continues to be plagued by inefficiency and corruption. The total value of exports and imports of goods and services equals 77.3 percent of GDP. The financial system remains relatively stable. The banking sector is well provisioned, but the share of nonperforming loans has been rising.

Montenegro’s economic freedom score is 61.5, making its economy the 91st freest in the 2020 Index. The economy of Montenegro has been moderately free for over a decade. GDP growth has been good by European standards, driven by household consumption, investment in infrastructure, and higher tourism receipts. However, corruption remains widespread, and corrupt high-level officials rarely face prosecution. Government spending has amounted to 47.6 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 6.4 percent of GDP. Public debt is equivalent to 72.1 percent of GDP. Labor force participation is low, and the unemployment rate is high. About 25 percent of the labor force works informally. The total value of exports and imports of goods and services equals 110.6 percent of GDP. he small financial sector has gradually become more competitive and diversified.

North Macedonia’s economic freedom score is 69.5, making its economy the 41st freest in the 2020 Index. An agreement with Greece by which the Republic of Macedonia consented to changing its official name to the Republic of North Macedonia may have paved the way to NATO membership for North Macedonia. The name-change agreement remains controversial because some Macedonians think it does not do enough to preserve their unique national, cultural, and linguistic identity.
Government spending has amounted to 31.1 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 2.4 percent of GDP. Public debt is equivalent to 39.5 percent of GDP. The total value of exports and imports of goods and services equals 133.2 percent of GDP. Despite reforms in the investment regime, bureaucracy deters dynamic growth in new investment. The financial sector has been strengthened in recent years.

Serbia’s economic freedom score is 66.0, making its economy the 65th freest in the 2020 Index. The Serbian economy is moderately free for the third year in a row, solidifying an upward trend. GDP growth edged higher in 2018 amid robust private
consumption and fixed investment. Serbia applied for membership in the European Union in 2009. Serbia cannot become a member of the EU without additional reforms, stronger rule of law, and improved relations with regional neighbors. In addition, EU membership risks displeasing Russia, with which Serbia has historical ties and upon which it remains dependent for energy.
The independence of the judiciary is compromised by political influence on judicial appointments and external pressures on judges. Corruption is perceived as pervasive but is difficult to quantify. Government spending has amounted to 40.9 percent of the country’s output (GDP) over the past three years, and budget surpluses have averaged 0.3 percent of GDP. Public debt is equivalent to 54.3 percent of GDP. The total value of exports and imports of goods and services equals 110.2 percent of GDP. Most sectors are open to foreign investment, but the lack of transparency makes it all more difficult. The banking sector has been expanding, although the level of financial intermediation remains relatively low.

Written on 23/09/2020

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