Transcript Slide 1

South-eastern Europe Effects of Crisis and The Way
Forward
Anita Angelovska-Bežoska
National Bank of the Republic of Macedonia
Belgrade, November 2012
Commonalities and differences among SEE countries before
the crisis

Growth accelerated sharply in SEE-6 countries...

...mostly driven by domestic demand (consumption) ...

...supported by rapid credit growth...

...fueled also by rising capital inflows
9.0
Composition of pre-crisis real GDP growth in
SEE (in p.p., average for 2004-2007*)
GDP growth rates before the crisis
12.0
10.0
Net exports
6.0
2004
2005
2007
2008
2006
8.0
3.0
Domestic
demand
6.0
4.0
0.0
GDP growth
(in %)
-3.0
B&H
MKD
CRO
ALB
* 2006-2007 for Bosnia. Sources: IMF WEO Database October 2012, AMECO
Database, national statistical offices
2.0
0.0
ALB
B&H
Source: WEO database - October 2012
CRO
MKD
MNE
SRB
SEE 6
average
Commonalities and differences among SEE countries before
the crisis
Widening current account
deficits...
...amidst growing external indebtedness in
some of the countries
CAD in % of GDP
ALB
B&H
CRO
MKD
MNE
-1,0
-11,0
Gross external debt in % of GDP
SRB
SEE 6
average
110,0
100,0
2005
2006
90,0
2007
2008
80,0
2009
70,0
60,0
-21,0
50,0
40,0
30,0
-31,0
-51,0
So urce: Central banks websites and IMF IFS database.
Source: Central banks websites, WB, WEO database and
IMF Country reports.
SEE 6 average
2009
SRB
2008
MNE
2007
MKD
2006
CRO
2005
B&H
-41,0
ALB
20,0
Commonalities and differences among SEE countries before
the crisis (2)

Accumulation of external vulnerabilities (varying degrees)
 Declining competitiveness, high current account deficits and rising external debt

Sound financial systems: well-capitalized and liquid banks in the run-up to the
crisis, though rising reliance on external financing in some countries


Policy responses to contain accumulation of vulnerabilities

Monetary policy response (exchange-rate and euroisation limitations)

Macro prudential measures

Fiscal policy (budget deficit below 3% of GDP/government debt on a declining path)
No rating downgrade for any country - only worsened future outlooks
Crisis spillover effects due to strong trade and financial
linkages
FDI in % of GDP
Volume of exports of goods and services,
y-o-y change, in %
2004-2007 average
2008
2009
2010
2005-2007 average
2011
30,0
2008
2009
2010
2011
40,0
35,0
20,0
30,0
10,0
25,0
20,0
0,0
15,0
10,0
-10,0
5,0
-20,0
0,0
ALB
-30,0
ALB
B&H
Source: WEO database October 2012.
CRO
MKD
MNE
SRB
SEE 6
average
B&H
CRO
Source: Central banks websites.,
websites. WEO database
MKD
MNE
SRB
SEE 6
SEE 6
average average,
excl.
MNE
Massive fall in exports and lower capital inflows undermined the pre-crisis
growth model
Sharp reversal in economic trends
With both foreign trade and domestic demand channels in work
115
Unemployment rate
GDP levels before and after the crisis
(2008=100)
(% of total labor force)
40,0
110
2004-2007 average
2008
2009
2010
2011
35,0
105
30,0
100
25,0
95
20,0
90
85
ALB
B&H
CRO
MKD
MNE
SRB
15,0
10,0
80
2008
2009
Source: WEO Database October 2012
2010
2011
5,0
ALB
B&H
Source: WEO database -October 2012.
CRO
MKD
SRB
Most severely hit countries with highest internal and external imbalances
SEE 5 average
Overall, banking systems remained stable
 Sound initial conditions, traditional banking model and low exposure to riskier
financial instruments contained direct spillovers during the early stage of the crisis
(deposit withdrawal posed a challenge)
NPLs in % of total loans
Credit in % of GDP, 12-month change
28,0
2005-2007 average
2008
2009
2010
2011
23,0
25,0
2005-2007 average
2008
2009
2010
2011
20,0
18,0
13,0
15,0
8,0
10,0
3,0
-2,0
5,0
-7,0
0,0
-12,0
ALB
B&H
Source: Central banks websites.

CRO
MKD
MNE
SRB
SEE 6
average
ALB
B&H
Source: Central banks websites.
CRO
MKD
MNE
SRB
SEE 6
average
Considerable second-round effects as the worsened economic outlook pushed credit
markets into bust cycle and triggered a rise in NPLs
In the midstream of the crisis profitability eroded...
Return on assets, ROA %
3,0
2005-2007 average
2008
2009
2010
2011
2,0
1,0
0,0
-1,0
-2,0
-3,0
ALB
B&H
Source: Central banks websites.
CRO
MKD
MNE
SRB
SEE 6
average
...but financial stability was not under threat
CAR
Liquidity ratio, liquid assets to total assets
in %
45,0
2005-2007 average
2008
2009
2010
Regulatory capital to risk-weighted assets (%)
2011
40,0
28,0
2005-2007 average
2008
2009
2010
2011
26,0
24,0
35,0
22,0
30,0
20,0
18,0
25,0
16,0
20,0
14,0
15,0
12,0
10,0
10,0
B&H
CRO
Source: Central banks websites.
MKD
MNE
SRB
SEE 5
average
8,0
ALB
B&H
Source: Central banks websites.
CRO
MKD
MNE
SRB
SEE 6
average
 Sound capitalization levels strongly contributed to banking sector’s resilience,
despite the somewhat lower solvency ratio
Public finances under pressure...
 Larger public deficits – automatic stabilizers’ effect and counter-cyclical
expansionary spending
 Rising public debt
Gross public debt (% of GDP)
Fiscal balance (% of GDP)
ALB
B&H
CRO
MNE
MKD
SRB
SEE 6
average
2,0
70,0
2004-2007 average
2008
2009
2010
2011
60,0
1,0
50,0
0,0
-1,0
40,0
-2,0
-3,0
30,0
-4,0
20,0
-5,0
-6,0
-7,0
-8,0
10,0
2004-2007 average
Source: WEO database - October 2012
2008
2009
2010
2011
ALB
B&H
CRO
Source: WEO database, October 2012.
MKD
MNE
SRB
SEE 6
average
...contributing to external vulnerabilities build-up
 External debt on a rising track, partly due to governments’ increased
accumulation of foreign debt
Gross external debt in % of GDP
110,0
2004-2007 average
2008
2009
2010
100,0
90,0
80,0
70,0
60,0
50,0
40,0
30,0
20,0
10,0
ALB
B&H
CRO
MKD
MNE
Source: Central banks websites, WB, WEO database and IMF Country reports.
SRB
SEE 6
average
Monetary Policy Response
 Stronger countercyclical responses in countries with floating exchange rate only, where a
currency depreciation was allowed in order to mitigate the impact of the crisis
 Conventional and unconventional measures undertaken, balancing between the need for
mitigating the crisis impact and maintaining stable currency
 Interventions on the forex market, while bolstering foreign reserves level with external
financing (IMF support to part of the region)
Central Bank policy rate
(end-period, in %)
19,0
ALB
17,0
SRB
MKD
CRO
15,0
13,0
11,0
9,0
7,0
5,0
Source: Central banks websites.
XII.2011
XII.2010
XII.2009
XII.2008
XII.2007
XII.2006
3,0
Looking ahead: A growth-enhancing model, with limited space
for policy maneuver?
 Growth acceleration – a key priority for the region
 The room for growth-oriented macro-policies is rather limited
 Fiscal retrenchment – inevitable for medium-term fiscal sustainability
Fiscal balance, in % of GDP
Public debt, in % of GDP
(plan starts after 2011)
ALB
B&H
CRO
MNE
(plan starts after 2011)
SRB
SEE 5
average
0,0
70,0
-1,0
2012
2013
2014
2015
65,0
-2,0
60,0
-3,0
55,0
-4,0
50,0
-5,0
45,0
-6,0
40,0
-7,0
-8,0
2011
35,0
2011
2012
2013
Source: Country Fiscal Strategies and IMF Country Reports.
2014
2015
30,0
ALB
B&H
CRO
MNE
Source: Country Fiscal Strategies and IMF Country Reports.
 Pro-cyclical tightening in structural terms already in place
 Fiscal rules, embedded within the legislation (Croatia and Serbia)
 However, the SEE-6 fiscal outlook is still facing numerous challenges
SRB
SEE 5
average
Looking ahead: A growth-enhancing model, with limited space
for policy maneuver?
 Buffers in foreign reserves need to be built further, or to be maintained in countries with
fixed exchange rate, in order to counter external vulnerability risks – narrowed room for
countercyclical monetary policy
 At the current juncture, when inflation pressures in the region are building up, the room for
accommodative monetary policy might be limited even in countries with a flexible exchange
rate
External vulnerabilities indicators
GFR, in months of prosp. imports
8,0
SRB
7,0
6,0
ALB
5,0
4,0
MKD
B&H
3,0
2,0
MNE*
1,0
CRO*
0,0
0,0
50,0
100,0
150,0
200,0
250,0
300,0
350,0
400,0
GFR, ST debt coverage, in %
* For Croatia no available data for GFR in months of prosp. imports indicator, for Montenegro no available data for
GFR ST debt coverage indicator.
Source: EBRD.
Looking ahead: A growth-enhancing model: the role of the
domestic banking system at the current juncture
 How to cope with the weak bank’s portfolios, since they act as a potential drag
on economic activity through:
 currently high stock of NPLs which pose a constraint to credit
 diminished investment incentives of the overextended borrowers - assets are kept instead of
being used for more productive uses
 Three years after crisis, credit growth remains subdued
 reflecting low credit demand as well as weakened credit supply due to high NPLs
 empirical evidence for CESEE shows a 5 % increase of NPL reduces credit growth by 2 p.p. through credit
supply effects
 De-leveraging of the foreign partner banks
 no foreign capital available
 imposing additional constraints to branches in the SEE countries
 Vienna 2.0 initiative renewed from Jan.2012 as a response to renewed risks for
the region from the eurozone crisis
•
Focus on fostering home and host authority coordination in support of stable cross-border banking
and guarding against disorderly deleveraging
Looking ahead: A growth-enhancing model: the role of the
domestic banking system at the current juncture
 The role of foreign financing diminishing - more focus on domestic sources
 Most countries have available space for additional financial support of the real economy
 However, the deteriorated portfolio quality and the weak economy constrain a stronger
credit growth
Foreign liabilities in % of GDP, 12-month
change
13,0
2005-2007 average
2008
2009
2010
2011
Credit to deposits ratio, in %
210,0
190,0
2005-2007 average
2008
2009
2010
2011
170,0
8,0
150,0
130,0
3,0
110,0
90,0
-2,0
70,0
50,0
-7,0
30,0
10,0
-12,0
ALB
B&H
Source: Central banks websites.
CRO
MKD
MNE
SRB
SEE 6
average
ALB
B&H
Source: Central banks websites.
CRO
MKD
MNE
SRB
SEE 6
average
Looking ahead: A growth enhancing model: correcting past
mistakes and dealing with structural rigidities
 Redefining the economic growth model towards more balanced growth - Moving away from
consumption-based towards investment and export led growth
 Attracting non-debt capital inflows in the tradable sector – increasing competitiveness
Foreign direct investments by activities
FDI in tradables and export performance
90
(in %)
SVK
80
100%
CZE
HUN
EST
70
80%
60
BUL
LTU
Export/GDP
50
40
LVA
SRB
ALB
20
58
70%
MKD
60%
CRO
50%
POL
30
90%
76
40%
30%
ROM
10
10%
0
5
10
Tradable FDI/GDP
74
76
42
20%
0
49
15
Source: Presentation by Christos Papazoglou, "Pre-crisis lessons and post-crisis challenges for
SEE economies", Bank of Greece
20
24
24
CRO
B&H
51
26
0%
Tradable activities
ALB
MKD
SRB
Nontradable activities
*Source: Cetral banks' websites. Data refers to the FDI stock at the end of
2011. For Albania, latest available data (end of 2010) are used. For Serbia,
data on FDI flows are used.
Looking ahead: A growth enhancing model: correcting past
mistakes and dealing with structural rigidities
 The need for structural reforms and enhanced competiveness emphasized with the
latest crisis – removing bottlenecks in the investment climate
 The region lags behind OECD (Global Competitiveness Index - average of around 4 in
SEE and around 5 in OECD)
 Structural reforms necessary for income convergence and EU integration
Global Competitiveness Index 2012-2013
DB ranking on the ease of doing business
(1=best performer)
5
140
4.8
120
2011
4.6
2012
4.4
100
4.2
4
80
3.8
60
3.6
40
3.4
3.2
20
3
ALB
0
ALB
B&H
Source: Doing Business database.
CRO
MKD
MNE
SRB
B&H
CRO
MKD
MNE
SRB
OECD
average
Source: World Economic Forum (Scores between 1 and 7, with 7 being the best score)
Looking ahead: A growth enhancing model: correcting past mistakes
and dealing with structural rigidities
 Main issues to be addressed: infrastructure enhancement, increase of
institutional quality, increase of efficiency and innovations...
7.0
Global Competitiveness Index 2012-2013
Basic requirements, Score
6.0
5.0
ALB
B&H
CRO
MKD
MNE
SRB
4.0
3.0
2.0
1.0
0.0
Basic
requirements
6.0
Global Competitiveness Index 2012-2013
Efficiency enhancers, Score
5.0
ALB
B&H
CRO
MKD
MNE
SRB
Institutions
Infrastructure
Health & prim.
educ.
Source: World Economic Forum (Scores between 1 and 7, with 7 being the best score)
5.0
Global Competitiveness Index 2012-2013
Innovation and sophistication factors, Score
4.0
ALB
B&H
CRO
MKD
MNE
SRB
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
Efficiency
enhancers
Higher education
and training
Labor market
efficiency
Technological
readiness
Source: World Economic Forum (Scores between 1 and 7, with 7 being the best score)
Innovation and
sophistication factors
Business
sophistication
Innovation
Source: World Economic Forum (Scores between 1 and 7, with 7 being the best score)
Concluding Remarks
 Growth acceleration amidst preserved macro stabilty – remains the main
challenge for the region
 The fiscal space for countercyclical response is rather limited, although there is
room for maneuver in some countries
 Constraints on conventional monetary policy for growth accommodation are present ...
 ...but macro-prudential measures can be undertaken in a countercyclical
manner
 The soundness of the banking system – strength of the region
 Existing space for the banking system to be used as a financial support for
growth
 Efforts for systemic NPL resolution can enhance banks’ role in growth support
 Enhancing structural reforms and allocating capital in tradable sector – a key
priority of the region in devising a sustainable new growth model
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