Transcript Lejla Tanovic

Recovering from the crisis:
Croatia, the former Yugoslav Republic of
Macedonia and Serbia
The Global Jobs Pact:
Supporting strategies to recover from the crisis in South
Eastern Europe
Sarajevo, 27-28 October 2011
This presentation
• Economic growth and employment: recent trends
and impact of the downturn
• Policy responses to counteract the crisis
• The challenge of job recovery
Economic growth and employment:
Recent trends and the impact of the crisis
Economic and employment growth trends
Serbia
Economic growth … but
low job creation
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
The former Yugoslav Republic of Macedonia
10.0
-3.1
-5.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
8.0
6.0
GDP growth (%)
4.0
2.0
0.2
0.0
-2.0
-0.8
-4.0
Employment growth (%)
Croatia
8.0
6.0
-6.0
4.0
-8.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GDP growth (%)
Employment growth (%)
2.0
0.0
-2.4
-2.0
-4.0
-5.8
-6.0
-8.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: EBRD, Macroeconomic indicators.
GDP growth (%)
Employment growth (%)
Impact of the crisis on GDP
Serbia
Croatia
6.0
4.0
8.0
6.0
4.1
3.3
-0.1
-2.0
-0.6
-2.0
-2.3
-4.0
-6.0
-5.5
-8.0
Q1
Q2
Q3
2008
Q4
-6.7
-6.9
Q1
Q2
-0.8
-2.3
-0.7 -0.8
-4.0
2009
Q3
Q4
1.7
1.7
-0.5
-6.0
-8.0
-4.6
Q4
0.0 0.4
-2.0
Q1
Q2
Q3
Q4
Q1
2008
Q3
0.6
0.0
0.3
0.2
0.0
3.4
3.1
2.0
1.4
2.0
4.4
4.0
Q1
Q2
Q3
Q4
2010
Q1
2011
Q1
Q2
2009
Q3
Q4
2010
Q1
2011
The former Yugoslav Republic of Macedonia
8.0
6.0
5.2
6.5
5.9
4.0
The crisis affected the three
countries at different times and to
different degrees…
Q2
5.1
3.1
2.5
1.2
2.0
1.1
1.3
Q2
Q3
0.0
-2.0
-0.8
-4.0
-1.3
-1.9 -2.2
-6.0
-8.0
Q1
Source: National Statistical Offices
Q2
Q3
2008
Q4
Q1
Q2
Q3
2009
Q4
Q1
2010
Q4
Q1
2011
The crisis has resulted in job losses, especially for youth
Percentage change in youth and adult
employment rates (2008- 2010)
Youth (15-24)
Youth (15-24)
Adults (25-64
3.0
12.0
1.9
2.0
Percentage change in youth and adult
unemployment rates (2008- 2010)
Adults (25-64
10.6
10.0
1.0
8.7
8.0
0.0
6.0
-0.3
-1.0
-2.0
4.0
-3.0
-4.0
-5.0
5.2
2.7
2.0
-3.9
-3.8
0.0
-6.0
-6.0
-7.0
CRO
MKD
-6.5
SRB
-2.0
-1.2
-2.7
-4.0
CRO
Source: National LFS , Annual data, 2008-2010
MKD
SRB
Policy responses to counteract the crisis
Policy responses (1)
The monetary authorities reacted by injecting liquidity into the market and
intervening to stabilize the exchange rate. Increasing expenditures and
declining revenues widened the fiscal deficits, especially in Croatia and
Serbia .
1.0
0.6
0.0
-1.0
-1.0
-1.4
-2.0
-3.0
-1.9
-2.5
-2.6
-2.5
-2.6
-3.3
-4.0
-4.2
-5.0
-4.7
-4.8
-6.0
2007
2008
Croatia
2009
Former Yugoslav Republic of Macedonia
2010
Serbia
Policy responses (2)

To protect public finances the government of Croatia introduced new
taxes (special tax on salaries, pensions and other income) and
increased existing ones (VAT rate), reduced the wage bill of the public
sector and decreased public discretionary spending;
 The Serbian government subsidized credits to enterprises and
households, reduced public expenditures (freeze of public sector
salaries and pensions and shelving of public investments), and
increased taxes (excise duties and tax on mobile calls);
 The government of the former Yugoslav Republic of Macedonia
introduced measures to support enterprises (lower tariffs, social
contributions rates, profit taxes); it approved a large infrastructure
investment plan; it established a Fund for agricultural land (to be
distributed to eligible unemployed) and, finally it enacted a freeze in
public sector wages.
Policy responses (3)

Public expenditures on the unemployment and social assistance
benefits increased, but low coverage and inaccurate targeting
mechanisms limited their action as automatic stabilizers;

Active labour market policies were restructured to respond to
the needs of the groups most likely to be more affected by the
crisis (youth, long-term unemployed and low skilled workers).

All three countries expanded their training and apprenticeship
programmes as well as public works schemes;

Short-time work programmes had low take up in Croatia, while
in Serbia they were not introduced due to lack of funds;

However, the amount of funds made available was in most
instances insufficient to have an impact on unemployment.
Pathways to recovery
Job recovery challenges (1)

The crisis exposed the limits of growth based on expanding
domestic consumption, fuelled by large inflows of foreign
savings, mainly directed towards non-tradable sectors. Such a
development strategy is vulnerable to external shocks,
especially when large capital inflows do not reflect real savings.

To make the recovery sustainable, many are advocating for a
new growth model based on enhancing domestic savings,
investment and labour force participation to increase the
contribution of labour to economic growth (Growth model for
Serbia and Economic Recovery Plan in Croatia);

What is certain is that economies will grow at a much lower pace
compared to the period before the crisis and that it will take
much longer for the labour markets to return on a positive path.
Job recovery challenges (2)

The reduction of budget deficits is currently the main objective
of Croatia, Serbia and the former Yugoslav Republic of
Macedonia.

Attempts at reducing the budget deficit too rapidly could lead to
a fall in aggregate demand, output and employment and to deficit
increases, demanding the imposition of further restrictive
measures;

The composition of public expenditure cuts is also important.
Public spending on health, education, infrastructure, basic
income support and key productive investments needs to be
protected not to endanger future growth;

Foremost, employment needs to become central to national
economic policies and not be a residual outcome of private
sector-led economic growth;
Which way forward? (1)
There are still structural issues that the three country need to addressed:

A comprehensive industrial policy and the acceleration of reforms to
promote enterprise development would increase productivity and
competitiveness and could shift the composition of investment from
the non-tradable to the tradable sector;

A better ratio of direct to indirect taxation in Serbia and Croatia would
reduce the regressivity of the tax system.

A careful revision of the social security tax wedge – negotiated with
the social partners − could improve participation and employment
rates, particularly if combined with administrative reforms to broaden
the tax base and reduce informality;

The duality of the labour market needs to be addressed, first through a
better enforcement of existing rules and secondly by limiting the
application of temporary contracts to specific circumstances.
Which way forward? (2)

The unemployment benefit system should allow temporary changes in
eligibility criteria and/or replacement rates. At the same time, the
effectiveness of social assistance could be improved by streamlining
and simplifying existing programmes and enhancing targeting;

The reform of the education and training system needs to be
accelerated to remedy the growing skills gap, with greater inputs from
industry;

As young people face labour market disadvantages, an early
identification of risk factors is of the essence to provide effective
employment assistance.

Multi-component interventions that combine remedial education and
training with work-experience programmes and job-search assistance,
as well as incentives for employers to hire young workers, have
demonstrated to be more cost-effective than single measures.
Which way forward? (3)

There is a need to gradually shift emphasis to ALMPs that are well
targeted, respond to labour market requirements and involve the social
partners in their design, monitoring and evaluation.

In the short term, programmes such as job subsidies, reductions of
social security contributions, public work programmes and
entrepreneurship development can support job creation. Once labour
demand recovers, more effort should be deployed in improving job
search services;

Collective bargaining has an important role to play in dealing with the
challenges wrought by the crisis.

As the three countries still face a number of challenges in tackling the
effects of the crisis and improving competitiveness it is of key
importance that social dialogue institutions be given a role in the
monitoring of the implementation of anti-crisis measures on the one
hand, and in shaping structural reforms on the other.
THANK YOU