Europe and Central Asia Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Spring Meetings 2022 © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Europe and Central Asia Albania Kazakhstan Russian Federation Armenia Kosovo Serbia Azerbaijan Kyrgyz Republic Tajikistan Belarus Moldova Turkey Bosnia and Herzegovina Montenegro Ukraine Bulgaria North Macedonia Uzbekistan Croatia Poland Georgia Romania MPO 1 Apr 22 stronger revenue mobilization. At the same time, despite a 3.3 percent average GDP ALBANIA Key conditions and growth rate over 2015-2019, private invest- ment continues to be discouraged by low challenges firm productivity, an unskilled labor force, limited access to finance, burdensome lo- Table 1 2021 Albania’s growth was robust in 2021. It av- gistics and poor market integration. How- Population, million 2.8 eraged 10.4 percent over the first three ever, at 28.4 percent of GDP, public rev- GDP, current US$ billion 17.2 quarters, fully offsetting the losses caused enues provide little space to increase GDP per capita, current US$ 6089.5 by the pandemic-induced recession. much-needed investment in public infra- a 32.4 Upper middle-income poverty rate ($5.5) Growth was driven by continued accom- structure and human capital. A Medium- a 36.0 modative monetary and fiscal policies, re- Term Revenue Strategy is under prepara- Gini index b 100.2 construction investment, abundant hydro- tion, which has the potential to increase School enrollment, primary (% gross) Life expectancy at birth, years b 78.6 electric production early in the year, and revenues over the medium run. Total GHG Emissions (mtCO2e) 9.2 the tourism recovery, all of which boosted private demand. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2011 PPPs. For 2022, prospects are uncertain with b/ WDI for School enrollment (2020); Life expectancy many downside risks. The war in Recent developments (2019). Ukraine and continuing sanctions could push energy, food, and commodity prices Higher consumer confidence, increased even higher, shrinking households’ pur- demand for Albanian exports, and fiscal A robust recovery took place in 2021 chasing power and consumption. Addi- stimulus supported the strong growth re- thanks to policy stimulus and resurgence tional risks include new, vaccine- resis- covery in 2021. Growth in trade and con- of travel, construction, and extractive ac- tant Covid-19 variants, tighter global fi- struction—the latter connected to recon- nancial and trade conditions, and re- struction and new infrastructure pro- tivity. Private investment, consumption, newed travel restrictions. jects—contributed the most. Favorable and public spending drove growth, while Public debt increased further in 2021, reach- hydrologic conditions have boosted ex- public debt remained high. Poverty is ex- ing 78.4 percent of GDP. The government tractives and energy production and pected to have declined below pre-pan- suspended the fiscal rule of a declining tourism exports. debt-to-GDP ratio and issued a Eurobond of Jobs did not increase in 2020/2021. There demic levels, despite a sluggish labor mar- EUR650 million, benefitting from the coun- were over 16 thousand fewer employed ket. Growing inflation and the war in try’s stable B+ rating. At its current level, the people in 2021 than in 2019. Employment Ukraine threaten economic and poverty high government debt is at significant grew only in ICT, construction, transport, prospects in 2022. rollover risk. Given the current inflation and retail and wholesale, and utilities. At the expected monetary policy tightening in same time, labor force participation fell high-income economies, reducing Alba- for the second consecutive year among all nia’s public debt and strengthening its fiscal age groups. As a result, the unemploy- policy credibility are vital. ment rate was stable at 11.5 percent. The Productivity-enhancing public investment formal real wage increased by 3.7 percent is crucial to boost growth but will require in 2021, close to the 2019 increase, while FIGURE 1 Albania / Headline inflation and core inflation FIGURE 2 Albania / Actual and projected poverty rates and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 4 45 650000 630000 40 3 610000 35 590000 2 570000 30 550000 1 25 530000 20 510000 0 490000 15 470000 -1 Inflation (CPI) Core inflation 10 450000 2016 2018 2020 2022 2024 -2 Upper middle-income pov. rate Real GDP pc Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Sources: INSTAT and World Bank. Source: World Bank. Notes: see Table 2. MPO 3 Apr 22 the minimum wage increased by 13.1 per- high infrastructure investment and subse- cent in real terms. quent demand for imports. Still, given the strong growth in GDP per Outlook In the baseline scenario, public debt is ex- capita in 2021, poverty is estimated to have pected to decline slightly to 78.1 percent dropped significantly from 31.4 percent in As of March 2022, the baseline scenario of GDP in 2022, and more significantly 2020 to 22 percent in 2021. projects economic activity to expand at its over the medium term. However, the fis- Inflation rose rapidly during the fourth pre-pandemic, pre-earthquake historical cal balance could further deteriorate in quarter, reaching 3.7 percent in December rate. However, the war in Ukraine could a worsening international context, forcing 2021. Rising food, energy, transport and further increase inflation, disrupt supply the government to cut capital spending to commodity prices risk undermining do- chains, disturb financial markets and un- prevent a hike in the debt-to-GDP ratio. mestic demand and increasing vulnerabil- dermine confidence; all of which could Given Albania’s growing reliance on ex- ity. Food prices increased by 3.9 percent dim Albania’s growth prospects. In turn, ternal financing, the exchange rate, inter- in 2021, close to double the increase of the a sluggish job market combined with di- est rate, and refinancing related risks re- overall basket. This will hurt the bottom 40 minished purchasing power could damp- main elevated. percent, whose food consumption is over en poverty reduction. Consistent with the baseline scenario in half of total consumption. The Central Government spending is expected to de- the years following, private consumption Bank kept the policy rate unchanged but cline gradually, in line with fiscal consol- is projected to return as the primary dri- recently announced an expected tighten- idation plans. However, higher spending ver of GDP growth. Private investment ing through 2022. may be needed to guarantee energy sup- could provide further support to growth Higher tax revenues and new debt al- ply through more costly energy imports if business climate reforms are imple- lowed the government to increase infra- and support to the fragile energy SOEs. mented. A key medium-term reform pri- structure spending. The government also Service exports, including tourism and ority is the need to boost revenue col- raised subsidies to the energy State- fast-expanding business-process opera- lection and achieve fiscal consolidation, Owned Enterprises (SOEs) to ensure en- tions should return to their pre-pandemic while allowing for significant growth-en- ergy supply during the last quarter of growth trends. The current account deficit hancing spending. 2021. Contingent liabilities from SOEs is expected to reach 7.9 percent of GDP on- pose major risks for the budget. ly in 2024, as terms of trade worsen due to TABLE 2 Albania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.1 -4.0 8.6 3.2 3.4 3.5 Private Consumption 3.2 -2.4 3.7 2.6 2.7 2.9 Government Consumption 2.9 1.6 9.4 6.9 -1.0 2.6 Gross Fixed Capital Investment -3.7 -2.0 18.5 -0.9 1.7 3.4 Exports, Goods and Services 2.6 -25.6 29.2 4.8 8.0 6.2 Imports, Goods and Services 2.3 -19.9 18.5 1.9 3.3 4.1 Real GDP growth, at constant factor prices 2.4 -3.4 8.6 3.1 3.4 3.5 Agriculture 0.6 0.3 -0.2 0.2 0.3 0.5 Industry 0.9 -3.5 10.8 5.0 5.0 5.0 Services 3.8 -4.7 10.9 3.2 3.6 3.7 Inflation (Consumer Price Index) 1.4 2.2 2.6 5.0 4.0 3.0 Current Account Balance (% of GDP) -7.9 -8.8 -8.3 -9.6 -8.7 -7.9 Net Foreign Direct Investment (% of GDP) 7.5 6.8 6.4 6.5 6.6 6.6 Fiscal Balance (% of GDP) -1.9 -6.8 -5.8 -5.2 -2.8 -2.7 Debt (% of GDP) 67.4 77.2 78.4 78.1 76.4 75.1 Primary Balance (% of GDP) 0.1 -4.7 -3.8 -2.5 0.0 0.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 28.1 31.3 22.0 19.4 16.9 14.7 GHG emissions growth (mtCO2e) -1.5 -6.5 1.6 -1.2 -1.0 -0.8 Energy related GHG emissions (% of total) 47.4 45.4 46.2 45.7 45.2 44.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2016-SILC-C and 2018-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using customized elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 4 Apr 22 The fifth wave of COVID-19 infections abated in Armenia by end-February. After ARMENIA Key conditions and a slow start, the pace of vaccination picked up in late 2021, after mandatory require- challenges ments were introduced for workers to pro- duce proof of vaccination or to submit to Table 1 2021 Prudent macroeconomic policies, includ- weekly testing. Still, only 43 percent of the Population, million 3.0 ing a more-effective inflation targeting adult population was fully vaccinated as of GDP, current US$ billion 13.9 regime, a robust fiscal rule, sound financial March 13, 2022. GDP per capita, current US$ 4670.2 sector oversight, and pro-competition re- After a prolonged period of low inflation, a 0.4 International poverty rate ($1.9) forms helped Armenia weather the twin price levels picked up in late 2020 and re- a 6.9 crises in 2020 with a lower-than expected mained elevated in 2021. Inflation peaked Lower middle-income poverty rate ($3.2) a 44.7 increase in poverty rates. at 9.6 percent yoy in November before Upper middle-income poverty rate ($5.5) Gini index a 25.2 While domestic political uncertainty has moderating to 6.5 percent yoy in February School enrollment, primary (% gross) b 91.2 subsided since snap elections in mid-2021, 2022. Food inflation peaked at 17 percent b 75.1 Armenia still faces significant structural in November 2021, driving two-thirds of Life expectancy at birth, years constraints, such as weak connectivity, overall inflation. In response, the Central Total GHG Emissions (mtCO2e) 9.8 closed borders and no economic relations Bank of Armenia (CBA) increased the pol- Source: WDI, Macro Poverty Outlook, and official data. with two of its four neighbors and chal- icy rate nine times by a cumulative 500 a/ Most recent value (2020), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy lenges related to high unemployment, skills basis points between December 2020 and (2019). mismatches and firm competitiveness. March 2022. The budget deficit declined from 5.1 per- cent of GDP in 2020 to 4.3 percent in The impact of the war in Ukraine and 2021. Revenues were up 8 percent yoy sanctions on Russia is likely to be sig- Recent developments due to higher VAT and state duties, fol- lowing the introduction of a new export nificant given Armenia’s strong eco- After contracting in 2020 by 7.4 percent duty for minerals. Expenditure was up 5 nomic links with Russia. The economy yoy, the Armenian economy started to re- percent yoy driven by current expendi- rebounded by 5.7 percent year on year cover in 2021, growing at 5.7 percent yoy. tures. Public debt to GDP declined to 63.4 (yoy) in 2021 but is forecast to grow at Growth was driven by private and public percent as at end-2021 from 67.4 percent consumption with smaller contributions a year earlier. only 1.2 percent yoy in 2022, with an from investment and net exports. The external balance improved due to a uncertain outlook subject to high down- On the production side, services rebound- quicker rebound in exports than imports, side risks. Lower growth and remit- ed from a sharp slump in 2020, and in- and a sharp increase in remittances. FDI al- tances are likely to slow poverty reduc- dustry and construction contributed mod- so rebounded, albeit from a low base. The tion and increase vulnerability. estly to growth. Agriculture contracted exchange rate stabilized following the de- for the sixth straight year, reflecting un- cline in political uncertainty in mid-2021 reformed land markets, uneven access to and reached pre-COVID levels in February irrigation and low resilience to changing 2022. However, the onset of the war in weather patterns. Ukraine brought fresh volatility. FIGURE 1 Armenia / GDP growth, fiscal and current account FIGURE 2 Armenia / Actual and projected poverty rates and balances real GDP per capita Percent Poverty rate (%) Real GDP per capita (millions constant LCU) 8 70 3 60 4 2 50 0 2 40 -4 30 1 20 -8 1 10 -12 0 0 2017 2018 2019 2020 2021e 2022f 2023f 2024f 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Real GDP growth, % change CAB, % of GDP International poverty rate Lower middle-income pov. rate Fiscal balance, % of GDP Upper middle-income pov. rate Real GDP pc Sources: Statistical Committee of Armenia; Central Bank of Armenia; World Bank Source: World Bank. Notes: see Table 2. staff projections. MPO 5 Apr 22 The national absolute poverty rate rose to with fuel imports accounting for 9 per- an increased tourism revenues associated 27 percent in 2020 from 26.4 percent in cent of imports in 2021. with an inflow of Russian citizens follow- 2019. Existing social protection and social The growth forecast has been downgrad- ing the onset of the war. assistance mechanisms (pensions and the ed for 2022 from 5.3 percent pre-war to Higher commodity prices will keep infla- Family Benefits Program) provided a crit- 1.2 percent, with lower remittances and tionary pressures elevated in 2022, but ical buffer preventing a further increase real wages impacting consumption; CBA’s inflation targeting is expected to an- in poverty. heightened uncertainty impacting invest- chor inflation in the medium-term as exter- ment; and exports contracting due to the nal price pressures subside. projected contraction in Russia and slow- Based on the forecasted macroeconomic ing global and regional growth. On the impact, poverty (using the upper middle Outlook production side, agriculture will continue income poverty line) could reach 39.6 to be weighed down by structural chal- percent of the population in 2022, which The impact of Russia’s invasion of Ukraine lenges; industry will be impacted severely represents a 3 percentage points increase on Armenia’s economy is likely to be sig- by uncertainty; and services will slow relative to a counter-factual scenario in nificantly negative, although the magni- along with consumption. In the medium- the absence of the war. Vulnerability tude remains uncertain. term, growth is expected to pick up in may increase due to decreased remit- Armenia has strong economic links with 2023 and 2024, but at a slower pace than tances, increased utility bills and in- Russia, which accounted for 28 percent projected pre-war. creased food prices. of Armenia’s exports and 30 percent of In line with slower growth, revenue collec- The forecast is uncertain, with possible its imports on average from 2018-2021 tion is expected to decline, and spending downgrades, given the evolving global and is the source of all of Armenia’s pressures are expected to rise, particularly and regional environment. Risks include wheat and gas imports. In 2021, remit- through increased social assistance, lead- protracted conflict in Ukraine, a pro- tances from Russia amounted to 5 per- ing to a delay in fiscal consolidation. This longed and more significant slowdown cent of GDP, 41 percent of net FDI will push up the debt to GDP to about 67 in Russia, further disruption in global stock was associated with Russian enti- percent of GDP at the end of 2022, further commodity markets, and still unresolved ties, and Russian tourists accounted for away from statutory limits. geopolitical issues around Armenian bor- 40 percent of all tourist arrivals. In ad- The current account deficit is projected ders. On the upside, the inflow of persons dition, Armenia will also be impacted to widen due to lower exports and net from Russia, if sustained, may have a by elevated global food and fuel prices, remittances. Exports may be boosted by positive impact of the economy. TABLE 2 Armenia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.6 -7.4 5.7 1.2 4.6 4.9 Private Consumption 11.5 -13.8 3.4 -1.3 5.4 5.7 Government Consumption 12.9 15.2 5.0 -1.2 1.7 1.0 Gross Fixed Capital Investment 4.4 -8.6 7.7 -0.9 7.5 9.1 Exports, Goods and Services 16.0 -33.4 16.5 -8.5 6.5 7.7 Imports, Goods and Services 11.6 -31.4 10.9 -12.0 8.0 9.3 Real GDP growth, at constant factor prices 7.7 -7.1 5.4 1.2 4.6 4.9 Agriculture -5.8 -4.1 -1.4 0.2 0.8 1.0 Industry 10.5 -3.0 3.8 -1.1 2.9 3.1 Services 9.7 -9.8 7.9 2.6 6.3 6.5 Inflation (Consumer Price Index) 1.4 1.2 7.2 9.8 7.5 6.8 Current Account Balance (% of GDP) -7.4 -3.8 -3.3 -3.7 -4.9 -5.4 Net Foreign Direct Investment (% of GDP) 1.7 0.6 2.6 1.6 1.8 2.3 Fiscal Balance (% of GDP) -0.8 -5.1 -4.3 -5.8 -4.9 -3.3 Debt (% of GDP) 53.7 67.4 63.4 66.9 67.6 66.6 Primary Balance (% of GDP) 1.6 -2.4 -1.7 -3.0 -2.0 -0.4 a,b,c International poverty rate ($1.9 in 2011 PPP) 1.1 0.4 0.3 0.2 0.2 0.2 a,b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.8 6.9 5.7 5.4 4.8 4.0 a,b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 44.0 44.7 40.4 39.6 36.2 32.7 GHG emissions growth (mtCO2e) 6.4 -10.9 9.5 5.2 7.8 7.2 Energy related GHG emissions (% of total) 62.9 61.1 64.8 65.4 66.5 67.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2020-ILCS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 based on GDP per capita in constant LCU. c/ The poverty rates for 2019 are not strictly comparable with 2018 due to revisions on the ILCS starting in 2019. MPO 6 Apr 22 declined by 7.3 percent in 2021, with a 9.6 percent drop in non-energy sec- AZERBAIJAN Key conditions and tor investment, driven largely by lower private investment. challenges Rebounding domestic demand, rising global commodity prices, and increased Table 1 2021 Azerbaijan faces structural challenges in administrative prices pushed CPI inflation Population, million 10.2 developing a vibrant non-energy private to 6.7 percent in 2021, overshooting the GDP, current US$ billion 54.6 sector. These include a large state foot- central bank’s target range of 4±2 percent GDP per capita, current US$ 5358.1 print, institutional challenges, an undiver- and prompting a 150-basis point policy a 95.8 School enrollment, primary (% gross) sified asset mix with a low and stagnant rate increase since August 2021, pushing it a 73.0 level of investment in human capital, the to 7.75 percent in March 2022. Life expectancy at birth, years Total GHG Emissions (mtCO2e) 79.9 lack of a level playing field, and shallow Soaring energy prices boosted external Source: WDI, Macro Poverty Outlook, and official data. financial markets. This, in turn, has con- revenues, and the current account record- a/ WDI for School enrollment (2020); Life expectancy tributed to low private investment in the ed a surplus of 15.2 percent of GDP. This (2019). non-energy sector. was offset by financial outflows (9.2 per- Following military tension with Armenia cent of GDP). Yet the overall balance of in 2020, a tripartite statement on armistice payments was in surplus at 5.6 percent of Russia’s invasion of Ukraine poses was signed between the two countries and GDP in 2021. downside risks to Azerbaijan’s economic Russia in November 2020. The reconstruc- Rapid economic recovery and high State tion effort has progressed in 2021, even as Oil Fund (SOFAZ) revenues supported outlook, particularly in the non-energy the situation remains fragile, especially fiscal revenues, which jumped 38.7 per- sector. This follows a strong rebound in along the border. cent, while fiscal spending increased by 2021, as recovering domestic and exter- 2.8 percent in 2021. As a result, the fiscal nal demand supported growth in both balance recorded a surplus of 4.2 percent energy and non-energy sectors, while of GDP in 2021. rising global energy prices aided exter- Recent developments According to official data, the unemploy- ment rate fell to 6 percent in 2021, from 7.2 nal and fiscal balances. Soaring energy Azerbaijan experienced a strong econom- percent in 2020, but was still above pre-pan- prices will provide a short-term wind- ic rebound in 2021, with output recover- demic trends. The official national poverty fall, but mounting inflationary pressures ing to pre-COVID-19 levels by end-year. rate reached 6.2 percent in 2020, on a rise of The energy sector grew by 1.8 percent, 1.4 percentage points from 2019. Rural and lower remittances are expected to with production constrained by OPEC+ poverty increased disproportionately, as weigh on poverty. quotas for some parts of the year. Non- households experienced job and income energy sectors’ growth was more robust losses in the COVID-19 induced crisis peri- at 7.2 percent, led by services (especially od. The economic rebound in 2021, and in- transport, hospitality, and retail trade) creased public wages and pensions, likely and manufacturing. led to improved household income in 2021, On the demand side, consumption re- although in real terms, this was offset partly bounded strongly, while investment by higher inflation. FIGURE 1 Azerbaijan / Non-oil GDP growth and oil price FIGURE 2 Azerbaijan / Official poverty rate and unemployment rate US$/bbl Percent Percent of population Percent 120 12 10 10 10 100 8 8 8 80 6 6 6 4 60 2 4 4 40 0 -2 20 2 2 -4 0 -6 0 0 2012 2014 2016 2018 2020 2022 2024 2010 2012 2014 2016 2018 2020 Average Brent oil price (LHS) Non-oil GDP growth (RHS) Official poverty rate (LHS) Unemployment rate (RHS) Sources: State Statistical Committee of Azerbaijan, World Bank, and World Bank Source: State Statistical Committee of Azerbaijan. Note: The World Bank has not staff estimates. reviewed the official poverty rates for 2013–20. MPO 7 Apr 22 production stabilizes and the non-energy prices eases and global monetary condi- sectors face headwinds from low invest- tions tighten. Outlook ment levels, subdued agriculture yields The external balance is expected to record (due to still stressed water supplies) and a sizable surplus in the medium-term, sup- Economic growth is currently forecast remaining spillover effects from regional ported by high energy prices. Imports are at 2.7 percent in 2022, which represents supply chain disruptions. projected to grow in 2022, in line with the a 0.9 percentage point downgrade from On the demand side, consumption will continued recovery in domestic demand, the baseline forecast prior to the inva- remain the principal driver of growth in and moderate in the medium term as sion of Ukraine. 2022, as there is still some pent-up de- growth slows. A short-term increase in oil and gas pro- mand accumulated from 2020 and early The fiscal balance is estimated to be in duction would propel growth in the en- 2021. Investment is expected to remain surplus in the medium term, averaging at ergy sector in 2021, but this increase is subdued with public investment stable 4.7 percent of GDP, supported by higher expected to subside beyond 2023. After and private investment anemic amid per- oil and gas prices even as spending re- a strong rebound in 2021, growth in the sisting structural challenges. External de- mains elevated. non-oil/gas sectors is expected to moder- mand is likely to moderate, as growth The negative impact on poverty in 2022 is ate in 2022. At the same time, spillovers in major trading partners declines. Non- expected to be amplified by higher infla- from Russia’s invasion of Ukraine and as- energy exports, even though relatively tion and reduced remittances from Rus- sociated sanctions on Russia are expected small, will be hard hit as Russia was the sia. Even though these remittances ac- to adversely affect export-oriented non- destination for 32 percent of these exports counted for only about 1 percent of GDP energy sectors, especially agriculture and in 2021 (2.5 percent of GDP). in 2021, they disproportionally benefit the tourism. Other sectors, e.g., manufactur- Inflation is projected to stay elevated in poor, especially those in small towns and ing, are also expected to face difficul- 2022, above the central bank’s target, rural areas. ties in accessing critical imports such as due to higher import prices. Food prices This forecast is subject to uncertainty given wood, steel, and fertilizers. are forecast to continue rising, as dis- the evolving global and regional environ- In the medium term, assuming a stabiliza- ruptions to global commodity markets ment, with elevated downside risks tion of the geopolitical situation, growth is linger. In the medium-term, inflation is around protracted war and disruption to projected to average at 2.4 percent during projected to moderate, as consumption global commodity markets. 2022-24, close to its potential, as oil and gas growth slows, pressure from imported TABLE 2 Azerbaijan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.5 -4.3 5.6 2.7 2.2 2.3 Private Consumption 4.2 -5.1 7.0 4.0 4.1 4.2 Government Consumption 7.9 4.8 3.8 3.9 3.2 2.3 Gross Fixed Capital Investment -2.4 -7.1 -6.0 -3.6 -1.4 -1.0 Exports, Goods and Services 1.5 -8.1 5.6 2.7 1.7 1.8 Imports, Goods and Services 2.2 -10.5 2.5 2.6 2.7 2.7 Real GDP growth, at constant factor prices 2.5 -4.4 5.6 2.7 2.2 2.3 Agriculture 7.3 1.9 3.3 1.1 1.8 3.2 Industry 0.4 -5.2 4.1 2.6 1.1 1.1 Services 5.1 -4.4 8.6 3.2 4.0 4.0 Inflation (Consumer Price Index) 2.7 2.8 6.7 9.0 6.6 6.0 Current Account Balance (% of GDP) 9.1 -0.5 15.2 22.7 16.5 12.3 Net Foreign Direct Investment (% of GDP) -2.9 -1.5 -4.1 -1.7 -1.2 -1.2 Fiscal Balance (% of GDP) 9.0 -6.5 4.2 6.4 4.2 3.5 Debt (% of GDP) 18.8 18.4 16.2 16.1 16.2 15.8 Primary Balance (% of GDP) 9.7 -5.7 4.8 6.8 4.7 3.9 GHG emissions growth (mtCO2e) 1.6 -2.3 2.7 0.7 0.3 1.0 Energy related GHG emissions (% of total) 42.9 44.1 46.6 48.1 49.3 50.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 8 Apr 22 the EU countries. In case the disruption of trade with Ukraine and restrictions on BELARUS Key conditions and potash trading are taken into account, up to one-third of merchandize exports is af- challenges fected. Although the price for natural gas imported from Russia will remain at the Table 1 2021 In recent years, Belarus’s economy has en- 2021 level of US$128.5 per 1,000 cubic Population, million 9.4 countered major headwinds as its growth meters, this preference will only partial- GDP, current US$ billion 68.4 trajectory remains shaped by external fac- ly cushion the impact of external shocks. GDP per capita, current US$ 7279.8 tors. This is due to structural rigidities, an As a result, real GDP could decline by at a 0.1 Upper middle-income poverty rate ($5.5) outsized and unreformed public sector, least 6.5 percent in 2022. The forecasting a 24.4 and reliance on deepening economic and is subject to uncertainties related to the Gini index b 100.5 financial integration with Russia. The external circumstances, depending on the School enrollment, primary (% gross) Life expectancy at birth, years b 74.2 economy has been left vulnerable to re- course and the outcome of the Ukraine- Total GHG Emissions (mtCO2e) 60.7 gional and global shocks, such as the Russia war. COVID-19 pandemic. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2020), 2011 PPPs. Disputed 2020 elections led to sectoral b/ WDI for School enrollment (2018); Life expectancy economic sanctions, which had limited ef- (2019). fects. Export earnings increased, helping Recent developments to maintain a stable exchange rate and achieve a current account surplus in 2021. In 2021, real GDP grew 2.3 percent y/y on The Ukraine-Russian war has brought Public debt pressures were alleviated the back of improved external demand and substantial challenges to the Belarusian through a combination of refinancing and higher export prices. Sectoral economic economy related to new sectoral sanc- spending of foreign reserves, while their sanctions imposed since mid-2021 had lim- level has been boosted by the August ited effects, while the Ukrainian market (a tions, the disruption of trade with 2021 IMF SDR allocation. Nevertheless, destination for more than 13 percent of Ukraine, and negative spillovers from the banking sector pressures persist, as with- merchandize exports) remained accessible. Russian economy. While in 2022 debt to drawal of FX deposits by households has Despite a broadly stable BYN/US$ ex- the major creditors could be restructured, continued throughout 2020-2021. A bank change rate, consumer price inflation ac- run has been prevented by a high share celerated to 9.97 percent y/y. This is due the ability to meet the 2023 Eurobond re- of term deposits: about two thirds of all to an increase in administratively regulat- payment looks questionable. Household household deposits, and more than 60 ed prices, imposition of VAT for selected incomes are expected to fall and poverty percent of FX deposits. medicines, and imported inflation, as aver- to increase as unemployment grows and Fresh sectoral economic sanctions intro- age import prices went up by 21.3 percent. recession deepens. duced on March 2, 2022, seek to prevent Expenditure cuts of 1.5 pp of GDP amid exports of tobacco, petroleum, fuels, a tiny increase of revenues by 0.3 pp potash fertilizers, metals, iron, and rubber of GDP allowed balancing the general products to the EU. These restrictions government budget. Public debt repay- cover at least 13 percent of merchandize ment pressures have been alleviated by exports, or more than a half of exports to refinancing from Russia for US$1bn and FIGURE 1 Belarus / FX deposits and gross international FIGURE 2 Belarus / Actual and projected poverty rates and reserves, 2008-2022 real private consumption per capita US$ bn US$ bn Poverty rate (%) Real private consumption per capita (constant LCU) 15 10.0 18 6000 16 12 8.0 5000 14 12 4000 9 6.0 10 3000 6 4.0 8 6 2000 3 2.0 4 1000 2 0 0.0 2008 2010 2012 2014 2016 2018 2020 2022 0 0 Corporates: FX deposits, US$ bn (Jan- 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Households: FX deposits, US$ bn Feb) Upper middle-income pov. rate Real priv. cons. pc Gross international reserves, US$ bn rhs Source: NBRB. Source: World Bank. Notes: see table 2. MPO 9 Apr 22 issuing of FX-denominated government percent, while real pensions decreased by will likely be attempts to redirect sales out- bonds by US$1.2bn, along with spend- 3.1 percent –the first decrease in five years. side the EU market and increase exports ing of foreign reserves in Q1 2021 of However, the national poverty rate fell to Russia in a bid to fill the void caused US$0.5bn. from 4.8 percent in Q4 2020 to 3.9 percent by foreign companies discontinuing sales The consequences of the Ukraine-Russia in Q4 2021. and/or leaving the Russian market. war are yet to materialize. By mid-March, Even so, Belarus’s exports are expected to these have been limited to a 20-percent decline heavily: coupled with tighter mon- nominal exchange rate depreciation of etary and fiscal policy and lower house- BYN vis-à-vis US$, with commercial banks Outlook hold consumption, this is projected to lead imposing restrictions on FX operations, to a real GDP decline of at least 6.5 percent while the NBRB increased its policy rate by The growth outlook is clouded by extreme in 2022. 2.25 pp to 12 percent p.a. As the stock of uncertainties as economic sanctions con- Given that in 2022 more than 40 percent of FX-denominated loans exceeds 60 percent tinue to widen, and as Russia – Belarus’s repayments fall on Russia and the Russia- of the total, depreciation weakens corpo- major trade and financing partner – is fac- controlled EFSD, the debt burden will be rate balance sheets. The price of Belarus’s ing a slew of far-reaching economic and fi- eased through bilateral debt restructuring. 2023 sovereign bonds collapsed to below nancial sector restrictions. Various sectoral However, this is not an option in case of 20 percent of their nominal value. sanctions against the Belarusian economy 2023 Eurobond repayments for US$ 800 m. Business sentiment has continued to affect up to one-third of its merchandise Falling GDP will increase poverty and worsen, with IT companies relocating exports, stemming from blocking sales of household vulnerability. Broadening of abroad, and selected foreign companies a broad range of commodities. Earnings price controls could have limited effect, restrict their supplies, affecting manufac- from potash exports – estimated to be leading instead to shortages of certain turers in Belarus. equal to 3.7 percent of 2021 GDP – are to consumer goods, also due to the scarcity By the end of 2021, household disposable fall considerably as major transportation of FX in the economy and related restric- income growth decelerated from 3.9 to 2 routes are sealed. On the other hand, there tions on imports. TABLE 2 Belarus / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.4 -0.9 2.3 -6.5 1.5 1.6 Private Consumption 5.1 -1.4 2.6 -4.8 1.5 1.8 Government Consumption 0.4 -1.1 -0.5 -0.3 -1.0 1.3 Gross Fixed Capital Investment 6.2 -6.8 -5.6 -18.7 6.2 4.3 Exports, Goods and Services 1.0 -3.2 9.5 -14.2 4.1 3.7 Imports, Goods and Services 5.2 -7.9 5.8 -18.6 5.1 4.8 Real GDP growth, at constant factor prices 1.5 -0.9 2.3 -6.5 1.5 1.6 Agriculture 3.0 4.9 -4.2 -1.8 2.8 3.3 Industry 1.4 -0.7 6.5 -9.4 3.2 5.8 Services 1.3 -2.0 0.2 -4.9 0.0 -2.1 Inflation (Consumer Price Index) 4.7 7.4 10.0 21.1 11.9 7.2 Current Account Balance (% of GDP) -1.8 -0.2 2.6 -0.8 -1.3 -1.1 Net Foreign Direct Investment (% of GDP) 2.0 2.1 1.7 0.6 0.6 0.5 Fiscal Balance (% of GDP) 2.5 -1.7 0.0 -1.1 -0.3 0.0 Debt (% of GDP) 37.5 41.1 36.0 36.4 35.5 34.9 Primary Balance (% of GDP) 4.3 0.0 1.6 0.5 1.2 1.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 0.2 0.2 0.2 0.3 0.3 0.2 GHG emissions growth (mtCO2e) -3.1 -2.7 -3.5 -6.8 -1.0 -0.5 Energy related GHG emissions (% of total) 86.1 85.9 85.6 85.4 85.7 85.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2019-HHS. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 10 Apr 22 account deficits, financed largely by net FDI inflows. BOSNIA AND Key conditions and Steady, albeit low, economic growth has not translated into more and better jobs, challenges HERZEGOVINA with a large share of the workforce active in the informal sector and stalled poverty BiH has been a potential EU candidate reduction according to the latest official since 2016. Yet, little progress has been data from 2015. Implementation of much Table 1 2021 made in competitiveness-enhancing prod- needed structural reforms remains slug- Population, million 3.3 uct market reforms and in improving the gish due to political frictions, pressures GDP, current US$ billion 21.3 business environment. The internal market from frequent elections, corruption that GDP per capita, current US$ 6513.1 and the state institutional set-up are still pervades all levels of society, and fragmen- Life expectancy at birth, years a 77.4 highly fragmented, while country-wide tation of responsibilities between the two Total GHG Emissions (mtCO2e) 28.3 supervisory and regulatory institutions re- entities and Cantons. As a result of the po- main weak. litical impasse and welfare prospects, BiH Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent WDI value (2019). Macroeconomic stability was maintained exhibits the highest stock of emigration over the last decade largely facilitated by across the Balkans. the currency board peg to the euro, which, together with the EU membership Real GDP growth is expected to deceler- prospects remain a critical economic an- ate to 2.9 percent in 2022 after rebound- chor. Despite real income growing roughly Recent developments ing to 6.5 percent in 2021. Meanwhile, over 3 percent per annum since 2015, per inflation surged to 7 percent in January capita GDP continues to hover around The rebound in economic growth esti- one-third of the EU27 average. A more mated at 6.5 percent in 2021 was an ex- 2022 (yoy) compared to the annual rate of pronounced convergence toward the EU27 ceptional performance, which helped real 2 percent last year. Delayed structural re- average will be difficult to achieve with GDP exceed the pre-crises level. Real forms impede EU accession and potential low investment rates and a growth model growth was driven by a surge in exports, output growth. The war in Ukraine will that relies on private consumption. and robust growth in private consump- likely aggravate price pressures resulting The pandemic has inflicted a significant tion. Meanwhile, inflation accelerated to cost on BiH’s economy, yet a full recovery 7 percent in January 2022 (yoy) and to- in an inflation rate of 4.8 percent in 2022. to the 2019 real income level has been taled 2 percent in 2021 compared to a achieved in 2021. That said, BiH is un- 1.1 percent deflation in 2020. The sharply likely to catch up with the pre-pandemic rising prices during the last quarter of growth trajectory, unless political bottle- 2021 and in January 2022 were caused necks are resolved. by stronger consumer demand, continu- BiH built fiscal buffers prior to the pan- ing supply chain problems, and a high demic by running fiscal surpluses between passthrough effect given the currency 1 and 3 percent of GDP from 2015 to 2019. board arrangement. Food and transport These surpluses helped rein in the current prices accelerated to 12 percent and 13.6 FIGURE 1 Bosnia and Herzegovina / Real GDP growth and FIGURE 2 Bosnia and Herzegovina / Labor market sectoral contributions to real GDP growth indicators, 2020-2021 Percent, percentage points Percent 8 50 44.1 2015 2016 2017 2018 45 42.1 6 40 34.3 35 31.9 4 27.7 30 25 22.6 2 18.4 20 15.2 0 15 10 Agriculture Industry -2 5 Services GDP 0 -4 Activity rate Emp. rate Unemp. rate Long-term 2019 2020 2021f 2022f 2023f 2024f unemp. Rate Sources: BiH Agency for Statistics (BHAS), World Bank staff calculations Sources: LFS 2020 - 2021 report, World Bank staff calculations. MPO 11 Apr 22 percent in January 2022 (yoy), likely dis- from IFIs. The extent of this financial sup- barring the implementation of changes to proportionally affecting the less well-off. port will depend on the de-escalation of the VAT law. Despite a renewed acceleration in political tensions, which have risen signifi- With the global energy market disrupted Covid-19 cases toward the end of 2021 and cantly over the past ten months. due to the war in Ukraine, inflationary in January-February 2022, improvements pressures are assumed to last longer than in the labor market participation and em- initially expected, leaving inflation at ployment rate continued through the end around 4.8 percent. of 2021 (Figure 2). Outlook Several risks tilt the outlook to the down- A surge in tax revenues was not fully offset side. First, protracted effects of the war in by higher spending, which resulted in a Real GDP is projected to decelerate to 2.9 Ukraine would have a negative impact on return to fiscal surpluses estimated at 0.5 percent in 2022 and stabilize below 3.5 per- aggregate demand in BiH through lower percent of GDP in 2021 , after a deficit of cent over the medium term. Growth is ex- business and consumer confidence. Sec- 1.8 percent of GDP in 2020. Higher public pected to be driven by a further pick up ond, war-related uncertainties and sanc- wages, and additional spending on goods in private consumption fueled by remit- tions will dampen the recovery in the EU, and services as well as higher social bene- tances, tightening labor market, and do- adversely impacting demand for BiH ex- fits were aimed at softening the effects of mestic lending in the short term. Invest- ports. However, price and volume effects the pandemic. ment in energy and infrastructure will add for BiH’s exports of iron and steel products The sharp rise in exports narrowed the to the growth stimulus over the medium and aluminium could in part offset the traditionally large merchandise deficit term. Higher exports are likely to be offset negative effects of a slowdown in EU and helped narrow the current account by higher imports mainly for infrastruc- growth. Third, slower growth in the EU shortfall to 3.2 percent of GDP in 2021 ture projects. As the impact of the pandem- could also limit remittances, on which the compared to 3.9 percent in 2020. External ic subsides, and the political paralysis is country is dependent (close to 8 percent of financing largely entailed net FDI in- overcome, the Socio-Economic Program , GDP). Finally, these risks would be further flows, mainly into the foreign-owned fulfilling priorities for EU accession, is ex- aggravated, if geopolitical tensions shift to banking sector, which remained stable pected to gain attention. BiH and exacerbate already significant po- during the pandemic. The fiscal deficit in 2022 is likely to be litical frictions. Without access to international markets, driven by pre-election spending activities. the authorities continue relying on support A return to surplus may occur in 2023, TABLE 2 Bosnia and Herzegovina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.7 -3.1 6.5 2.9 3.1 3.5 Private Consumption 2.8 -4.5 4.0 2.7 3.1 3.5 Government Consumption 2.6 0.5 6.1 2.8 3.0 3.0 Gross Fixed Capital Investment 1.9 -20.2 2.5 -2.3 4.4 3.9 Exports, Goods and Services -0.3 -8.5 28.0 9.0 7.0 8.0 Imports, Goods and Services 0.2 -13.4 17.0 6.0 6.5 7.0 Real GDP growth, at constant factor prices 2.8 -3.1 6.5 2.9 3.1 3.5 Agriculture 2.9 -1.5 3.4 3.0 2.9 2.9 Industry 1.9 -3.0 2.0 2.6 3.2 3.2 Services 3.2 -3.3 8.7 3.0 3.1 3.7 Inflation (Consumer Price Index) 1.2 2.0 2.0 4.8 0.9 0.2 Current Account Balance (% of GDP) -2.9 -3.9 -3.2 -2.4 -3.2 -4.0 Net Foreign Direct Investment (% of GDP) 3.5 2.0 3.3 3.5 3.3 3.2 Fiscal Balance (% of GDP) 1.9 -1.8 0.5 -0.8 0.3 1.1 Debt (% of GDP) 34.3 39.9 37.8 37.4 36.9 36.3 Primary Balance (% of GDP) 2.8 -0.5 1.8 0.1 1.2 1.9 GHG emissions growth (mtCO2e) -2.4 -5.6 4.8 2.3 3.1 3.9 Energy related GHG emissions (% of total) 89.0 88.7 89.1 89.2 89.4 89.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 12 Apr 22 against 2011 to 6.52mn people. Significant outmigration since the start of the transi- BULGARIA Key conditions and tion period, driven by large income gaps and search for better quality of life, has challenges been the main factor behind Bulgaria’s rapid loss of population. Table 1 2021 The long-term structural challenges facing Population, million 6.9 Bulgaria include negative demographic GDP, current US$ billion 77.5 trends, coupled with institutional and gov- GDP per capita, current US$ 11276.0 ernance weaknesses. Institutional gaps Recent developments a 0.9 International poverty rate ($1.9) have been mirrored by suboptimal public a 2.6 service delivery, hindering private sector According to preliminary data for 2021, Lower middle-income poverty rate ($3.2) a 6.2 expansion and undermining inclusive GDP growth accelerated to 4.2% though Upper middle-income poverty rate ($5.5) Gini index a 40.3 growth and shared prosperity. High rates real output is yet to recover to its pre-pan- School enrollment, primary (% gross) b 85.9 of inequality of opportunity limit access to demic level. Final consumption and robust b 74.9 key public services, constraining the abili- growth of exports were the main drivers Life expectancy at birth, years ty of individuals to escape poverty and re- of the recovery. Export expansion was out- Total GHG Emissions (mtCO2e) 44.6 sult in persistently high income inequali- paced by import growth, leading to widen- Source: WDI, Macro Poverty Outlook, and official data. ty. Poverty and inequality are reinforced ing trade and current account (CA) deficits. a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). by inadequacies in the targeting, coverage Investment, however, continued to decline and generosity of the social security sys- throughout 2021. The pandemic, combined tem, limiting its role as a redistributive with a domestic political crisis in most of Following a stronger-than-projected re- mechanism and fiscal stabilizer. 2021, increased investors’ risk aversion, The pace of convergence to average EU while the delayed approval of the national covery in 2021, growth is likely to income levels has been slower than the Recovery and Resilience Plan put addition- slow down in 2022 given higher infla- one observed in other new EU members, al drag on public investment. On the sup- tionary pressures, the war in Ukraine, and Bulgaria continues to rank last in ply side, industry, finance and IT were key and supply chain disruptions. Off the terms of GDP per capita in PPP in the sectoral drivers of growth. EU, at 55 percent of the EU average in Similar to most European countries, Bul- back of a decline in 2021, poverty is 2020. Economic growth and convergence garia saw a rapid acceleration of inflation expected to increase amidst rising food to average EU income levels across the since the summer of 2021, reaching 10.0 and energy prices. The draft 2022 NUTS-3 regions – ranging between 24 percent yoy in February 2022. Imported oil budget suggests that consolidation will percent of the EU average in Silistra to price inflation with its second-round ef- be postponed to 2023 with a continua- 120 percent in Sofia in 2019 – has been fects was the key factor behind the infla- increasingly uneven, widening in-country tionary spike. Effective mid-December, tion of support measures. disparities. As a result, some areas are regulated prices of electricity, heating and being depopulated at a rapid pace, with water were frozen until end-March, 2022, the first results of the 2021 census show- partially cushioning the inflationary shock ing the fastest between-census decline of on households. Businesses, in turn, have the population since 1985, by 11.5 percent been receiving government subsidies for FIGURE 1 Bulgaria / Real GDP growth and contributions to FIGURE 2 Bulgaria / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 30 18000 10 16000 25 14000 5 20 12000 0 10000 15 8000 -5 10 6000 -10 4000 5 -15 2000 2013 2015 2017 2019 2021 2023f 0 0 Imports Exports 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross fixed capital formation Private consumption International poverty rate Lower middle-income pov. rate Public consumption GDP Upper middle-income pov. rate Real GDP pc Sources: World Bank, Bulgarian National Statistical Institute. Source: World Bank. Notes: see table 2. MPO 13 Apr 22 electricity costs since October 2021, which with Bulgaria’s GDP growth in 2022 re- conservative stance adhered to in the has kept many firms afloat despite the en- vised by 1.2pp against our earlier fore- past two decades. The fiscal deficit is ergy price spike. Electricity price subsidies cast, to 2.6%. Risks remain titled to the likely to exceed the government’s plan are expected to be fiscally neutral, as they downside and further downward revi- for 4.1% of GDP as the latter rests on will be financed out of profits of the state- sions are likely to follow in case of a a fairly optimistic official growth pro- owned nuclear power plant. prolonged military conflict, or new dis- jection of 4.8%. A government-sponsored Despite the boost in fiscal revenues in 2021 ruptive Covid waves amidst low vac- accommodation programme for displaced (+18.1% yoy) on robust economic growth cination rates. Moreover, the delay in Ukrainian nationals will also weigh on and inflation, expenditure grew at a simi- the approval of the national Recovery the expenditure side. More than 58 000 lar rate (+17.6%), due primarily to the con- and Resilience Plan and the operational Ukrainian nationals have remained in tinued support to businesses and individ- programmes for EU funds (2021-2027) Bulgaria as of March 29, with some 40 uals. As a result, the fiscal deficit stood at jeopardizes the government’s plan to in- 000 of them being sheltered at govern- 2.9% of GDP. The banking sector remained crease substantially public investment in ment-subsidised hotel accommodation. In solid, with after-tax profits rising by 74% 2022, further undermining the growth addition, a budget revision - that is likely to BGN 1.42bn in 2021, and non-perform- prospects. Over the medium run, growth to boost expenditure further - is already ing loans inching up modestly, by 1.4pp is expected to be fueled by EU-funded planned for the summer. The CA balance y/y to 6% as of end-2021. public investment and improved private is expected to return to positive territory, Amidst the recovery of the economy and investor sentiment on the near-term albeit remain below 1% of GDP, in continued, albeit more targeted, govern- prospect of eurozone entry. 2022-2024. ment support, poverty is projected to have The acceleration of domestic inflation since On a positive note, the political crisis that slightly declined from 6.3 percent in 2020 to late 2021 is likely to remain in place at least dominated the national landscape since 6.2 percent in 2021 using the upper middle in H1/ 2022, as energy and food price infla- early 2021 has been overcome, after a four- income poverty line of US$5.50 per day. tion is exacerbated by the ongoing war in party coalition took office after the Nov Ukraine. This will result in a further ero- 14, 2021 elections. There are high expecta- sion of purchasing power, a likely increase tions from the new government to under- in poverty and a higher fiscal cost, if cur- take structural reforms in a number of ar- Outlook rent measures in support of businesses and eas, including the judiciary and the control individuals are extended beyond Q1. of corruption. The ongoing war in Ukraine has provoked Overall, the draft 2022 budget suggests a revision of growth forecasts globally, that fiscal policy will depart from the TABLE 2 Bulgaria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.0 -4.4 4.2 2.6 4.3 3.7 Private Consumption 6.0 -0.4 8.0 3.3 4.5 3.6 Government Consumption 2.0 8.3 4.0 4.1 0.3 0.7 Gross Fixed Capital Investment 4.5 0.6 -11.0 5.4 8.5 6.6 Exports, Goods and Services 4.0 -12.1 9.9 3.4 7.1 6.3 Imports, Goods and Services 5.2 -5.4 12.2 5.1 6.9 5.9 Real GDP growth, at constant factor prices 3.7 -4.5 4.2 2.6 4.3 3.7 Agriculture 4.1 -3.3 6.1 1.2 1.8 1.1 Industry -0.1 -8.2 6.6 2.5 5.2 4.3 Services 5.2 -3.2 3.2 2.7 4.2 3.6 Inflation (Consumer Price Index) 3.1 1.7 3.3 9.3 3.4 2.0 Current Account Balance (% of GDP) 1.9 -0.3 -2.3 0.1 0.9 0.4 Net Foreign Direct Investment (% of GDP) -2.0 -3.5 -1.3 -1.7 -1.7 -1.7 Fiscal Balance (% of GDP) -1.0 -2.9 -2.9 -4.4 -3.0 -2.3 Debt (% of GDP) 20.1 24.8 25.1 28.5 28.8 27.2 Primary Balance (% of GDP) -0.4 -2.4 -2.5 -4.1 -2.6 -2.0 a,b International poverty rate ($1.9 in 2011 PPP) 0.9 1.1 0.9 0.8 0.8 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 2.6 2.9 2.6 2.5 2.4 2.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 6.2 6.3 6.2 6.2 6.1 6.0 GHG emissions growth (mtCO2e) -2.7 -3.1 -0.9 -0.9 -0.9 -0.9 Energy related GHG emissions (% of total) 82.7 86.1 85.8 85.5 85.1 84.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 14 Apr 22 the real purchasing power of households, especially the poor and vulnerable. Fur- CROATIA Key conditions and thermore, although the country’s direct trade and financial linkages with Russia challenges are limited, there could be significant indi- rect trade and investment effects via other Table 1 2021 Croatia’s economic recovery in 2021 was EU countries. In addition, while the num- Population, million 3.9 unexpectedly strong and output reached ber of new COVID-19 cases has recently GDP, current US$ billion 64.6 its pre-crisis levels by mid-2021, largely started to decline, relatively low vaccina- GDP per capita, current US$ 16619.4 due to the reopening of the economy and tion rate and the potential emergence of a 0.3 International poverty rate ($1.9) fiscal and monetary support schemes. Fur- new virus variants might impede recovery. a 0.6 thermore, the relatively favorable epidemi- Over the medium term, EU structural and Lower middle-income poverty rate ($3.2) a 1.8 ological situation during summer months investment funds as well as the new EU Upper middle-income poverty rate ($5.5) Gini index a 29.0 and the country’s proximity to its main initiatives represent an opportunity for School enrollment, primary (% gross) b 93.2 tourism originating markets resulted in a Croatia to accelerate the income conver- b 78.4 significant increase in tourist arrivals. Al- gence with the rest of the EU. Life expectancy at birth, years so, Croatia was relatively less affected by Total GHG Emissions (mtCO2e) 16.4 global supply chain bottlenecks given its Source: WDI, Macro Poverty Outlook, and official data. export structure. Together with the strong a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). global recovery, this led to a marked rise Recent developments in exports of goods. However, underlying long-term growth remains relatively low. Following a contraction of 8.1 percent in After a pronounced economic contraction Results from the recent census suggest a 2020, real GDP in Croatia increased by 10.4 decline in the total population. This means percent in 2021. Private consumption and in 2020, the Croatian economy strongly stronger potential long-term growth will investment activity provided strong sup- rebounded in 2021, posting a double-digit hinge upon increase in productivity re- port to overall growth, underpinned by an growth rate. In addition to domestic de- quiring improvements in business envi- increase in consumer and business confi- mand, economic activity was under- ronment, public administration, education dence, favorable financing conditions and system and judiciary. inflow of EU funds. However, domestic pinned by a sharp revival of tourism and While growth is set to remain relatively demand lost some steam in the last quar- sizable exports of goods. Poverty is esti- strong over the medium term, uncertain- ter, which can be partly linked to the wors- mated to have declined to 1.6 percent in ties related to inflation developments and ening of the epidemiological situation and 2021. Over the medium term, growth is the Russian invasion of Ukraine represent buildup of inflation pressures. Contribu- expected to moderate but remain relative- a significant risk for economic activity and tion of net exports in 2021 was positive due public finances in the near- term. In early to a sharp, albeit still partial, recovery of ly strong. However, downside risks to 2022, the government adopted a mitigation tourism and increase in exports of goods growth remain significant. package worth around 1 percent of GDP by one fifth compared to 2020. On the sup- for easing rising prices but the war in ply side, growth was also broad based Ukraine might put additional pressure on with the services sector contributing the inflation with associated risks of depleting most to the rise in real gross value added. FIGURE 1 Croatia / Real GDP growth and contributions to FIGURE 2 Croatia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 16 8 140000 14 12 7 120000 10 8 6 100000 6 4 5 80000 2 0 4 -2 60000 3 -4 -6 40000 2 -8 -10 1 20000 2015 2016 2017 2018 2019 2020e 2021e 2022f 2023f 2024f 0 0 Final consumption Gross fixed capital formation 2009 2011 2013 2015 2017 2019 2021 2023 Change in inventories Net exports International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: CROSTAT, World Bank. Source: World Bank. Notes: see Table 2. MPO 15 Apr 22 Favorable economic trends were followed consumption will be partly offset by high- by an increase in employment and er inflation. Overall, inflation in 2023 and wages, and in some sectors, notably con- Outlook 2024 is projected to slow down due to the struction, worker shortages became more easing of global supply bottlenecks and pronounced and were mitigated by for- Growth is set to moderate over the medi- tightened financial conditions. However, eign labor. Inflation gradually intensified um-term but will remain above the pre- commodity price levels will remain elevat- towards the end of the year, fueled by pandemic trend. While global uncertainty ed. General government deficit is likely to food and energy prices, and it continued related to the war in Ukraine is high, the fall below 3 percent of GDP as of 2023. Al- to increase in 2022, reaching 6.3 percent Croatian economy could grow on average, so, public debt to GDP ratio is expected to in February. The general government by 3.5 percent, a year, over 2022-2024. continue declining, reaching 73.9 percent deficit is estimated to have more than However, there are significant downside of GDP at the end of 2024. halved, to around 3.5 percent of GDP and risks related to the pandemic and the war Intensifying conflicts in the region is public debt at the end of November 2021 in Ukraine. Investment activity under- putting additional pressure on food and stood at 80 percent of GDP, declining pinned by the inflow of EU funds is ex- energy prices which were already on the by 7.3 percentage points compared to the pected to pick-up strongly in 2022 and rise. While the government has promptly end of 2020. moderate thereafter. However, this pri- introduced mitigation measures to cap The strong economic and employment re- marily depends upon the implementation gas price increases, it is still expected to bound raised labor income. However, of government investment plans. Exports rise on average by 20 percent. Moreover, spikes in food prices in recent months put of goods and services are projected to sup- regional political uncertainty and glob- a burden on the most poor and vulnerable port growth, but the pace of growth is ex- al supply disruptions can have implica- as they spend nearly 50 percent of their pected to ease as tourism returns to pre- tions for the economies of host countries budget on necessities. Poverty, measured crisis levels and foreign demand moder- of Croatian migrants. This can potentially as the share of Croatian population living ates. Personal consumption growth might have adverse impacts on remittances and on less than $5.5 a day at 2011 revised PPP remain around 2.5 percent amid rising em- income of Croatians at home. Neverthe- prices, is estimated to have declined to 1.6 ployment and wages. However, positive less, poverty is expected to fall to 1.3 per- percent in 2021. effects of the increase in wages on personal cent by 2024. TABLE 2 Croatia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.5 -8.1 10.4 3.8 3.4 3.1 Private Consumption 4.1 -5.3 10.0 2.2 2.5 2.7 Government Consumption 3.3 4.1 3.0 2.6 2.5 2.4 Gross Fixed Capital Investment 9.8 -6.1 7.6 10.5 5.3 3.2 Exports, Goods and Services 6.8 -22.7 33.3 6.6 5.3 5.1 Imports, Goods and Services 6.5 -12.3 14.7 6.9 4.7 4.4 Real GDP growth, at constant factor prices 3.6 -6.3 8.9 3.8 3.4 3.1 Agriculture 1.8 3.6 5.5 3.6 3.6 3.6 Industry 4.8 -1.6 6.7 4.0 3.0 3.0 Services 3.3 -8.4 9.9 3.7 3.5 3.1 Inflation (Consumer Price Index) 0.8 0.2 2.6 6.1 2.2 1.9 Current Account Balance (% of GDP) 3.0 -0.1 3.7 2.0 2.4 2.6 Net Foreign Direct Investment (% of GDP) 6.1 1.3 2.5 2.5 2.4 2.4 Fiscal Balance (% of GDP) 0.3 -7.4 -3.6 -3.2 -2.9 -2.6 Debt (% of GDP) 71.1 87.3 80.7 78.3 76.0 74.0 Primary Balance (% of GDP) 2.5 -5.4 -2.0 -1.7 -1.5 -1.4 a,b International poverty rate ($1.9 in 2011 PPP) 0.3 0.4 0.3 0.3 0.3 0.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.6 0.7 0.6 0.6 0.5 0.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.8 2.4 1.6 1.5 1.5 1.3 GHG emissions growth (mtCO2e) -1.1 -12.8 4.3 1.7 0.6 1.3 Energy related GHG emissions (% of total) 86.8 85.1 84.7 84.2 83.5 82.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 16 Apr 22 2020, with output surpassing pre- COVID-19 levels by late-2021. Economic GEORGIA Key conditions and recovery also supported a reduction in poverty, with projections suggesting a de- challenges cline to pre-pandemic levels in 2021. However, the recovery was uneven, with Table 1 2021 Georgia has had a successful devel- output in certain sectors, such as hospi- Population, million 3.7 opment record, underpinned by pru- tality, remaining considerably below pre- GDP, current US$ billion 18.7 dent economic management, over the pandemic levels. The fifth wave of the GDP per capita, current US$ 5030.3 past decade. Growth averaged 4 per- COVID-19 pandemic abated in late Feb- a 4.2 International poverty rate ($1.9) cent per annum between 2011 and ruary, with new cases falling to 6 percent a 17.0 2021. The poverty rate measured by of peak levels on March 10th. Lower middle-income poverty rate ($3.2) a 46.6 the international upper-middle-income Inflation remained elevated in 2021, aver- Upper middle-income poverty rate ($5.5) Gini index a 34.5 line ($5.50 per capita per day, 2011 aging 9.6 percent and reflecting higher School enrollment, primary (% gross) b 99.4 PPP) declined from 59 percent in 2011 commodity prices and pass-through from b 73.8 to 42 percent in 2021. earlier depreciation. Food and fuel prices Life expectancy at birth, years Nevertheless, critical structural challenges contributed over five percentage points to Total GHG Emissions (mtCO2e) 16.3 remain, particularly weak productivity overall inflation. In response, the National Source: WDI, Macro Poverty Outlook, and official data. and the creation of high-quality jobs. Many Bank of Georgia (NBG) tightened mone- a/ Most recent value (2020), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy Georgians remain in rural areas engaged tary policy by 250 basis points in 2021. (2019). in low productivity agriculture. Human Foreign trade increased with the deficit capital outcomes remain weak, with poor widening in 2021. Exports grew by 27 per- learning outcomes and a lack of linkages of cent yoy and imports by 25 percent yoy The Russian invasion of Ukraine will ad- education to private sector needs. as the trade deficit widened by 26 percent versely impact Georgia’s economy. The In addition, Georgia’s trade openness, yoy. Still, a gradual recovery in tourism and reliance on income from tourism, and substantial transfers from abroad impact is felt through trade, remittances, make it vulnerable to external and global helped narrow the current account deficit. FDI, commodity prices, and logistics. shocks. High dollarization and persistent The banking sector remained healthy. The This follows a robust recovery from the reliance on external savings further am- sector’s return on assets (ROA) and return pandemic in 2021, with the economy plify risks. Still, the swift post-pandemic on equity (ROE) had improved by end-Jan- rebound has demonstrated the growing uary 2022 to 4.2 percent and 32.6 percent, growing at 10.4 percent and surpassing maturity and resilience of Georgia’s eco- respectively. Non-performing loans re- its pre-COVID output. The poverty im- nomic institutions. mained low at 2.3 percent. pact is expected to be significant and fis- The fiscal deficit narrowed in 2021 to 7.1 cal pressures from rising social assistance percent of GDP (excluding sales of non-fi- are expected to increase. nancial assets), from 9.8 percent in 2020, Recent developments and in line with the plan to return to deficit levels prescribed by the fiscal rule (around GDP increased by 10.4 percent in 2021 3 percent of GDP) by 2023. Public debt to following the 6.8 percent contraction of GDP declined to 52 percent of GDP as of FIGURE 1 Georgia / Real GDP growth and contributions to FIGURE 2 Georgia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 15 70 14000 10.4 10 60 12000 4.8 4.8 5.0 5.5 5.0 5 2.9 2.5 50 10000 0 40 8000 30 6000 -5 -6.8 20 4000 -10 10 2000 -15 2016 2017 2018 2019 2020 2021e 2022p 2023p 2024p 0 0 Gov. consumption Net Exports 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Investments Prv. Consumption International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: Geostat and World Bank staff estimates. Source: World Bank. Notes: see table 2. MPO 17 Apr 22 end-2021, considerably below the 62 per- 20 percent of total remittances. Those are Due to higher commodity prices and re- cent registered in 2020, reflecting the at risk of declining sharply because of gional supply disruptions, inflationary strong GDP recovery and the strengthen- economic contraction in the host coun- pressures are likely to increase. This may ing of the lari. tries, depreciation of the ruble, and chal- be mitigated partly by long-term fixed- lenges in conducting payment transfers price contracts for gas supply and a shared from Russia. border with Russia that will maintain basic Lastly, elevated commodity prices will al- supply flows. On the upside, recent devel- Outlook so affect Georgia. Oil and food prices opments provide an opportunity for Geor- have increased sharply since the begin- gia to strengthen the transit potential of the The war in Ukraine is likely to impact the ning of the war due to uncertainty and Caucasus Transport Corridor. Georgian economy adversely through sev- disrupted commodity supplies from Rus- The conflict in Ukraine will also likely eral channels. sia and Ukraine. have significant impact on poverty and The first channel is goods trade. Both Rus- These impacts will cause a slowdown in vulnerability through the tourism, remit- sia and Ukraine are among Georgia’s top growth, higher inflation, and widening ex- tances, and higher energy and food prices 10 trading partners and a key destination ternal balances. Georgia’s growth forecast (especially wheat) channels. for exports, including wine and beverages. for 2022 has been downgraded to 2.5 per- Georgia is well placed to manage the eco- There is limited potential to divert some of cent from 5.5 percent projected pre-war, nomic fallout of the war. Buffers remain the affected exports to alternative markets with considerable scope for further down- reasonable; the macro-financial frame- in the short term. In addition, Georgia is grades if the war continues for much work is credible; and the banking sector reliant on Ukraine and Russia for key im- longer. The baseline outlook envisions is entering the crisis in relatively strong ports such as cereals. growth recovery from 2023 onward, as eas- shape, albeit with the vulnerability of The second key channel is tourism. The ing monetary policy, recovery of tourism, high dollarization. Fiscal discipline has expected dramatic drop in the arrival of and the restoration of economic links are been maintained over the past decade, Russian and Ukrainian tourists, who to- partly offset by the gradual withdrawal of although planned post-COVID consolida- gether accounted for 21 percent of vis- the fiscal stimulus. tion may decelerate due to the economic itors in 2021, will put further strain on On the external side, due to weaker ex- slowdown. Still, government deposits are a sector that is still reeling from the ports and higher import prices, the current sizeable, and debt is likely to remain be- COVID-19 pandemic. account deficit is expected to widen. Lari low the 60 percent statutory level under The third channel is remittances, with volatility has also increased following the the fiscal rule. Russia and Ukraine accounting for over onset of the war. TABLE 2 Georgia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.0 -6.8 10.4 2.5 5.5 5.0 Private Consumption 7.2 8.8 8.7 3.0 3.8 4.8 Government Consumption 5.7 7.1 7.7 -4.7 6.0 2.2 Gross Fixed Capital Investment -0.1 -16.5 -7.6 -4.6 -0.5 2.2 Exports, Goods and Services 9.8 -37.6 30.5 -4.0 11.0 13.0 Imports, Goods and Services 6.6 -16.6 12.8 -5.0 5.0 9.0 Real GDP growth, at constant factor prices 5.1 -6.6 10.3 2.5 5.5 5.0 Agriculture 0.7 8.1 0.1 3.0 5.0 4.0 Industry 2.7 -6.8 5.9 2.0 5.0 4.0 Services 6.3 -8.1 12.9 2.6 5.7 5.4 Inflation (Consumer Price Index) 5.0 5.2 9.6 11.0 6.6 3.8 Current Account Balance (% of GDP) -5.5 -12.4 -10.5 -13.0 -9.6 -8.2 Net Foreign Direct Investment (% of GDP) 6.0 3.5 5.9 3.9 5.8 6.8 Fiscal Balance (% of GDP) -3.4 -9.8 -7.1 -4.7 -3.6 -3.0 Debt (% of GDP) 41.8 60.1 49.4 48.8 46.4 46.2 Primary Balance (% of GDP) -2.2 -8.2 -5.8 -3.3 -2.3 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 3.8 4.2 3.4 3.2 2.9 2.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 14.8 17.0 14.1 13.9 12.1 10.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 41.9 46.6 40.6 39.8 36.4 33.3 GHG emissions growth (mtCO2e) 1.6 -7.5 2.4 9.0 0.8 -2.9 Energy related GHG emissions (% of total) 52.9 49.2 49.8 53.5 53.6 51.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2020-HIS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 18 Apr 22 COVID-19 containment measures during the first half of 2021, robust activity in the KAZAKHSTAN Key conditions and second half supported real GDP growth of 4 percent for the year. challenges Growth was driven by continued fiscal expansion, strong consumer credit Table 1 2021 Since independence in 1991, Kazakhstan growth, and reduced COVID-19 restric- Population, million 19.0 has experienced rapid growth, fueled by tions. Due to a strong recovery in house- GDP, current US$ billion 202.9 investments in extractive industries. hold consumption, retail trade rose by 6.5 GDP per capita, current US$ 10693.5 Growth, in turn, has reduced poverty and percent and retail loans, including mort- a 0.0 International poverty rate ($1.9) transformed the country into an upper- gages, by 40 percent in 2021. After con- a 0.2 middle-income economy. tracting by 3.4 percent in 2020, total cap- Lower middle-income poverty rate ($3.2) a 4.6 However, the achievement masks underly- ital investment rose modestly by 2.6 per- Upper middle-income poverty rate ($5.5) Gini index a 27.8 ing vulnerabilities and the unevenness of cent, driven by solid growth in hous- School enrollment, primary (% gross) b 100.3 the country’s progress. Key challenges in- ing construction. Reopening the economy b 73.2 clude slow productivity growth, wealth in- has increased activity in face-to-face ser- Life expectancy at birth, years equality, rising living costs, limited job op- vices and manufacturing industries main- Total GHG Emissions (mtCO2e) 301.1 portunities, and weak institutions. These ly aimed at the domestic market. Source: WDI, Macro Poverty Outlook, and official data. challenges were amplified by the A sharp increase in global oil prices sub- a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy COVID-19 pandemic and prompted the stantially improved Kazakhstan’s trade (2019). largest protests in the country’s history balance and reduced the current account earlier in the year. deficit to 3 percent of GDP in 2021 (from Reforms are needed to raise living stan- 3.8 percent in 2020). FDI inflows and high- Russia’s invasion of Ukraine is likely to dards and human capital, reduce corrup- er foreign borrowing by state enterprises reduce growth to 1.5 percent in 2022. tion, reverse productivity stagnation, im- financed this deficit. prove competition and private sector With heightened uncertainty during the This figure follows 4 percent growth in growth, and accelerate the low-carbon eco- January events and the recent plunge in 2021, driven by a rebounding economy, nomic transition. Following the protests in the Ruble, the tenge has depreciated by consumption growth, and supportive fis- January, which were marred by violence about 17 percent against the US Dollar. To cal policy. Higher food and energy prices and attempts at destabilization, the gov- reduce tenge volatility, the central bank ernment has announced its intentions to scaled up FX interventions and increased have accelerated inflation. The poverty tackle these constraints through wide- its policy rate by 2.25 p.p. to 13.5 percent in rate is expected to fall in 2022 but remain reaching reforms. March 2022. FX reserves, however, remain above pre-pandemic levels. Inflation will comfortable at US$33.5 billion. also remain elevated due to supply dis- Fiscal policy in 2021 remained accom- ruptions arising from the war in Ukraine. modative to the impact of COVID-19 on Recent developments the economy. Budgetary support measures continued for households and businesses Economic activity returned to pre-pan- facing hardship while public investment demic levels in 2021. Despite an increase in priorities shifted from pandemic response FIGURE 1 Kazakhstan / Movement in real GDP (Q4 FIGURE 2 Kazakhstan / Poverty rate $5.5 a day PPP 2019=100) Index, 2019Q4=100 Percent 104 50 102 40 100 actual forecast 30 98 96 20 Real GDP, s.a. 94 Q4 2019 Real GDP 10 92 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2019 2020 2021 Sources: Statistical Office of Kazakhstan; World Bank staff estimates. Source: World Bank estimates, calculations based on ECAPOV harmonization, us- ing 2018-HBS. MPO 19 Apr 22 to recovery. Higher oil revenues helped re- a government package of social reforms. welfare and sustaining the business envi- duce the budget deficit to 3 percent of GDP The poverty rate is estimated to have de- ronment. Measures include increased so- from 4 percent in 2020. The public debt-to- creased to 12.4 percent in 2021 due to cial assistance, rental subsidies, and com- GDP ratio remained broadly unchanged at broader economic recovery. pensation for businesses affected by the 24.5 percent of GDP. January protests. At 8.7 percent year-on-year in February A small current account balance is project- 2022, inflation remained above the central ed in 2022, supported by higher oil prices bank target of 4-6 percent. Food and ener- Outlook and lower demand for imports. gy prices were the main drivers. The gov- The national poverty rate is projected to ernment established price caps on certain Spillovers from Russia’s economic collapse fall to 12.0 percent by end-2022, though food and fuel products and utility tariffs in will disrupt Kazakhstan’s supply chains this may change if inflation is higher and response to January’s mass protests. and dent its growth prospects. Real GDP growth slips further. As loan guarantees and forbearance mea- growth is expected to slow to 1.5-2.0 per- These projections bear significant down- sures continued to support households cent in 2022. Kazakhstan also relies on side risks: spillovers from sanctions that and businesses affected by the pandemic, Russia for 40 percent of its imports. Trade further weaken trade flows and investor the share of NPLs in the banking system disruptions, lower business confidence, confidence; more prolonged suspensions decreased to 3.3 percent in 2021 from 6.9 and increased currency volatility will also of Black Sea oil exports; risks of wage-price percent in 2020. Sanctions on banks and lower growth. spirals linked to economywide wage in- transaction restrictions thus far have not Growth will also be lower due to the clo- creases, and potential capital flight amidst stressed the local branches of Russian sure (due to storm damage) in March of heightened uncertainty and tighter global banks (15 percent of banking sector assets). Kazakhstan’s main oil pipeline (to Russia’s financial markets. However, vulnerabilities could emerge Black Sea), through which about 80 per- Events since January clearly urge faster from large financial outflows, sustained cent of Kazakhstan’s oil is exported. Based progress on reforms to achieve sustain- supply chain disruptions, and risks of sec- on current repair timeframes (up to a able growth and shared national prosper- ondary sanctions effects given Kaza- month), oil export volumes could fall by ity. In that regard, the authorities plan khstan’s significant trade, investment, and about 5-6 percent in 2022. to take a stronger stand against corrup- people linkages to Russia. Further exchange rate depreciation, rising tion and improve the rule of law, having The employment rate has reverted to pre- food prices, and wage increases will keep announced steps to increase competition pandemic levels, and real wages in- inflation high in 2022. Monetary policy is and the quality of human capital, and ad- creased by 5.7 percent annually in Q3 expected to remain tight in response. dress government inefficiency. 2021. In January 2022, the minimum wage Fiscal policy will continue accommodating was increased by 41 percent as part of public spending to improve household TABLE 2 Kazakhstan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.5 -2.5 4.0 1.8 4.0 3.5 Private Consumption 6.1 -3.8 7.0 2.7 4.2 3.7 Government Consumption 15.5 12.8 0.5 1.2 0.8 0.8 Gross Fixed Capital Investment 13.8 -0.3 1.2 0.8 4.0 3.0 Exports, Goods and Services 2.0 -12.1 -0.2 -0.4 6.2 4.5 Imports, Goods and Services 14.9 -10.7 5.9 1.2 4.9 3.4 Real GDP growth, at constant factor prices 4.5 -2.5 4.1 1.8 4.1 3.6 Agriculture -0.1 5.6 -2.4 2.5 2.8 2.9 Industry 4.1 -0.4 4.3 1.2 5.4 4.8 Services 5.2 -4.5 4.6 2.1 3.4 2.8 Inflation (Consumer Price Index) 5.3 6.8 8.0 10.5 7.2 5.5 Current Account Balance (% of GDP) -4.0 -3.7 -3.0 0.6 -0.1 -0.3 Net Foreign Direct Investment (% of GDP) 3.1 3.4 2.1 1.7 3.0 2.7 Fiscal Balance (% of GDP) -1.3 -3.3 -3.0 -2.7 -1.9 -0.8 Debt (% of GDP) 19.6 24.8 24.6 28.3 29.0 29.0 Primary Balance (% of GDP) -0.3 -2.2 -1.7 -1.6 -0.7 0.3 a,b International poverty rate ($1.9 in 2011 PPP) 0.0 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.2 0.2 0.2 0.2 0.1 0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 4.0 14.2 12.4 12.0 10.3 9.2 GHG emissions growth (mtCO2e) 2.2 7.0 1.5 0.8 1.5 1.8 Energy related GHG emissions (% of total) 80.2 81.1 81.0 80.8 80.8 80.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2018-HBS. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 20 Apr 22 could disrupt international travel. Mean- while, the Russian invasion of Ukraine and KOSOVO Key conditions and associated sanctions could generate further inflationary pressure, especially for energy challenges and food, undermining consumption. Ris- ing energy costs pressuring public finances Table 1 2021 Kosovo’s GDP grew by 9.1 percent in 2021, since late 2021, given the vulnerability of Population, million 1.8 following a contraction of 5.3 percent in aged power-generation infrastructure. GDP, current US$ billion 9.0 2020. From Q2 of 2021, vaccination accel- Under the changing external conditions, GDP per capita, current US$ 5057.7 erated, and travel resumed, bolstering eco- maintaining fiscal space to support the a 24.4 Upper middle-income poverty rate ($5.5) nomic activity. Consumption and diaspo- economy is crucial. Furthermore, Kosovo a 29.0 ra-driven service exports remain key needs to build on the recent export growth Gini index b 72.5 growth drivers. momentum by further improving the reg- Life expectancy at birth, years Source: WDI, Macro Poverty Outlook, and official data. Private investment contributes increasing- ulatory environment and by investing on a/ Most recent value (2017), 2011 PPPs. ly but consists mostly of construction, with productivity-enhancing human capital b/ Most recent WDI value (2019). limited productivity spillovers. Positively, and infrastructure. merchandise exports increased significant- ly from pre-pandemic levels and, though Kosovo’s economy experienced a strong still low, are an encouraging sign of private recovery in 2021, supported by a rebound sector growth. The trade deficit, however, Recent developments remains high. in domestic demand and record export Low labor force participation, especially Strong credit growth, remittances, and for- growth. Inflation also intensified, driven for women, remains a pressing constraint eign direct investment (FDI), combined by increases in import prices. Growth is to growth. Overall, 1 in 3 working-age with a direct 3.2 percent-of-GDP fiscal expected to decelerate to 3.9 percent in adults was employed before the recovery stimulus and the spillover from quasi- 2022. The medium-term outlook remains accelerated; women’s employment in- monetary measures in 2020, restored confi- creased by 14 percent, but still only 16 per- dence and boosted domestic demand, dri- positive, but prone to elevated risks; with cent adult women were employed by Q1 ving an exceptional 9.1 percent real output the war in Ukraine significantly increas- 2021. Positively, formal employment in- growth in 2021. Meanwhile, trade in- ing inflationary pressures. Further re- creased throughout 2021. creased substantially. On the production forms to enhance competitiveness would Kosovo, a Euroized economy, has a good side, services and industry contributed the track record of headline fiscal manage- most, while agriculture contributed nega- help sustain Kosovo’s export momentum. ment. However, without access to inter- tively to growth. national financial markets, concessional Until Q1 2021, labor force participa- financing remains a significant source to tion and employment increased only close the infrastructure gap. for women (under 25 especially) and GDP growth is expected to reach 3.9 per- slightly fell for men. However, tax- cent in 2022, but there are significant risks. registered employment rose by near- While the pandemic appears to recede, ly 10 percent throughout 2021. Pover- risks of new vaccine-resistant variants ty is estimated to have decreased by FIGURE 1 Kosovo / Index of merchandise exports in USD, FIGURE 2 Kosovo / Actual and projected poverty rates and 2019Q4=100 percent real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 250 70 5000 4500 60 4000 200 50 3500 40 3000 2500 150 30 2000 20 1500 1000 100 10 500 Pre-covid 5 year Exports Merchandise trend 0 0 Actual Exports Merchandise 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 50 Upper middle-income pov. rate Real GDP pc 2016Q1 2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 Sources: Kosovo agency of statistics and World Bank staff calculations. Source: World Bank. Note: see Table 2. MPO 21 Apr 22 about 4 percentage points in 2021 to supporting the recovery through double- Headline inflation is expected to rise to under 20 percent. digit credit growth. 5.4 percent in 2022 but the negative im- Consumer price inflation jumped from 0.2 pact of the war in Ukraine on global trade percent in 2020 to 3.4 percent in 2021, and prices could increase inflation fur- reaching 7.5 percent in February 2022. Im- ther. As a net importer of food, agricul- port prices of energy, food and commodi- Outlook tural inputs, and energy, Kosovo is di- ties fueled inflation. rectly affected by global price surges of Manufacturing exports rose by almost As of March 2022, growth is projected to these goods, despite minor direct trade 70 percent year-on-year. Services’ exports reach 3.9 percent by year end, but there are links with Russia and Ukraine. Food and more than doubled as diaspora travel significant downside risks. While the post- energy inflation could affect the most vul- bounced back in 2021. Remittances also COVID recovery furthers economic activ- nerable households disproportionately, as increased by 26 percent y-o-y. However, ity, the consequences of the Russian inva- they devote large budget shares to these the recovery also increased import de- sion of Ukraine are still unfolding and items. Rising electricity costs might in- mand by almost 50 percent, resulting in could dampen economic prospects. crease fiscal pressures. On the other hand, a deterioration of the current account Private investment growth, from higher base metals’ export revenues could in- deficit (CAD). construction and export-related invest- crease from higher global demand. The fiscal deficit fell from 7.6 percent ment, is expected to support growth in Tax revenue collection is expected to re- of GDP in 2020 to 1.4 percent in 2021, 2022. Improved execution in public invest- main strong in 2022, however, expendi- thanks to a record 29 percent increase in ment should accelerate its recovery. How- ture should outpace revenues due to a re- tax revenues. Tax revenues were boosted ever, a positive contribution from invest- bound in capital expenditure and higher by the economic recovery, higher infla- ment hinges on the strength of diaspora current expenditures from energy subsi- tion, and formalization. Nominal current demand for real estate, a moderation in dies and social transfers. As a result, the expenditure grew by 7 percent, mostly construction input prices, and the ability of fiscal deficit is expected to widen to 2.2 due to the fiscal stimulus program. Nom- the Government to maintain current capi- percent of GDP and remain within the inal public capital expenditure increased tal budgeting against higher pressures for fiscal rule over the medium term. PPG but remains below its pre-pandemic share energy and social transfers. The current ac- debt is expected to reach 24.3 percent of of GDP. Public and publicly guaranteed count deficit is projected to exceed 9 per- GDP in 2022. (PPG) debt remained stable at 22.5 percent cent of GDP, as imports continue to rise of GDP. The financial sector strengthened, due to higher domestic demand. TABLE 2 Kosovo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.8 -5.3 9.1 3.9 4.3 4.2 Private Consumption 5.6 2.5 7.0 1.7 1.8 1.8 Government Consumption 10.1 2.1 0.7 2.3 6.8 3.1 Gross Fixed Capital Investment 2.9 -7.6 10.5 9.0 7.5 7.7 Exports, Goods and Services 7.6 -29.1 69.1 5.0 5.5 6.0 Imports, Goods and Services 4.5 -6.0 27.9 3.4 3.6 3.5 Inflation (Consumer Price Index) 2.7 0.2 3.4 5.4 1.6 2.2 Current Account Balance (% of GDP) -5.6 -7.0 -9.1 -9.7 -9.0 -8.0 Net Foreign Direct Investment (% of GDP) -2.7 -4.2 4.2 4.2 4.0 4.0 Fiscal Balance (% of GDP) -2.9 -7.6 -1.4 -2.2 -2.6 -2.5 Debt (% of GDP) 17.0 22.0 22.1 24.0 25.3 26.9 Primary Balance (% of GDP) -2.6 -7.1 -1.0 -1.7 -2.2 -2.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 21.1 23.2 19.4 17.6 15.8 14.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2017-HBS. Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2017) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 22 Apr 22 activity. The gold sector grew by 1 per- cent, and fewer pandemic restrictions KYRGYZ Key conditions and spurred economic activity and remittance inflows. However, in the first two months challenges REPUBLIC of 2022, annual growth slowed to 2 per- cent on lower gold production and weak- The economy remains heavily dependent er services growth. on gold production (about 10 percent of The 2021 current account deficit was Table 1 2021 GDP and 35 percent of exports), remit- about 3.3 percent of GDP against a 4.8 Population, million 6.7 tances (30 percent of GDP), and foreign percent surplus in 2020. The main driver GDP, current US$ billion 8.5 aid. The country has witnessed significant was a sharper trade deficit of 24.8 percent GDP per capita, current US$ 1275.9 political and governance changes over the of GDP, compared to 18.5 percent in 2020. International poverty rate ($1.9) a 1.1 past two years, accompanied by policy un- Exports (in US dollars) rose 40 percent a 16.2 certainty. Overall, the economic situation while imports climbed 49 percent, reflect- Lower middle-income poverty rate ($3.2) a was further complicated by security con- ing higher imports of machinery, chemi- Upper middle-income poverty rate ($5.5) 58.1 a cerns arising from border conflicts. cals, and textiles; and increased food and Gini index 29.0 Strong and sustainable growth needs a fuel prices. b 102.6 School enrollment, primary (% gross) larger private sector, more international Inflation increased to 11.2 percent in De- b 71.6 Life expectancy at birth, years trade, and a conducive macroeconomic en- cember 2021 from 9.7 percent a year ago Total GHG Emissions (mtCO2e) 10.3 vironment. However, large infrastructure but has since fallen to 10.8 percent in Feb- Source: WDI, Macro Poverty Outlook, and official data. gaps, the weak rule of law and governance, ruary 2022. This was due to higher food a/ Most recent value (2020), 2011 PPPs. a poor business environment, onerous reg- and fuel prices which grew by 13.3 and b/ WDI for School enrollment (2020); Life expectancy (2019). ulations, and financially unsustainable en- 74.8 percent, respectively in 2021. ergy sector policies are constraining In response to higher inflation, the central growth. The poor condition of the energy bank raised its policy rate four times, by sector - the result of below-cost recovery a cumulative 350 basis points, in 2021 and Spillovers from Russia’s invasion of tariffs that have endured for years - and early 2022, to 8.5 percent. To mitigate in- Ukraine are expected to reverse the noncompliance with WTO and Eurasian flation risks and smooth exchange rate progress made by the Kyrgyz economy in Economic Union regulatory standards are volatility, the central bank sold $689 mil- recovering from the COVID pandemic in especially binding constraints. lion in foreign reserves in 2021. 2021 when annual GDP growth was 3.6 Following Russia’s invasion of Ukraine, the som depreciated by 23 percent percent. The economy is now projected to against the US Dollar but has since re- contract by 5 percent in 2022, and infla- Recent developments gained about half of its lost value. In tion is likely to exceed 15 percent, creat- March, the central bank raised its policy ing significant further pressure on fiscal The Kyrgyz economy was hit hard by the rate twice more by a total of 550 basis pandemic in 2020 but began recovering in points to 14 percent. Credit growth in and debt management as well as pushing 2021 as GDP grew by 3.6 percent. Strong the economy remained robust at 10 per- more people into poverty. industry and services growth helped off- cent in December 2021, although slightly set subdued agriculture and construction slower than in 2020. FIGURE 1 Kyrgyz Republic / Headline, food and fuel FIGURE 2 Kyrgyz Republic / GDP growth and poverty rate inflation Percent Poverty rate, percent Percent 100 35 15 80 30 10 60 25 20 5 40 20 15 0 0 10 -5 5 -20 0 -10 -40 2007 2009 2011 2013 2015 2017 2019 2021 e 2023 f Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Headline Food Fuel GDP growth, RHS $3.2/day PPP, LHS Source: Kyrgyz authorities. Sources: Kyrgyz authorities and World Bank staff. MPO 23 Apr 22 The government’s fiscal position improved outlook for the Kyrgyz economy, which alongside a recovering economy and a re- significantly in 2021. The deficit fell to 0.3 is projected to contract by 5 percent vival in exports. percent of GDP from 4.2 percent in 2020 in 2022. This is mainly due to a fall The fiscal deficit is expected to widen to on improved revenue collection and re- in private consumption and investment 5.3 percent of GDP in 2022 as the govern- strained public spending growth. Total spending from an anticipated 33 percent ment increases spending to offset domestic revenues increased to 31.3 percent of GDP decline in remittance inflows. The fiscal spillovers from the war in Ukraine. Expan- from 27.7 percent in 2020 on a surge in deficit is expected to again widen to 5 sions of social spending and public wages import tax receipts, rebounding domestic percent of GDP in 2022, and external are expected to help offset the impact of activity, and improved tax administration. trade is expected to shrink. Forecasts of the remittance shock and weaker economic Public spending increased marginally to weak agricultural output in 2022 and activity. The deficit is expected to narrow 34.3 percent of GDP from 33.7 percent in continued uncertainties around gold to 3 percent of GDP over 2023-24 as condi- 2020, with an increase in capital spending production will further constrain tions improve. offsetting sharply lower recurrent spend- growth. Growth is expected to recover Lower remittances, high food prices, few- ing. The fiscal improvement reduced pub- to 3.2 percent in 2023 and 4.0 percent er job opportunities domestically and lic debt to 60.3 percent of GDP, from 67.7 in 2024, assuming a stabilization in the abroad, and economic contraction will percent at end-2020. conflict and continued public investment likely increase and deepen poverty in The COVID-19 pandemic increased the growth. These projections also assume 2022. The impact of sanctions on Russia poverty rate (US$3.2 a day, 2011 PPP) from domestic political stability and further may sever a vital lifeline for Kyrgyz 9.7 percent in 2019 to 16.2 percent in 2020. easing of pandemic conditions. Howev- households reliant on remittances from It is estimated to have slightly deteriorated er, risks remain high of the outlook fur- Russia. The government’s anti-crisis mea- further in 2021 due to higher food prices ther worsening. sures, such as increased pensions and and fewer job opportunities. Inflation will increase to about 18 percent wages for government officials and social by end-2022, from further food and fuel assistance, will partly soften the negative price increases, before moderating to 8 per- impact on the poor. cent by end-2023. The current account Outlook deficit in 2022 is projected to widen to 11 percent of GDP, reflecting drops in remit- The spillovers of Russia’s invasion of tances and gold exports. The deficit is ex- Ukraine have significantly worsened the pected to narrow over the medium-term TABLE 2 Kyrgyz Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.6 -8.4 3.6 -5.0 3.2 4.0 Private Consumption 0.8 -8.3 2.4 -5.2 2.7 3.2 Government Consumption 0.5 0.9 1.9 1.7 0.3 0.3 Gross Fixed Capital Investment 7.1 -16.2 17.9 4.1 10.8 11.5 Exports, Goods and Services 16.2 -27.3 -1.4 1.1 8.0 7.2 Imports, Goods and Services 6.1 -28.0 11.1 9.0 11.3 10.5 Real GDP growth, at constant factor prices 3.6 -8.4 3.6 -5.0 3.2 4.0 Agriculture 2.5 1.1 0.0 -2.2 3.5 2.6 Industry 6.6 -7.5 -2.8 0.4 1.7 8.0 Services 3.2 -16.4 10.2 -9.9 3.6 3.5 Inflation (Consumer Price Index) 1.1 6.3 11.9 15.2 8.0 6.0 Current Account Balance (% of GDP) -12.1 4.8 -3.3 -11.4 -10.1 -10.0 Net Foreign Direct Investment (% of GDP) 3.8 -7.5 0.7 1.3 2.5 2.2 Fiscal Balance (% of GDP) -0.5 -4.2 -0.3 -5.3 -4.4 -3.0 Debt (% of GDP) 51.6 67.7 60.3 65.2 61.3 57.9 Primary Balance (% of GDP) 0.5 -2.9 1.3 -3.6 -2.9 -1.7 a,b International poverty rate ($1.9 in 2011 PPP) 0.6 1.1 1.1 1.1 1.1 1.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.7 16.2 18.3 28.7 27.7 26.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 52.6 58.1 58.7 56.7 57.2 58.0 GHG emissions growth (mtCO2e) -6.7 -20.1 -7.2 -4.8 -1.2 -0.6 Energy related GHG emissions (% of total) 71.7 64.4 61.3 58.1 56.3 54.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2017-KIHS and 2020-KIHS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2017-2020) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 24 Apr 22 refugees, the impact on revenues and on social spending to mitigate rising infla- MOLDOVA Key conditions and tion, squeezing fiscal space. Persistent inequality of opportunity lim- challenges its the ability of low-income households to access public services, reducing their Table 1 2021 Despite a solid economic performance resilience and cementing low intergen- Population, million 2.6 in the past two decades, the economic erational mobility. Due to the 2020 con- GDP, current US$ billion 13.7 model remains reliant on remittances-in- traction, poverty increased from 25.2 GDP per capita, current US$ 5199.9 duced consumption, with an associated percent in 2019 to 26.8 percent in 2020 a 0.0 International poverty rate ($1.9) low productivity growth resulting from (based on the national poverty line), a 0.5 persistent structural and governance marking the second consecutive year in Lower middle-income poverty rate ($3.2) a 13.3 weaknesses, significant state enterprises which poverty increased. Upper middle-income poverty rate ($5.5) Gini index a 26.0 footprint, low competition, uneven play- The government faces the challenge of School enrollment, primary (% gross) b 106.3 ing field, and tax distortions. The 2014 striking the balance between cyclical and b 71.9 bank fraud uncovered deep weaknesses structural problems, sustaining economic Life expectancy at birth, years in the financial sector. Extreme weather recovery with a stronger fiscal impulse Total GHG Emissions (mtCO2e) 12.6 events and the propagation of economic while ensuring fiscal sustainability, and Source: WDI, Macro Poverty Outlook, and official data. and financial crises from the main trad- implementing an ambitious structural re- a/ Most recent value (2019), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy ing partners have been a traditional risk forms program to improve competitive- (2019). for a small open economy like Moldova. ness and long-term growth. The COVID-19 pandemic has recently al- so raised concerns about the health sys- Growth is expected to be curtailed by tem’s stability. the unfolding crisis in Ukraine despite Recent developments in Ukraine pose Recent developments major threats to the economic prospects its swift recovery from COVID-19. of Moldova through trade (32 percent Economic activity bounced back by 13.9 Medium term growth hinges on the of imports and 14 percent of exports percent in 2021. A strong increase in containment of the war and of the are with Russia and Ukraine) and remit- wages, remittances and social transfers COVID-19 pandemic, as well as a suc- tances channels (70 percent of migrants contributed to private consumption and 25-30 percent of remittances are re- growth. Investments increased by 7 per- cessful management of the refugee crisis lated to Russia and Ukraine). Key in- cent on the back of favorable monetary and sustained fiscal support. Authorities frastructure networks are primarily con- conditions. Strong domestic demand and face policy trade-offs between the need nected to Ukraine despite recent efforts restocking after the lockdown led to sig- for mitigating shocks and the implemen- to better connect the country to the nificant drag on growth from net exports, tation of a broad-based reforms program EU. The potential disruption in the sup- albeit a strong increase of exports due to ply of food, energy and commodity im- high yields. All economic sectors recov- to support long term growth. ered after a sharp contraction in 2020, with ports is expected to further increase prices. The fiscal position is expected the agricultural sector leading (14.3 per- to be further weakened by inflows of cent) after the 2020 drought. FIGURE 1 Moldova / Projected macroeconomic indicators FIGURE 2 Moldova / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 16 45 60000 12 40 50000 8 35 30 40000 4 25 0 30000 20 -4 15 20000 -8 10 10000 5 -12 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 0 0 Real GDP, % change 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Current account balance, % GDP International poverty rate Lower middle-income pov. rate Fiscal deficit Upper middle-income pov. rate Real GDP pc Source: Author's calculations based on national statistics. Source: World Bank. Notes: see table 2. MPO 25 Apr 22 The accommodative monetary conditions of 2021, y/y. The Government almost dou- prices subside, the current account deficit throughout 2021 were reversed as infla- bled the minimum pension in 2021, in- is expected to improve. High inflationary tionary pressures began to pick up due to creasing disposable incomes for pension- pressures will persist throughout 2022 increasing global energy and food prices receiving households. However, rising en- with the inflation rate remaining well and strong domestic demand. Policy inter- ergy and food prices started affecting pur- above the upper bound of the central Bank est rate tightened to 10.5 percent from 2.5 chasing power of vulnerable households in target corridor of 5 percent (+/-1.5 percent). percent in 2021. In the first three quarters the last quarter of 2021. The fiscal deficit in the medium term is of 2021, the current account deficit almost expected to remain higher than in pre- doubled reaching 13 percent of GDP as im- Covid-19 years, as the economy will need ports expanded quicker than exports and to protect the disposable income of the remittances, financed primarily by cash Outlook population from increasing prices (par- and deposits in foreign currency. On the ticularly energy and food), support the back of higher GDP, external debt de- The unfolding war in Ukraine is expected refugees and increase investments as the creased by 4.5 percentage points to 66.1 to affect the economy through the trade ambitious reform program gains steam. percent of GDP. and remittances channels as well as prices As a result, public debt is expected to in- In 2021, health and social protection (35.4 and financial uncertainties. Even under an crease, while remaining relatively low by percent and 13 percent, y/y) were the main optimistic scenario of the resolution of the international standards. drivers of spending increase (+ 11.9 percent, conflict in Ukraine and reestablishment of Given the recovery in the labor market and y/y). Spending on non-financial assets in- the trade routes, subsiding pandemic risks, strong remittance receipts, poverty is ex- creased by 17.6 percent despite lower execu- a continuation of a broad-based govern- pected to have decreased from 15.7 percent tion of capital investments. Revenue collec- ment reform program, and sustained fiscal in 2020 to 10.8 percent in 2021, according tion rebounded strongly (+23.5 percent, y/ impulse, growth is expected to substantial- to US$5.50 PPP poverty line. Impacts of the y). The fiscal deficit, mainly financed ly decelerate to -0.4 percent in 2022. In an war in, including higher food and fuel in- through foreign debt, reached 2 percent of optimistic scenario of de-escalation of the flation, the potential for return migration GDP. Public and publicly guaranteed debt situation in Ukraine, growth is expected and lower remittances, as well as a weaker decreased to around 33 percent of GDP. rebound to 3.8 percent in 2023 and around labor market due to lower demand for ex- Employment recovered to its pre-pandem- 4.4 percent in 2024. As the economy gains ports, are forecasted to lead to a stagnation ic levels by Q4 of 2021 and wages grew steam and the trade routes are reestab- in poverty of 10.9 percent in 2022. by 13 percent in the first three quarters lished and higher global energy and food TABLE 2 Moldova / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.7 -7.4 13.9 -0.4 2.7 4.2 Private Consumption 3.2 -8.3 15.5 0.8 3.8 4.4 Government Consumption 1.3 3.1 3.8 2.6 1.3 2.1 Gross Fixed Capital Investment 11.9 0.4 1.7 -1.0 3.7 4.3 Exports, Goods and Services 8.2 -9.6 17.5 0.8 4.1 4.3 Imports, Goods and Services 6.2 -5.0 19.2 2.0 4.6 3.9 Real GDP growth, at constant factor prices 4.0 -7.6 15.6 -0.8 2.5 4.2 Agriculture -2.3 -26.4 18.7 5.0 2.0 7.0 Industry 7.1 -4.3 5.6 3.5 4.3 5.4 Services 4.3 -4.8 19.3 -3.4 1.9 3.2 Inflation (Consumer Price Index) 4.7 4.1 5.1 18.1 6.2 4.6 Current Account Balance (% of GDP) -9.3 -7.7 -11.1 -10.4 -9.0 -8.8 Net Foreign Direct Investment (% of GDP) 4.2 1.3 1.6 0.8 1.5 2.7 Fiscal Balance (% of GDP) -1.4 -5.3 -1.9 -6.1 -4.1 -3.1 Debt (% of GDP) 27.4 36.4 32.4 36.6 36.0 35.2 Primary Balance (% of GDP) -0.7 -4.5 -1.1 -4.9 -2.9 -2.1 a,b International poverty rate ($1.9 in 2011 PPP) 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.5 0.8 0.4 0.4 0.4 0.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 13.3 15.7 10.8 10.9 10.0 8.6 GHG emissions growth (mtCO2e) -1.3 -9.6 6.0 -2.7 -0.7 -0.1 Energy related GHG emissions (% of total) 61.9 62.1 62.0 60.5 59.8 59.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2019-HBS. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 26 Apr 22 taxation, and increases the net monthly minimum wage from €250 to €450. The pro- MONTENEGRO Key conditions and gram has the potential to reduce inequali- ties and increase formal employment and challenges growth over the medium-term, especially if complemented by additional structural Table 1 2021 Montenegro’s small, open, and tourism- reforms, but also poses fiscal risks. The Population, million 0.6 dependent economy suffered the largest Parliament rejected several revenue mea- GDP, current US$ billion 5.6 contraction in Europe of -15.3 percent in sures, which will likely result in a wider- GDP per capita, current US$ 9011.0 2020, reversing several years of poverty re- than-planned fiscal deficit in 2022 and the a 16.9 Upper middle-income poverty rate ($5.5) duction and exposing Montenegro’s acute following years. a 36.9 vulnerabilities to external shocks. In February 2022, there was a vote of no Gini index b 101.7 From 2015-19, growth averaged 4 percent, confidence in the government. A turbulent School enrollment, primary (% gross) Life expectancy at birth, years b 76.9 driven by large public investments and political environment is adding to already Total GHG Emissions (mtCO2e) 3.6 strong growth in consumption. Over two- high uncertainty. Accelerating structural thirds of Montenegro’s jobs are in services, reforms and fiscal prudence are needed to Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2011 PPPs. which account for over 70 percent of value mitigate increasing risks. b/ WDI for School enrollment (2020); Life expectancy added. The current account balance shows (2019). a large structural deficit and averaged 15 percent of GDP over 2015-19, financed by net FDI and external debt. Montenegro’s Recent developments Montenegro’s economic recovery in 2021 net international investment position at was robust, supported by tourism revival. negative 170 percent of GDP in 2019 is Montenegro’s economy posted a strong re- The labor market also responded to eco- amongst the largest in the world. Due to covery in 2021, estimated at 12.4 percent, weaker adherence to fiscal plans and debt- driven primarily by a rebound in interna- nomic recovery and the fiscal position sig- financed highway construction, public tional tourism receipts recovering to 70 nificantly improved. Montenegro adopted debt peaked at 105 percent of GDP in 2020. percent of their 2019 level from just 13 per- a landmark reform program “Europe Montenegro aspires to join the EU, but sig- cent in 2020. Tourism, employment Now” which carries many opportunities, nificant rule of law challenges have slowed growth, and household lending supported progress towards this goal and reflect a the strong private consumption rebound. but also significant fiscal risks. The out- key development constraint. Investments lingered driven by a slow- break of war in Ukraine is worsening the The economic rebound in 2021 was robust, down in public investments. otherwise positive outlook. This together supported by invigorating tourism. The fis- The labor market recovered as economic with rising inflation risks will impact liv- cal macro-fiscal stability has been preserved activity picked up. LFS data show an in- ing standards and poverty. as both the fiscal deficit and public debt crease in employment in the fourth quar- were significantly reduced. Montenegro ter by 20 percent compared to the first adopted a reform program “Europe Now”, quarter. Poverty (income below $5.5/day which abolishes healthcare contributions, in 2011PPP) is projected to decline from introduces personal income tax allowance, around 19.9 percent in 2020 to 16.2 per- progressive personal and corporate income cent in 2021. FIGURE 1 Montenegro / Real GDP growth and contributions FIGURE 2 Montenegro / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 20 26 5500 15 24 10 5000 22 5 20 4500 0 18 -5 16 4000 -10 -15 14 3500 -20 12 2015 2016 2017 2018 2019 2020 2021e 2022f 10 3000 Final consumption Gross fixed capital formation 2012 2014 2016 2018 2020 2022 2024 Change in inventories Net exports Upper middle-income pov. rate Real GDP pc GDP growth Sources: MONSTAT, World Bank. Source: World Bank. Notes: see table 2. MPO 27 Apr 22 In 2021, inflation averaged 2.4 percent, and The fiscal deficit fell to 2 percent of GDP The war decelerates household income peaked at 6.7 percent in February 2022, led in 2021 from 11 percent of GDP in 2020, growth particularly for those working in by food and oil prices, which constrains driven by a rebound in revenues, capital the tourism and hospitality sector. Rising purchasing power particularly for the budget underspending, and lower current energy and food prices will dispropor- poor. The financial sector has remained ro- spending. Public debt declined to 86 per- tionately hurt the poor. Poverty in 2022 is bust with outstanding loans and deposits cent of GDP. projected at 15.6 percent, though the out- reaching highs in 2021. The capital adequa- look is uncertain depending on the eco- cy was at 18.5 percent, while non-perform- nomic impacts of the conflict. ing loans increased to 6.8 percent of total Investments are expected to pick up as the loans from 5.9 percent in 2020. Outlook highway is being completed and other cap- In 2021, the current account deficit nar- ital spending increases, while private in- rowed to 9.2 percent of GDP, the lowest The outlook is fragile in an environment vestments in tourism and energy sectors since 2004. Growing by 95 percent, ex- of increasing uncertainties. The outbreak continue, but at a slower pace. As invest- ports of goods and services outpaced im- of the war in Ukraine and the associated ments resume, so will imports, which are port growth, narrowing the trade deficit developments have significantly wors- expected to remain at similar levels during to 19.5 percent of GDP. Strong net exports ened the outlook for Montenegro, reduc- 2022-24. The current account deficit is thus were supported by the tourism recovery, ing the GDP growth rate to 3.6 percent in expected to widen and remain at around metals and electricity exports, and lower 2022. The main direct transmission chan- 12 percent of GDP over the medium term. imports growth. Net remittances in- nel of the war to Montenegro’s economy The global inflationary pressures and, to a creased by 35 percent further reducing is tourism. The expected decline in lesser extent, domestic pressures from an the current account deficit which was en- tourism due to the war slows down ex- increase in wages will push inflation to an tirely financed by net FDI accounting for ports and private consumption, which is estimated 5 percent in 2022. Utmost fiscal 11.2 percent of GDP. In January 2022, in- expected to remain strong, however, due prudence is needed to return public debt ternational reserves covered 8 months of to the positive effects of higher disposable towards Montenegro’s fiscal rule of 60 per- merchandise imports. incomes and the employment recovery. cent of GDP. TABLE 2 Montenegro / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.1 -15.3 12.4 3.6 4.7 3.7 Private Consumption 3.1 -4.6 4.3 3.9 3.6 2.8 Government Consumption 1.0 0.8 1.5 1.4 0.3 0.6 Gross Fixed Capital Investment -1.7 -12.0 -10.3 5.3 6.8 7.5 Exports, Goods and Services 5.8 -47.6 81.1 2.2 7.4 5.8 Imports, Goods and Services 2.7 -20.1 13.7 3.8 5.5 5.2 Real GDP growth, at constant factor prices 4.2 -14.4 12.4 3.6 4.7 3.7 Agriculture -2.2 1.1 -5.0 0.1 0.5 0.5 Industry 5.6 -12.0 1.0 4.0 6.0 4.0 Services 4.5 -16.9 19.0 3.8 4.7 4.0 Inflation (Consumer Price Index) 0.4 -0.3 2.4 5.0 2.3 1.6 Current Account Balance (% of GDP) -14.3 -26.1 -9.2 -12.6 -12.1 -12.0 Net Foreign Direct Investment (% of GDP) 6.2 11.2 11.2 8.1 8.7 8.7 Fiscal Balance (% of GDP) -2.7 -11.0 -2.0 -5.2 -3.0 -1.7 Debt (% of GDP) 76.5 105.3 84.9 77.4 75.2 73.1 Primary Balance (% of GDP) -0.5 -8.3 0.4 -3.4 -1.4 -0.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 15.6 19.9 16.2 15.6 14.8 14.3 GHG emissions growth (mtCO2e) 5.3 -22.0 15.2 2.1 0.0 1.3 Energy related GHG emissions (% of total) 70.7 65.9 69.8 70.6 70.8 71.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2012-SILC-C, 2015-SILC-C, and 2018-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2012-2015) with pass-through = 0.87 and, for 2022 onward, 0.5 based on GDP per capita in constant LCU, reflecting impacts of rising prices. MPO 28 Apr 22 (GAP) may boost human capital devel- opment, accelerate the green transition NORTH Key conditions and and digitalization, helping to boost po- tential growth. challenges MACEDONIA With eroded fiscal space and rising public debt, the reform agenda in the near to Following a decade-long relative macro- medium term needs to focus on improved economic stability, in 2020 the economy targeting of crisis-related support, boost- Table 1 2021 plunged into a recession with the outbreak ing tax compliance, restructuring and Population, million 2.1 of the global pandemic. As the recovery reprioritizing spending towards the GAP, GDP, current US$ billion 13.9 took hold, on the back of buoyant domestic addressing long-term structural bottle- GDP per capita, current US$ 6696.8 and external demand, the energy crisis as necks and improving the efficiency of pub- Upper middle-income poverty rate ($5.5) a 17.9 well as the war in Ukraine in early 2022, lic investment management. The generous a 33.0 bring new challenges and seek continued fiscal transfers, untargeted subsidies, and Gini index b fiscal support despite elevated debt levels. broad tax exemptions, including frequent School enrollment, primary (% gross) 98.2 b Support measures introduced by the gov- changes of pension policy with sizeable fis- Life expectancy at birth, years 75.8 ernment (i.e., subsidies and social security cal implications are not sustainable and Total GHG Emissions (mtCO2e) 10.4 contributions to private firms and cash could derail the macroeconomic stability Source: WDI, Macro Poverty Outlook, and official data. benefits and vouchers for vulnerable peo- in the given context. a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2018); Life expectancy ple) helped alleviate the impact of the pan- (2019). demic on poverty in 2020. After an estimat- ed increase in 2020, poverty likely resumed decline in 2021 (using the upper middle in- Recent developments As the economy rebounded, the energy come class poverty line). The medium-term outlook remains pos- The real growth rebounded by 4 percent crisis and the war in Ukraine brought itive, but downside risks are elevated. in 2021, following a deep contraction new challenges. With rising public debt, The war in Ukraine, sanctions to Russia in 2020. The recovery was broad-based, the authorities need to replace Covid-19 and Belarus, prolonged supply chain driven by a boost in personal consump- support with targeted fiscal support to the disruptions, rising inflationary and min- tion, and a growing investment contri- most energy vulnerable households and imum wage pressures, weak political bution. Exports and imports bounced stability and the energy crisis continue back, but the trade balance worsened. firms. Monetary policy needs to strike a to weigh on the outlook. Heightened po- On the production side, growth was dri- balance between supporting a fragile re- litical uncertainty, and delayed EU ac- ven by services, as the industry strug- covery amidst rising inflation. The medi- cession negotiations, may lead to weaker gled with supply-chain blockages and um-term outlook remains positive, but reform effort needed to boost potential reduced external orders. growth and consolidate public finances. The labor market witnessed a slow im- short-term risks are all tilted downside Further, tightening financial conditions provement despite government support. and intensified. globally may affect options and costs The unemployment rate decreased to 15.2 to meet financing needs. On the posi- percent at end-2021, in part due to a small tive side, the Growth Acceleration Plan increase in the employment rate (at 47.3 FIGURE 1 North Macedonia / Fiscal performance FIGURE 2 North Macedonia / Labor market indicators, 2020-21 Percent of GDP Percent of GDP Percent 70 1 60 55.9 55.7 Q4 2020 0 60 Q4 2021 -1 50 47.3 46.8 50 -2 -3 40 40 -4 30 30 -5 20 -6 20 -7 16.1 15.2 10 -8 10 0 -9 2014 2015 2016 2017 2018 2019 2020 2021 Domestic debt Foreign debt 0 Guarantees Fiscal deficit (rhs) Activity rate Emp. rate Unemp. rate Sources: North Macedonia State Statistics Office, Ministry of Finance and World Source: World Bank calculations based on LFS 2020 and 2021. Bank staff calculations. MPO 29 Apr 22 percent), but also due to a lower activity improvements in the execution rate. Cur- 2022 to alleviate the energy crisis through rate (at 55.7 percent in Q4 2021). rent spending declined as crisis-related indirect tax cuts, supplemental social bene- Banking sector performance remained sol- support decelerated. In November 2021, fits to pensioners and low-income groups, id in 2021, with the liquidity ratio at 22 per- the government declared an energy crisis and concessional credit lines to firms. The cent, and an increase of capital adequacy and transferred sizeable budget funds to fiscal deficit will remain elevated in 2022 ratio to 17.3 percent. Credit growth con- cover the loses of energy companies and with further rise in public debt projected tinued, led by FX-denominated mortgage took over the private heating company. to above 62 percent of GDP. However, the lending, while non-performing loans ratio Public and publicly guaranteed debt stood Ukraine war, if prolonged, would further stood at 3.5 percent. The inflation acceler- at 60.8 percent of GDP, while arrears in- reduce external demand, increase key ated in the second half of 2021, to reach 7.6 creased to 3.3 percent of GDP by yearend. commodity and energy prices, hamper percent in February 2022. The surge is fu- mobility, and result in investment delays. eled by energy and food price hikes, but This scenario would result in even lower spillovers to core inflation widened. While growth and fiscal revenues, as well as ris- wage growth was service sector-led in Outlook ing requests for fiscal support and a surge 2021, in February 2022, government in- in financing costs. creased the minimum wage by 18.5 per- Growth is projected to decelerate to 2.7 In the medium term, the country needs to cent and subsequently provided a tempo- percent in 2022 affected by the economic set public finances back on a sustainable rary compensation to firms through the consequences of the Russian invasion, war path and shift its focus to resolving struc- contribution subsidy. in Ukraine, and associated sanctions. The tural challenges, including low and declin- The fiscal deficit declined to 5.4 percent inflationary pressures (particularly food ing human capital, weak regulatory frame- in 2021. Yet, payment arrears increased by and energy prices) will increase the cost of works, poor competition policy and judi- 0.6 pp of GDP. Tax revenues increased living and hurt the poor despite sizeable cial independence declining productivity, along with capital spending, which saw government support adopted in March and out-migration. TABLE 2 North Macedonia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.9 -6.1 4.0 2.7 3.1 3.2 Private Consumption 3.7 -4.5 5.9 2.8 2.5 3.3 Government Consumption 2.5 6.4 4.1 1.0 0.3 0.2 Gross Fixed Capital Investment 8.7 -14.8 6.8 6.0 8.0 8.0 Exports, Goods and Services 8.9 -10.9 12.3 7.2 7.0 6.0 Imports, Goods and Services 9.5 -10.0 12.9 6.5 6.2 6.0 Real GDP growth, at constant factor prices 3.8 -5.2 2.5 2.7 3.1 3.2 Agriculture 0.1 -3.2 -1.2 2.5 2.0 1.5 Industry 3.4 -9.1 -2.4 3.4 4.9 5.3 Services 4.4 -3.9 4.7 2.5 2.6 2.6 Inflation (Consumer Price Index) 0.8 1.2 3.2 5.5 2.0 1.8 Current Account Balance (% of GDP) -3.3 -3.4 -3.5 -4.0 -3.9 -3.4 Net Foreign Direct Investment (% of GDP) 3.2 1.5 3.7 3.8 3.8 3.9 Fiscal Balance (% of GDP) -2.1 -8.3 -5.4 -5.3 -4.7 -3.7 Debt (% of GDP) 49.2 61.0 60.8 62.7 64.3 64.1 Primary Balance (% of GDP) -1.0 -7.1 -4.1 -4.0 -3.5 -2.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 16.5 18.3 17.2 16.4 15.9 15.1 GHG emissions growth (mtCO2e) 4.7 -6.0 0.9 0.3 0.4 0.5 Energy related GHG emissions (% of total) 69.4 67.5 67.9 67.9 67.7 67.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2018-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 30 Apr 22 Over the medium term, a key challenge is a tightening labor supply made more acute by POLAND Key conditions and the aging population. The recent large influx ofdisplacedpeoplefromUkrainecouldhelp challenges address the labor market tightness. Achiev- ing decarbonization commitments is anoth- Table 1 2021 The well-diversified Polish economy has er challenge. Institutional strengthening is Population, million 37.9 proven to be one of the most resilient in the needed for sustained and inclusive growth GDP, current US$ billion 658.1 EU, with employment growth in 2020 de- and for narrowing regional disparities. GDP per capita, current US$ 17365.9 spite a relatively small contraction in GDP a 0.4 International poverty rate ($1.9) of 2.5 percent, the first output contraction a 0.5 since 1991. Lower middle-income poverty rate ($3.2) Upper middle-income poverty rate ($5.5) a 1.2 A sound macroeconomic framework, ef- Recent developments Gini index a 30.3 fective absorption of EU investment funds, School enrollment, primary (% gross) b 97.2 a sound financial sector, better access to The economy rebounded strongly from the b 77.9 long-term credit and access to European COVID-19-related recession, with output Life expectancy at birth, years labor markets have supported long-term expanding by 5.7 percent in 2021. Poorer Total GHG Emissions (mtCO2e) 321.7 inclusive growth and poverty reduction. workers, who saw sharper income impacts Source: WDI, Macro Poverty Outlook, and official data. Strong domestic labor markets and in- during the early stages of the pandemic that a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). creases in median and bottom 40 real in- fed into rising inequality, saw a rebound in comes have supported private consump- incomes. Even as the ample fiscal stimulus tion. With an improving business environ- provided in the wake of the crisis tapered off The Polish economy rebounded from the ment, Poland integrated well into regional in 2021, domestic demand expanded by 8.2 value chains (RVCs). Higher private in- percent, on account of robust household COVID-19 recession, expanding at its vestment, an improved innovation ecosys- consumption, a recovery in investment, and fastest pace since 2007. Easing of tem, and further upgrading of RVCs are rebuilding of inventories. COVID-related restrictions, robust in- needed to boost productivity and growth. A strong labor market supported wage vestment, and favorable labor market The full economic and social impact of growth, while high-capacity utilization COVID-19 remains uncertain as new vari- and strong corporate balance sheets sup- conditions supported the recovery. Infla- ants emerge amidst a vaccination rate of 66 ported investments. tion has accelerated markedly, fueled by percent of the adult population. Pent-up demand and continued income sharp increases in commodity prices and The unprecedented policy response to mit- growth fueled a 6.2 percent expansion in supply chain disruptions, feeding into igate the impacts of the COVID crisis and household consumption, translating into rising poverty. The war in Ukraine is inflationary pressures has narrowed avail- double-digit import growth. Robust export able fiscal space. demand from the EU supported the recov- impacting the economy, through com- Increased spending and tax expenditure ef- ery in the industrial sector and exports, modity prices and trade channels, confi- ficiency is needed to rebuild fiscal buffers, however the contribution of net exports to dence effects, and the large influx of dis- accommodate higher spending on health, growth was negative. placed Ukrainians. the green transition, and to prepare for the Inflation has accelerated markedly since growing fiscal burden arising from aging. mid-2021, to 8.5 percent in February 2022, FIGURE 1 Poland / Real GDP growth and contributions to FIGURE 2 Poland / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 10 70000 9 10 60000 8 7 50000 5 6 40000 5 0 30000 4 -5 3 20000 2 10000 -10 1 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Exports GFCF 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Sources: GUS, World Bank staff calculations. Source: World Bank. Note: see Table 2. MPO 31 Apr 22 well above the upper bound of the targeted resulted in an improvement in the general requested €23.9 billion in grants and €12.1 range. Strong increases in energy and agri- government deficit to 3.5 percent of GDP in billion of preferential loans under the cultural commodities, as well as continued 2021 from 7.1 percent of GDP in 2020. “Next Generation EU”, which is expected disruptions in supply chains fueled infla- The financial sector is well capitalized and to be approved in March. tion. A fiscal package aimed at limiting in- has limited direct exposure to Russia, Rising food and electricity prices are ex- flation (Anti-inflation Shield) and consist- Ukraine, or Belarus. pected to weigh heavily on poorer seg- ing of temporary cuts to VAT rates on elec- ments, who devote 50 percent of their tricity, heat energy, natural gas and basic monthly spending on food and energy. food products, abolition of excise tax on Minimum wage growth of 7.5 percent in electricity sold to households, lowering of Outlook 2022 is expected to be outstripped by in- excise tax on motor fuels, and compensa- flationary pressures, leading to a decline tion for natural gas distributors, is expect- Economic growth is expected to decelerate in the real minimum wage in 2022. While ed to shave off 2.1 percentage points from to 3.9 percent in 2022, as high inflation, measures under the Anti-inflation Shield CPI in 2022 compared to a business-as- monetary policy tightening, negative con- will soften the household impacts, the usual scenario. fidence effects related to the war in share of the population at risk of poverty is High inflation triggered a faster than ex- Ukraine, and slowing demand in key trad- expected to remain elevated through 2022 pected normalization in the monetary pol- ing partners weigh on growth. and 2023. icy stance, with the central bank raising its The spillover from the war in Ukraine is ex- Higher import prices, and higher primary reference rate by 300 basis points since Oc- pected to be significant, with key transmis- income outflows are expected to result in a tober 2021. sion channels including forced displace- deterioration in the current account deficit Since the start of the war in Ukraine, more ment, commodity prices, trade, and confi- to 2.5 percent of GDP in 2022, with a mod- than 2.3 million displaced Ukrainians ar- dence effects. While direct economic link- erate improvement over 2023-2024 as rived in Poland. The government has re- ages outside the energy sector are limited, terms of trade improve. acted rapidly, granting displaced popula- higher energy and food prices, increased The fiscal deficit is expected to remain tions the right of temporary residence and uncertainty, and disruptions to supplies to above the medium-term budgetary objec- access to key public services (health, edu- the auto industry will weigh on growth. tive, as a result of the structural tax reform cation), social assistance, and housing. A large infrastructure and local public in- (Polish Deal) and the temporary impact of The current account recorded a 0.4 percent vestment program, including through the the Anti-inflation Shield. The fiscal cost of deficit in 2021, as exports of passenger ve- National Recovery and Resilience Plan these packages is estimated at 0.7 percent hicles were affected while high global in- (NRRP), higher spending on health, and a and 1.1 percent of GDP, respectively in termediate goods prices fueled imports. boost to consumption related to the large 2022. Furthermore, there will be additional The unwinding of the large 2020 fiscal stim- influx of displaced people are expected to public spending to manage the large influx ulus and the strong increase in tax revenues support growth. To fund its NRRP Poland of displaced people from Ukraine. TABLE 2 Poland / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.7 -2.5 5.7 3.9 3.6 3.7 Private Consumption 3.9 -2.9 6.2 3.9 3.3 3.2 Government Consumption 6.5 4.9 3.6 2.4 2.5 2.7 Gross Fixed Capital Investment 6.1 -9.0 8.0 5.3 5.1 5.4 Exports, Goods and Services 5.2 0.1 6.0 5.5 4.2 4.5 Imports, Goods and Services 3.0 -1.2 7.0 5.6 4.0 4.3 Real GDP growth, at constant factor prices 4.6 -2.6 5.7 3.9 3.6 3.7 Agriculture -0.8 13.8 1.3 2.0 1.0 1.0 Industry 2.2 -5.2 7.0 4.6 3.3 3.3 Services 6.0 -1.8 5.3 3.6 3.8 3.9 Inflation (Consumer Price Index) 2.3 3.4 5.1 9.6 7.5 4.0 Current Account Balance (% of GDP) 0.5 2.9 -0.4 -2.5 -1.6 -1.3 Net Foreign Direct Investment (% of GDP) -2.0 -2.1 -1.2 -1.1 -0.9 -0.9 Fiscal Balance (% of GDP) -0.7 -7.1 -3.5 -3.5 -3.6 -2.9 Debt (% of GDP) 45.6 57.4 57.0 54.5 51.9 49.5 Primary Balance (% of GDP) 0.6 -5.8 -2.5 -2.0 -2.3 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 0.3 0.4 0.3 0.4 0.3 0.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.5 0.5 0.5 0.6 0.6 0.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.1 1.2 1.2 1.6 1.4 1.3 GHG emissions growth (mtCO2e) -5.4 -6.0 1.4 -0.2 -0.5 -0.6 Energy related GHG emissions (% of total) 87.4 87.7 87.3 87.0 86.9 86.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2007-EU-SILC and 2018-EU-SILC. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection from 2019 to 2021 using point-to-point elasticity (2007-2018) with pass-through = 1 based on GDP per capita in constant LCU. Projection from 2022 based on estimates incorporating differential income growth among poorer households. MPO 32 Apr 22 debt levels. Moreover, maximal and effec- tive absorption of the EU Multiannual Fi- ROMANIA Key conditions and nancial Framework and Next Generation EU (NGEU) funds will be crucial for a sus- challenges tainable recovery. Table 1 2021 Prior to the COVID-19 pandemic, Romania Population, million 19.2 enjoyed strong economic growth. Howev- GDP, current US$ billion 266.7 er, the pandemic exposed the vulnerabil- Recent developments GDP per capita, current US$ 13902.1 ities of the economy, including persistent a 2.4 International poverty rate ($1.9) poverty and disparities in economic op- The Romanian economy grew by 5.9 per- a 4.4 portunity across regions and between ur- cent in 2021, but growth decelerated in Q4 Lower middle-income poverty rate ($3.2) a 9.5 ban and rural areas, structural rigidities in (2.4 percent yoy) amid supply disruptions, Upper middle-income poverty rate ($5.5) Gini index a 35.1 the product and labor markets, weakness- significant pick-up in inflation and a new School enrollment, primary (% gross) b 87.5 es in fiscal policy and significant institu- COVID-19 wave. Private consumption re- b 75.5 tional constraints hindering the efficient covered strongly in 2021 (7 percent yoy) Life expectancy at birth, years use of resources. led by robust demand for durable and Total GHG Emissions (mtCO2e) 80.5 Disruptions in the global supply chain household goods. Higher prices of raw Source: WDI, Macro Poverty Outlook, and official data. from the pandemic coupled with the im- materials, however, tempered investment a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). pact of the war in Ukraine have resulted growth (4 percent yoy). Trade volumes in rising food and energy prices. The were affected by global value chain dis- depleted real purchasing power and de- ruptions and cost-push inflation, while the Romania’s economy rebounded at 5.9 clining remittances impose a heavy bur- deterioration of the secondary income bal- den on the poor and marginalized pop- ance added to the current account pres- percent in 2021, despite supply disrup- ulation groups in Romania already dis- sures. On the supply side, growth was led tions, a significant pick-up in inflation proportionality affected by the prolonged by the ICT sector (13.4 percent yoy in 2021) and the effects of the pandemic. The pandemic. Despite the economic rebound, which benefited from increased remote economy is projected to modestly expand the share of the Romanian population liv- work needs. Industry growth decelerated ing on less than $5.5 a day at 2011 revised (5 percent yoy in 2021), as new industrial in 2022, although recession risks result- PPP prices is estimated to have declined orders declined in Q4. The economic re- ing from the Ukraine crisis are high. modestly to 10.1 percent in 2022 from 10.3 covery and labor supply constraints re- Despite some consolidation measures, percent in 2021. duced unemployment to 5.4 percent in De- the fiscal deficit will remain elevated in The key challenges in the short term are cember from 6 percent in January 2021. La- 2022, at around 6.6 percent of GDP. to contain the socio-economic effects of the bor shortages coupled with higher infla- conflict in the region and the COVID-19 tion led to wage increases, with nominal Poverty is anticipated to slightly decline crisis. Significant inflationary pressures net wages up by 7.2 percent yoy in De- to 10.1 percent in 2022. triggered a more hawkish stance from the cember 2021. Annual inflation accelerated National Bank of Romania (NBR). Once re- to 8.4 percent in January 2022 reflecting covery is firmly established, fiscal consoli- strong supply-side inflationary pressures, dation will be critical to limit increases in including recent spikes in energy prices. FIGURE 1 Romania / Real GDP growth and contributions to FIGURE 2 Romania / Actual and projected poverty rates real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 40 40 12000 30 35 10000 20 30 8000 10 25 20 6000 0 15 -10 4000 10 -20 2000 5 -30 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gov. cons. GFCF Private cons. International poverty rate Lower middle-income pov. rate Imports Exports GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see table 2. MPO 33 Apr 22 This prompted the NBR to further increase The fiscal deficit surged to 9.4 percent of 2026. However, low historical absorption the policy rate in mid-January and mid- GDP at the end of 2020 and remained rates reflect substantial headwinds to a February 2022 by 0.25 pp and 0.5 pp, re- high in 2021 at an estimated 7 percent on high absorption scenario. Significant infla- spectively, to 2.5 percent. Private credit the back of the COVID-19 related fiscal tionary pressures from the energy and sector growth remained high, up 15.1 per- stimulus. Higher revenues, up 17.7 per- food markets challenge the nascent recov- cent yoy in January 2022. cent yoy in 2021, supported by the eco- ery requiring a careful balancing act from An economic and employment rebound nomic recovery, offset the 8.8 percent yoy the NBR. meant that household income, in partic- increase in expenditure, but fiscal pres- A substantial reduction of the fiscal deficit ular labor income, also recovered. The sures remain significant. in 2022 is improbable, as the government Rapid Household Survey in December will have to support the economic recov- 2021 showed that most workers including ery process while also supporting macro- low-wage workers have returned to work, economic stabilization. Over the medium helping to bring household labor income Outlook term, the deficit will follow a downward close to the pre-crisis level. However, ris- trajectory but is likely to remain above 3 ing food and energy prices have depleted Romania’s economy is projected to grow percent of GDP. Renewed attention should households’ real purchasing power, espe- at 1.9 percent in 2022, with risks strongly be given to fiscal consolidation to avoid an cially among the poor and vulnerable, as tilted to the downside. The strength of the unsustainable increase in public debt over they spend nearly 65 percent of their bud- recovery will depend on the evolution of the medium term. get on these necessities. Moreover, the war new COVID-19 variants and the severity Poverty is projected to decline to the pre- in Ukraine and further disruption of the of the hostilities in the region. Romania’s crisis level by 2024. However, rising food global supply chain will continue to affect capacity to absorb the EU funds will be and energy prices, and declining remit- the economies of host countries for Ro- critical to a sustainable, green, and inclu- tance incomes could mean a longer recov- manian migrants, which will inevitably sive recovery process. According to Gov- ery process for vulnerable population seg- hamper income for Romanians at home. ernment estimations, in a scenario of 100 ments compared to others in the coming Thus, despite economic and employment percent absorption, the Resilience and Re- years. A protracted war in Ukraine may recovery, poverty is expected to have de- covery funds will, on average, add around however push growth into negative terri- clined modestly to 10.1 percent in 2022 yet one percentage point to Romania’s real tory and lead to an increase in poverty in remains above the pre-crisis level. GDP growth per year between 2022 and the short run. TABLE 2 Romania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.2 -3.7 5.9 1.9 4.1 4.3 Private Consumption 3.9 -5.1 7.0 3.8 6.1 6.3 Government Consumption 7.9 5.9 -2.8 1.2 4.6 5.2 Gross Fixed Capital Investment 12.9 4.1 4.0 4.7 8.1 8.2 Exports, Goods and Services 5.4 -9.4 11.1 5.9 7.0 7.3 Imports, Goods and Services 8.6 -5.2 13.7 7.0 8.2 8.4 Real GDP growth, at constant factor prices 4.0 -3.5 5.9 1.9 4.1 4.3 Agriculture -5.0 -14.9 13.5 2.8 3.9 3.9 Industry -1.3 -4.5 5.0 1.6 4.7 4.4 Services 7.9 -1.9 5.7 2.0 3.8 4.3 Inflation (Consumer Price Index) 3.8 2.6 5.1 9.8 5.3 3.2 Current Account Balance (% of GDP) -4.7 -5.0 -7.1 -7.2 -6.3 -5.7 Net Foreign Direct Investment (% of GDP) 2.2 0.9 2.3 1.8 2.3 2.3 Fiscal Balance (% of GDP) -4.4 -9.4 -7.0 -6.6 -5.3 -4.7 Debt (% of GDP) 35.3 47.4 49.4 52.0 53.9 54.1 Primary Balance (% of GDP) -3.2 -8.0 -5.4 -4.9 -3.7 -3.2 a,b International poverty rate ($1.9 in 2011 PPP) 2.4 2.7 2.6 2.6 2.5 2.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.4 5.0 4.8 4.7 4.5 4.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 9.5 10.8 10.3 10.1 9.7 9.2 GHG emissions growth (mtCO2e) -0.9 -8.7 3.2 -1.0 0.5 1.4 Energy related GHG emissions (% of total) 85.4 85.9 86.5 87.0 87.7 88.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2007-EU-SILC and 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection based off elasticities calibrated on 2007-2019 growth periods and rapid assessment data, allowing for elasticities to vary between periods of contraction, recovery and expansion. MPO 34 Apr 22 budget returned to a surplus of 0.8 per- cent of GDP. The current account surplus RUSSIAN Key conditions and expanded to US$120 billion – exceeding its 2019 level – as commodity prices in- challenges FEDERATION creased and outbound tourism remained muted. By the end of 2021, consumer Russia’s economic outlook has been rapid- price inflation had become a central con- ly overtaken by the fallout from its inva- cern, reaching 8.4 percent year-on-year Table 1 2021 sion of Ukraine. The strongest set of co- in December. The rise in inflation was a 144.1 ordinated economic sanctions, swiftly im- broad-based, reflecting a combination of Population, million GDP, current US$ billion 1775.9 posed, will severely impact Russia across robust demand for goods, increases in en- GNI per capita, Atlas method, current US$ a 10690.0 multiple dimensions. The sanctions ergy and food prices, and global supply Lower middle-income poverty rate ($3.2) b 0.3 amount to coordinated shocks to trade, ex- bottlenecks. The banking sector proved b 2.9 ternal financing, financial intermediation, resilient during the COVID-19 pandemic, Upper middle-income poverty rate ($5.5) b and confidence. The withdrawal of many with economic recovery and credit Gini index 36.0 c foreign enterprises from the Russian mar- growth helping to improve balance sheets School enrollment, primary (% gross) 104.2 c ket and a sharply deteriorated outlook will in 2021. Labor markets strengthened, too, Life expectancy at birth, years 73.1 leave Russia bereft of investment, while in 2021; the unemployment rate fell to Sources: WDI, MPO, Rosstat. pressure on households from fast-rising 4.8 percent, close to its pre-pandemic low. a/ Most recent WDI value (2020). b/ Most recent value (2020), 2011 PPs. prices and declining incomes will push The official poverty rate of 11.0 percent c/ Most recent WDI value (2019). consumption lower. A deleterious effect on by end-2021 was below year-end rates in households will, at best, only be partly off- 2020 and 2019. set by domestic policy responses. However, developments in Russia took a Due to its invasion of Ukraine Russia Looking further ahead, Russia’s pre-exist- sharp turn for the worse beginning with ing challenge of raising medium-term Russia’s invasion of Ukraine. Sanctions faces the largest coordinated economic growth sufficiently to support improved imposed on Russia severely restrict ac- sanctions ever imposed on a country. living standards for its population is now cess to international capital markets, the Russia’s economy will be hit very hard, far more daunting. Yet, given the adverse capacity to conduct international transac- with a deep recession looming in 2022. shock it now faces, this challenge is all the tions, the imports of certain goods, and GDP is expected to contract by 11.2 per- more important. access to international and fiscal reserves. Several large Russian financial organiza- cent, with little recovery in the ensuing tions were sanctioned. Sanctions have two years. Households will be deeply im- materially increased risks to banks' asset pacted by the crisis, with a projected addi- Recent developments quality, solvency, funding and liquidity tional 2.6 million people falling below the profiles, while limiting the CBR’s capacity Before the invasion of Ukraine and the to absorb shocks. national poverty line. ensuing sanctions, Russia’s economy was The imposition of sanctions has led to a recovering well. Growth in 2021 reached precipitous drop in Russian asset prices 4.7 per cent, following a 2.7 percent de- and the ruble, with the latter depreciating cline in 2020. The general government by 30 percent against major currencies. In FIGURE 1 Russian Federation / Real GDP growth and FIGURE 2 Russian Federation / Actual and projected contributions to real GDP growth poverty rates and real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 10 20 400000 18 350000 5 16 300000 0 14 12 250000 -5 10 200000 -10 8 150000 6 -15 100000 4 2 50000 -20 2019 2020 2021 2022 2023 2024 0 0 Consumption GFCF Inventories 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Export Import Stat. error Lower middle-income pov. rate Upper middle-income pov. rate GDP growth Real priv. cons. pc Sources: Rosstat, World Bank. Source: World Bank. Notes: see Table 2. MPO 35 Apr 22 response, the Russian authorities doubled will impede cross-border transactions, Households are expected to be impacted interest rates, announced a Rub 1 trillion leading to delays and cancellations. by the crisis via four channels – limited fiscal package, imposed capital controls, Announced bans and reductions in pur- access to goods and services (either be- and introduced forbearance measures and chases of Russian oil and gas are expect- cause of inflation, shortages or even ra- special regulations for financial markets ed to lead to a substantial fall in ship- tioning), falling labor incomes, asset price aimed at stemming the capital flight and ments this year, while larger slump in falls, and migrant workers likely to be easing pressure on the financial system. non-energy export volumes is expected. especially affected via falling remittances. However, the current account balance is The percentage of the population with in- expected to strengthen as the fall in ex- comes below the official poverty line (ap- ports will be more than offset by a con- proximately US$ 14/day) is projected to Outlook traction in imports. High levels of capi- increase to 12.8 percent in 2022 from 11.0 tal outflows are expected from Russia this percent in 2021 (an increase of 2.6 mil- Uncertainty over the forecasts is un- year. In 2023 and 2024, GDP growth is ex- lion people). The poverty rate using the precedentedly high, conditional on pected to rebound only gradually, at 0.6 World Bank poverty line (US$ 5.5/day) is Russia’s military actions in Ukraine and 1.3 percent respectively. expected to increase from 2.0 in 2021 to and the global response. The severe Overall, consumer price inflation is expect- 2.8 percent in 2022 (an increase of above impacts of sanctions already in place ed to rise from 9 percent in 2021 to 22 per- one million people) and practically re- are expected to drive Russia’s GDP cent in 2022, and to stay well above the main there through 2024. down by 11.2 percent in 2022, largely central bank target in the projection pe- Risks are skewed to the downside, as ad- due to a contraction in domestic de- riod. A decline in economic activity and ditional rounds of sanctions could further mand. High uncertainty, depreciation, higher expenditure needs are expected to impact Russia’s outlook. A disruption in disruptions to trade and business clo- turn the general government surplus into oil or gas receipts, or more severe dys- sures are expected to result in a 17 a substantial deficit in 2022. The adverse function in domestic financial markets, percent slump in investment. A de- impact of the shock on the financial sector could push growth lower and poverty cline in employment and real wages, makes a major credit crunch likely, while rates up. Still-low COVID-19 vaccination elevated outmigration and rising costs continued pressure on the corporates and rates and the prospect of new variants re- of living will weigh on private con- banks, combined with eroded buffers, mains another source of risk. sumption, which is expected to fall by spells a heightened risk of bank failures 8.5 percent. SWIFT and FX restrictions and systemic crisis in the sector. TABLE 2 Russian Federation / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 2.2 -2.7 4.7 -11.2 0.6 1.3 Private Consumption 3.8 -7.3 9.5 -8.5 0.5 1.3 Government Consumption 2.4 1.9 1.1 3.6 1.2 1.0 Gross Fixed Capital Investment 1.0 -4.4 7.0 -16.9 0.6 1.7 Exports, Goods and Services 0.7 -4.1 3.2 -30.9 -1.2 -0.9 Imports, Goods and Services 3.1 -12.1 16.7 -35.2 4.1 6.2 Real GDP growth, at constant factor prices 2.2 -2.5 4.6 -11.2 0.6 1.3 Agriculture 3.5 0.2 -1.3 1.0 1.0 1.0 Industry 1.5 -2.4 4.9 -8.8 0.5 0.9 Services 2.4 -2.7 4.8 -13.2 0.7 1.5 Inflation (Consumer Price Index) 4.5 3.4 6.7 22.0 13.0 8.0 Current Account Balance (% of GDP) 3.9 2.4 6.8 9.8 6.4 2.8 Net Foreign Direct Investment (% of GDP) 0.6 -0.2 -1.3 -7.5 -3.5 -2.8 a Fiscal Balance (% of GDP) 1.9 -4.0 0.8 -1.9 -1.8 -1.2 Debt (% of GDP) 14.3 20.0 17.9 19.8 20.3 20.6 a Primary Balance (% of GDP) 2.7 -3.2 1.7 -0.3 -0.1 0.5 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.3 0.3 0.2 0.3 0.3 0.3 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 3.0 2.9 2.0 2.8 2.8 2.6 GHG emissions growth (mtCO2e) 2.4 -3.6 1.1 -11.5 0.3 0.7 Energy related GHG emissions (% of total) 91.6 91.3 90.1 89.8 89.6 89.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Fiscal and Primary Balance refer to general government balances. b/ Calculations based on ECAPOV harmonization, using 2020-HBS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 36 Apr 22 SERBIA Key conditions and Recent developments challenges The economy grew by 7.4 percent in 2021 pushed by the consumption, pushed by a Table 1 2021 The focus of the Government of Serbia large increase in private consumption (up Population, million 6.9 in 2020 and 2021 was on supporting the 7.6 percent in real terms y/y), thanks to a GDP, current US$ billion 63.0 economy to recover from the impact of strong increase of salaries and consump- GDP per capita, current US$ 9168.9 the COVID-19 pandemic. The Serbian tion loans. The economic recovery in 2021 a 10.1 Upper middle-income poverty rate ($5.5) government approved a robust fiscal was broad based, with the exception of the a 34.5 stimulus program in both years and as agriculture sector, where output declined Gini index b 97.7 a result the economy experienced only a by 5.4 percent in real terms. School enrollment, primary (% gross) Life expectancy at birth, years b 75.7 mild recession (of -0.9 percent) in 2020 Poverty (defined as income under $5.5/ Total GHG Emissions (mtCO2e) 62.5 and rebounded by 7.4 percent in 2021. day in revised 2011 PPP) is estimated The impact of the program, however, to have declined slightly from 10.2 Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2011 PPPs. came at considerable fiscal cost. The fiscal percent in 2020 to 9.8 percent in 2021. b/ WDI for School enrollment (2020); Life expectancy deficit reached 8.1 percent of GDP in 2020 The wage subsidy and cash transfers (2019). and public debt increased to around 58 to citizens in 2020 helped to avert a percent of GDP. spike in poverty. In 2021, poverty re- Over the medium term the Serbian duction slowly resumed due to strong The Serbian economy is recovering well economy is expected to return to the economic growth and improving labor from the impact of COVID-19 pandemic pre-pandemic growth levels. However, market conditions, though partly coun- by growing 7.4 percent in 2021 and Serbia still faces challenges that limit tered by an output decline in agricul- its potential growth both in the short ture, rising inflation at the end of the poverty incidence declined to an estimat- and medium to long terms. Most im- year, and the phasing out of govern- ed 9.8 percent. Growth is expected to de- portantly, Serbia needs to further re- ment support programs. celerate in 2022 and the risks to the move bottlenecks for private sector in- The labor market started improving growth outlook are clearly tilted to the vestment. These include a deteriorat- throughout 2021. In Q4 of 2021, the un- ing governance environment, lack of employment rate dropped to 9.8 percent. downside. Poverty reduction is expected infrastructure and an unreformed edu- Wages continued to go up, increasing by to stagnate in 2022 as income gains are cation sector, which creates skills mis- 9.6 percent in nominal terms in 2021. weakened by rising inflation risks. matches in the labor market. With lim- The consolidated fiscal deficit decreased ited space for future stimulus pack- significantly in 2021 to reach an estimated ages, structural reforms are needed to 4.1 percent of GDP. Despite the fact that bring the economy back to sustained government expenditures increased by growth, boost jobs and incomes and 10.1 percent (in nominal terms). Public strengthen resilience to shocks. The debt at end-December 2021 stood at 57.1 second big challenge is a large and percent of GDP, thus only marginally de- still not entirely reformed SOE sector. creasing since end-2020. FIGURE 1 Serbia / Real GDP and potential growth and FIGURE 2 Serbia / Actual and projected poverty rates and contributions to potential GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 7 30 900000 6 800000 25 5 700000 4 20 600000 3 500000 15 2 400000 1 10 300000 0 200000 5 -1 100000 -2 0 0 2000 2003 2006 2009 2012 2015 2018 2021 2024 2012 2014 2016 2018 2020 2022 2024 TFP Capital Labour Potential Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations. Source: World Bank. Note: see table 2. MPO 37 Apr 22 Starting in the summer, there was a grad- mind the significance of these flows, sound and viable. In addition, the gov- ual increase in inflation and the consumer growth for 2022 could be revised down- ernment should use the opening of new price index (CPI) reached 8.8 percent (y/ wards to 3.2 percent. Further revisions are chapters of the EU acquis to accelerate y) in February. Food inflation, higher than possible depending on the length of the reforms and align Serbian legal and in- in all EU countries in January 2022, hurt war and the scope of sanctions toward stitutional system to that of the EU. the poor. Household energy tariffs in Ser- Russia. Over the medium term, the econo- Poverty reduction is expected to stagnate bia are regulated and have been kept un- my is expected to grow steadily at around in 2022. The unfolding war in Ukraine changed so far despite rising energy costs. 3 percent annually. poses significant downside risk for house- The current account deficit (CAD) in- The outlook also crucially depends on hold welfare in Serbia. While Serbia’s creased to an estimated 4.4 percent of GDP the domestic reform agenda and its im- economy is expected to continue to grow, for 2021, up from 4.1 percent in 2020. plementation. The ongoing crisis in the contributing to income growth for house- domestic energy sector emphasized once holds, rising inflation will limit purchas- again the importance of improved man- ing power. Particularly rising energy agement of SOEs. In addition, contin- prices, if they are passed onto household Outlook gent liabilities could affect public fi- energy tariffs, would disproportionately nances, particularly those related to the hit the poor. Poverty in 2022 is projected The Serbian economy was expected to con- deterioration in the performance of at 9.6 percent, close to its 2021 level, tinue to grow at around 4-4.5 percent an- SOEs, as demonstrated recently by though could be revised upward depend- nually. However, the war in Ukraine and Telekom Srbija and Air Serbia. As a ing on the length and severity of the sanctions on Russia will certainly have an remedy, the government should embark war’s economic impacts. The pace of la- impact on Serbia’s exports, FDI, remit- on a comprehensive and thorough re- bor market recovery remains critical for tances and tourism revenues. Having in form of SOEs to make them financially resumed poverty reduction. TABLE 2 Serbia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.3 -0.9 7.4 3.2 2.7 2.8 Private Consumption 3.7 -1.9 7.6 6.1 4.2 3.7 Government Consumption 2.0 2.9 2.6 1.1 0.5 -0.6 Gross Fixed Capital Investment 17.2 -1.9 12.5 -1.0 0.3 2.1 Exports, Goods and Services 7.7 -4.2 19.4 5.4 5.2 5.4 Imports, Goods and Services 10.7 -3.6 19.3 5.7 4.8 4.7 Real GDP growth, at constant factor prices 4.4 -0.8 7.3 3.0 2.6 2.9 Agriculture -1.7 2.2 -5.4 5.7 4.5 3.4 Industry 5.9 -0.6 7.8 2.4 4.5 4.5 Services 4.4 -1.2 8.7 3.0 1.5 2.0 Inflation (Consumer Price Index) 1.9 1.6 4.0 7.0 4.0 3.7 Current Account Balance (% of GDP) -6.9 -4.1 -4.4 -6.4 -5.8 -5.1 Net Foreign Direct Investment (% of GDP) 7.7 6.3 6.8 5.8 5.9 5.9 Fiscal Balance (% of GDP) -0.2 -8.0 -4.1 -4.1 -3.0 -2.2 Debt (% of GDP) 52.8 57.8 57.2 58.2 58.9 56.8 Primary Balance (% of GDP) 1.8 -6.0 -2.4 -2.3 -1.0 -0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 10.1 10.2 9.8 9.6 9.3 9.0 GHG emissions growth (mtCO2e) -2.1 0.5 1.6 -0.4 -0.6 -0.8 Energy related GHG emissions (% of total) 75.4 75.7 76.1 76.0 75.8 75.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2013-EU-SILC, 2017-EU-SILC, and 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2013-2017) with pass-through = 0.2 and 0.3 based on GDP per capita in constant LCU, reflecting impacts of rising prices. MPO 38 Apr 22 recovery in remittance inflows, and a pickup in private investment and con- TAJIKISTAN Key conditions and sumption supported this rebound. Tajikistan's external position improved challenges considerably from higher export prices for metals and mineral products and remit- Table 1 2021 Tajikistan remains the poorest economy in tance inflows. The current account was in Population, million 9.8 Central Asia, with a narrow export base, surplus of about 1 percent of GDP in 2021, GDP, current US$ billion 8.7 structural bottlenecks for job creation, and compared to a surplus of 4.1 percent in GDP per capita, current US$ 896.9 high dependence on external financial aid. 2020. Precious metal exports reached $897 a 4.1 International poverty rate ($1.9) Per capita income (GNI, Atlas method) was million and were about 40 percent of total a 17.8 about US$1,100 in 2021–slightly above the merchandise exports. Increased remit- Lower middle-income poverty rate ($3.2) a 50.5 lower-middle-income threshold. The tances and foreign direct investment (FDI) Upper middle-income poverty rate ($5.5) Gini index a 34.0 poverty rate fell from 17.8 percent in 2015 inflows stimulated consumer and capital School enrollment, primary (% gross) b 100.9 to about 13.9 percent in 2021. goods imports. Higher Chinese mining b 71.1 Tajikistan's economy relies heavily on pri- sector investments doubled FDI to $62.3 Life expectancy at birth, years mary commodity production and exports, million (0.7 percent of GDP) during the Total GHG Emissions (mtCO2e) 16.9 with limited economic diversification. Do- first nine months of 2021. Strong foreign Source: WDI, Macro Poverty Outlook, and official data. mestic investment and consumption de- exchange inflows, including from the is- a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2017); Life expectancy pend heavily on migrant remittances, suance of new Special Drawing Rights (2019). which are about a third of GDP, thus leav- (SDR) by the IMF, supported a stable ex- ing the economy highly vulnerable to ex- change rate and allowed international re- ternal shocks. Sanctions on the Russian serves to grow to about 8 months of import The fallout from Russia's invasion of economy have exposed this vulnerability cover by end-2021. Ukraine will lead to an economic con- since Russia is the largest employer of Tajik After a fiscal expansion in 2020, the gov- migrant workers and is among the largest ernment began to consolidate spending in traction of about 2 percent in 2022. A trading partners. 2021. The fiscal deficit narrowed to 1.5 per- projected 40 percent fall in remittances, Reforms aimed at private sector cent of GDP from 3.1 percent in 2020. The higher food and energy prices, and fi- growth, public sector efficiency, and expiration of anti-pandemic tax reliefs, a nancial services and trade disruptions greater inclusion are vital to further rebound in economic activity, and high ex- economic development. port prices increased fiscal revenues. De- will lower household incomes and in- velopment partner loans for infrastructure crease poverty. Fiscal space, already con- projects helped bridge the fiscal gap. Al- strained by structural impediments to though a stable exchange rate and a re- private sector growth, is further limited Recent developments bounding economy helped reduce public by rising debt distress risks from a and publicly guaranteed debt to 42.9 per- Real GDP growth rebounded to about cent of GDP in 2021 (from about 50 percent weakening exchange rate. 9.2 percent in 2021, after slowing to 4.5 in 2020), Tajikistan remains at high risk of percent in 2020 due to COVID-19. A debt distress given its high vulnerability to sharp increase in precious metal exports, external shocks. FIGURE 1 Tajikistan / Fiscal balance and public debt FIGURE 2 Tajikistan / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) -1.5 50 80 900 -1.7 49 800 70 -1.9 700 48 60 -2.1 600 47 50 -2.3 500 -2.5 46 40 400 -2.7 45 30 300 -2.9 44 20 200 -3.1 43 10 100 -3.3 0 0 -3.5 42 2007 2009 2011 2013 2015 2017 2019 2021 2023 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Fiscal Balance (LHS) Public Debt (RHS) Upper middle-income pov. rate Real GDP pc Sources: TajStat, World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 39 Apr 22 In response to rising food and fuel price in- poverty rate fell to 13.9 percent, and few- The poverty rate is expected to increase flation, the central bank increased its pol- er households reported cutting their food to 14.3 percent in 2022 from 13.9 percent icy rate four times from 10.75 at end-2020 consumption in 2021. in 2021, with the potential for significant to 13.25 percent by the end-2021. Never- To support the most vulnerable groups, further increases in poverty should more theless, average annual inflation rose from the government provided social assistance risks materialize. 8.6 percent in 2020 to 9 percent in 2021. to 238,000 families and provided extra one- The contraction of economic activity due Amidst lower remittances and a weaken- off emergency nutrition-sensitive transfers to the war in Ukraine and a new tax ing ruble following Russia's invasion of to over 164,000 families with children. code introduced at the beginning of the Ukraine, the authorities allowed the year are expected to lower tax revenues somoni to depreciate by 13 percent against in 2022. This, along with an anticipated the US dollar in March 2022. anti-crisis spending increase, is projected Financial sector performance improved in Outlook to increase the fiscal deficit to about 3.4 2021 - primarily due to liquidation being percent in 2022. initiated for four insolvent banks (includ- Russia's invasion of Ukraine will lead These projections are subject to substantial ing two state-owned banks). The share of to a contraction of Tajikistan's economy domestic and external downside risks. En- non-performing loans in the total lending by about 2 percent in 2022. The main during sanctions on Russia could create portfolio declined by 10 percentage points driver of this contraction is a projected significant challenges for migrant workers to 13.7 percent in 2021. 40 percent fall in remittances, which is and further reduce demand for Tajik ex- In the Fall 2021 round of the World expected to lead to sharply lower pri- ports. Other risks include the re-emer- Bank's Listening to Tajikistan survey, the vate consumption and investment. Oth- gence of new pandemic waves, new border share of households with at least one er factors, including high prices, disrup- conflicts with the Kyrgyz Republic, and labor migrant abroad went up from 29 tions to trade, and the financial system, the spillover of security risks from percent to 44 percent, remittance income are also expected to contribute to the Afghanistan. In addition, institutional from 10 percent to 18 percent, and wage contraction. High global food and fuel challenges to private sector development income from 11 percent to 21 percent prices are projected to lead to double- and job creation weigh heavily on the compared with 2020. As a result, the digit inflation in 2022. country's growth prospects. TABLE 2 Tajikistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.4 4.5 9.2 -1.8 3.2 3.8 Private Consumption 7.1 -4.4 4.6 -10.0 3.0 5.0 Government Consumption 3.5 0.4 7.8 -0.4 1.3 2.9 Gross Fixed Capital Investment -6.4 -6.6 4.0 -9.7 6.7 5.5 Exports, Goods and Services 3.5 9.6 18.3 0.0 3.5 3.7 Imports, Goods and Services 2.2 -2.8 11.5 -5.0 0.2 0.5 Real GDP growth, at constant factor prices 8.7 4.3 9.0 -1.3 3.4 3.9 Agriculture 7.1 8.8 6.6 4.5 3.0 3.4 Industry 13.6 9.7 22.0 5.5 3.6 4.1 Services 4.9 -4.0 -5.2 -16.0 3.5 4.0 Inflation (Consumer Price Index) 8.0 8.6 9.0 12.6 10.0 8.5 Current Account Balance (% of GDP) -2.2 4.1 1.0 -7.7 -4.4 -2.6 Net Foreign Direct Investment (% of GDP) 2.3 0.4 0.2 0.9 1.8 2.5 Fiscal Balance (% of GDP) -2.7 -3.1 -1.5 -3.4 -2.8 -2.3 Debt (% of GDP) 43.1 49.9 42.9 45.3 44.8 43.9 Primary Balance (% of GDP) -1.7 -2.2 -0.5 -2.1 -1.4 -1.0 a,b International poverty rate ($1.9 in 2011 PPP) 3.4 3.3 3.0 3.2 3.1 3.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 15.0 14.8 13.9 14.4 14.2 14.0 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 45.1 44.5 42.7 43.7 43.4 42.9 GHG emissions growth (mtCO2e) 9.9 7.8 9.6 5.2 7.1 7.5 Energy related GHG emissions (% of total) 40.9 43.1 46.3 46.7 48.2 49.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2007-TLSS, 2019-, and 2015-HSITAFIEN. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2007-2019) with pass-through = 1 based on GDP per capita in constant LCU. MPO 40 Apr 22 The Russian invasion of Ukraine is ampli- fying the headwinds facing the Turkish TURKEY Key conditions and economy. Given Turkey’s close economic ties to both Russia and Ukraine, the war challenges is expected to disrupt Turkey’s energy and agricultural trade, tourist arrivals, and Table 1 2021 Turkey enjoyed high growth rates be- overseas construction activities. Price Population, million 84.1 tween 2002-17, which propelled the coun- spikes of essential commodity imports will GDP, current US$ billion 810.0 try to the higher reaches of upper-middle- directly affect households and industry GDP per capita, current US$ 9626.1 income status. But productivity growth and adversely impact the current account a 10.2 Upper middle-income poverty rate ($5.5) slowed as reform momentum waned over balance and inflation. Low-income house- a 41.9 the past decade and efforts turned to sup- holds in Turkey are especially affected as Gini index b 97.1 porting growth with credit booms and they spend nearly twice as much of their School enrollment, primary (% gross) Life expectancy at birth, years b 77.7 demand stimulus, exacerbating internal budgets as the wealthiest on necessities Total GHG Emissions (mtCO2e) 518.0 and external vulnerabilities. High private such as food and housing. sector debt, persistent current account Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2011 PPPs. deficits financed by short-term portfolio b/ Most recent WDI value (2019). flows, high inflation, and high unemploy- ment have been exacerbated by macro- Recent developments financial instability since August 2018. Turkey’s economy grew 11 percent in Moreover, the economy’s high energy Turkey’s economy grew by 11 percent 2021, the fastest among G-20 countries, and carbon intensity make it vulnerable in 2021, supported by exports and ac- to global energy supply and price volatil- celerated domestic private consumption as COVID-19 related measures were ity and pose a challenge for Turkey’s ex- as COVID-19 measures were relaxed and gradually relaxed in Turkey and abroad. porters in the context of global and re- people brought forward some consump- While Turkey’s interest rate cuts from gional decarbonization policies. tion expenditures in fear of continued September supported demand, they also Turkey’s growth accelerated to the high- price rises. Turkey’s goods and services est rate among G20 countries in 2021 as exports were supported by buoyant ex- amplified macro-financial instability, COVID-19 related measures were grad- ternal demand, sharp nominal deprecia- which, combined with spillovers from ually relaxed in Turkey and abroad and tion of the Lira, and global supply chain the Ukraine-Russia war, will lower 2022 authorities loosened monetary policy. disruptions that diverted global demand growth to 1.4 percent. Rising energy However, monetary stimulus also to Turkey. caused deteriorating macro-finance con- Total employment and labor force par- and food price inflation will hurt the ditions. The Lira depreciated to record ticipation surpassed pre-pandemic levels poor the most, compromising a gradual lows and inflation rose to record highs. in 2021. However, the recovery has been employment-driven, post-pandemic External and fiscal buffers deteriorated uneven, with those with informal work poverty recovery. as the central bank supported the Lira, arrangements still lagging. On the other and the government deployed tax rate hand, the recovery was faster for reductions and fuel subsidies to dampen women than men. Between December headline inflation. 2020 and December 2021, female labor FIGURE 1 Turkey / Real GDP growth and contributions to FIGURE 2 Turkey / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 18 30 30000 16 14 12 25 25000 10 8 20 20000 6 4 2 15 15000 0 -2 10 10000 -4 -6 5 5000 -8 -10 2010 2012 2014 2016 2018 2020 2022 2024 0 0 Private cons. Gov cons. Investment 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Exports Imports Stocks Upper middle-income pov. rate Real GDP pc GDP Sources: Turkstat and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 41 Apr 22 force participation (FLFP) increased by offers an exchange rate guarantee from policy stance and high global commodity 14 percent, compared to 6 percent for the state budget. prices. In 2022 lower export growth and males– although this leaves Turkey’s The fiscal balance deteriorated in 2021 de- rising import prices are expected to widen FLFP still as the lowest among OECD spite rising revenues, as the Lira depreci- the current account deficit to 6.4 percent countries. Youth employment also recov- ation raised FX-denominated debt service of GDP. The general government deficit is ered, but 20.1 percent of youth are still costs and PPP outlays, and as government projected to widen to 5.2 percent and 5.1 unemployed. Poverty is expected to re- provided capital injections to shore up percent in 2022 and 2023, respectively, dri- treat due to the employment recovery, SOE balance sheets. The FX-protected de- ven by rising public consumption, interest but will be partially offset owing to high posit scheme also created a sizable con- expenses, and current transfers. inflation, keeping the poverty rate at tingent fiscal liability. General government Both external and domestic risks are tilted 11.3 percent in 2021. debt stock is estimated to have risen to 42.4 significantly to the downside. The Russia- Despite rising domestic inflation and percent of GDP by end-2021. However, Ukraine war has raised considerable un- tightening global monetary conditions, due to strong export growth, the current certainty around the outlook. The war Turkey’s Central Bank lowered interest account deficit narrowed to 1.8 percent of could: continue to increase commodity rates five times, by a total of 500 basis GDP in 2021, from 5 percent in 2020. Gross prices and exacerbate inflation, dispropor- points, between September 2021 and the FX reserves declined from $120bn to tionately impacting the poorest house- year-end. The move rapidly worsened $111bn in 2021 amid FX interventions. holds; undermine Turkey’s nascent macro-financial conditions and dented tourism recovery; and spill over into investor confidence. The Lira depreciat- Turkey’s financial sector by raising NPLs ed by roughly 120 percent in 2021 – in affected corporate sectors. Turkey is also the worst performance among emerging Outlook vulnerable to tightening global liquidity markets. This, coupled with rising glob- conditions, given its high external financ- al commodity prices, pushed year-on- Economic growth is expected to moderate ing requirements. The banking sector re- year CPI and PPI inflation to 54.4 per- to 1.4 percent in 2022 as macro-financial mains highly capitalized and with ade- cent and 123.8 percent, respectively, in volatility intensifies and the impacts of quate FX buffers. However, removing for- February 2022 – a two-decade high for Russia-Ukraine materialize, before return- bearance measures is likely to pressure both indices. Real interest rates moved ing to 3.2 percent and 4.0 percent in 2023 banks’ balance sheets. The slowdown in deep into negative territory and dol- and 2024, respectively. Net exports are ex- the economy and job creation in 2022, and larization accelerated. In response, the pected to drive growth in 2022, offsetting persistently high inflation mean that the authorities launched several fiscal mea- the drag from contractions in investment poverty rate is projected to reach 11 per- sures to stabilize the currency and and private consumption. Inflation is pro- cent by 2024. dampen the impact of inflation, includ- jected to accelerate further to 61 percent in ing a FX-protected deposit scheme that 2022, assuming no change in the monetary TABLE 2 Turkey / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.9 1.8 11.0 1.4 3.2 4.0 Private Consumption 1.5 3.2 15.1 -1.5 2.6 3.5 Government Consumption 4.1 2.2 2.1 3.6 3.9 2.0 Gross Fixed Capital Investment -12.4 7.2 6.4 -5.6 2.4 5.8 Exports, Goods and Services 4.6 -14.8 24.9 4.7 6.0 7.0 Imports, Goods and Services -5.4 7.6 2.0 -2.5 5.0 7.3 Real GDP growth, at constant factor prices 1.0 1.1 11.5 1.4 3.2 4.0 Agriculture 3.3 5.9 -2.2 1.0 2.0 2.0 Industry -2.9 1.0 12.5 2.0 3.5 4.8 Services 2.7 0.6 12.7 1.1 3.2 3.8 Inflation (Consumer Price Index) 15.2 12.3 19.6 61.0 27.0 20.0 Current Account Balance (% of GDP) 0.7 -4.9 -1.8 -6.4 -5.0 -3.4 Net Foreign Direct Investment (% of GDP) 0.9 0.6 1.0 1.0 1.0 1.2 Fiscal Balance (% of GDP) -3.0 -3.9 -3.1 -5.2 -5.1 -3.7 Debt (% of GDP) 32.7 39.8 42.4 44.5 43.0 40.3 Primary Balance (% of GDP) -0.5 -1.1 -0.1 -1.4 -1.2 -0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 10.2 12.2 11.3 11.3 11.2 11.0 GHG emissions growth (mtCO2e) 1.8 0.3 7.1 0.4 1.9 2.5 Energy related GHG emissions (% of total) 80.3 79.6 78.8 78.6 78.7 78.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2011-HICES and 2019-HICES. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2011-2019) with pass-through = 1 based on GDP per capita in constant LCU. MPO 42 Apr 22 Critical priorities in the near-term remain macroeconomic stability, provision of es- UKRAINE Key conditions and sential public services and humanitarian relief. Over the medium-term, the damage challenges to productive and export capacity and loss of human capital are expected to have last- Table 1 2021 Ukraine’s economy had weathered the ing economic and social repercussions. A Population, million 42.2 COVID-19 pandemic better than antic- major reconstruction effort will be neces- GDP, current US$ billion 200.1 ipated thanks to earlier reforms that sary, complemented by institutional, struc- GDP per capita, current US$ 4741,7 strengthened macro-fiscal and financial tural and financial sector reforms to sup- a 99.0 School enrollment, primary (% gross) fundamentals. Fiscal financing needs port private sector-led growth, but is con- a 71.8 were managed through anchoring to the tingent on substantial external financing Life expectancy at birth, years Total GHG Emissions (mtCO2e) 237.2 IFIs’ financing programs and access to on concessional terms (which will also aid Source: WDI, Macro Poverty Outlook, and official data. external markets. Although some re- fiscal sustainability). Absent this, the re- a/ Most recent WDI value (2019). forms, including banking and SOEs, were covery would be even more protracted and incomplete and potential growth re- likely to be characterized by continued mained low due to demographic head- hardship and migrant outflows. winds, low productivity and investment rates, the historic opening of agricultural land markets in mid-2021 held the promise of unleashing stronger growth in Recent developments The Russian invasion is taking a severe the agricultural sector that already con- economic and humanitarian toll, reflected tributed 40 percent of export earnings The economy expanded by 3.4 percent in in fiscal financing pressures, disruptions and one-fifth of GDP. 2021 as easing COVID restrictions sup- Following the Russian invasion on Febru- ported domestic demand, and a bumper to trade, the displacement of millions, and ary 24, 2022, Ukraine has suffered a mas- harvest offset d rags from higher global heavy infrastructure damage with poten- sive economic and humanitarian crisis. As energy prices and a faster fiscal consol- tially long-lasting macroeconomic and so- of March 31, 4mn people had become idation. The external position was rel- cial repercussions. A 45 percent GDP refugees, and 6.5mn displaced internally. atively robust, with gross reserves at With food insecurity increasing, the Gov- US$30.9 bn, and a small current account contraction is anticipated in 2022 and a ernment banned the export of grains and deficit of 1.1 percent of GDP. This re- weak recovery thereafter. Depending on other staples. To support the economy and covery was upended by the onset of war the war’s duration, the share of the popu- ease pressures on FX reserves and banks, it in February 2022, which has fully dis- lation living below the actual Subsistence imposed an emergency (including capital rupted maritime trade (this amounted to controls and banking sector restrictions) half of the total trade and 90 percent of Minimum may reach 70 percent in 2022. and announced tax deferrals, while fully grain trade), heavily damaged critical in- meeting domestic and external debt oblig- frastructure and triggered a massive dis- ations. These measures have helped to pre- placement of people. vent a macro-fiscal and financial collapse Access to external capital markets remains during wartime. closed, with Eurobond spreads peaking at FIGURE 1 Ukraine / EMBI bond spreads FIGURE 2 Ukraine / Number of persons displaced and in need of humanitarian assistance Percent Millions 60 14 12 12 50 10 40 8 6.5 30 6 4 20 4 10 2 0 0 Refugees Internally displaced Needing humanitarian Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 aid Source: Bloomberg. Latest data point from March 30, 2022. Source: UNOCHA and UNHCR. Latest data point from March 30, 2022. MPO 43 Apr 22 over 50 percent in early March. A large fis- prices and the introduction of price caps After a significant widening, the non-pri- cal financing gap has opened amid a rapid- on essential consumer goods may restrain mary fiscal deficit is expected to narrow ly widening fiscal deficit (due to growing inflationary pressures in the short term. over the medium term as gradual fis- spending needs and declining revenues) cal consolidation and cuts to non-essen- and large debt repayments. Tax revenues tial spending offset increased public in- are expected to drop sharply due to the vestment. The CA should remain con- economic impacts of the war, as well as tax Outlook strained by sizable domestic import com- deferrals announced for key business, land pression in the near term but will widen and municipal taxes and the shift to a 2 Projections, given the ongoing conflict, in 2023 and 2024 due to reconstruction- percent turnover tax. In response, interna- are subject to great uncertainty and related investment imports (amid domes- tional partners have provided substantial large downside risks. In the baseline, as- tic supply constraints). funding through grants, loan guarantees, suming that war continues for several The poverty and social impacts of the and currency swap lines alongside major more months (albeit remains contained war will be massive. Simulations using financing packages by the IMF, EU, World to the geographical areas where it is the most recent macroeconomic projection Bank and some bilaterals. Bond spreads currently occurring), a 45 percent GDP show that the share of the population have since dropped 15 percentage points contraction is anticipated in 2022. This with incomes below the actual Subsis- to just above 30 percent. is predicated on massive declines in im- tence Minimum (the national poverty Compared to the 2014-15 crisis, the bank- ports and exports given trade disrup- line) may reach 70 percent in 2022, up ing system is more resilient but faces tions, a collapse in public and private from 18 percent in 2021. In the absence heightened operational, liquidity and sol- investments and a large drop in house- of a massive post-war support package, vency risks. In addition to capital and ex- hold spending reflecting the large dis- this indicator would still be higher than change controls, the central bank has es- placements of people, loss of incomes 60 percent by 2025. Based on the interna- tablished a new liquidity facility and in- and livelihoods. In coming years, a ma- tional upper middle-income poverty line troduced regulatory forbearance measures jor reconstruction effort is expected to (US$5.5 a day), poverty is projected to in- to support financial stability. FX reserves push growth to over 7 percent by 2025 crease to 19.8 percent in 2022, up from stood at US$27.5 bn (3.8 months of current amid a slow restoration of productive 1.8 percent in 2021, with an additional imports as of March 1). Inflation was stable and export capacity and gradual return 59 percent of people being vulnerable to at an average of 10 percent in the 8 months of refugees. Still, by 2025, GDP will be a falling into poverty. leading up to the war; regulated utilities third less than its pre-war level in 2021. TABLE 2 Ukraine / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.2 -3.8 3.4 -45.1 2.1 5.8 Private Consumption 10.9 1.7 7.7 -50.0 2.5 2.9 Government Consumption -13.6 -0.7 1.8 -10.0 3.0 2.0 Gross Fixed Capital Investment 11.7 -21.3 7.6 -57.5 68.5 34.3 Exports, Goods and Services 7.3 -5.8 -10.4 -80.0 30.0 35.0 Imports, Goods and Services 5.7 -6.4 12.7 -70.0 42.0 24.0 Inflation (Consumer Price Index) 4.1 5.0 10.0 15.0 19.0 8.4 Current Account Balance (% of GDP) -2.7 3.4 -1.1 -6.8 -16.8 -15.3 a Fiscal Balance (% of GDP) -2.1 -5.6 -4.0 -17.5 -21.6 -14.6 Debt (% of GDP) 50.2 60.4 50.7 90.7 .. .. a Primary Balance (% of GDP) 1.0 -2.7 -0.5 -13.8 -16.6 -12.8 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 2.5 2.5 1.8 19.8 18.5 17.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Note: Projections are as of March 28, 2022. a/ Fiscal Balance and Primary Balance are non-military balances from 2022 to 2024. b/ Calculations based on ECAPOV harmonization, using 2020-HLCS. c/ Projection using neutral distribution (2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. MPO 44 Apr 22 Imports grew by 20 percent in 2021 from higher consumer demand and a resump- UZBEKISTAN Key conditions and tion of capital imports after a pandemic-in- duced slowdown. Exports grew by 10 per- challenges cent but were still below pre-pandemic levels, as demand remained weak in major Table 1 2021 After a wave of trade and price liberaliza- trading partners (Russia, Kazakhstan). Re- Population, million 34.9 tion reforms, the focus of reforms is shift- mittance inflows recovered, but only par- GDP, current US$ billion 69.2 ing to deeper structural constraints such as tially offset a large fall in gold sales (by GDP per capita, current US$ 1983.2 weak factor markets and dominant public 29 percent), leading to a wider current ac- a 100.1 School enrollment, primary (% gross) enterprises. These reforms are needed to count deficit of 6.6 percent of GDP in 2021, a 71.7 create a larger and more competitive pri- against 5 percent in 2020. Life expectancy at birth, years Total GHG Emissions (mtCO2e) 259.5 vate sector, which is key to addressing the The fiscal deficit increased to 6.2 percent of Source: WDI, Macro Poverty Outlook, and official data. economy’s legacy of state-led growth with GDP in 2021 from 4.5 percent in 2020, as a/ WDI for School enrollment (2020); Life expectancy weak job creation. expanded social assistance coverage and (2019). The government recognizes the need for a higher health and education spending off- more inclusive transition. About 7.5 per- set lower policy lending and higher tax cent of citizens lived below the World revenues from a rebounding economy. The Russia’s invasion of Ukraine will slow Bank’s lower-middle-income poverty line fiscal deficit was financed almost entirely Uzbekistan’s growth to 3.6 percent in in 2021. Many more live close to this line through new external debt, though the and are at high risk of poverty. One in government remained within its annual 2022, due to a halving of remittances, six households has a member working ceiling on new debt of $5.5 billion. Despite record global oil and food prices, trade, abroad, mostly in Russia. Reforms to ex- the drop in gold sales, international re- investment, and banking disruptions, and pand social assistance started during the serves increased by $0.2 billion in 2021 to the return of migrant workers. More so- COVID-19 pandemic will serve as an effec- about 51 percent of GDP. cial protection and labor market programs tive platform to expand safety nets and la- Inflation continued falling, averaging at bor market support programs to prevent 10.8 percent in 2021 (against 12.9 percent are needed to prevent increases in pover- a sharp rise in poverty—and enable struc- in 2020). Average annual inflation ty. Higher commodity revenues and lower tural reforms to continue. reached 9.8 percent at end-February 2022, public investment spending will create the first reversion to single-digits since fiscal space and, with tighter monetary 2017. Higher domestic and global food prices and shipping costs continued to policy, support macroeconomic stability. Recent developments drive inflation. In the three weeks fol- lowing Russia’s invasion of Ukraine, and Uzbekistan’s economy grew by 7.4 percent amidst lower remittance inflows and in 2021. Strong industrial and services heightened uncertainties, the som depre- growth helped temper still weak agricultur- ciated by about 6 percent against the US al growth. Robust household income and dollar. In mid-March 2022, in response investment growth and continued anti-cri- to exchange rate pressures and an un- sis fiscal support also supported growth. certain inflation outlook, the central bank FIGURE 1 Uzbekistan / GDP growth, inflation, FIGURE 2 Uzbekistan / Poverty, GDP per capita, and small unemployment business development Percent GDP per capita, US$ Percent 20 65.3 70 17.5 2,500 62.4 56.0 55.7 54.9 60 2,000 15 13.9 14.5 1,983 50 1,917 12.9 1,784 1,750 1,500 1,597 40 10.8 9.3 30 10 9.0 9.0 1,000 10.5 9.6 20 500 7.4 10 5 11.9 11.4 11 11.5 11 5.4 5.7 4.4 0 0 1.9 2017 2018 2019 2020 2021 0 Small business, % of GDP 2017 2018 2019 2020 2021 GDP per capita, US$, lhs GDP growth CPI inflation Unemployment rate National poverty rate, % of population, rhs Source: Uzbekistan official statistics. Source: Uzbekistan official statistics. MPO 45 Apr 22 (CBU) increased its policy rate by 300 ba- Higher revenues from commodity exports sis points to 17 percent. and privatization receipts and slower A reduction in subsidized lending and Outlook public investment spending are likely to high real interest rates slowed credit offset higher social spending to support growth to 18 percent in 2021 from 31 Russia’s invasion of Ukraine will slow remittance-dependent households and percent in 2020. Portfolio growth and growth to 3.6 percent in 2022, compared prevent an anticipated sharp rise in stronger risk regulations reduced the to pre-crisis estimates of about 6 per- poverty levels from falling remittances banking sector’s total capital adequacy ra- cent. An anticipated 50 percent fall in and the return of potentially large num- tio to 17.5 percent at end-2021 from 18.4 remittances (from a weaker ruble and bers of displaced migrant workers. As a percent at end-2020. the collapse of Russia’s economy) and result, the overall fiscal deficit is expected The banking system remains resilient, but higher oil, wheat, and cooking oil prices to fall to 4 percent of GDP in 2022. An non-performing loans rose from about 1-3 will sharply lower private consumption. anticipated fiscal consolidation by 2023 is percent of total loans between 2018 and Investment growth is also expected to now likely to be delayed. The govern- 2020 to 5.2 percent at end 2021—a result slow given the heavy reliance on Russ- ment is expected to continue adhering to of the pandemic. Capital and liquidity ian capital imports and bank financing its overall debt limits, and public debt is buffers remain above regulatory mini- for public and private investment pro- expected to peak at 42 percent of GDP in mums but could be tested as further effects jects. Although Uzbekistan will benefit 2022-23 and stabilize at about 40 percent of the pandemic, the war in Ukraine, and from high global commodity prices of GDP by end-2024. strong credit growth in recent years (gold, copper, and natural gas), an es- These projections remain subject to signif- emerge. To reduce banking dollarization, timated 6 percent of GDP fall in remit- icant further downside revisions depend- the CBU increased minimum reserves for tances will widen the current account ing on the duration of sanctions on Russia, foreign currency deposits from 14 to 18 deficit to 10 percent of GDP in 2022. potential global financial spillovers from percent in August 2021. With foreign investments from Russia US interest rate changes, further The unemployment rate declined to 9.6 expected to fall, FDI inflows will be sub- COVID-19 waves, and the impact of trade percent in 2021 from 10.5 percent in 2020. dued in 2022 and take time to recover. and logistics disruptions to Uzbekistan’s Employment has not yet returned to pre- As a result, the higher current account supply chains. pandemic levels and unemployment re- deficit is expected to be financed by new mains high for women and youth. public debt and the use of reserves. TABLE 2 Uzbekistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.7 1.9 7.4 3.6 5.3 5.5 Private Consumption 5.3 0.1 7.1 0.6 2.9 3.2 Government Consumption 5.7 1.4 1.1 15.8 2.5 4.5 Gross Fixed Capital Investment 38.1 -4.4 5.2 -0.4 7.1 7.2 Exports, Goods and Services 16.2 -20.0 4.8 13.1 13.8 15.1 Imports, Goods and Services 13.3 -15.0 5.8 1.0 8.9 11.1 Real GDP growth, at constant factor prices 5.7 1.9 7.4 3.6 5.3 5.5 Agriculture 3.1 2.9 4.0 3.7 3.6 3.9 Industry 8.3 2.5 8.3 3.9 6.4 6.7 Services 5.6 0.9 9.0 3.3 5.6 5.7 Inflation (Consumer Price Index) 14.5 12.9 10.8 11.9 10.6 9.0 Current Account Balance (% of GDP) -5.8 -5.0 -6.6 -10.2 -7.1 -5.7 Fiscal Balance (% of GDP) -3.9 -4.5 -6.2 -4.0 -2.9 -2.5 Debt (% of GDP) 29.7 39.0 38.1 42.0 42.1 40.3 Primary Balance (% of GDP) -3.4 -3.4 -5.0 -2.8 -1.7 -1.3 GHG emissions growth (mtCO2e) 0.4 -3.3 3.6 2.0 2.8 3.0 Energy related GHG emissions (% of total) 51.1 48.6 49.8 50.2 50.9 51.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 46 Apr 22 Macro Poverty Outlook 04 / 2022