Bloomberg News

Central Balkan Countries Must Lower Debt Load: World Bank

June 05, 2012

Central Balkan governments must consolidate their public finances and reduce debt to avoid funding problems as their economies slow, the World Bank (NKWGRAU) said.

The economies of Serbia, Albania, Bosnia-Herzegovina, Kosovo, Montenegro and the Former Yugoslav republic of Macedonia can expect an average expansion of 1.1. percent this year and 2.6 percent next year, the World Bank said in the report today. The region’s financial-services industry is “relatively well placed” to withstand the shock if the Greek crisis intensifies, it said.

“With both public debt and financing pressures high, most countries in the region need to embark on major fiscal consolidation programs if they are to reverse their adverse debt dynamics and avoid financing problems down the road,” the Washington-based lender said in the report.

The Balkan region, which depends on western Europe for economic expansion, has been hit as the euro region’s debt crisis cuts demand for their exports and the banks tighten lending over concern that Greece may abandon the single currency bloc.

The governments of the nations that aspire to join the European Union, should demand that banks, including Italy’s Intesa Sanpaolo SpA (ISP) and Austria’s Erste Group AG, “build up their buffers” to make the industry more resilient to shocks, the World Bank said.

“Credit growth is likely to remain weak, and the financial sector, increasingly dependent on local deposits as deleveraging of European banks continues, will have to deal with elevated non-performing loans levels,” the bank said in the report.

Governments should work to overhaul their economies and seize “the historic opportunity to board the European convergence train” and reduce their income gap with the developed nations of the EU, it said.

It the European debt crisis worsens, countries with a strong reliance on remittances, tourism, commodities may be hit the hardest, the report said.

To contact the reporters on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net; Misha Savic in Belgrade at msavic2@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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