The World Bank called for governments in the Western Balkans region to deepen integration with the European Union (EU) and among themselves, further develop human capital, reduce telecommunication costs, and tackle issues related to energy shortages in order to sustain economic growth.

According to the new World Bank report, Western Balkans Integration and the EU: an Agenda for Trade and Growth, the Western Balkans region is a key part of Eastern Europe, and comprises a group of diverse countries at different stages of accession to the EU. Croatia and fYR Macedonia are candidate countries for EU accession, with Croatia already in accession negotiations. Albania, Montenegro, and Serbia have signed Stabilization and Association Agreements (SAAs), an important step in the accession process. Bosnia and Herzegovina has initialed a draft SAA with the European Commission and is scheduled to sign it in mid-June.

The last decade, especially the last five years, was relatively good for these countries, according to the study. However, they now need to improve and then sustain growth performance to accelerate poverty reduction and convergence with the EU, even as the external environment becomes more challenging. The report analyzes possible binding constraints if growth were to accelerate and be led by the private sector to a much greater extent than is currently the case in the region.

“Focusing on long-term growth issues in the Western Balkans,” said Sanjay Kathuria, World Bank Lead Economist and lead author of the report, “the objective of the report is to better understand the impact of a deeper integration between the region and the EU, as well as within the countries of the region, on growth. The study also recommends possible priorities for action at the country level to enable acceleration in export-led growth.”

Kathuria added that“The strong economic justification for deeper integration within the Western Balkans provided by the report will hopefully also help motivate improved regional stability.”

Given the small size of Western Balkan countries, the report emphasizes the critical importance of exports for growth, and in turn, the importance of foreign direct investment for exports, and suggests some priorities for action along these lines. The report:

* Points to the need for deeper integration between the Western Balkan countries to make markets more competitive, and improve quality and reduce cost of services. This would also help overcome some of the disadvantages of small size and attract more foreign investment, and also help deepen integration with the EU.

* Calls for developing human capital as a centerpiece of country strategies in the region in order to improve productivity and help overcome the predominance of the low skill content in exports, and to attract foreign direct investment.

* Indicates a need to reduce telecommunication costs, which would improve competitiveness, offset disadvantages associated with small individual markets, and facilitate regional integration.

* Calls for action to avoid possible energy shortages that can negatively affect the pattern and volume of domestic and foreign investments.

This report comes at an important time for the history of the region’s development. Its goal is to contribute to a better understanding of the underlying dynamics of the economies of the Western Balkans, and provide the analytical foundations for policy actions needed to foster eventual integration of these countries into the European Union.