1. Dirk Reinermann, Country Manager World Bank Country Office Sarajevo
Economic Developments and Poverty Reduction Processes in South-East Europe
Dirk Reinermann, Country Manager
World Bank Country Office Sarajevo
October 3, 2003

2. Overview Recent economic developments in the region;
Recent achievements and challenges ahead;
Poverty: definition, measurement and analysis
Importance of participatory approach in poverty reduction;
Combating poverty in the region: Poverty Reduction Strategies;
Specific role of parliaments – experiences and best practices;

3. South-East Europe: A snapshot
59.2 million people living in an
area of thousands
square kilometers

4. GDP – participation in the region’s economy
Not all countires contribute equally, mainly due to their size, but also due to different levels of economic development, which translates into different levels of GDP per capita
Total GDP: 113,5 billion US$

5. Recent macroeconomic trends in the region: GDP
GDP growth rates converging, with average regional growth rate
of about 5% in real terms

6. Recent macroeconomic trends in the region: Inflation
Inflation rates significantly reduced (20% in 2001, although largely influenced
by high rates in Romania and Serbia and Montenegro, down to 8% in 2002)

7. Achievements to date Economic growth resumption;
Reduction of inflation;
Macroeconomic stability and reform processes;
Creation and strengthening of institutions for democratic society and market economy;
Restoration of regional trade links;
Growth of private sector investment;
Improved prospects for poverty reduction.
Growth resumed after the interruption during the war in the region
Inflation – from 20% in 2001, to 8% in 2002.
TRADE: Trade growth in Balkans of about 30% in the period
Growth of private sector investment
Annual FDI flows are over 4% of region’s GDP in the period 2000 – Total FDI in the region in these 3 years was 12,4 million US$

8. Challenges ahead Sustain stability and growth;
Build strong and fully functional States:
meet citizens’ needs,
strengthen local democracy
ensure effective regional cooperation and advanced relations with EU;
Create new jobs;
Increase competitiveness
better production structures,
differentiation of products;
Develop regional infrastructure:
energy, transport, water;
Fight against organized crime and corruption;
Support and facilitate further return of refugees and IDPs;

9. Poverty: definition, measurement and analysis
Poverty: social and economic problem
Absloute poverty lines (for international comparisons) (“1$ a day”)
Relative poverty lines: country specific
Poverty measurement:
Living Standard Measurement Study (LSMS) surveys
Poverty Analysis:
Poverty Assessments (PA)
Poverty and Social Impact Analysis (PSIA)
Population below $1 a day-is the percentage of the population living on less than $1.08 a day at 1993 international prices (equivalent to $1 in 1985 prices, adjusted for purchasing power parity). Poverty rates are comparable across countries, but as a result of revisions in PPP exchange rates, they cannot be compared with poverty rates reported in previous editions for individual countries. (World Bank)

10. How to define poverty: Amartya Sen – Nobel Prize Winner in 1998
Capability deprivation includes:
1. Social capability deprivation
Deprivation to access to the basis of household production, such as information,knowledge and skills, participation in organizations, and sources of finance.  
2. Political capability deprivation
Includes deprivation of an individual’s access to political decision-making, not only the capability to vote, voice aspirations, and take collective action.  
3. Psychological capability deprivation
Deprivation of an individual’s sense of his own potential, in the social and political spheres, rendering him incapable of critical thought because he has been indoctrinated by ‘false consciousness’. Space for critical thought has been destroyed, so no alternative thoughts arise.
Sen takes a "capability" approach to poverty and analyzes it as capability deprivation. First, the impoverished suffer from an inability to shamelessly participate in society. They are also deprived of the opportunity to achieve a basic quality of life. They are impoverished not only because they suffer from a low income, but because their situation isolates them from society (think of it in terms of them suffering from a relatively low income, though there is more to it than that). They are unable to act socially according to norms (for example, being able to go out to eat, or go to the movies). Additionally, they do not have access to opportunities to improve their capabilities, through health care or through education. As a result, they are trapped in a self-reinforcing cycle of poverty.

11. GNI per capita: significant inequality accross the region
Average regional GNI per capita at about 2,200 US$;
Large disparities in GNI per capita (from low income to upper-middle income countries);

12. Other poverty-related indicators
Health indicators
life expectancy at birth,
health expenditures per capita,
child mortality rate,
Education Indicators
literacy rates,
school enrollment rates,
Other Social Development Indicators
unemployment,
computer usage…
Voice

13. Human Development Index
Human Development Index is calculated using indices for Life expectancy, Education and GDP.
Life expectancy index calculation : [average life expectancy at birth (73.3) – minimum life expectancy (25)] / [max life exp (85) – min life exp. (25)] = 0.805
Education = 2/3 of adult literacy index + 1/3 of gross enrollment index (0.787)
adult literacy index: [adult literacy rate (85.94) – minimum literacy rate (0)] / [max literacy rate (100) – minimum literacy rate (0)] = 0.859
gross enrollment index: [gross enroll. rate (64.1) – minimum enroll. rate (0)] / [max enroll. rate (100) – minimum enroll. rate (0)] = 0.641
GDP Index = (log 2,857 – log 100) / (log 40,000 – log 100) = 0.561

14. PRSP: Poverty Reduction Policy Formulation Process
National Governments’ ownership
Open and participatory approach to policy formulation
Active involvement of key stakeholders
Tensions:
long-term ambitions vs. budget constraints,
comprehensiveness vs. focus and prioritization,
international community expectations vs. country’s ownership and implementation capacity
Final policy: COMPROMISE!

15. Importance of participatory approach in poverty reduction
Greater openness in policy-making through participation of key stakeholders:
private sector,
trade unions,
marginalized groups,
parliamentarians.
Wide range of stakeholders involved, but only to a limited extent (broad approach, rather than deep);
Ensure that poverty reduction is given priority;
Important: preserve participatory approach during implementation;
Parliamentarians, as representatives in maturing democracies

16. Combating Poverty: Poverty Reduction Strategies
PRSP countries in SEE:
Albania:
Growth and Poverty Reduction Strategy – November 2001:
First PRSP in the region, covers the period 2002 – 2004;
long-term vision of European integration;
Compatible with the SAP.
Bosnia and Herzegovina:
I-PRSP drafted in June 2000, followed by broad consultation process
BiH development strategy – work on final PRSP ongoing - final strategy expected by mid-November 2003, covers period ;
Intensive consultations with donors, parliaments, NGOs, trade unions and other stakeholders throughout the process.
Serbia and Montenegro:
I-PRSP formally initiated in early 2002;
Priorities: poverty reduction, reform of the state and economic revival;
Final full PRSP expected in November 2003.
BiH consultative process – best practice

17. Why should Parliaments be involved?
Parliament’s representative and oversight function
Country ownership of PRSP and strengthening political will / cross party support
Institutionalization of participatory processes for improved policy making and poverty outcomes
Executive
Parliament
Parliament as a “Bridge” between State (Exec) and wider society . Mechanisms include: parl committees (if open) and constituency outreach by MPs
Parliament as political institution means greater cross-party political support – important to ensure continuity if government changes; cross-party support is necessary to sustain reforms beyond a single government
Alternate text - from President’s Report:
Recognizing that political ownership is key to successful implementation of national poverty reduction strategies, we are doing more to engage parliaments in the formulation and oversight of poverty reduction strategies. Parliamentary involvement in poverty reduction strategies are important for ensuring country ownership and for generating the cross-party support necessary to sustain reforms associated with poverty reduction. Also, most parliaments have a role in overseeing the development and implementation of the PRSP, often with respect to the budget process. Finally, as a representative local institution, parliaments, under most countries’ constitutions, can ensure the integrity of the participation process and give voice to poor people.
Citizens / Constituents

18. Which are the entry points for Parliaments?
Budget Review & Approval
Emphasize PROCESS and not event – process reinforces need to institutionalize parliament's role in PRSP implementation
Constitutional role of parliament means obvious entry points are linked to budget process
Monitoring and Oversight

19. Specific role of parliaments: Experiences and best practices
Regularly engaged in formulation process:
PRSPs presented to Parliaments;
Reviews by Parliamentary committees;
Continued role in implementation envisaged:
PRSP implementation and progress discussed as a part of discussion on the Medium-term expenditures frameworks (MTEFs);
Parliamentarians as members of the PRSP monitoring committee;
Parliaments as venues for initiation and/or approval of policy changes envisaged under PRSP;
Parliamentarians as “generators of discussion” and “change agents” in terms of policy adjustments required during the PRSP implementation process.
VOICE !
ACCOUNTABILITY !!!