Following a decade of conflicts, WesternBalkan countries accomplished robust economic growth in the2000s. This growth pattern was domestic demand driven andexternally financed, hence was hampered significantly by theglobal financial crisis and subsequent euro area debtcrisis. Despite modest post-crisis recovery, the regioncontinues to struggle with structural problems thatundermine economic growth. Prospects for the region remainsignificantly dependent on external developments—but alsoprogress on structural reform agendas. Against thisbackdrop, further financial deepening and improved financialstability are essential to boosting sustainable growth. Thesize and structure of the financial sector variesconsiderably across the Western Balkan countries and isprimarily bank-based. In the near term, policymakers andregulators in the region face a number of challenges withregard to supporting economic growth, expanding financialinclusion, and maintaining financial stability. Bankingregulation and oversight have improved over the last decade,but a number of important shortcomings in some segmentsremain. The book is arranged as follows: While the snapshotin Chapter one focuses on near term challenges and policyresponses with regard to financial sector development andstability, the following chapters look more broadly at theexternal context and take a longer term view on challengesand opportunities that could present themselves over thenext decade. It does so not by proposing a single forecast,or view of the future, but by exploring key uncertaintiesand applying the tool of scenario thinking to create threedifferent visions for the world around the Western Balkansfinancial systems in 2025 aimed at informing the developmentof financial sector strategies that contribute to thecountry’s overall success in sustainable and inclusive growth.
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