This note discusses the externalenvironment, economic outlook, and key policy challenges forthe six South East European Countries (SEE6)-Albania, Bosniaand Herzegovina (BIH), Kosovo, the former Yugoslav Republic(FYR) of Macedonia, Montenegro, and Serbia-as they seek toreignite economic recovery. After two years of fragilerecovery from the global recession, as a group, SEE6countries experienced a double-dip recession in 2012.Deteriorating external conditions, the impact of the severewinter on economic activity, and a continuing rise inunemployment early in the year took a toll on consumption,investments, and exports. The rise in unemployment continuesto threaten the social fabric. Credit recovery and fiscalconsolidation are under threat. Nonperforming loans(NPLs)-thought to be stabilizing only a few months ago-areagain on the rise. As a result, both within and outside theregion, the environment has become much more difficult tonavigate, and the policy trade-offs necessary to stabilizeeconomies and reignite growth have become more difficult tomake. To overcome these challenges, SEE6 countries need moreintensive policy reform to reduce public debt and acceleratestructural reforms, especially in fiscal consolidation andthe financial sector, labor markets, and businessenvironment. Additional external financing fromInternational Financial Institutions (IFIs) for growth andjobs could prove effective, but only if accompanied byintensified fiscal and structural reforms.
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