The World Bank Europe and Central Asia (ECA) Economic Update Annual Meetings Istanbul October 3, 2009

1. The World BankEurope and Central Asia (ECA)Economic UpdateAnnual MeetingsIstanbulOctober 3, 2009

2. More than $350 billion of ECA’s foreign debt matures in 2010 Source: World Bank, DEC Prospects Group

3. Economic UpdateThe Crisis Hits Home Office of the Chief Economist Human Development Sector Management Unit Poverty and Economic Management Sector Management Unit Europe and Central Asia Region World Bank Annual Meetings Istanbul, October 2009

4. Main points Good news for enterprises, but foreign debt clouds the future Industrial production stopped falling in mid-2009 But $350 billion of external debt due in 2010 Bad news for families as poverty and unemployment rise, while household debt clouds the future Poverty will rise by almost 15 million instead of falling by 15 million in 2009 Stress tests indicate more debt distress likely for households in 2010 Tough times ahead for governments, and social security debt clouds the future Fiscal deficits will rise from 1.5 to 5.5 percent of GDP in 2009 Stress tests indicate pension deficits rising to 5-6 percent of GDP 4

5. Good news for enterprises, but foreign debt clouds future

6. Industry has stopped shrinking Industrial production, percentage change (saar) Middle-East & North Africa East Asia & Pacific South Asia Developing Europe & Central Asia Latin America Source: World Bank, DEC Prospects Group.

7. Interest rates are lower Emerging-market bond spreads have fallen but remain higher than pre-crisis levels Corporate bonds (CEMBI Global) Sovereign bonds (EMBI Global) Before Lehman Brothers Source: World Bank, DEC Prospects Group

8. Business regulations are better Countries that made at least one positive reform in 2008 (%) Leading Ten Doing Business Reformers in 2008 Rwanda Kyrgyz Republic Macedonia, FYR Belarus United Arab Emirates Moldova Colombia Tajikistan Egypt, Arab Rep Liberia Source: World Bank, Doing Business 2009

9. But debt obligations loom large More than $350 billion of ECA’s foreign debt matures in 2010 Source: World Bank, DEC Prospects Group

10. Bad news for families as poverty and unemployment rise, while household debt distress clouds the future

11. Poverty will rise Increases in poverty and vulnerability (change in people living on <$5/day) This graph needs to be redone, with a stacked bar chart with both Poverty (<$2.50) and vulnerability (2.50-5.00) Source: World Bank Staff 11

12. Poverty will rise everywhere Share of households below national poverty lines Note: Estimates are not comparable across countries. Source: World Bank Staff

13. Rising job losses Registered unemployment has risen in almost every country since mid-2008 Source: World Bank Staff

14. Job losses most in middle-income ECA Growth of unemployment rates, 2009 over 2008, percent Source: World Bank Staff

15. Unemployment in Turkey has doubled Registered unemployment in Turkey, February 2008 to August 2009 Source: World Bank staff

16. Incomes in Turkey have been falling Evidence from Turkey finds a particularly large hit to self employment income Source: World Bank-UNICEF Survey

17. The sources of household distress Shocks are transmitted to households through financial, product and labor markets Source: World Bank 2009: The Crisis Hits Home

18. Household stress tests show distress Severe Stress likely in Bosnia, Croatia, Estonia and Hungary 18 Source: World Bank Staff

19. Tough times ahead for governments, and pension debt clouds the future

20. Rapid fiscal deterioration in 2009 Central and Eastern European government accounts were hit sooner Source: World Bank Staff

21. Social protection spending ECA spends a lot on public pensions (percent of GDP) Source: World Bank staff estimates and OECD Social Expenditure Database. Most data from 2000 to 2003.

22. Good coverage of social assistance Is lowest in ECA’s poorest countries, but compares favorably with other regions 22 Source: World Bank Staff

23. And reasonable targeting Not all goes to poor, but accuracy compares favorably with programs in other regions 23 Source: World Bank Staff

24. Reforms needed for social security The reforms that help the most are inflation indexing and higher retirement ages 24 Source: World Bank staff

25. Crisis is not over. Countries in Emerging Europe and Central Asia face a slow recovery No green shoots for workers Tighter money ahead. Post-crisis growth will likely be lower, and fiscal deficits higher Smaller budgets for governments Fiscal consolidation, not indiscriminate cuts. More efficiency of spending can mean more growth and more equity Better prospects for both families and firms Messages

26. How the World Bank is helping Supporting budgets Increased lending (IBRD/IDA): $3.8bn in 2007, $4.2bn in 2008, $9.3bn in 2009 Operations in Armenia, Bulgaria, Georgia, Hungary, Latvia, Poland, Romania, Serbia, Tajikistan, Turkey, and Ukraine Strengthening institutions Helping countries such as Belarus, FYR Macedonia and Turkey improve social assistance programs Helping middle income countries strengthen banking systems Helping all countries improve social service delivery mechanisms Improving policies Public expenditure reviews, e.g., in Poland, Lithuania, Russia, and Latvia to identify areas for efficiency Economic reports, e.g., in Croatia and Central Asia to strengthen integration in Europe and Eurasia 26

27. More information 27 World Bank, 2009: The Crisis Hits Home: Stress Testing Households in Europe and Central Asia, Report No. 50158-ECA. kschrader@worldbank.org tcelasin@worldbank.org