EBRD Forecasts Growth In Eastern Europe

Central Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) are set to achieve growth this year of almost 5%, the highest rate since the breakup of the Soviet Union, according to the Transition Report 2000 published by the European Bank for Reconstruction and Development (EBRD). The EBRD’s latest materials could well be a good signal for its broader cooperation with the recipient countries as well as for a radical increase of Western investment in this region’s countries generally.

The EBRD, established in 1991, aims to foster transition toward market-oriented economies in the CIS and CEE. Due to the stable tendency of diminishing or small economic growth in most of these states, EBRD efforts have often been futile first of all because of the sluggish pace of reforms and not only in the post-Soviet countries. Although the EBRD still sees no significant progress in reforms, especially in the CIS states, it nevertheless forecasts economic improvement.

Growth is expected to rise to 4.8% in 2000, up from 2.5% in 1999. Strong growth of 6.5% in Russia is driving rapid recovery in the CIS as a whole. The report also says the CIS and CEE countries, having at last recovered from the Russian crisis, have shown certain success in reforms. But the fruits of economic growth are distributed unevenly in the region. A considerable breakthrough, compared to previous years, have been made by Bulgaria, Macedonia, Georgia, and Tajikistan. Especially significant advances, the report says, have been made by the EU accession candidates. Inflows of foreign direct investment are set to reach $27 billion in 2000, the highest level since the start of the transition.

Incidentally, Interfax-Ukraine reported on November 15 that a total $3716.3 million in direct foreign investments had come this year to Ukraine from 109 countries by November 1. On the whole, foreign investors have contributed $588.4 million to the Ukrainian economy between January and September this year, a 18.4% increase over the same period of last year.

Assessing positively the economic prospects of the region, the report also points out the lack of structural reforms and technical progress in the CIS, which slows economic progress. What raises serious concern is the marked decline in the quality of education in some CIS countries. In addition, skilled workers often find themselves locked into dead-end jobs in declining industries. Simultaneously, the region’s population has demonstrated surprising inflexibility in a situation of radical change, the report says.

As to Ukraine, the EBRD forecasts that direct foreign investments in Ukraine will be $750 million this year against $489 million last year. The report says the recently passed laws and mass privatization can make such investments possible. Yet, it is noted that Ukraine must change its tax system and reduce state intervention in the business sphere. “The level of regulation, tax burden, and non-fulfillment of contracts remain the main obstacle,” the EBRD stresses. Quoting the State Statistics Committee of Ukraine, the British Financial Times reports that direct investment in Ukraine in the first six months of this year reached $420 million, 58.6% up from last year.