The role of economic governance in the enlargement process
Economic governance is one of the pillars of EU’s enlargement policy, mirroring developments within the EU to strengthen economic policy under the European Semester. The approach has been developed to help the enlargement partners[1] strengthen macroeconomic stability, boost growth and meet the economic criteria for accession.
All candidate countries and potential candidates draft annual Economic Reform Programmes (ERPs). The European Commission and the European Central Bank prepare assessments of these programmes. These assessments form the basis for a multilateral economic and financial policy dialogue involving the enlargement partners, EU Member States, the Commission and the European Central Bank that took place today in Brussels. The joint conclusions of the meeting include country-specific policy guidance reflecting the most pressing needs of each economy in the field of macroeconomic governance and structural reforms. They are summarised below.
Jointly agreed country-specific policy guidance
The reform measures agreed with Montenegro include the implementation of the medium-term fiscal consolidation strategy, the reduction of public spending on wages and pensions as a share of GDP, and the provision of adequate budgetary allocation to cope with unplanned fiscal slippages. Montenegro also agreed to develop a comprehensive broadband action plan to speed up the roll-out and prepare a plan to bring up investment in research and development. Montenegro should continue with the full opening of the rail market, strengthen the Central Bank’s macro-prudential policy and develop an acquis-compliant regulatory framework for concessions and public private partnerships. Montenegro agreed to improve the coverage and effectiveness of its active labour market policies, enhance their coordination with social benefits schemes, and increase enrolment in vocational and higher education corresponding to labour market needs.
The policy recommendations to Serbia focus on measures to preserve fiscal stability and enable the state to increase public investment in infrastructure. Serbia agreed to adopt a credible and binding system of fiscal rules. There was an agreement that the restructuring of public companies continues. This is most pertinent in the energy sector, where tariff reforms, unbundling and promotion of energy efficiency need to be stepped up. Similarly, to support the business environment for private operators, Serbia agreed to improve the regulation of parafiscal charges and use findings of the smart specialisation exercises to guide its forthcoming industrial strategy. To support employment and better social conditions, the authorities agreed to adopt measures in favour of workers with lowest salaries, to provide more and better social support to vulnerable groups, and to work closely with other stakeholders when rolling out the recently adopted system of dual education and training.
The former Yugoslav Republic of Macedonia agreed to develop a medium-term fiscal consolidation strategy, stabilise the public debt ratio, adopt the organic budget law and establish an independent fiscal council. They should streamline and better target transfer payments and agricultural subsidies, improve tax collection and reduce public sector payment arrears. The authorities agreed to work on resolving bad loans and encourage the use of the local currency. In order to combat the informal sector the authorities should prepare risk assessments and put in place appropriate measures. The country agreed to clarify the mandate of inspectorates and improve procedures, create a publicly available register of para-fiscal charges and strengthen the capacity of civil courts to handle commercial disputes. Finally, the government agreed to modernise the education system, increase enrolment in pre-school education, reform VET, facilitate women’s labour market access and adopt the law on social protection.
The policy recommendations agreed for Albania focus on pursuing fiscal consolidation, conducting monetary policy in line with reaching the inflation target and implementing the remaining measures of the NPL resolution strategy. Albania also agreed to ensure effective liberalisation of the energy market and functioning of the power exchange, further broaden the energy supply mix while incentivising energy efficiency and strengthen the process of cadastral, land and property registration. Finally, the authorities committed to ensure sufficient capacities for the implementation of employment policies, in particular for youth and women and to address undeclared work.
The policy recommendations for Bosnia and Herzegovina focus on improving the medium term fiscal planning framework, strengthening analytical capacities for macro-fiscal analysis and forecasts and providing timely and exhaustive statistics. The authorities agreed to create fiscal space for public investment and to take steps to reduce payment arrears. The authorities committed themselves to enhance capacities of the central bank, to comprehensively address the resolution of NPLs and to strengthen the bank resolution framework. There was an agreement to adopt a legal framework in compliance with the Energy Community Treaty as well as country wide strategies related to energy as well as public finance management and to improve the business environment through various measures. Finally, the country should reduce the tax wedge and to review education enrolment policies to improve their links with the labour market needs.
Kosovo* agreed to explore the possibility of establishing an independent oversight mechanism for fiscal policy. Kosovo also agreed to complete the war veteran certification and reclassification processes and to strengthen institutional capacities for investment planning and management and improve access to finance for enterprises. The authorities committed to improving monetary policy and to finalise the bank resolution and crisis management frameworks. Kosovo further agreed to establish the Energy Efficiency Fund and adopt energy efficiency incentives the private sector and households. Kosovo should complete deregulation of energy prices and conclude a study for a plan to gradually increase energy tariffs to reflect actual costs. Kosovo also agreed to adopt the new Strategy and Action Plan to fight the informal economy. Kosovo should increase the scope of active labour market measures and conduct a skills needs analysis. Kosovo committed to introduce the general health insurance scheme and increase enrolment in pre-school education.
The policy recommendations invite Turkey to lower external imbalances and promote domestic savings, by following a tight fiscal stance and stimulating private sector savings. The recommendations call for the prudence and transparency of fiscal policy to be increased and monetary policy to be focused on price stability. In the area of structural reforms, the authorities committed to take steps to strengthen the rule of law and the judiciary to help improve the business environment and to encourage companies’ uptake of innovative production processes. The authorities also agreed to work on skills development of the labour force in sectors with growth potential, to further reduce informal work and to promote labour participation of women.
[1] Candidate countries: Albania, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey; potential candidates: Bosnia and Herzegovina and Kosovo.
* This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence.
