Balkans Becoming Economically Freer, Says Index

Albania has region’s freest economy, Bosnia the least free, while Bulgaria is sole country in region whose score has dropped.

All but one country of the Balkans registered an improvement in economic freedom last year but the region still faces difficult challenges, notably corruption, political interference and excessive bureaucracy, according to the Index of Economic Freedom.

The index of 179 world nations is published annually by the Wall Street Journal and the Heritage Foundation, and the regional details are announced by its strategic partner, the Adriatic Institute for Public Policy, an independent think tank.

Albania had the freest and Bosnia the least free economy in the region, the 2010 Index of Economic Freedom said, rating the two countries in 53rd and 110th position respectively.

The index measures economic freedom within 10 specific categories including business freedom, labour freedom, and government spending.

Despite its poor rating, Bosnia and Herzegovina registered “signifi¬cant improvements” in fiscal, investment and labour freedoms, the index said in its report. As the result, the country’s average economic freedom score was 56.2, which was 3.1 points higher than in 2009.

However, the report warned that the entrepreneurial environment in Bosnia remained “one of the region’s most difficult and inefficient”, calling for further reforms to tackle bureaucracy and reduce petty corruption.

“Without significant progress in revitaliz¬ing the privatization of large-scale enterprises, reforming the judicial system and improving the enforcement of laws on competition and bankruptcy procedures, the encouraging growth of previous years is unlikely to resume, leaving much of the country mired in poverty and high unemployment,” it said.

The report praised Albania for maintaining “relatively sound” macroeconomic stability in the face of the global economic slowdown, stressing that an overall score of 66 points for economic freedom, by one of the poorest countries in Europe, was “above the world average”.

The report said Albania’s flat tax rate of 10 per cent for individuals and businesses, and structural reforms aimed at fostering private-sector growth, had “led to increased production and consumption, as well as a substantially reduced poverty rate”.

However, it warned that money laundering remained a significant problem in Albania’s cash-based economy, along with weak property rights, largely due to “political interference in the judiciary”.

Five other Balkan countries, namely Croatia, Macedonia, Montenegro, Romania and Serbia, all registered an increase of between 0.3 and 5.4 points in their economic freedom scores.

While all the countries need to do more to tackle corruption, burdensome bureaucracy and political interference, Macedonia, which was ranked 56th in the index, faces an additional challenge of dealing with the “serious problems…(of) human trafficking and smuggling of drugs and weapons”.

Montenegro’s growing external debt and poor targeting of government spending were reported as specific problems, though the report recognized the country’s “impressive average economic growth” of over 7 per cent during the past five years. The small Balkan country, whose ongoing problems include high unemployment and the black market, was ranked 68th freest.

The report noted that Croatia had moved up 24 places and was now ranked as the world’s 92nd freest economy. However, its economic freedom score of 59.2 points was still below European and world averages.

“Croatia's overall weakness stems from excessive government interference that erodes the economy’s efficiency and flexibility,” the report said. “In addition to high levels of government spending, government intervention in other key areas of the economy is considerable,” it added.

Bulgaria was the only country in the region to register a fall in its economic freedom score. Following a 2.3 point fall, the European Union member country now scores 62.3 points and was ranked 75th in the index.

According to the report, despite “substantial progress” toward long-term stability and sustained growth, Bulgaria still suffers from “institutional weaknesses that could hamper macroeconomic stability and retard growth.

“Weak property rights, lingering corruption, and burdensome bureaucracy continue to reduce economic freedom, and developing a more independent judicial sys¬tem would appear to be a key area for reform,” in Bulgaria, the report said.

While recognizing the progress achieved by Romania, another EU member in the Western Balkans, the report warned that it continued to lag behind many other European countries.

This was attributed to the absence of deeper structural reforms and to “ongoing institutional challenges to overall economic freedom”, resulting from widespread corruption and a rigid labour market. Romania was ranked 63rd in the index.

Serbia’s economic freedom score registered the lowest increase in the region, of 0.3 points. With a score of 56.9, Serbia was ranked 104th freest economy in the 2010 index. (BalkanInsight)