European Commission
Memo
Joint Conclusions on the Economic Reform Programmes
Brussels, 23 May 2017
What is the role of economic governance in the enlargement process?
Economic governance has become one of the pillars of EU's enlargement policy, mirroring developments within the EU to strengthen economic policy under the European Semester. A new approach has been developed to help the enlargement partners[1]strengthen macroeconomic stability, boost growth and meet the economic criteria for accession.
What are the Economic Reform Programmes?
As a result, as of 2015, all candidate countries and potential candidates submit annual Economic Reform Programmes (ERPs). These programmes contain medium-term macroeconomic projections (including for GDP growth, inflation, trade balance and capital flows), budgetary plans for the next three years and a structural reform agenda. The structural reform agenda includes reforms to boost competitiveness and improve conditions for growth and job creation.
State of play and next steps
In 2017, all enlargement countries submitted their third annual Economic Reform Programmes covering the period 2017-2019. They have been assessed by the European Commission and the European Central Bank. Based on these assessments, Joint Conclusions with country-specific policy guidance were agreed and adopted by all seven enlargement partners and the EU at ministerial level on 23 May 2017. The implementation of the reforms outlined in the programmes, and in particular of the policy guidance agreed upon in the dialogue with the EU, will be reviewed in next year's ERP exercise.
Jointly agreed policy guidance
The policy recommendations agreed for Montenegro include the reduction of the public deficit in 2017 and the adoption of a medium-term fiscal consolidation strategy that will stabilise the fast rising public debt. Montenegro also agreed to further strengthen its support for the development of local enterprises, take measures to facilitate needed broadband investments, and ensure the operational independence of the state aid authority for a better level-playing field. There was also a common agreement to continue with the full opening of rail market, where Montenegro needs to set up independent and efficient rail regulatory and safety authorities. Because of the high unemployment in the country, Montenegro agreed to adopt measures that will encourage people to enter the labour market and to develop skills needed by local enterprises.
The policy recommendations to Serbia focus on the need to continue reducing the budget deficit and encourage the sources of economic growth. There was agreement on a number of reforms to support these goals, such as the adoption a credible and binding system of fiscal rules and reinvigorating the restructuring of state-owned enterprises. Serbia also agreed to promote private sector development by better regulating para-fiscal charges, improving the functioning of the tax administration and the efficiency of inspections and facilitating access to finance. There was also agreement to improve the efficiency of the energy sector and to better prioritise and manage public investments. Serbia agreed to adopt measures in favour of the employment of workers with lowest salaries and from vulnerable groups, and to develop dual education and training.
The former Yugoslav Republic of Macedonia agreed to develop a more concrete fiscal consolidation strategy while protecting investment, increase public sector budget transparency, strengthen budget planning capacities and to adopt a public financial management reform programme. There was agreement to ensure that public investments can be better prioritised in a transparent process, and to improve efficiency of public spending by streamlining and better targeting of transfer payments. To help financial stability, the authorities will develop a comprehensive strategy for resolving bad loans and encourage the use of the local currency in financial transactions. The government agreed to be more transparent and regular when adopting legislation including by better ensuring systematic stakeholder consultation, and to strengthen the independence and capacities of commercial courts. Finally, the government agreed to strengthen measures that will encourage low-skilled, young or long-term unemployed people to enter the labour market, improve teacher qualifications, increase enrolment in pre-school education and to stimulate vocational education and training.
Albaniaagreed to continue budgetary stabilisation and to reduce public debt as a share of GDP. Relatively low budget revenues could be increased by strengthening the tax administration, broadening the tax base, and improving the property tax regime. The authorities agreed to follow up on the action plan to resolve bad loans and to step up efforts to encourage the use of the local currency in the financial system. Albania agreed to fully separate transmission and distribution activities in the electricity and gas sectors, improve land registration, including the full functioning of the cadastre. Albania also undertook to adopt measures that will encourage people to enter the labour market and to tackle undeclared work in a comprehensive manner.
The policy recommendations for Bosnia and Herzegovina include creating fiscal space for public investment by containing spending on public employment and by improving the targeting of social assistance. The authorities agreed to strengthen the capacities to manage public debt. The authorities committed themselves to improve the provision of timely and exhaustive statistics,to take steps to strengthen capacities for consolidated macro-fiscal analysis and planning at country level and tofoster the resolution ofnon-performing loans of banks. Bosnia and Herzegovina agreed improve the business environment and to reduce the tax wedge. The government agreed to adopt a country-wide strategy for energy as well as a legal framework in compliance with the Energy Community Treaty., The authorities committed to strengthen the employment services, to adopt measures that will encourage people to enter the labour market and to develop skills needed by local enterprises.
Kosovo[*]agreed to strengthen their economic planning and to take steps towards establishing an independent oversight mechanism for fiscal policy. Kosovo also agreed to strengthen institutional capacities for public procurement and investment planning and management to improve investment, and to address the underlying causes for the difficult access to finance for enterprises. The authorities committed themselves to complete the risk assessments of sectors most vulnerable to the informal economy and take measures to reduce the informal economy. It agreed to establish a financing mechanism and provide incentives to increase energy efficiency of households and private sector enterprises. It will also continue deregulation of energy prices and gradually adjust energy tariffs to reflect actual costs. Kosovo agreed to adopt an action plan for tackling youth unemployment, to reform vocational education and training and higher education on sectors with labour demand, to increase enrolment in pre-school education and to strengthen the Employment Agency.
The policy recommendations invite Turkey to lower external imbalances and promote domestic savings, by following a tight fiscal stance and stimulating private sector savings., Efforts should be intensified to achieve price stability and the rules governing monetary policy should be simplified. In the area of structural reforms, the authorities committed to take steps to strengthen the rule of law and the judiciary to help improve investors' confidence, to boost research and developmentand the capacity of companies, notably SMEs, to adopt and implement innovative production processes.They 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
[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.