Within the past decade, the countries of the region have been beleaguered with military, economic, and political crises and conflicts including the pyramid schemes of Albania, the Kosovo and Macedonian conflicts, and the serious debt burden that was incurred under the former regime of Serbia and Montenegro (formerly, the Federal Republic of Yugoslavia). These external and internal shocks impacted neighboring countries, for example, through influxes of refugees, disruptions in transport and trade, and loss of investor confidence. 

The South East Europe region  refers to Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Moldova,  Romania and Serbia and Montenegro (formerly the Federal Republic of Yugoslavia). It is a diverse region of 55 million people, with an average income per capita ranging from US$720 in Moldova to US$6,820 in Croatia. The past decade of transition and conflict  left the region with a legacy of inadequate growth and declining living standards. Since the end of the Kosovo conflict in 1999, however, there has been considerable improvement. Civil unrest has been overcome and a political balance has been found that has allowed a return to economic growth and closer regional cooperation.

Overall, the region has made good progress across a broad front in the last few years. Since the end of the Kosovo crisis, economic growth has resumed, institutions of the emerging democracies and market economies are being created and strengthened, regional trade links are being restored, private investment is slowly growing and the prospects for poverty reduction have improved. The ability of all countries to maintain macroeconomic stability and sustain reforms has been the foundation on which progress has been built. For the Region at large, growth has been close to an annual 5 percent in real terms since 2000. 

Significant progress has also been made in reducing inflation. Albania, Bosnia and Herzegovina, Croatia and fYR Macedonia have all consistently maintained one-digit inflation over the past four years. At the end of 2001, the average rate of inflation for the region was 20 percent, but this was somewhat distorted by the higher levels of inflation in Romania and Serbia and Montenegro. By the end of 2004, the downward trend in inflation continued reaching an average of approximately 6%. Large inflows of aid have been key to this recovery, and have been absorbed by large fiscal and external deficit.

Nevertheless, the Region continues to face major challenges in sustaining stability and reaching the overriding goal of stronger ties to the rest of Europe. The overarching challenge faced by all countries of the region is to build strong, fully functioning states, which are capable of delivering on the needs of their citizens and of ensuring effective regional cooperation and of more advanced relations with the EU. In this context, a key priority is the fight against organized crime and corruption. Progress in this field will be essential for assuring the rule of law, generating confidence in state institutions, encouraging private investment and bringing the countries closer to EU membership. Overcoming unemployment, in particular youth unemployment, remains the Region’s greatest social and economic challenge; and failure to achieve progress may threaten political stability.

Poverty Measurement

Poverty is a multidimensional phenomenon that reaches far beyond simple definitions such as a lack of material consumption or resources. Poverty is a social as much as an economic problem. Above all, poverty is relative which makes it hard for those of us in the developed world to understand what poverty means to those in the developing world. Poverty in the developing world means: hunger, no shelter or heat, sickness without proper healthcare, unemployment, powerlessness, illiteracy and lack of education. Poverty can be one or all of these and sometimes more, but most of all it is something that people who are in it want to escape.

Poverty measurement is based upon a poverty line - under which the population is defined as being "poor". For this reason, there are many types of poverty lines, and the line selected ultimately depends on the objectives of the analysis. For example, absolute poverty lines are anchored to a minimum standard of living, which is typically based on a basket of food items, plus an allowance for basic non-food necessities. The advantage of an absolute poverty line is that welfare changes can be monitored against a fixed threshold. Relative poverty lines are generally set as a share of median or mean consumption and define poverty in relation to a national average welfare standard.  In addition to these measures, the World Bank uses two absolute poverty lines for comparisons across countries: US$2.15 purchasing power parity (PPP) per capita per day; and US$4.30 PPP per capita per day.

Information on consumption and income is obtained through sample surveys, during which households are asked to answer detailed questions on their spending habits and sources of income. Such surveys are conducted more or less regularly in most countries by the World Bank. These Poverty Assessments review levels and changes over time and across regions in poverty indicators, assess the impact of growth and public actions on poverty and inequality, and review the adequacy of a country's poverty monitoring and evaluation arrangements. They generally feed into country-owned processes to develop strategies to reduce poverty, help build in-country capacity, and support joint work and partnerships. In addition, subjective measures of poverty are being increasingly being used in World Bank Poverty Assessments to take into account respondents' perception of their living standards.

For more information on poverty, please consult the World Bank Poverty website, as well as the World Bank Poverty Assessment database.

What is the Extent of poverty in SEE?

According to the most recent World Bank Poverty Assessments, all of the countries of South East Europe are characterized by low incomes and a high incidence of poverty - especially in relation to the poorest countries to join the European Union in the past (Ireland, Portugal, Cyprus and Malta, the Baltics, and Central and Eastern Europe).

The graph below shows the most recent estimates of the incidence of poverty in each of the countries of the region. As can be seen, the poorest country is Moldova, which also has the lowest per capita income in Europe. Poverty in the region is concentrated in smaller size towns and is least prevalent in capital cities, and it disproportionably affects minority groups and low-skilled workers.

Source: This table is based on most recent poverty assessments. Most data are from 200-2002. UNMIK/Kosovo poverty line obtained from the most recent poverty assessment (World Bank 2005)

In addition, even taking into account the existence of large informal markets, the level of recorded unemployment is high in all countries (typically running at around 15%), with the exception of Moldova and Romania. Although there is no consistent pattern in the region concerning the relationship between gender and unemployment, it does seem clear that it is the younger generation that are most affected. There also seems to be a trend towards longer-term unemployment, as unemployed workers find it more difficult to get new jobs or retraining.