World Economy

Central, Eastern Europe Caught in Middle Income Trap

Central, Eastern Europe Caught in Middle Income TrapCentral, Eastern Europe Caught in Middle Income Trap

Central and eastern European countries have become stuck in a “middle-income trap” and need new growth strategies and infrastructure to kick off again, the European Bank for Reconstruction and Development said on Wednesday.

The development bank’s latest report flags the plateau which eastern and central European countries are perceived to have reached more than quarter of a century after the end of the Cold War and Soviet central economic planning, CNBC reported.

Former-communist economies are also still producing too much pollution and although there appears to be a renewed appetite for reform in the bloc, some including Poland and Ukraine have stalled in areas like privatization, it said.

“Many of those countries have now reached middle-income status and have to overcome the problem of the ‘middle-income trap’,” EBRD Chief Economist Sergei Guriev said.

The trap is common phenomenon for developing countries. Growth slows as technological advances in the economy become more incremental and rising wages erode the competitive advantages of cheap labor.

Guriev called for new economic models, focusing on improving productivity of individual firms, expanding infrastructure and green growth.

“There is no silver bullet, no one-size-fits-all solution,” he said, with the report also highlighting there was often resistance from individuals and groups with entrenched vested interests in maintaining the status quo.

  Broader Region

Across the EBRD region meanwhile, which now spans 38 countries from Morocco to Mongolia, the bank estimated that €1.9 trillion ($2.23 trillion) is needed to be spent on improving infrastructure over the next five years.

It pointed to the example of Turkey, where upgrading the country’s large road network had a major positive impact on domestic trade among its provinces.

“The appetite for reform seems to have returned to the region,” Guriev said flagging Uzbekistan—which recently returned to the EBRD fold after a decade-long standoff—and Egypt, both floating their previously-pegged currencies.

Greece, Slovenia and Kazakhstan have made progress with privatizations while Tunisia and Jordan, Albania and Belarus and Serbia were all singled out for progress in other areas.

Ukraine’s privatization program however has largely stalled with its largest bank, Privatbank, now nationalized.

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