OREANDA-NEWS. The pace of reform in the transition region last year was fastest in south-eastern Europe (SEE), with most advances in the Western Balkans, the EBRD’s Transition Report 2007 shows. Reforms continued across much of the transition region as a whole, however at a slower pace than in previous years, reported the press-centre of EBRD.

The Report also said that, while initial stage reforms across the EBRD region were virtually complete, all countries still faced challenges in what the Report calls the “third phase of transition”, areas such as governance and enterprise restructuring, competition policy and especially infrastructure.

The Bank tracks developments in its 29 countries of operations through a set of indicators marking progress in structural and institutional reform.

The Report said reforms in the Western Balkans, where transition is less advanced than in the rest of SEE, have been encouraged by proximity to European markets. Montenegro has demonstrated its commitment to a liberal trade regime and has signed a Stabilisation and Association Agreement with the EU. In Bosnia and Herzegovina, progress was shown by the privatisation of several large assets in the Republika Srpska.

Progress has been made in the legal framework and enforcement of competition policy in FYR Macedonia. Other positive developments included the enhanced activity of the Serbian competition authority, and better telecoms regulations in Albania, coupled with the privatisation of the Albanian telecoms company.

Mongolia made the most progress in the CIS and Mongolia region, with large-scale privatisation as well as competition and banking reforms. In the western CIS countries, Ukraine continued to strengthen the financial sector with the implementation of a new law on securities and the stock exchange and the development of the non-bank financial sector, while Moldova and Belarus made progress in banking sector reform.

Reform progress in Russia has been limited, although there were further steps taken to implement the country’s railway reform programme which led to more competition in the freight sector. In the banking sector, credit has expanded vigorously, especially in roubles, and the first securitisation under domestic law has been completed. However, the Report noted that the banking sector continued to be dominated by two large state-owned banks and that consolidation of small banks remained slow.

In the Caucasus, reforms in Georgia stood out, where the privatisation of regional electricity distribution and generation companies meant that Georgia’s privatisation process was now largely complete. There were few significant reforms in Central Asia outside Mongolia.

Reforms in central eastern Europe and the Baltic states (CEB) have slowed considerably following accession to the EU in 2004. “Across the CEB, a lack of domestic political and social consensus has led to fragile coalition governments that are less inclined to pursue difficult reforms,” the Report said. The only exceptions were in Latvia and Lithuania, where financial sector reforms progressed.

“Third phase” of transition remains a challenge across the EBRD region
Looking at sectoral reform, the Report said the third phase of transition was still posing challenges to virtually all countries. The first phase of market-enabling reforms, involving market liberalisation and small-scale privatisation, was largely complete throughout the region. The second phase of market-deepening reforms – large-scale privatisation and financial sector reform – had progressed in new EU member countries but was less advanced elsewhere.

Third phase, market-sustaining reforms – including governance and enterprise restructuring, competition policy and infrastructure – remain unfinished even in the most advanced countries in central eastern Europe and the Baltic states and are at an early stage elsewhere in the transition region.

The Report made clear that the least progress in reform and the largest challenges across the region remained in infrastructure, although challenges in individual infrastructure sectors varied from country to country. Georgia and Romania have shown progress over the past year in the electricity sector, after deeper involvement of the private sector, while progress in the railways sector was noted in Hungary and Russia.

The Report said reform of the energy sector was increasingly urgent in the context of rising energy prices, concerns about energy security and mounting pressure to address climate change.
The Transition Report 2007 will be available to the general public from Tuesday 13 November 2007.

However, journalists can download electronic copies of the report from http://press.ebrd.com. If you are a journalist and would like access to these pages, send your details to coppolas@ebrd.com.