European Neighbourhood Policy: Economic Review of EU Neighbour
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ISSN 1725-3195 Number 30 - June 2007 European Neighbourhood Policy: Economic Review of EU Neighbour Countries by Directorate-General for Economic and Financial Affairs Occasional Papers are written by the Staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The “Papers” are intended to increase awareness of the technical work being done by the staff and cover a wide spectrum of subjects. Views expressed do not necessarily reflect the official views of the European Commission. Comments and enquiries should be addressed to the: European Commission Directorate-General for Economic and Financial Affairs Publications BU-1 B – 1049 Brussels, Belgium This paper exists in English only. ECFIN.D.30/REP/2185 ISSN 1725-3209 © European Communities, 2007 Foreword This is the third issue of the Economic Review of EU Neighbour Countries1. This year the review includes a special focus on a topical issue: the macroeconomic effects of energy price shocks in resource- poor CIS countries (written in collaboration with Tatiana Lysenko from the EBRD). After several years of below market prices for its gas exports to the CIS, Russia has decided to review these arrangements and to significantly increase prices, bringing them closer to the levels applied to the EU. Starting in early 2006 with Ukraine, the renegotiation of gas prices has since then affected also Armenia, Belarus, Georgia and Moldova. This chapter compares the macroeconomic effects of the energy-price shock on growth, macroeconomic stability, budget and balance of payments in these energy-importing countries. In addition to country-specific chapters, this review includes also two overviews of the recent economic developments in the Mediterranean and the EU Eastern neighbourhood regions. These chapters are structured along the main areas of reform: macroeconomic developments, trade liberalisation and economic opening, business climate, public institutions and public finance management, and social development and poverty. This Occasional Paper has been prepared by a team led by José Leandro and Andreas Papadopoulos (overview of the Eastern neighbourhood and country article on Moldova) including Nico Beinema (statistics), Enrico Gisolo (Israel, Syria, Tunisia), Frank Øland Hansen (Armenia, Azerbaijan, editorial), Inmaculada Montero Luque (overview of Mediterranean countries, Morocco, Occupied Palestinian Territory), Marga Peeters (Algeria, Egypt, editorial), Agnieszka Skuratowicz (Jordan, Lebanon), Sirpa Tulla (Armenia, Azerbaijan, Georgia, Ukraine), Lucio Vinhas de Souza (energy shocks in the CIS, Belarus, Russia) and Hoda Abdel Ghaffar Youssef (statistics, editorial). Max Watson, Peter Grasmann and Johan Baras offered useful comments. Klaus Regling and Antonio de Lecea provided management support and offered valuable suggestions. Sophie Bland, Francis Flaherty, Douglas Jenks, Jonathan Marten and Sarah Stone reviewed the paper. The authors are grateful to the following persons for their useful comments: Ian Hoskins and Jyrki Torni (DG AIDCO). Marie Corman and Tina Mede (DG ENTR), Cécile Abadie, Nacira Boulehouat, Bernard Brunet, Giuseppe Busini, Andrea Fontana, Jan Hofmokl, Véronique Janssen, Bettina Kotzinger, Madeleine Majorenko, Vaclav Navratil, Christoph Wagner, Rutger Wissels and Silvia Zehe (DG RELEX), Michaela Dodini, Blanka Studnickova and Michele Villani (DG TRADE), Ghada Mostafa, Barbara Stacher and Thomas Viot (EC Delegation, Egypt), Hervé Busschaert (EC Delegation, Jordan), Charles Abdallah (EC Delegation, Lebanon), Jérôme Cassiers and Fabrice Ferrandes (EC Delegation, Morocco), Mark Gallagher (EC Delegation, OPT), Oksana Popruga and Luis Manuel Portero Sanchez (EC Delegation, Ukraine). Coordination editor: Marga Peeters European Commission BU-1 -1/196 B - 1049 Brussels Tel: +32 2 296 16 89 E-mail: [email protected] 1 The report covers all countries part of the European Neighbourhood Policy initiative. However, Libya, although a potential ENP country, is not covered as it has no formal relations with the EU. Russia is not an ENP country, but has a strategic partnership with the EU, based on four "common spaces", including an economic space. Russia is included in this issue, not least because of its economic importance for the CIS region. i Contents Page Foreword.................................................................................................................................................... i Contents ................................................................................................................................................... iii List of tables, boxes and charts................................................................................................................v Abbreviations .......................................................................................................................................... ix Part A. Thematic issues The effects of energy price shocks on growth and macroeconomic stability in selected energy- importing CIS countries...........................................................................................................................3 Part B. Regional overviews Overview of recent economic developments in Mediterranean countries .........................................27 Overview of recent economic developments in the EU eastern neighbourhood ...............................47 Part C. Country analysis Algeria .....................................................................................................................................................64 Armenia ...................................................................................................................................................70 Azerbaijan ...............................................................................................................................................78 Belarus .....................................................................................................................................................86 Egypt ........................................................................................................................................................94 Georgia ..................................................................................................................................................102 Israel ......................................................................................................................................................110 Jordan ...................................................................................................................................................118 Lebanon ................................................................................................................................................128 Moldova ................................................................................................................................................140 Morocco ................................................................................................................................................150 Occupied Palestinian Territory ..........................................................................................................158 Russia ....................................................................................................................................................168 Syria ......................................................................................................................................................176 Tunisia ...................................................................................................................................................186 Ukraine ..................................................................................................................................................194 ii List of tables, boxes and charts Tables The effects of energy price shocks on growth and macroeconomic stability in selected energy- importing CIS countries Table 1: Dependence on imported energy ............................................................................................8 Table 2: Energy intensity, 2004 ............................................................................................................9 Table 3: Vulnerability indicators 2004 ...............................................................................................10 Table 4: Gas-import vulnerability 2004..............................................................................................11 Table 5: GDP effects of a gas price shock..........................................................................................14 Table 6: Net FDI inflows…………………………………………………………………….. ..........19 Table 7: Total external debt (% GDP)………………………………………………………….........20 Table 8: Headline fiscal deficits (% GDP)..........................................................................................21 Table 9: End-year CPI Inflation (%) ..................................................................................................22 Overview of recent economic developments in Mediterranean countries Table 1: Mediterranean countries: main economic indicators………………………………...……. 42 Table 2: Current trade policy and trade policy reform........................................................................45 Table 3: Current business climate and business