On the fiscal front, emergency stimulus  1/3  BIS - Central bankers' speeches  measures have already pushed high public debt to unprecedented levels - 67% on average, exceeding Maastricht criteria, and in some countries reaching up to 100% of GDP. In this context, credible medium-term fiscal consolidation is necessary to rebuild buffers and maintain credibility of public finances which is very important as investors are expected to start more vigorously differentiating countries based on their vulnerabilities. On the monetary front, apart from the conventional side effects of "too loose for too long" stance, as credit conditions remain highly accommodative, the risk of the so called "zombification" emerges. It is argued that this process reduces the overall productivity in the economy by trapping the available resources and hindering the emergence of new, more productive companies. In a nutshell, the general economic conducive policies need to be smoothly substituted with more specific sectoral polices that will facilitate optimal reallocation of resources and thus underpin post-crisis transformation of economies. Notwithstanding all these policy measures, the Western Balkan economy is projected to rebound by 5.1 percent in 2021, which implies that pre-crisis GDP level will not be reached this year; it will be lower by around 5% in comparison with pre-pandemic forecasts, and the overall loss will not be recouped even over the medium term.
Yet, according to IMF estimates, the shock intensity would have been three times higher without unprecedented monetary and fiscal policy support, both in terms of speed and scale, preventing a more devastating outcome and long-term scarring to the economies. Given the lessons learned from the global financial crisis, that is recognizing the risk of self-fulfilling cycles, central banks this time responded quickly, providing ultra-accommodative support such as policy rate cuts from already historically low levels, regulatory flexibility to prevent credit crunch and some of them even experimented with non-conventional tools. In this crisis episode, monetary policy was not perceived as "the only game in town" and since the very beginning, it was coupled with unprecedented fiscal stimulus. Average fiscal stimulus in the region amounted around 6% of GDP, which was twice as low as the global fiscal stimulus, but still on a comparable level with middle-income economies. Consequently, the pre-pandemic fiscal consolidation was ceased and the fiscal deficit hit a record high of 7.7% of GDP. Overall, during this crisis episode, policy response in the region was swifter, bolder and better balanced. Looking forward to the policy front, one of the lessons learned from the global financial crisis is that the policy support should not be rollbacked prematurely. Thus, the main challenge is how to provide further support for the recovery stage, but without further creation of vulnerabilities on the other fronts.