World Bank: Floods could disrupt Balkans' power supplies for at least six months

By Daria Sito-Sucic SARAJEVO (Reuters) - Devastating floods in the Balkans this month mean economic growth in the region will be lower than forecast this year and power supplies could be disrupted for at least six months, the World Bank said on Monday. More than 50 people were killed by flooding and landslides in Serbia, Bosnia and Croatia after the heaviest rainfall in more than a century caused rivers to burst their banks, sweeping away roads, bridges and homes. Serbia and Bosnia were worst hit and say the damage inflicted runs to hundreds of millions of euros each, a huge blow to their cash-strapped economies. Serbia's electricity production has been cut by 40 percent as a result of power outages caused by the floods and power supplies have been disrupted in Bosnia and to a smaller extent in Croatia as well. "I believe that in the short run, within 2014, the floods will have a downward impact on growth," Ellen Goldstein, the World Bank's country director for southeast Europe, told Reuters. "The larger problem will be in supplying the power plants with necessary fuel in the longer run ... because of flooding of the mines," Goldstein said. Power supplies knocked out by the waters, including mines supplying Serbia's biggest power plant, Nikola Tesla, were a particular problem, she said. Goldstein was speaking after the bank presented its bi-annual economic report for the western Balkan region, projecting average growth of 1.9 percent in 2014 and 2.6 percent in 2015. She cautioned that the report was compiled before the floods and declined to specify how far the flood damage might effect those figures. However, she said that reconstruction and a rebound in consumption could drive economic recovery in 2015. "One could very easily see a more difficult recovery in 2014 followed possibly by faster growth as the countries pull back out of the floods," Goldstein said in an interview. "But we really don't know the magnitude of that." The World Bank will work with the United Nations and the European Union on assessing the flood damage. Goldstein said the bank would move quickly to restructure its existing portfolios in the three countries and re-allocate funds toward immediate recovery needs, which includes up to 40 percent of retroactive financing. "This means that governments can go ahead and begin spending on well established priority needs today, and we can use 40 percent of reallocated funds to reimburse governments once the procedure issue is completed. That can be a matter of days." Another possibility is that the bank prepares a specific emergency recovery operation, using its IDA crisis response window, which would finance priority goods and services such as imports or repairs in key sectors. "It will be done extremely quickly, we'll need approval from our Board of Directors before the end of June so that money can begin to flow within a matter of weeks," Goldstein said. "Overall we can have very cautious optimism and if reforms are pursued and with recovery from the floods, I think we can expect to see a positive growth trajectory and job creation coming forward." (Editing by Matt Robinson and Susan Fenton)