WASHINGTON, March 12, 2025—To achieve high-income status, middle-income countries in the Europe and Central Asia region must prioritize reforms that will foster the infusion of capital, knowledge, and expertise, boost private sector innovation and dramatically improve education outcomes, according to a new World Bank report released today.
The report, titled Greater Heights: Growing to High Income in Europe and Central Asia, urges countries to reduce inefficiencies across their economies and remove obstacles to economic dynamism.
Since 1990, ten countries in the region have reached high-income status and have joined the European Union. While another 20 have become more prosperous, their transition to high-income has been slower and prospects for growth have become more difficult since the 2007–09 global financial crisis due to more sluggish progress on structural reforms at home as well as a deteriorating global environment.
“To achieve high-income status, governments will need to continue to focus on foundational reforms to maximize the drivers of economic growth, while pivoting to new transformative efforts to promote the development of more complex economic structures and institutions,” says Ivailo Izvorski, Chief Economist for the Europe and Central Asia region and lead author of the report. “The key changes involve the need to discipline incumbents, boost the role of the private sector, strengthen the competitive environment, and reward merit. The emphasis on a strategy driven by innovation is also critically important for those countries that have already attained high-income status."
The report details the critical role firms and productivity play in achieving high-income status. Policies need to focus on supporting dynamic startups and young firms rather than small and medium enterprise (SMEs) in general. Countries should also improve access to finance, especially long-term credit and risk capital by developing venture capital markets and reducing state-directed lending, which are necessary for firms to innovate and scale up.
Lack of adequately skilled workforce is also identified as a growth constraint. Countries need to revamp vocational and university education and develop stronger links with the private sector to foster innovation. Addressing talent shortages and aligning educational tracks with industry needs is crucial for growth. Reforms should include delaying dividing students into specific educational tracks, enhancing private sector links, consolidating universities and integrating research centers, and emphasizing merit-based graduation.
Policies will also need to ensure that people feel socially mobile: the quality of their education is better than their parents’ and that their children will have even better opportunities for good education and a well-paying job. If people are not socially mobile, they become discouraged and disengaged, and do not support important policy changes, especially in education.
The report also looks at the need to ensure secure and affordable energy for growth. The Europe and Central Asia region is the most energy-intensive developing world region, with many state-owned enterprises and high energy subsidies. The middle-income countries in the region need to tackle substantial energy inefficiencies, reduce energy intensity, and adopt lower-cost energy production, which will require deliberate and well-sequenced steps. Governments also need to address political economy concerns and balance reductions and elimination of fossil fuel subsidies with targeted income support.
