In order to carry out the main functions of providing individual and collective goods and services to the population, governments spend public resources in various ways, such as by making transfers (e.g. subsidies and social benefits) and purchasing goods and services (e.g. vaccines). Disaggregating expenditures by economic transaction helps to identify government priorities, the type of service delivery model (e.g. direct provision or outsourcing), and the size of financial commitments.
In 2018, economies in the Western Balkan region with available data allocated 36.9% of their expenditures to social benefits (e.g. pensions, allowances), which represents an increase of 2.8 p.p. since 2011. By comparison, OECD countries spent on average 40.6% on this transaction, while EU countries spent 44.6%, which represents a 1.9 p.p. increase since 2011 for both groups.
Compensation of employees was the second largest category. Although it represented a larger share in Western Balkans (24.6%) than in the OECD (22.7%) and EU (21.7%), its share has decreased by 1.4 p.p. since 2011 in the first group, while it remained stable in the other two. Despite spending proportionately more on compensation of employees than OECD and EU countries, workforce professionalisation is one of the main challenges facing economies in the Western Balkan region, since the principles of merit (e.g. merit-based recruitment) are not always applied and there are persistent political interventions in the civil service (Uudelepp, A., et al., 2018). These factors contribute to increases in wages that are not matched by adequate levels of productivity increase (OECD, 2019)
In the Western Balkan region, property income (mainly debt interest payments) represented 3.6% of expenditures in 2018 on average, a similar figure to EU countries (4%) and significantly below OECD levels (6.5%). Finally, reaching 11.9% of total spending in 2018, Western Balkans invest significantly more on average than OECD (7.9%) and EU countries (6.2%).
In Bosnia and Herzegovina, 37% of expenditures was devoted to social benefits, 25.3% to compensation of employees and 17.8% to intermediate consumption (e.g. goods and services consumed as inputs by a process of production). Kosovo devoted the largest share to compensation of employees (30.2% of total expenditures), while North Macedonia registered the highest share of spending on social benefits (48.4%) and subsidies (7.8%).
Government expenditures expressed as a percentage of GDP provide a measure, in relative terms, of how much the government spends in each category, taking into account the size of the national economy. In 2018, the four economies in the Western Balkan region with available information spent on average 12.2% of GDP on social benefits (transfers), compared to 16.4% in OECD countries and 20.5% in EU countries. Compensation of employees amounted, on average, to 8.1% of GDP in the Western Balkans, below the average in OECD (9.2%) and EU (10%) countries. Bosnia and Herzegovina, at 10.2% of GDP, is the only country in the Western Balkan region that spent above OECD and EU levels on compensation of employees.
