Regional co-operation across the Western Balkans is crucial for achieving convergence with the European Union. This chapter offers an overview of the region’s economic developments and progress towards aligning with European Union and OECD standards, which is further explored throughout the report. It outlines the region's economic developments, its progress towards achieving the Sustainable Development Goals and its status in accession efforts. Based on these developments, the chapter sets the stage for in-depth examination across five key policy clusters necessary for achieving convergence: 1) infrastructure and connectivity; 2) skills; 3) business environment; 4) digital transformation; and 5) greening.
Western Balkans Competitiveness Outlook 2024: Regional Profile
Competitiveness and Private Sector Development
1. Context
Abstract
Economic context
Key economic developments
The Western Balkan region consists of six transitioning economies: Albania, Bosnia and Herzegovina, Kosovo*, Montenegro, North Macedonia, and Serbia. The economies of the region have become increasingly service-oriented in recent years, with services accounting for 53.3% of gross GDP since 2022 (World Bank, 2024[1]). Tourism is a significant contributor to the services sector, especially in Montenegro and Albania. Tourism’s direct contribution to the GDP of Albania and Montenegro is almost 9%, while its indirect contribution is estimated at over 20% (WTTC, 2022[2]; EBRD, 2022[3]).
Industry contributes, on average, 22.5% to the GDP of the Western Balkan economies, with the highest contribution coming from the manufacturing and construction sectors. However, the size of the manufacturing sector ranges from 3.9% of GDP in Montenegro and 6.5% of GDP in Albania to between 13% and 14% in the remaining four economies (World Bank, 2024[1]). Agriculture represents an average 10.6% of the economies’ GDP, and has slightly expanded in Albania, Kosovo and Serbia in recent years. As of 2022, Albania has the largest agricultural sector as a percentage of GDP, at 18.6%, while Bosnia and Herzegovina has the smallest, at just 4.83% (World Bank, 2024[1]). The informal sector of the Western Balkan economies remains sizeable, ranging between 20% and 35% of GDP (IMF, 2024[4]).
The Western Balkans experienced strong post-pandemic recovery, with GDP growth reaching 7.9% in 2021, after which growth slowed to 3.4% in 2022 and 2.6% in 2023 (World Bank, 2024[5]). The post‑pandemic recovery was marked by a divergence of performance between the more manufacturing-oriented economies (Serbia, Bosnia and Herzegovina, and North Macedonia) and the relatively more services-oriented and tourism-dependent economies (Albania, Montenegro and Kosovo). Serbia, Bosnia and Herzegovina, and North Macedonia displayed slower recovery rates relative to the services-oriented economies as they were more affected by the economic slowdown in the EU (World Bank, 2024[5]). Meanwhile, the strong demand for tourism and international travel buoyed the economies of Albania, Kosovo and Montenegro (World Bank, 2024[5]). As of the end of 2023, levels of real GDP in the Western Balkans surpassed pre-pandemic levels (World Bank, 2024[5]). However, the region has made limited progress in closing the gap with the EU, with regional GDP per capita at just 38% of the EU average in 2022 (OECD, 2023[6]).
Economic growth has generally been driven by domestic demand, helped by higher real wages, policy support, tourism and recovering investment amid improving expectations in the euro area (European Commission, 2024[7]; IMF, 2024[8]; World Bank, 2024[5]). In Albania, real wages in the private sector experienced a significant growth rate of 10.2% in 2022, while real wages grew by as much as 6.7% in Bosnia and Herzegovina over 2023, supporting the contribution of consumer spending to output growth (IMF, 2024[4]). While public and minimum wage increases to mitigate the impact of the cost-of-living crisis have supported domestic demand in Albania, Bosnia and Herzegovina, and North Macedonia, they also risk fuelling inflation (IMF, 2024[8]). On the supply side, services led growth across the Western Balkan economies. Construction became an important engine for growth in Albania and Serbia, while it contributed negatively to growth in North Macedonia and Montenegro (World Bank, 2024[5]).
After a dramatic increase in regional inflation during 2022, reaching an average of 11.8%, average inflation slowed from 14.3% in January 2023 to 5.1% in December 2023 (World Bank, 2024[5]). However, the pace of price deceleration varies across the region, with inflation in December 2023 ranging from 2.2% in Bosnia and Herzegovina to 7.6% in Serbia. To counter extraordinary inflationary pressures over the period, the Western Balkan economies took various measures depending on their exchange rate regimes. The National Bank of Serbia used tight monetary policies to curb inflation, which has kept interest rates at 6.5% since July 2023. In North Macedonia, the central bank intervened to keep the stability of the exchange rate, decreasing foreign exchange reserves by 20%. Interest rates in North Macedonia increased considerably, rising from the historic 1.25% end-2021 value to 6.3% in September 2023 (European Commission, 2024[7]). Likewise, interest rates in Albania increased from 0.5% in March 2020 to 3.25% in November 2023, and the Albanian lek appreciated in relation to the euro (European Commission, 2024[7]; Bank of Albania, 2023[9]). Interest rates are projected to remain low in Bosnia and Herzegovina as inflation continues to decline (IMF, 2024[10]).
Despite challenges, the regional labour market improved over the period, although structural problems persist, including disparities within economies, gender gaps, informality and high youth unemployment (European Commission, 2023[11]). The unemployment rate fell across most economies over the assessment period, reaching a regional average of 10.9% in 2023 (World Bank, 2024[5]). Youth unemployment also fell significantly, reaching 25.5%, although this remains more than double the overall unemployment rate and well above the EU youth unemployment average of 13.8% (World Bank, 2024[5]). Participation in the labour market increased in all economies except North Macedonia, and reached an average of 54% in 2023, 0.5 percentage points higher than in 2022 (World Bank, 2024[5]). Albania attained the highest labour force participation rate of the Western Balkans, marking a record high for the region of 64.1% in 2023. Real wages increased by 8.4% on average in 2023, reversing 2022 trends of inflation outpacing wages (European Commission, 2024[7]). However, the growth in real wages has not been in line with productivity growth (World Bank, 2024[5]).
Despite a weakened external sector in 2022 due to challenges of persistent supply shortages and inflation resulting from the Russian Federation's war of aggression in Ukraine (Box 1.1), as well as ongoing consequences of COVID-19, the external sector of the Western Balkan economies saw improvement in 2023. The current account deficit declined to a historic low of 4.9% of GDP in 2023, from 7.8% of GDP in 2022 (World Bank, 2024[5]). The improvement in the region’s external position primarily stems from reduced imports, both in volume and value, and robust net services exports, particularly evident in tourism-dependent economies. However, weak and often shrinking goods exports have dampened trade dynamics (World Bank, 2024[5]). While Bosnia and Herzegovina experienced a marginal uptick in its external deficit in 2023, all other economies in the region showed improvements in their external balances, with the most significant improvements seen in North Macedonia and Serbia (World Bank, 2024[5]). While remittances rose in the region, albeit more slowly, by an estimated EUR 230 million, they decelerated in GDP terms to 6.5% of GDP in 2023 compared to 7% in 2022 (World Bank, 2024[5]). Foreign direct investment (FDI) inflows amounted to 5.4% of GDP in 2023, exceeding the external deficit by 0.5% of GDP (World Bank, 2024[5]). While Albania, Bosnia and Herzegovina, and North Macedonia experienced a slight decline in foreign exchange reserves in 2022, these continued to grow in 2023 for most regional economies (World Bank, 2024[5]). Table 1.1 further explores the macroeconomic indicators.
The financial sector in the Western Balkans has been relatively stable, despite slowing growth, inflationary pressures and tighter financing conditions (World Bank, 2024[5]). Following accelerating credit growth across most economies in the second half of 2021, higher interest rates over 2022 led to decreased demand for private credit, and although credit growth stood below 6% in the second half of 2023, higher interest rates helped increase bank lending margins and profitability (World Bank, 2024[5]). From end-2021 to end-2023, the average non-performing loan (NPL) ratio improved from 4.5% to 3.8% (World Bank, 2024[5]). Improvement in capitalisation was observed in several WB6 economies over the assessment period, and as of September 2023 the bank capital adequacy ratio averaged 19.3%, which is higher than the December 2021 average of 18.2% (World Bank, 2024[5]).
The fiscal position of the Western Balkan economies also improved following the shocks of 2019 and 2020, with most showing a steadily improving fiscal balance into 2022 and 2023. Over 2023, Albania, Kosovo and Serbia exhibited an improving but still negative fiscal balance at approximately -1.4%, -0.2% and -2.2% of GDP, respectively (World Bank, 2024[5]). Meanwhile, the fiscal balance of Montenegro turned positive in 2023, increasing from -4.9% in 2022 to 0.5% in 2023. However, the fiscal performance of Bosnia and Herzegovina and North Macedonia decreased in 2023. In Bosnia and Herzegovina, higher government spending contributed to a fiscal deficit of 0.9% of GDP in 2023, almost double that of the previous year. This was due to an increase in subsidies, social benefits and transfers. North Macedonia’s fiscal deficit remains the highest in the Western Balkans: in 2023, its fiscal balance dropped from -4.5% to -4.9% of GDP owing to lower than expected revenues and higher expenditure for wages and transfers (World Bank, 2024[5]).
Given strong GDP growth and fiscal performance, public and publicly guaranteed debt declined in most Western Balkan economies. Between 2022 and 2023, the regional average of the public and publicly guaranteed debt-to-GDP ratio fell from 50.4% to 47.3% (World Bank, 2024[5]). Despite the high cost of external borrowing, several Western Balkan economies have received improved credit ratings. In March 2024, Standard & Poor’s (S&P) Global Ratings raised its long-term foreign and local currency sovereign credit ratings for Albania to “BB-” from “B+”, and affirmed its “B” short-term foreign and local currency sovereign credit ratings, with a stable outlook. At the same time, Montenegro’s long-term sovereign credit ratings were upgraded from stable to positive, and S&P ratings affirmed the “B/B” on Montenegro’s long- and short-term foreign and local currency sovereign credit ratings (S&P Global, 2024[12]). In June 2023, S&P raised the long-term local and foreign currency sovereign credit ratings for Bosnia and Herzegovina to "B+" from "B", which it has maintained as of February 2024 (S&P Global, 2024[12]).
Table 1.1. Main regional macroeconomic indicators in the WB6 economies (2022)
Notes: G&S = goods and services; “n.a” refers to data unavailable; * = Data from 2018.
Sources: European Commission (2024[7]); World Bank (2021[13]; 2024[5]); EBRD (2023[14]); IMF (2024[15]); UNCTAD (2024[16]).
Box 1.1. Economic impacts of Russia’s full-scale invasion of Ukraine
Russia’s ongoing large-scale aggression in Ukraine has had varying negative economic implications for the Western Balkan economies, with the degree of impact dependent on pre-existing economic exposure to trade and tourism from Russia and Ukraine, and reliance on Russian energy. In response to Russia’s actions, all Western Balkan economies, with the exception of Serbia and Bosnia and Herzegovina (Republika Srpska), have introduced sanctions or restrictive measures on trade in line with those imposed by the EU, even if with delay, as in the case of Montenegro (Konrad-Adenauer-Stiftung, 2023[17]; Loshaj, 2024[18]).
Tourism to the region has generally continued a positive post-pandemic recovery, with limited impact by Russian and Ukrainian tourists over 2021 and 2022 (UNDP, 2022[19]). Tourism continues to increase since COVID-19 in Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia, but is yet to exceed its 2019 levels (UN WTO, 2023[20]; Eurostat, 2024[21]; World Bank, 2024[22]; Agency for Promotion and Support of Tourism, 2024[23]), which has been the case in Albania and Kosovo (Ministry of Tourism and Environment, 2023[24]; World Bank, 2024[25]; Kosovo Agency of Statistics, 2024[26]). This is in part attributed to the war in Ukraine and other persistent challenges due to COVID-19 and the energy crisis.
Since February 2022 there has been a significant and mixed shift in trade relations among the Western Balkan economies and Russia. While Albania, Kosovo and Montenegro have registered a sharp decline in imports from Russia, Bosnia and Herzegovina, North Macedonia, and Serbia have registered an increase, mainly due to increased energy prices, which constitute a significant part of their imports (Kostadinov, 2023[27]). However, the trade sectors of the Western Balkan economies have generally continued to expand, contributing more to GDP, as neither Russia nor Ukraine constitute a significant share of total trade for the Western Balkan economies. With the exception of Serbia, trade with Russia typically accounts for less than 2% of the Western Balkans’ total trade volumes. In 2023, Russia accounted for around 4% of Serbia’s total trade exports and 5.3% of its imports (United Nations, 2024[28]). From 2021 to 2022, Russian exports to Serbia increased by 118%, from EUR 1.5 billion to EUR 2.6 billion (United Nations, 2024[28]). Serbian exports to Russia likewise increased from EUR 842 million in 2021 to EUR 1 billion in 2023 (United Nations, 2024[28]). However, trade in certain goods has been particularly affected, as Russia accounts for a significant share of wheat and fertiliser imports in several Western Balkans economies (United Nations, 2024[28]).
Trade relations with Ukraine tend to represent an even smaller percentage of total trade for the Western Balkans and have generally declined since the start of the conflict (United Nations, 2024[28]). In 2022, the value of exports from Albania and Serbia to Ukraine declined, while those from Bosnia and Herzegovina, Montenegro, and North Macedonia increased significantly (United Nations, 2024[28]). In the same year, reported imports from Ukraine decreased in Albania, North Macedonia and Serbia, while they increased in Bosnia and Herzegovina1 and Montenegro. However, the uptick in imports from Russia to Bosnia and Herzegovina was reversed in 2023 when they dropped to below the 2021 value (United Nations, 2024[28]).
FDI into the region has generally increased, although 2023 saw varying scales of FDI decreases for Montenegro, North Macedonia and Serbia (Bank of Montenegro, 2024[29]). While Russia is not a major source of foreign investment in Albania, Kosovo and North Macedonia, it is the largest foreign investor in Montenegro and the fourth largest investor in Serbia (UNCTAD, 2023[30]). Bosnia and Herzegovina has begun receiving increased FDI from Russia due to the lack of sanctions (FIPA, 2023[31]). In Montenegro, where Russian investment is historically directed towards tourism and real estate, FDI significantly declined from EUR 164.5 million in 2011 to EUR 27.4 million in 2022 (European Commission, 2024[7]; Bank of Montenegro, 2024[29]).
The energy sectors of Albania, Kosovo and Montenegro have not been significantly affected by the conflict as they consume little or no Russian gas, instead relying on domestic or imported fossil fuels, and some hydropower and solar. For Bosnia and Herzegovina, North Macedonia, and Serbia, natural gas accounts for 3.6%, 2.8% and 12.1% of total final energy consumption (IEA, 2022[32]), respectively. Given that Russia is the main source of natural gas imports for these three economies, increased focus has been placed on building infrastructure to diversify energy sources (WBIF, 2023[33]). Since the start of the conflict, energy prices have risen considerably throughout the region, with the cost of gas for household consumers increasing by as much as 60% for Bosnia and Herzegovina and 90% for North Macedonia (Eurostat, 2024[34]). The higher prices have negatively impacted households’ real disposable income, with a disproportionate impact on those most vulnerable and at risk of poverty. In response to the social and economic impact of the energy crisis generated by Russia’s war of aggression against Ukraine, the EU allocated EUR 1 billion to the Western Balkans under the 2023 Energy Support Package immediate measures (European Commission, 2023[35]).
1. In the case of Bosnia and Herzegovina, reported imports from Ukraine increased, while Ukraine’s reported exports to Bosnia and Herzegovina decreased over 2021-2022.
Sustainable development
All Western Balkan economies have committed to implementing the 2030 Agenda for Sustainable Development; however, its integration into national policy practices could improve in most economies (Table 1.2). While all economies except Serbia have a designated lead unit responsible for the co‑ordination and implementation of the Sustainable Development Goals (SDGs) across ministries, the convening and capacity of these units are uneven, with some holding a nominal rather than active role (such as in North Macedonia) (Sachs et al., 2023[36]). Monitoring of the SDGs is also weak across most economies. All Western Balkan economies, apart from Kosovo, have undertaken at least one Voluntary National Review (VNR) of their implementation of the SDG Agenda. As Kosovo is a non-member of the United Nations it is unable to submit a VNR; however, a review of Kosovo’s implementation of the SDG Agenda was undertaken by the Institute for Development Policy in 2019 (INDEP, 2019[37]).
Amidst challenges owing to the COVID-19 pandemic and Russia’s war of aggression against Ukraine, progress towards improving economic and social outcomes in the Western Balkan economies has slowed over the assessment period. Poverty in the Western Balkans returned to a declining trend during 2023, but at a slower pace than pre-pandemic levels (World Bank, 2024[5]). Significant challenges remain in the area of nutritional well-being for most economies (SDG 2), with little progress made since 2021. Health and well-being outcomes tend to be strongly affected by high rates of non-communicable diseases (cardiovascular disease, diabetes, cancer, etc.) and obesity; lack of access to high-quality healthcare; and stagnation in the area of universal health coverage (SDG 3). Above-target pollution rates also negatively affect health and well-being.
Improvement in economic outcomes continues to be undermined by weaknesses in competitiveness, infrastructure and innovation. High unemployment rates weigh on the performance of most economies in the area of decent work and economic growth (SDG 8), while low levels of expenditure on research and development tend to hinder performance in industry, innovation and infrastructure (SDG 9). Inequality also continues to pose a considerable challenge in the Western Balkan economies, although Montenegro, North Macedonia and Serbia are on track towards SDG achievement (SDG 10). Access to basic sanitation services has generally increased, although wastewater treatment rates tend to remain low (SDG 6). Air pollution remains a major problem and continues to impede progress in sustainable urban development (SDG 11), as does the lack of access to public transport.
Table 1.2. Progress of the WB6 economies in achieving the Sustainable Development Goals
Notes: The order of progress (from greatest to least) is as follows: SDG achieved; challenges remain; significant challenges; major
challenges. Kosovo is not included in the table as it is not a member state of the UN and therefore unable to submit a VNR.
Source: Sachs et al. (2023[36]).
Progress across environment-oriented goals has been variable. In the area of clean energy (SDG 7), high CO2 emissions from fuel combustion for electricity output is a common indicator of low performance across all economies, although some perform better in terms of renewable energy share as a percentage of final energy consumption (Albania, Bosnia and Herzegovina, and Montenegro). While Albania has achieved its target in the area of climate action (SDG 13), the other economies face challenges ranging from moderate (Montenegro and North Macedonia) to significant (Bosnia and Herzegovina and Serbia). The lack of protection for terrestrial and marine ecosystems poses a significant challenge in most economies, as does integrating circular economy principles into economic models (SDGs 12, 14 and 15).
Institutional integrity remains one of the lowest performing areas across the Western Balkan economies (SDG 16). Significant challenges remain in the case of Bosnia and Herzegovina, Montenegro, and North Macedonia, with moderate improvement in the latter two economies. Meanwhile, Albania and Serbia present major challenges and stagnating improvement within institutional integrity. Impediments to progress in SDG 16 are due to persistent corruption, continuance of unlawful expropriation practices, poor timeliness of administrative proceedings and declining performance in press freedom.
EU accession developments
All WB6 economies are committed to pursuing EU accession, and the process of convergence with the EU acquis continues to be a key anchor for reforms in the region. Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia are candidates for EU accession, and Kosovo is a potential candidate. In February 2020, the European Commission presented its revised enlargement methodology, which emphasises credible fundamental reforms, stronger political steer, increased dynamism and predictability of the process (European Commission, 2021[38]). The negotiating framework incorporates the new approach to negotiations on the chapters on judiciary and fundamental rights, and on justice, freedom and security, as well as the issue of the normalisation of relations between Serbia and Kosovo. Along with the revised methodology, the Commission adopted an Economic & Investment Plan to support and bring the Western Balkans closer to the EU.
Bosnia and Herzegovina and Kosovo have reached notable milestones in their candidacy journeys during the assessment period, and Albania and North Macedonia have started accession negotiations. Having submitted its application for membership in 2016, Bosnia and Herzegovina was granted EU candidate status in December 2022. Bosnia and Herzegovina started its EU accession talks in March 2023 after adopting some long-awaited reforms. Kosovo formally applied for EU membership in December 2022. Since 2010, citizens of the WB6 economies except for Kosovo have been able to travel visa-free to EU Member States within the Schengen area. As of January 2024, visa liberalisation for Kosovo citizens entered into force, allowing them to travel freely into the Schengen area (European Commission, 2023[39]).
Albania, Montenegro, North Macedonia and Serbia have made varying levels of progress in negotiations during the assessment period. For Montenegro, 33 of the 35 negotiating chapters have been opened, of which three have been provisionally closed as of December 2023 (European Commission, 2023[11]). So far, 22 out of 35 negotiation chapters have been opened for Serbia. The European Council’s latest conclusions stated that Serbia had made overall progress, but progress on judiciary reforms, strengthening fundamental rights and the normalisation of relations with Kosovo determines the pace of negotiations (European Council, 2023[40]). The first intergovernmental conference with Albania and North Macedonia took place in July 2022, marking the formal start of accession negotiations. At the same time, the first step in the accession negotiation process was taken with the launch of the analytical examination of the EU acquis, the “screening”. The next step in Albania and North Macedonia’s accession process is the opening of the first negotiation cluster, which covers chapters on the judiciary, fundamental rights and justice.
The importance of advancing on the socio-economic reform agenda remains a critical priority in the journey of the WB6 to EU membership. The findings of this Competitiveness Outlook (CO) 2024 offer monitoring and assessment on a number of critical chapters for the EU acquis, while its recommendations provide the guidance needed to meet accession requirements.
On 8 November 2023 the European Commission adopted a new Growth Plan for the Western Balkans. Backed by EUR 6 billion in non-repayable loan and support, the aim of the Growth Plan is to bring the WB6 closer to the EU by offering some of the benefits of EU membership in advance of accession, boosting the region’s economic growth and accelerating socio-economic convergence (European Commission, 2023[41]). The new Growth Plan is based on four pillars that are aimed at:
1. “Enhancing economic integration with the European Union’s single market, subject to the Western Balkans aligning with single market rules and opening the relevant sectors and areas to all their neighbours at the same time, in line with the Common Regional Market;
2. Boosting economic integration within the Western Balkans through the Common Regional Market;
3. Accelerating fundamental reforms, including on the fundamentals cluster1, supporting the Western Balkans' path towards EU membership, improving sustainable economic growth including through attracting foreign investments and strengthening regional stability;
4. Increasing financial assistance to support the reforms through a Reform and Growth Facility for the Western Balkans” (European Commission, 2023[41]).
As part of the new Growth Plan, the Western Balkan economies have been asked to submit to the European Commission economy-specific Reform Agendas listing a number of structural reforms that would need to be implemented in order to access part of the Growth Plan’s funding. All Reform Agendas are structured along the same four policy areas: 1) business environment and private sector development; 2) green and digital transformation; 3) human capital development; and 4) fundamentals (of the EU accession process). They replace Economic Reform Programmes’ chapter IV on structural challenges, as, going forward, the Economic Reform Programmes will only cover macro fiscal aspects.
The new Growth Plan builds on the existing enlargement methodology and creates a package of mutually reinforcing measures. The aim is to speed up accession negotiations by providing incentives to economies to accelerate the adoption and implementation of the EU acquis, while narrowing the economic convergence between the Western Balkans and EU member states. The OECD has recently released the Economic Convergence Scoreboard for the Western Balkans 2023 to track the region’s performance in achieving economic convergence with the EU and the OECD, and to highlight policy bottlenecks that hinder faster economic growth in a sustainable and inclusive way (OECD, 2023[6]) (Box 1.2).
Box 1.2. Economic Convergence Scoreboard for the Western Balkans 2023
The GDP per capita of the Western Balkans grew by 80% between 2003 and 2022, marking significant progress and contrasting with the comparatively modest increases of 27% in the EU and 25% in the OECD (Figure 1.1). This growth has helped narrow the economic gap, reducing the percentage difference in GDP per capita between the region and the EU and OECD averages by approximately 40%. However, with the region’s GDP per capita in 2022 standing at USD (purchasing power parity [PPP] international $) 17 505 (EUR 16 6291) – less than half of the EU’s USD 45 978 (EUR 43 679) and the OECD’s USD 46 208 (EUR 43 897) – the regional economy faces persistent challenges in achieving economic convergence (Figure 1). These contrasting trends highlight the complexities of convergence across the region and the need for both collaborative and comprehensive policy development to foster a productive and competitive region.
Figure 1.1. Western Balkan GDP per capita convergence with the EU and OECD area
In purchasing power parity 2017 USD (thousands)
Note: Data unavailable for Kosovo between 2003 and 2007.
Source: World Bank (2022[42]).
In this context, the OECD developed the Economic Convergence Scoreboard in 2023, marking the establishment of a recurring assessment mechanism and dedicated tool designed to evaluate the extent of the Western Balkans’ economic convergence with the EU and the OECD area. The scoreboard was prepared to inform discussions at the Berlin Process Western Balkans Leaders’ Summit 2023 and is grounded in a decade-long series of policy assessments. The scoreboard offers a thorough analysis of the region's progress across five key policy areas, or clusters, crucial for attaining sustainable and inclusive economic growth. These clusters are business environment, skills, infrastructure and connectivity, digital transformation and greening.
Since 2008, the Western Balkans has made positive progress across most of the policy clusters – albeit with some areas still requiring significant development – underscoring not only the adoption of policies in alignment with the EU acquis and OECD standards, but also the region’s shared commitment to achieving convergence. The region achieved notable advances during the three observed periods (2008-12, 2013-17, 2018-22) in business environment, particularly in attracting FDI, trade openness and new business density, all of which exceed EU rates. The WB6 has also made positive strides in infrastructure and connectivity. For instance, the region is nearing convergence with EU rates in road in total freight transport and logistics performance, and has achieved convergence in average time to obtain electricity. However, the region must still improve its rail and road infrastructure, which will be crucial for fostering economic connectivity.
The skills and greening clusters require further development. In particular, the rate of young people not in employment, education or training (NEET) has stagnated since 2008, suggesting a policy gap relating to youth employment and empowerment. Furthermore, the level of research and development remains approximately one-fifth of the EU level, highlighting another policy gap in an area critical for fostering a competitive economy. As for greening, the region recognises the importance of environmental policy in achieving convergence, as seen in the improved OECD CO environment policy indicator, but upsurges in fertiliser use and waste generation, both of which started from low levels compared to the EU, reflect inconsistent policy development. Additionally, CO2 emissions per GDP by the WB6 have consistently remained at approximately double EU levels between 2008 and 2020, which is a policy area that receives significant priority from both the EU and OECD area, emphasising the necessity for improvement in this area.
In the context of aligning with OECD good practices and standards, the Western Balkans has demonstrated overall progress, albeit with setbacks in the OECD’s Services Trade Restrictiveness Index and Digital Services Trade Restrictiveness Index, and the CO anti‑corruption policy. Notably, advances have been made in CO energy, environment and finance policies, with the region experiencing consistent progress since 2008 in these areas.
1. The 2022 market exchange rate has been used to convert PPP constant 2017 international dollars into EUR.
Source: OECD (2023[6]).
EU financial and development support
The EU is the largest provider of external financial assistance to the Western Balkan economies. The continued significant support from the EU helps the WB6 economies to realise their reform processes and endeavours that bring them closer to the acquis. EU financial support to the region has been provided through both temporary support, such as COVID-19 assistance packages, and long-term investment programmes and funds such as the Instrument for Pre-accession Assistance (IPA), European Investment Bank (EIB) loans and Western Balkans Investment Framework (WBIF) grants. The EU also provides important support through guarantees for public and private investment to reduce the associated risks and costs.
Since 2007, the EU has provided the Western Balkans with over EUR 12 billion in pre-accession funds aimed at strengthening democracy and the rule of law, strengthening competitiveness, boosting innovation in agriculture and rural development, reforming the public administration, improving energy and transport infrastructure and policies, and fostering climate action. A further EUR 10.2 billion of financing has been provided through the EIB since 1999, while financing of EUR 1.14 billion through the WBIF has leveraged additional investment worth an estimated EUR 16.4 billion. The EU has also provided significant grant financing to support disaster relief and reconstruction in the aftermath of the floods that have affected many regional economies, as well as the disastrous earthquake that struck Albania in 2019 (IBRD/World Bank, 2021[43]).
The EU has also been instrumental in supporting the Western Balkan economies in their response to the COVID-19 pandemic, providing the region with combined support of more than EUR 3.3 billion. This included more than EUR 500 million in repurposed IPA 2014-2020 financing to cover the urgent needs of the health sector, support economic and social recovery in the aftermath of the crisis, and help economies gain access to COVID-19 vaccines through a EUR 70 million package adopted in December 2020. In addition, in February 2021 a joint EU/World Health Organization project provided assistance of EUR 7 million to support vaccination readiness and health sector resilience in the region (European Commission, 2021[44]). The WB6 economies have also been recipients of the EU’s regional economic reactivation package of EUR 385 million. A further EUR 500 million was provided in macro-financial assistance to support economic recovery in Albania, Kosovo, Montenegro and North Macedonia, while the EIB has mobilised EUR 1.7 billion.
Through the Economic and Investment Plan (EIP) for the Western Balkans 2021-2027, the EU will provide the Western Balkans with EUR 9 billion through IPA funds, with the aim of mobilising another EUR 20 billion in investments through the Western Balkan Guarantee Facility (WBIF, 2024[45]). As of 2023, the EU has approved funding of EUR 4.29 billion in grants, which is expected to mobilise EUR 15.9 billion in overall investments. The plan supports investment in the green and digital transition through projects in six priority areas: 1) sustainable transport; 2) clean energy; 3) environment and climate; 4) digital future; 5) competitiveness of the business sector; and 6) human capital development (WBIF, 2024[45]). Ten flagship projects are foreseen for the region and are currently at various stages of implementation. These projects include cross-border transport routes for the region (e.g. the construction of the Peace Highway to connect Niš, Serbia via Priština, to Tirana and Durrës in Albania) and several cross-border rail interconnections, such as Serbia to Bulgaria, Montenegro with Albania and Serbia, and North Macedonia to Bulgaria (WBIF, 2024[45]). Notably, in the area of clean energy the EIP also endorses the Trans-Balkan Electricity Corridor, which is a regional power network connecting the electricity transmission systems of Bosnia and Herzegovina, Montenegro, and Serbia with those of Croatia, Hungary, Romania and Italy (European Commission, 2024[46]).
The Reform and Growth Facility for the Western Balkans, which supports the new Growth Plan for the Western Balkans, was adopted in November 2023 and will provide a further EUR 6 billion in non-repayable support and loan support over 2024-27, complementary to the EU assistance already provided through IPA funding. The proposed facility will provide financial support in the form of non-repayable support (up to EUR 2 billion) and loans (up to EUR 4 billion) through direct disbursements to the national budgets, or as capital investment financing through the WBIF over 2024-27.
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[1] World Bank (2024), WDI Data: Services, Value added (% of GDP), https://databank.worldbank.org/source/world-development-indicators (accessed on 25 April 2024).
[5] World Bank (2024), Western Balkans Regular Economic Report, Spring 2024, https://www.worldbank.org/en/region/eca/publication/western-balkans-regular-economic-report (accessed on 25 April 2024).
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[2] WTTC (2022), Economic Impact Report Albania. Total Contribution of Tourism in Albania, World Travel and Tourism Council, https://wttc.org/DesktopModules/MVC/FactSheets/pdf/704/28_20220613152800_Albania2022_.pdf (accessed on 8 April 2024).
Note
← 1. In line with Communication on “Enhancing the accession process – A credible EU perspective for the Western Balkans” COM(2020)57, the fundamentals cluster includes: chapter 23 – Judiciary and fundamental rights; chapter 24 – Justice, Freedom and Security, the economic criteria, the functioning of democratic institutions, public administration reform; chapter 5 – Public procurement; chapter 18 – Statistics; and chapter 32 – Financial control (European Commission, 2023[41]).