Economic and fiscal performance in the Western Balkans, 2021 – 2023

In 2023, the population of the Western Balkans (WB6) is 16.98 million inhabitants from 17.34 million inhabitants two years ago, with a decrease of 2.1% (360,000 people). The biggest decrease is felt in Serbia with 220,000 individuals less, in Albania with 67,000 individuals less and in Bosnia-Herzegovina (BiH) with 43,000 individuals less. While North Macedonia has decreased by 15,000 individuals, Kosovo by 11,000 individuals and Montenegro by 4,000 individuals.

In relation to the total population it seems that:

– Serbia lacks 3.3% of the population,

– Albania lacks 2.4% of the population,

– Bosnia-Herzegovina, North Macedonia, Montenegro and Kosovo lack 1.3% and 0.8%, respectively. 0.7% and 0.6% of the population of their countries.

The six economies[1] in 2023 have economic growth ranging from 1% in North Macedonia to 6% in Montenegro, with an average growth for BP6 of 3%. The economy of BP6 represents 13% of the GDP of the European Union[2].

The average GDP per capita of BP6 is 14,250 EURO (PPP) [3] in 2023 with an increase of 1,958 Euro/individual compared to 2021.

This increase in absolute value is influenced by the change of 3,520 Euro/individual in Montenegro, 2,530 Euro/individual in Albania, 2,070 Euro/individual in Serbia and less in Bosnia-Herzegovina (1,780 euro/individual), Kosovo (1,280 Euro/Individual) and North Macedonia (570 Euro/individual).

But this large change also shows lower values in 2021, which have increased in the last three years and have shown this high change in some countries and smaller change in the other three countries (see GDP per capita – Table 2).

From what can be seen in the table above, it seems that Montenegro has the highest level of income per capita, still remaining at 40% of the average indicator in the EU for 2023. Meanwhile, it can be seen that Serbia is at close levels followed by from North Macedonia. Bosnia-Herzegovina, but specifically Albania and Kosovo continue to be at levels close to half of the country that peaks within the region and reach close to 1/3 of the indicative level of the EU countries.

Unemployment rate in 2023 in BP6 is on average 12% with an average decrease of 3% from 2021. In this indicator, the biggest impact is from Kosovo (8.3% less unemployed), Bosnia-Herzegovina (4.2% less unemployed) and Montenegro (3.5% less unemployed).

We see a smaller decrease in unemployment in North Macedonia (2.6% less unemployed), in Serbia (1.5% less unemployed) and in Albania (0.8% less unemployed). The lowest level of unemployment is in Serbia with 9.5%, in Albania with 10.7%, in Kosovo with 12.4%.

In North Macedonia and Montenegro the unemployment rate is 13.1% and in Bosnia and Herzegovina the unemployment rate is 13.2%.

Meanwhile, if we look at the employment rate at the end of the fourth quarter of 2023, it can be seen that Albania has the highest employment rate with 66.7%[4].

The average salary in BP6 throughout the year 2023 is on average 857 Euro/month with a nominal increase[5] of 191 Euro (by 29%) from 2021. We see the biggest increase in the average salary in Serbia with 239 Euro more than 2021, in Bosnia and Herzegovina with 207 Euro more from 2021, in North Macedonia with 196 Euro more from 2021 and in Montenegro with 194 Euro more from 2021.

In Albania and Kosovo, the average salary increase in 2023 is respectively 181 Euro and 126 Euro more than in 2021.

The highest average salary in 2023 is Serbia with 1,011 Euro/month followed by Bosnia and Herzegovina with 995 Euro/month, Montenegro with 987 Euro/month and North Macedonia with 892 Euro/month. The lowest average salaries in BP6 are in Albania with 648 Euro/month and in Kosovo with 610 Euro/month.

Inflation in 2023 in BP6 is on average at the level of 8% and according to the last views carried out by experts it results that high energy and food prices have kept inflation at high levels, in contrast to the EU and OECD countries[6].

But, if the average inflation in 2023 is seen in comparison to 2022, there is a decrease in it in all BP6 countries with the exception of Serbia, which has an increase of 0.2%. We see the biggest decrease in average annual inflation in Bosnia. Herzegovina with 7.9% less, in Kosovo with 6.7% less, in North Macedonia with 4.8% less, in Montenegro with 4.4% less. Albania has the smallest decrease year on year with 1.9% less.

The budget deficit is at the average level for BP6 with minus (-) 2% of GDP with a decrease of 1% from 2021. This indicator is good news for the public finances of BP6 countries and mainly a better management better budget than the previous year.

The biggest decrease in the budget deficit is in Albania with 3.2% less than in 2021, followed by Montenegro with 3.1% less than in 2021, Serbia with 1.9% less than in 2021, Bosnia and Herzegovina with 1.3% more a little. Kosovo and North Macedonia have reduced the budget deficit, respectively by 1% and 0.5% less than in 2021. Bosnia and Herzegovina has the lowest level of budget deficit in 2023, which even has a budget surplus of 1% of GDP. of.

Kosovo has a budget deficit of 0.3% of GDP. Albania and Serbia also have a relatively low level of budget deficit, respectively with -1.4% of GDP and -2.2% of GDP. Meanwhile, North Macedonia and Montenegro have high budget deficits, as much as -4.9 % of GDP and 5% of GDP. Public debt, as a more complete indicator of fiscal policies in recent years, is seen with a decrease to the average indicator level for BP6 with 8% less. The average level of the public debt for WB6 is in 2023 as much as 46% of the joint GDP.

Albania (15% less debt), Montenegro (13.5% less debt) and Bosnia-Herzegovina (7.2% less debt) had the biggest impact on the apparent decrease in the average level of public debt in BP6.

We see a smaller decrease in public debt in Serbia (4.8% less debt), in Kosovo (3.9% less debt) and in North Macedonia (1.4% less debt).

The lowest level of public debt in 2023 is Kosovo (17.2% of GDP), Bosnia-Herzegovina (26.7% of GDP). North Macedonia, Serbia, Albania, and Montenegro are close to double of the public debt of the two countries above and respectively in 2023 have debt levels of 50% of GDP, 52.3% of GDP, 59.5% of GDP and 70.5% of GDP.

This still indicates an increased pressure to enter the foreign and domestic market mainly to cope with the high level of prices, public investments and the increase in expenses for salaries and social policies.

The flow of foreign direct investments (FDI) can be seen that on average for BP6 countries it is at the same values as in 2022. However, it follows that the first place for the inflow of FDI is held by Serbia (4.52 billion Euro) and the country Albania holds the second place (1.49 billion Euros). Other countries have an investment value below the 1 billion Euro level and have an inflow from 487 million Euros in Montenegro, to 650 million Euros in North Macedonia, followed by 816 million Euros in Kosovo and 874 million Euros in Bosnia-Herzegovina. .

The largest increase in FDI in 2023 is maintained by Serbia with a nominal value of 636 million Euros more than in 2021, Albania has 458 million Euros more than 2021 and Kosovo has 395 million Euros more than 2021. Bosnia and Herzegovina has an increase in 2023 with 296 million Euros more than 2021 and North Macedonia has an increase of 75 million Euros more than 2021.

The only country with a decrease in investment inflow in 2023 is Montenegro with 104 million Euros less than in 2021, as there is a large increase in FDI in 2022 with 242 million Euros more than in 2021. Despite the most indicators above show moments of optimization for the revitalization of BP6 economies, it can be seen that competitiveness is still not the main feature of economic development policies, although increasing resources and capacities have been committed by governments for this purpose.

However, the increase in consumer demand and the increase in access to credit, influenced by the still visible limitations in competitiveness by BP companies, continue to influence the maintenance of a high trade deficit.

It seems that the income per capita is highest in Montenegro and is followed by Serbia and Albania.

Kosovo has a significant increase in FDI per capita, but it still remains below the average level of the region. The composition of FDI for this period consists of the automotive industry and car parts, renewable energy and tourism and technology services, without forgetting the growing investments for the defense industry.

FDI in BP is still considered limited, if compared to the indicator of FDI per capita in EU countries, as well as the potential that exists to absorb investments from these countries, or even from other rapidly developing countries. Thus, FDI per capita in BP is half of FDI per capita in EU countries.

Investments in research and development continue to be at low levels, reaching up to 1% of the total budget expenditures that are planned and realized in BP, with the exception of Montenegro, which has planned increased expenditures for 2022. This approach , if it does not change practically it will cause a shortage in the product of scientific research, but also in the goods and services that are generated by advanced technology.

The lack of attention needed to change both the capacities that are needed, but also the resources to enable the change will produce negative effects that time will not be able to heal or systematize, since the development of this sector requires its own time to be effective in economy and social life.

[1] Albania, Bosnia-Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia

[2] https://www.statista.com/statistics/1373346/eu-gdp-member-states-2022/

[3] në terms of purchasing power parity (PPP) – indicates that the GDP of all countries is estimated at a uniform price level and thus reflects only differences in the actual volume of the economy.

[4] https://altax.al/en/the-employment-rate-in-tr-4-2023-in-developed-countries-and-in-the-western-balkans/

[5] money paid to you by an employer for your work. A nominal wage does not adjust for inflation.

[6] https://altax.al/en/food-inflation-continued-to-fall-for-the-15th-consecutive-month-in-oecd-countries/