Finance and Economics: Situation in the Western Balkans, 2022

The Western Balkans is at an important crossroads in its development trajectory. Over the past decades, the Balkan states have made impressive progress in increasing the well-being of their citizens. With the increase in gross domestic product per capita and the increase in family consumption, the percentage of materially deprived families has decreased.

On the other hand, extreme poverty is lower and life expectancy is increasing. The Western Balkans has taken important steps to strengthen local capacities. The Balkans have a favorable ground to advance the path of green recovery, reflecting the impressive progress made in recent years in various aspects.

The current population of the Western Balkans is about 17.18 million inhabitants. Today, the six economies [1] have a combined gross domestic product (GDP) of nearly €130 billion[2]. The economy of the Western Balkans represents 1.5% of the GDP of the European Union.

The average GDP per capita of the region is around 12,000 EURO (PPP) [3] in 2021.

The process towards integration with the EU has been an important driver of democratization, peace and institution building in the Western Balkans and has provided the region with great financial and technical support for its development and regional integration. Through the Stabilization Association Process (SAP) since 1999, economies in the region have been involved in a progressive partnership with the European Union.

All six Western Balkan economies: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia saw a strong economic recovery with 7.4 percent growth in 2021 as the region bounced back from the 2020 recession. indeed, the strength of the recovery exceeded forecasts due to (a) a combination of subdued consumer demand, travel restrictions despite high infection rates and low vaccination, and (b) a return to investment and an increase in exports, all aided by continued fiscal support.

A return to economic growth influenced job creation, helping to reduce poverty across the region.

Tax revenues also increased in 2022 as growth recovered, reducing budget deficits and public debt.

However, a year of growth is simply not enough time for any country to rebuild fiscal and debt buffers for the next hit if it is a big one. Public debt fell to 57 percent of GDP in 2021, about four percentage points lower than the 2020 peak, but still 50 percent higher than in the pre-COVID-19 period.

As a result, governments across the Western Balkans entered 2022 with limited room for fiscal maneuver.

[1] Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia
[2] https://ec.europa.eu/eurostat/documents/4031688/14589427/KS-05-22-089-EN-N.pdf/35508d49-956b-9f20-2c47-1b38636e38b6?t=1651049579047
[3] in terms of purchasing power parity (PPP – the theoretical exchange rate that allows you to buy the same amount of goods and services in any country by comparing the output of countries that use different exchange rates)