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48 I Southeast Europe bne May 2023
Surge in PPP investments in the Western Balkans threatens fiscal stability
bne IntelliNews
Public-private partnerships (PPPs) have become popular in the Western Balkans as governments try to catch up with developed countries in terms of infrastructure. However,
a working paper published by the International Monetary Fund (IMF) warns of the risks from poorly managed PPP projects.
The last decade saw a surge in PPP projects in the Western Balkans, where, since 2012, PPP investments in the region have reached an average of 0.5% of GDP, which is higher than the EU and global averages.
Despite the benefits of using PPPs
to reduce the infrastructure gaps in countries in the region – a legacy of
the wars and political turmoil of the 1990s – the paper’s authors says that such projects “carry a potential for large
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fiscal risks and increased costs if not managed well”.
“PPPs that are not well designed and managed could in fact increase costs and introduce significant fiscal risks, due to the complex risk allocation structure and long-term nature of the projects. Moreover, risks could also materialise in the context of shocks,” says the paper, “The Future of PPPs in the Western Balkans”.
It notes that as yet, the “full impact of shocks from the COVID-19 pandemic and war in Ukraine are still playing out, with implications for the resilience of investment projects financed by PPPs.”
The infrastructure gap
The Western Balkans have long struggled to catch up to their European
Union counterparts when it comes to public infrastructure development.
Historical factors such as political conflict in the 1990s depleted the capital stock in the region, and
despite ongoing efforts to develop infrastructure, there is still a significant gap between the Western Balkans and the EU-15 countries.
The lack of quality public infrastructure in the Western Balkans poses a significant obstacle to higher economic growth and faster income convergence. The 2019 Global Competitiveness
Index shows that the Western Balkan countries rank an average of 78 (out
of 141 countries) for infrastructure, compared to EU-15 countries, which average 17, and CESEE countries 51. Higher public infrastructure investment