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can increase short-term output by boosting aggregate demand and longer-term output by expanding the productive capacity of the economy, says the IMF paper.
Lack of fiscal space
One of the major challenges for increasing public investment in the Western Balkans is the lack of fiscal space. Public debt levels as a share of GDP are elevated and fiscal deficits have widened considerably. This has brought about greater economic and geopolitical uncertainty, including higher inflation expectations and financial market tightening, which inflates government borrowing costs.
Several Western Balkan countries have thus turned to PPPs as an option to close the infrastructure gap.
PPPs could also play an important role in meeting energy transition goals
by pooling resources and sharing risks between the public and private partners, the report’s authors note.
PPP investment grows globally
The increased interest in PPPs is
not limited to the Western Balkans. According to the data in the IMF paper, globally, there has been a resurgence of interest in PPPs, and PPP-funded capital
stock quadrupled between 2001 and 2019. The median global PPP capital stock climbed from 0.6% of GDP in 2001 to 1.8% of GDP in 2011, and further to 2.5% by 2019.
In Europe, PPPs have been primarily used for infrastructure and tend to be concentrated in the transportation sector in terms of the value of projects, though there are a large number of smaller projects in healthcare and education.
Annual PPP investment as a share of GDP has fluctuated from year to year, but strong growth has been seen since 2005, especially in Albania, Bosnia & Herzegovina and Serbia, while at the same time, the number of PPP projects in countries in the region is relatively low.
“While these data might not be fully comparable, they broadly suggest that PPP projects in the Western Balkans tend to be larger in percent of GDP compared to PPP projects in the EU. This implies that the failure of an individual PPP project could create
a larger burden for these countries,” the report says.
Sound PPP frameworks needed
However, the report highlights that a sound PPP framework is a critical
element in ensuring the success of PPP projects. While most Western Balkan countries have introduced a legal framework for PPPs, there are still many gaps in the underlying governance structure compared
to internationally established benchmarks. Improvements are needed to strengthen the institutional control over PPPs, enhance competitive procurement processes, ensure more resilient contracts, and improve the management and reporting of fiscal costs and risks, the report argues.
Some of the specific recommendations include that finance ministers “should have the authority to veto projects
– throughout their lifecycle – that
lack value for money, are considered unaffordable, or entail significant fiscal risks.”
The paper also argues that unsolicited proposals “should normally be avoided, or at a minimum, be subject to strict scrutiny”. This has been an issue in Albania in the past, where the IMF and other international observers have urged Tirana to exercise more caution in giving the go-ahead to unsolicited PPP projects. They represent a sizeable share of PPP contracts, especially in the energy sector, the latest report notes.
Four Western Balkan countries pledge “100% compliance” with EU foreign policy
bne IntelliNews
Officials from four Western Balkan countries – Albania, Kosovo, Montenegro and North Macedonia – have launched a new initiative, dubbed "Western Balkan QUAD – 100% compliance with EU foreign policy”, at a meeting in Skopje on March 29.
The focus of the meeting was the four countries’ full compliance with the EU’s Common Foreign and Security Policy
(CFSP) “in light of the new geo-political reality, hybrid threats, the energy crisis and the economic consequences caused by the Russian invasion of Ukraine”, a statement from the Macedonian foreign ministry said.
The four aspiring EU members were quick to impose sanctions on Russia following the invasion of Ukraine
a year ago, and have also extended humanitarian aid to Ukraine.
Meanwhile, Serbia, which maintains good relations with Moscow, has refused to join the sanctions, despite being under pressure to align with EU foreign policy. Efforts by some Bosnian leaders to join the sanctions have been thwarted by the Bosnian Serb leadership, which too has close relations with Russia.
The platform was launched by North Macedonia’s Foreign Minister Bujar
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