This paper takes a regional view of infrastructure development to assess shortfalls of public infrastructure in the Western Balkans and discusses policy options. Analysis in the paper to quantify infrastructure levels finds these gaps to be large in the region. Furthermore, as the paper shows, significant bottlenecks for increased infrastructure investment include a lack of fiscal space, weak institutional frameworks for public investment management, and poor regional coordination. If these challenges are addressed, however, estimations and simulations show that the potential growth benefits from addressing infrastructure gaps are likely to be significant. Greater leveraging of private sector infrastructure investments could also play an important role. Regional connectivity projects would help better integrate the region with the rest of Europe, and thereby facilitate EU accession prospects.

The report also provides an assessment of the recent evolution of public infrastructure in the Western Balkans in comparison with other European regions, complements the historical assessment with a detailed analysis for various sectors and quantifies country-by-country infrastructure gaps. It addresses fiscal challenges constraining a ramp-up in investment and showcases possible options to address it. Furthermore, it lays out various external financing options, discusses options and conditions for increased use of public-private partnerships, and provides empirical estimates on the impact of higher public capital spending on growth under various assumptions. It concludes with recommendations on how to narrow infrastructure gaps while preserving fiscal sustainability.

Income convergence toward EU levels has slowed significantly in the Western Balkans since the global financial crisis. The region’s economic development is progressing slowly. If the countries are to close the gap in living standards with the EU, they will need to find a way to re-energize economic growth. Find the full report in the article here.