MULTI-DIMENSIONAL REVIEW OF THE WESTERN BALKANS : assessing opportunities and constraints.

Foreword
Acknowledgements
Editorial
Abbreviations and acronyms
Facts and figures of the Western Balkans
Executive summary
	Amid a COVID-19 pandemic, learning from and with each other in order to tackle challenges and find innovative and timely solutions is more necessary than ever
	Nine shared strategic priorities for the region
		Education and competences
		Social cohesion
		Green recovery – energy and air pollution
		Digitalisation
		Migration, brain drain and diaspora engagement
		Creating opportunities for women
		Land management and property rights
		Local governments
		In the end, progress comes down to implementation and reliability
			Part I Assessing opportunities and constraints in the Western Balkans: Regional overview
Assessing opportunities and constraints in the Western Balkans: Regional overview
	1 Overview: Identifying strategic opportunities for the Western Balkans
		Vision and opportunities
		Key trends shaping development of the Western Balkans
			Rapid population ageing
			Climate change
			Democratisation process
			Digital transformation
		Assessing well-being performance and constraints to sustainable development in the Western Balkans
			Well-being
			Major constraints to sustainable development
				People
				Prosperity
				Partnerships and financing
				Peace and institutions
				Planet
		COVID-19 in the Western Balkans
		Shared strategic opportunities and challenges as avenues for peer learning
		References
		Note
	2 Multi-dimensional analysis of development in the Western Balkans
		People
			Social cohesion is limited, and many people are left behind
			Employment opportunities are inadequate, especially for women and the young
			Attending education in the Western Balkans does not yield the skills needed to succeed
			Health systems are ineffective and understaffed, resulting in poor health outcomes
			Social protection needs a more sustainable financing model and does not always reach those most in need
		Prosperity
			GDP growth is weaker but more balanced
			Domestic enterprises, particularly SMEs, face a challenging institutional and business environment
			The lack of a skilled workforce impedes the growth of investment, job creation, innovation and technology adoption
			Infrastructure gaps impede trade and global value chain integration, and unreliable access to electricity and other utilities deter investment
		Partnerships and financing
			Western Balkan economies rely heavily on external financing for growth
			Fiscal performance varies, but the fiscal space in most Western Balkan economies is limited or has narrowed considerably in the post-crisis period
			Weak public-sector revenue performance limits the scope for improvement of public services
			High and rising current expenditures crowd out public investment
			SMEs face considerable difficulties accessing financing
		Peace and institutions
			Western Balkan economies have not yet struck the right balance of power between levels of government
			Imperfectly defined land rights undermine the functioning of land markets
			The judiciary in the Western Balkans is often biased and inefficient
			SOE governance is a source of large inefficiencies
			The EU integration process and the role of informal institutions
		Planet
			Air pollution: high levels of pollution pose a threat to biodiversity, human health and the economy across the Western Balkans
				Levels of air pollution are high across regional economies
				Poor waste management and inadequate wastewater treatment are major sources of ambient and water pollution across Western Balkan economies
			Biodiversity: the region’s rich biodiversity and abundant forest coverage is threatened by pollution and not sufficiently protected
			Energy sector: energy efficiency levels are low across Western Balkan economies, and most economies rely heavily on coal for electricity generation
			Governance inefficiencies: tariffs set below operational costs threaten the financial sustainability of public utilities
			Water: water management, access to drinking water and water scarcity are challenges in some Western Balkan economies
			Natural hazards: most Western Balkan economies are vulnerable to natural hazards
		References
			Part II Assessing opportunities and constraints in Albania
Assessing opportunities and constraints in Albania
	3 Overview: Identifying strategic opportunities for Albania
		Towards a vision for Albania in 2030: an attractive society with high quality of life and strong human capital, built on reliable, resilient and efficient institutions, a dynamic economy and integration into Europe and the region
		Assessing Albania’s development performance
			Sustainable development: summary of Albania’s performance and major constraints
		Suggestions for strategic priorities for Albania
		References
		Note
	4  Impact of COVID-19 in Albania
		Evolution of the pandemic
		Policy responses and economic impact
		Dimensions of vulnerability to further socio-economic impact from COVID-19
			Material well-being and social protection
			Health and non-material well-being
		References
	5 Multi-dimensional analysis of development in Albania
		People – towards better lives for all
			Improving well-being for all, everywhere
			Strengthening the productive potential and equal participation of all citizens
				Many women and youth are excluded from the labour market and wider society
				Labour market institutions do not address job quality and demand-supply imbalances
			Boosting education quality to increase well-being and quality employment
			Improving health and social protection coverage
				Health outcomes are comparatively good, but the healthcare sector places a high cost burden on patients and suffers from lack of access and resources
				Social protection benefits are too modest and need to be integrated with care services
		Prosperity – boosting productivity
			Albania’s growth model requires new drivers to accelerate structural transformation and boost productivity
			Albania’s tradable sector needs more investment, diversification and upgrading
				The contribution of exports to GDP has improved but leaves room for progress
				Albania has attracted significant amounts of FDI, mostly for energy, extractives and non-tradeable services and less for manufacturing and ICT
			The skills gaps and skills mismatches affect productivity and growth
			The institutional and administrative constraints limit domestic and foreign investment
				Corruption increases the cost of doing business in Albania
				Contract enforcement is lengthy and political, and regulatory instability is relatively high
				Obtaining construction permits is lengthy and expensive
			The large infrastructure gap limits investment, particularly manufacturing FDI
		Partnerships and financing – financing sustainable development
			Remittances are an important source of finance in Albania
			The fiscal space is limited
			Revenue performance is lagging behind, and expenditures need to increase in key areas
				Improved tax collection and a broader tax base are needed to improve revenue performance
			Access to financing is constrained by weak property rights and informality
		Peace and institutions – strengthening governance
			The fragmented structure of the public administration can stand in the way of implementation
				Albania has numerous and sometimes overlapping strategic documents
				The fragmentation of agencies poses a challenge to implementation capacity
			The courts are short of capacity and still exposed to unlawful external influence
			Property rights are still insecure, affecting land productivity and sustainability
				Land rights in Albania remain insecure
				Path-dependent and incomplete legislative frameworks leave land-related issues unresolved
			Corruption remains a challenge
				Albania has taken steps to fight corruption, but more coherence and co-ordination is required
				Vote buying, obscure party financing and patronage in the public administration are other forms of corruption
			The limited local fiscal and administrative capacity and the unclear regional development framework may exacerbate regional inequalities
				The decentralisation process is ongoing, but local fiscal and administrative capacities remain limited
				The regional development framework has been separated from the decentralisation process
			The statistical capacity has improved significantly, but the access to administrative data and sound quality-management frameworks lag behind
		Planet – conserving nature
			Albania is vulnerable to natural hazards
				Albania faces earthquakes, floods, droughts and extreme temperatures
				Albania has improved disaster-prevention legislation, but implementation remains a challenge
			Preserving the quality of Albania’s environmental resources is crucial for development
				Air pollution is a serious concern
				Solid waste management and recycling are lacking
				Managing water services is a considerable challenge and will increase in importance
				Better enforcement and implementation of environmental legislation is key
				Transparent decision-making processes in environmental matters and an open dialogue with civil society and other stakeholders are important
			The high reliance on hydropower gives Albania the most renewable energy profile in the region, but it cannot be expanded without environmental burden
		References
		Notes
			Part III Assessing opportunities and constraints in Bosnia and Herzegovina
Assessing opportunities and constraints in Bosnia and Herzegovina
	6 Overview: Identifying strategic opportunities for Bosnia and Herzegovina
		Assessing Bosnia and Herzegovina’s development performance
			People – towards better lives for all
			Prosperity – boosting productivity
			Partnerships and financing – financing sustainable development
			Peace and institutions – strengthening governance
			Planet – conserving nature
		Suggestions for strategic priorities for Bosnia and Herzegovina
		References
	7 Impact of COVID-19 in Bosnia and Herzegovina
		Evolution of the pandemic
		Policy responses and economic impact
		Dimensions of vulnerability to further socio-economic impact from COVID-19
			Material well-being
			Health and non-material well-being
		References
		Note
	8 Multi-dimensional analysis of development in Bosnia and Herzegovina
		People – towards better lives for all
			Improving well-being for all
			Strengthening the productive potential and equal participation of all citizens, especially women and youth
				Young people and women find themselves outside the labour market
				Women’s participation in society is not yet equal
				Labour market institutions need to be strengthened and working conditions improved
			Boosting education quality
			Improving health and social protection outcomes
				Healthcare governance is fragmented, inefficient and not financially sustainable, leading to subpar and inequitable health outcomes
				The social protection financing model is unsustainable and does not provide equal access to benefits for the most needy
		Prosperity – boosting productivity
			Weak investment and productivity have constrained economic growth in the post-crisis period
			A fragmented internal market and high bureaucratic burden create a challenging environment for private-sector development
			The large and inefficient SOE sector creates unfair competition for private enterprises
			Infrastructure gaps impede connectivity with the Western Balkans and beyond
			The lack of a skilled workforce and the lack of technology adoption limit the potential for economic upgrading and expansion of the tradable sector
		Partnerships and financing – financing sustainable development
			Low domestic savings and limited external financing have constrained investment
			Strong fiscal performance has created ample fiscal space for combatting the COVID-19 crisis
			Strong revenue performance has not translated into quality public services and infrastructure due to high expenditures on wages and transfers and low investment
			Access to finance is limited for SMEs, particularly start-ups and microenterprises
		Peace and institutions – strengthening governance
			The decentralisation framework is asymmetric
			Overly complex institutional design undermines the independence, efficiency and transparency of the judiciary
			Personal connections are inevitable in getting things done but may create social exclusion, distort the labour market and weaken administrative capacity
			Fragmented law enforcement and incoherent legislation frustrate anti-corruption efforts
			Poor governance can explain poor SEO performance
			Bosnia and Herzegovina’s statistical capacity requires improvement
		Planet – conserving nature
			Bosnia and Herzegovina is vulnerable to natural hazards and climate change
			Bosnia and Herzegovina’s rich biodiversity and forest coverage is not sufficiently protected
			High levels of air pollution threaten human health, the economy and the environment
			Inadequate waste management poses a risk to the environment and damages natural resources
			Water management must be improved in Bosnia and Herzegovina to ensure a stable drinking water supply in the long run
			Management of public utility services is too fragmented, and prices are set below operational costs
			Bosnia and Herzegovina’s environmental legislation is improving, but enforcement remains a challenge
			Bosnia and Herzegovina’s high carbon intensity and low energy efficiency are reflected in high GHG emissions
			Bosnia and Herzegovina is heavily reliant on subsidised coal and does not sufficiently incentivise renewable energies
			Outdated energy infrastructure, SOE monopolies and lengthy procedures are key challenges in the energy sector
		References
		Notes
			Part IV Assessing opportunities and constraints in Kosovo
Assessing opportunities and constraints in Kosovo
	9 Overview: Identifying strategic opportunities for Kosovo
		Towards a vision for Kosovo in 2030: strong economic growth and rising living standards contributing to healthier and longer lives built on equal access to quality education, strong human capital, respect for the environment and democratic and effect...
		Assessing Kosovo’s development performance
			Sustainable development: summary of Kosovo’s performance and key constraints
		Suggestions for strategic priorities for Kosovo
		References
	10 Impact of COVID-19 in Kosovo
		Evolution of the pandemic
		Policy responses and economic impact
		Dimensions of vulnerability to further socio-economic impact from COVID-19
			Material well-being and social protection
			Health and non-material well-being
		References
	11 Multi-dimensional analysis of development in Kosovo
		People – towards better lives for all
			Improving well-being for all
				Regional inequalities are evident in access to basic infrastructure, and minority groups risk being left behind
			Prioritising quality jobs for all
				Young people and women find themselves outside the labour market
				Labour market institutions need to be strengthened and working conditions improved
			Boosting education quality
			Improving health and social protection coverage
				Kosovo’s health system fails to deliver quality results and access to care
				The equity and targeting of Kosovo’s social protection schemes can be improved
			Ensuring social inclusion of women beyond the labour market
			Achieving social cohesion
		Prosperity – boosting productivity
			Kosovo’s growth model over the past decade has undermined competitiveness and discouraged productivity-enhancing investment and job creation
				Domestic demand has largely driven economic growth over the past decade
				Investment has supported the growth of non-tradable services and real estate
				Low productivity and high wage growth have limited job creation and weakened competitiveness
				Towards more sustainable growth
			A more reliable electricity supply can improve investment prospects
			Strengthening governance and improving the business environment will reduce the cost of doing business in Kosovo and enhance trust in institutions
				Corruption and weak contract enforcement
				The administrative and bureaucratic burden remains high
		Partnerships and financing – financing sustainable development
			Kosovo’s economy needs more diversified financing for investment and growth
			Revenue performance has been weak on account of the low tax rates, limited tax base and inefficient tax collection
			Government current expenditures have crowded out investment in priority areas for development
			Access to finance is particularly constrained for SMEs
		Peace and institutions – strengthening governance
			An overly complicated structure and political interference may undermine the effectiveness of the public administration
			The current form of decentralisation creates incentives for patronage instead of spending on public goods
			The judicial system is formally strong but remains inefficient and too exposed to interference
			Lack of accountability and financial mismanagement in POEs may undermine macroeconomic stability
			Property rights need to be strengthened through better registration procedures and greater awareness about existing laws
				Faster procedures, better institutional design and awareness campaigns about land rights can enhance property registration
				Securing property rights is paramount to future development
			Lack of human resources and harmonised methodological standards impede the quality of statistical products
		Planet – conserving nature
			Mismanagement of natural resources could hamper Kosovo’s future development path
				Kosovo’s rich ecosystem and biodiversity are threatened
				Serious gaps exist in the sustainable management of minerals
			Environmental quality of life must be improved
				Air pollution is a serious threat
				Waste management remains a challenge
				Water mismanagement could hurt Kosovo’s development
				Implementation and enforcement of environmental legislation remains weak
			The energy supply is unsustainable, insufficiently diverse and inefficient
				A high dependency on domestic and heavily polluting coal production
				Energy supply is unreliable
				Energy efficiency needs to be improved and the social and environmental impact of energy production reduced
		References
		Notes
			Part V Assessing opportunities and constraints in North Macedonia
Assessing opportunities and constraints in North Macedonia
	12 Overview: Identifying strategic opportunities for North Macedonia
		Towards a vision for North Macedonia in 2030: high quality of life, including access to quality education and health care for all citizens, built on sustainable economic development through an innovative local industry in combination with environment...
		Assessing North Macedonia’s development performance
			People – towards better lives for all
			Prosperity – boosting productivity
			Partnerships and financing – financing sustainable development
			Peace and institutions – strengthening governance
			Planet – conserving nature
		Suggestions for strategic priorities for North Macedonia
		References
		Notes
	13 Impact of COVID-19 in North Macedonia
		Evolution of the pandemic
		Policy responses and economic impact
		Dimensions of vulnerability to further socio-economic impact from COVID-19
			Material well-being and social protection
			Health and non-material well-being
		References
	14 Multi-dimensional analysis of development in North Macedonia
		People – towards better lives for all
			Improving well-being for all
			LGBTI communities face continued discrimination and little acceptance in a rather conservative society
			Prioritising quality jobs and equal participation for all
				Young people and women are excluded from the labour market and society as a whole
				Labour market institutions need to be strengthened
			Boosting education quality at all levels
			Improving health and social protection coverage for all
				The rising burden of lifestyle diseases and adverse child health outcomes need to be addressed by increased healthcare funding and more efficient organisation, especially in public PHC
				Despite recent reforms, the current social protection system is not fully financially sustainable due to a low formal worker contribution base
		Prosperity – boosting productivity
			Weak linkages between the FDI sector and the rest of the economy have mitigated the structural transformation of the economy
				Weak FDI spillovers and productivity growth have negatively affected economic growth and job creation
				Strengthening human capital can help turning FDI into stronger economic growth and quality jobs
			Firms face significant skills gaps and weak capacities for innovation and technology adoption
				North Macedonian firms do not invest sufficiently in innovation or meet quality standards necessary for GVC integration
				Boosting skills is essential for productivity growth and GVC integration
			Political and regulatory uncertainty and corruption discourage investment and enterprise growth
		Partnerships and financing – financing sustainable development
			The fiscal space has narrowed, limiting the scope for further provision of economic stimulus
			Revenue performance is constrained by high informality, low tax rates and high exemptions
			Current expenditures are high and crowd out capital spending
			Financing is constrained, particularly for SMEs
		Peace and institutions – strengthening governance
			Lagging fiscal capacity, a complex system of transfers and inefficient territorial organisation may hamper decentralisation reforms
			The approach to regional development is confusing and creates inefficiencies
			The judicial system suffers from undue external interference
			Agricultural land is still very fragmented, undermining productivity and sustainability
			North Macedonia has made significant progress in strengthening statistical capacity, but the lack of a census and prevailing gaps in social statistics prevent accurate policy design
		Planet – conserving nature
			North Macedonia is highly exposed and vulnerable to multiple hazards
				North Macedonia is vulnerable to earthquakes, floods and extreme temperatures
				Complex institutional organisation for disaster management and lack of disaster risk reduction (DRR) integration into sectoral planning produce inefficiencies in practice
			The environmental quality of life of all Macedonians is deteriorating
				Air pollution is a serious threat
				Waste management remains a challenge in North Macedonia
				The efficiency of water management needs to be improved
				The enforcement and implementation of environmental legislation remains weak
			North Macedonia is highly dependent on coal, and energy supply is not sufficiently secure and efficient
				North Macedonia highly depends on domestic and heavily polluting coal production, and energy imports
				Energy supply is unreliable in North Macedonia
				Energy production is not efficient and has an environmental impact
		References
		Notes
			Part VI Assessing opportunities and constraints in Serbia
Assessing opportunities and constraints in Serbia
	15 Overview: Identifying strategic opportunities for Serbia
		Towards a vision for Serbia in 2030: a healthy, cohesive, more inclusive and equal society and a clean environment built on economic and social development through education, skills and digitalisation in combination with good governance, democracy, d...
		Assessing Serbia’s development performance
			People – towards better lives for all
			Prosperity – boosting productivity
			Partnerships and financing – financing sustainable development
			Peace and institutions – strengthening governance
			Planet – conserving nature
		Strategic priorities for development in Serbia
		References
		Notes
	16 Impact of COVID-19 in Serbia
		Evolution of the pandemic
		Policy responses and economic impact
		Dimensions of vulnerability to further socio-economic impact from COVID-19
			Material well-being and social protection
			Health and non-material well-being
		References
	17 Multi-dimensional analysis of development in Serbia
		People – towards better lives for all
			Improving well-being for all, everywhere
			Strengthening the productive potential and equal participation of all citizens of Serbia
				Young people and women need better labour market integration
				Women’s participation in Serbian society is not yet equal
				Labour market institutions need to be strengthened
			Boosting education quality
			Improving health and social protection outcomes
				Quality of health care has deteriorated amid austerity measures and reliance on frequently evaded social contributions
				Pensions and social assistance schemes fail to prevent poverty
		Prosperity – boosting productivity
			Stronger investment, productivity growth and income convergence
			Investment is hampered by weaknesses in the administrative and regulatory environment, corruption and weak competition
				Regulatory and administrative burden
				Corruption
				Competition
			Economic upgrading and smart specialisation are constrained by weaknesses in the skills profile of the workforce
				Skills
				Innovation and technology adoption
		Partnerships and financing – financing sustainable development
			Low domestic savings have constrained domestic investment, an impact only partially offset by external financing inflows
				Public debt dynamics have improved, but risks persist
			Stronger growth in capital expenditures is needed, alongside more binding limits on current spending
			More diversified financing options are needed to support SME innovation and growth
		Peace and institutions – strengthening governance
			Checks and balances on the executive are weakening
			The judiciary lacks institutional guarantees of independence and has limited capacity
			Fragmented decentralisation and regional development frameworks undermine the balanced development of local communities
				After initial dynamism, the decentralisation process in Serbia lost momentum
				Serbia lacks a harmonised regional development framework
			The public administration continues to be exposed to political influence
			The state has not yet developed the capacity to plan and prioritise strategically
			The implementation of anti-corruption strategies has been slow
			Serbia has seen stark improvement in statistical capacity but can still strengthen statistical independence and processes to ensure confidentiality
		Planet – conserving nature
			Serbia is exposed and vulnerable to multiple natural hazards
			The deterioration of the environmental quality of life of all citizens of Serbia
				Air pollution is a serious threat, and the level of some pollutants, especially acidifying gases, remains unchanged since 1990
				Waste management is a challenge in Serbia in terms of collection, treatment and reporting
				Poor-quality drinking water and water pollution affect public health in Serbia
				Governance issues and inefficiencies undermine the quality of the water supply
				Enforcement and implementation of environmental legislation remains weak, and the decision-making process and funding for environmental matters lack transparency
			Serbia is highly dependent on coal and lacks a coherent long-term strategy that combines energy and climate targets
				High dependency on domestic and heavily polluting coal production continues to be prioritised, despite existing environmental and climate challenges
				Serbia has moved to diversify its energy mix through hydropower, wind, solar, biomass and biogas, but electricity production still takes a toll on the environment
				Serbia should aim to make its energy supply more reliable
				Energy efficiency policies, including in electricity generation, should complement shifts in the energy mix
		References
		Notes