Strengthening Fiscal Governance in the Western Balkans

Public finances in the Western Balkan countries deteriorated during the COVID-19 crisis, so bringing public debt down to safer levels while continuing to support economic recovery amidst increased uncertainty is now a regional priority. While fiscal policymakers were engaged in mitigating a deeper impact of the pandemic and subsequent crises, there is now limited fiscal space to support declining potential growth and sustainability concerns loom in several countries. Limited fiscal space also poses risks for implementing and maintaining much-needed public investment projects necessary for economic convergence with the European Union (EU) as well as progressing on the digital and green transitions. In addition, rising uncertainty globally, including in the EU (as a major trading partner), calls for fiscal buffers, so countries can use fiscal policy for countercyclical purposes and to ensure the most effective and efficient use of public resources to support economic recovery. This is further accentuated by accelerated monetary tightening that has increased the financing costs for governments. Strengthening fiscal prudence as well as fiscal governance will be a critical signal to markets on pricing sovereign risks.

EU enlargement prospects and associated legislative harmonization with the Acquis Communautaire are an important anchor for structural and institutional reforms in the Western Balkans. Fiscal governance that includes both fiscal responsibility frameworks and infrastructure governance, among else, is at the core of the EU accession agenda, as underlined in the EU annual country reports. As part of the accession negotiations, candidate countries need to demonstrate they are functioning market economies (an economic criterion for accession). From a fiscal policy perspective, this means that the countries of the Western Balkans need to improve planning, oversight, and transparency in the management of public finances, enhance effectiveness in delivering their fiscal policy, as well as apply fiscal rules and ensure effective use of budgetary resources through better infrastructure governance. These improvements are expected to contribute to the sustainability of these countries’ public finances. From a legal perspective, sufficient progress implies effective harmonization with the EU Directive on requirements for budgetary frameworks of the Member States from November 2011—part of Chapter 17 of the Acquis.

In December 2022, the European Union and the World Bank signed a Trust Fund Administration Agreement to implement four-year technical assistance on Strengthening Fiscal Governance in the Western Balkans. The implementation of this technical assistance will be pursued in a spirit of a partnership between the European Commission (DG NEAR, DG ECFIN) and the World Bank. A regular review process will be used to systematically share the achievements and progress to facilitate flexibility to adjust country level engagements based on the initial phase of the diagnostics and changes in country-level economic circumstances.

The objective of this technical assistance is to support the Western Balkan countries to enhance their fiscal responsibility frameworks and strengthen infrastructure governanceby enhancing public investment (PIM) and public asset management (PAM) with a sectoral and institutional focus.Support would focus on capacity development, policy reforms and implementation support for more effective fiscal responsibility frameworks such as rules and institutions, macroeconomic forecasting, fiscal risk reporting, and the efficiency of public spending, including capital spending. Capacity development in the areas of infrastructure governance would go beyond the PIM reform implementation agenda at the central policy institutions and include understanding and addressing the key service delivery challenges at the sectoral level, designing a roadmap for the public asset management together with policy and implementation tools, and supporting resilience of infrastructure governance in the Western Balkans, thereby contributing to economic convergence with the EU. Technical assistance will be implemented at both the country and regional levels.

Component I

Component I focuses on strengthening fiscal responsibility frameworks through:

1. Improving fiscal responsibility frameworks (rules and institutions)

The World Bank is providing technical assistance to six Western Balkan countries on strengthening fiscal rules and independent fiscal institutions to enable harmonization with the EU accession requirements in Chapter 17, but also to strengthen fiscal responsibility in countries.

Regional Conference: Fiscal Rules and Fiscal Councils — Strengthening Fiscal Governance in the Western Balkans (Vienna, December 2023)

Fiscal Councils — Peer Learning Event (Vienna, July 6-7, 2026)

North Macedonia: Fiscal Council’s peer-to-peer learning. On June 1-21, 2024, North Macedonia Fiscal Council members visited Vienna for a peer-to-peer learning from the Austrian Fiscal Advisory Council and the WIFO economic forecasting institute to learn about short- and medium-term macro forecasting, policy costing tools, fiscal forecasting tools, debt sustainability analysis, and communications of the fiscal council.

On December 9-10, 2024, North Macedonia Fiscal Council members and its secretariat visited Madrid for a peer-to-peer learning from the Spanish AIReF. Topics discussed were short- and medium-term macro-fiscal forecasting, policy costing tools, debt sustainability analysis, climate modeling, spending reviews, and communications of the fiscal council.

Training on Debt Sustainability in North Macedonia (April, 2025)

Albania: discussing the options for setting up the fiscal council. On June 10, the Bank team met with the Ministry of Finance and the Parliament of Albania to discuss possible options for establishing an independent fiscal council (MP Shalsi’s LinkedIn post).

In November 2024, the Bank delivered an options note for establishing the Fiscal Council to the Albanian authorities, and submitted the legislative proposal for the fiscal council in June 2025.

Kosovo: discussing the options for setting up the fiscal council. On June 11, the GAP Institute for Advanced Studies from Kosovo organized a round table with the Parliament, State Audit Office, the World Bank, and other stakeholders on the need to set up the independent fiscal council which would play an important role in monitoring fiscal policies, maintaining fiscal stability and preparing, as well as monitoring macroeconomic forecasts.

North Macedonia: Strengthening the role of the Fiscal Council in North Macedonia: On March 11, 2025, the Bank team jointly with the independent Fiscal Council in North Macedonia organized a discussion with the Parliament in Skopje as well as a conference for key stakeholders bringing the National Fiscal Frameworks and Institutions Unit Head in the EC, Secretary of the European Fiscal Board, as well as a Vice Chair of the Network of EUIFI to discuss fiscal governance framework requirements for EU member states. (Details)

2. Macroeconomic modelling and forecasting

The World Bank is providing technical assistance to six Western Balkan countries with face-to-face and hybrid trainings on basic and applied econometrics for staff in the ministries of finance, parliamentary budget offices, fiscal councils, thinks tanks, central banks, statistical offices, as well as academia. These trainings aim to help countries strengthen their macro-fiscal analytical and forecasting capacities in a fast-changing and uncertain economic environment. The trainings are carried out in statistical package of EViews, and include linear regression models, time series analysis, including (B)VAR, principal component analysis, and factor models that are used in forecasting, nowcasting, and macro-structural models. These trainings are followed up with building the macro-structural model which would enable staff to conduct long-term growth forecasting, calculating the potential output, as well as simulating the impact of various policy reforms.

Econometric Refresher Course:

• North Macedonia (June, October 2023, March 2025, April-May 2025)
• Kosovo (June 2023)
• Serbia (July 2023)
• Bosnia and Herzegovina (July, October 2023)
• Montenegro (February 2024)

Trainings on Macro-Structural Modeling:

• Serbia (January 2024, April 2024, December 2025)
• North Macedonia (January 2024, March 2025, October 2025, March 2026)
• Kosovo (February 2024, June 2025, September 2025, May 2026)
• Bosnia and Herzegovina (February 2024, April 2025, October 2025, April 2026)
• Montenegro (April 2024, April 2025, October 2025, May 2026)

Training Materials and Models:

• North Macedonia
• Bosnia and Herzegovina
• Kosovo
• Serbia
• Montenegro

Nowcasting Growth and Inflation Course:

• Kosovo, Montenegro, and Serbia (March 2024)
• North Macedonia (March 2025)
• Bosnia and Herzegovina (September 2023, February 2024)
• Albania (July 2025)

Other trainings:

• Training on Debt Sustainability in Albania (April 2025)
• Training on R and R Studio for Productivity Analysis in Bosnia and Herzegovina (November 2025)
• Applied Training on Productivity Analysis in Bosnia and Herzegovina (July 2026)

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First Macro-Peers Learning Event (Zagreb, September 2024)

Second Macro-Peers Learning Event (Podgorica, September 2025)

3. Introducing spending review to inform medium-term fiscal policy aligned with fiscal rules

Regional Conference: Spending Reviews as a Tool to Strengthen Fiscal Governance (Vienna, April 2024)

Kosovo: Tax Expenditure Assessment (April 2024)

Montenegro: Review of the Public Sector Wage System and the workshop for the representatives of the national working group for the Wage System Reform (March-May 2024)

North Macedonia: Spending Review Guidelines (March 2025) and Workshop on Spending Review (April 2026)

Kosovo: Workshop on Spending Review (June 2025)

Tax Policy Microsimulation and Modeling in Kosovo and North Macedonia (April 2025)

Tax Policy Microsimulation and Modeling in Montenegro (November 2025)

4. Strengthening fiscal risk assessment to inform budget planning

Regional Conference on Climate Fiscal Risks – What, Why and How? (Vienna, February 2025)

Training on Climate-Policy Assessment Tool, Albania (May 2025)

Workshop on Climate Fiscal Risks, Kosovo (June 2025)

Kosovo: Climate Fiscal Risk Assessment (October 2025)

Component II

Component II focuses on enhancing infrastructure governance through the strengthening of public investment management (PIM) and public asset management (PAM) with a sectoral and institutional focus through:

• Supporting evidence-based and climate-resilient infrastructure governance reforms
• Public Finances & State Owned Enterprises (SOEs) For Greening Development
• Institutional strengthening of PIAM with a focus on infrastructure, state-owned enterprises (SOE), and subnational governments (SNG)

Forecasters Network

This network aims to bring together forecasters from Macroeconomic or Economic Policy Planning units from the Ministries of Finance in the Western Balkans to exchange on forecasting challenges and assumptions used in forecasting cycles, new forecasting or nowcasting trends, communication strategies. The World Bank would act as a facilitator, organizer, and a content provider for semi-annual meetings. The World Bank would also maintain the externally-accessible website during the course of the project duration.

Fiscal Councils

This network aims to bring together fiscal councils or watchdogs from the Western Balkan countries to learn from each other and EU peers on how to monitor enforcement of fiscal rules, how to communicate findings, strengthen forecasting and analytical capacity, or establish the relationship with the governments. The World Bank would act as a facilitator, organizer, and a content provider for semi-annual meetings. The World Bank would also maintain the externally-accessible website during the course of the project duration.

PIM-PAM.net

PIM-PAM.net aims to assist governments in enhancing public infrastructure services across Europe and Central Asia. This Community of Practice focuses on promoting greener, more resilient, inclusive, and digitally enhanced public service delivery.