2.7. Government investment
Government investment creates the public infrastructure that is essential for long-term economic growth and societal wellbeing, by supporting, for instance, the provision of public services (e.g. schools). Investments in transport infrastructure, and other large-scale projects improve productivity and competitiveness. Investments in research and development may spur benefits by promoting new technologies or products. For maximising the benefits of public investment and for ensuring that public resources are used in the best possible way, the OECD Principles of Budgetary Governance recommend 1) grounding capital investment plans in an objective appraisal of economic capacity gaps, infrastructural development needs and sectoral/social priorities; 2) assessing the costs and benefits of such investments, the affordability, the relative priority among various projects, and the overall value for money; 3) evaluating investment decisions independent of the financing arrangements; and 4) the development and implementation of a national framework to support public investment.
These principles are particularly important given that public investment accounts for such a large share of government expenditure in the Western Balkan region. In 2018, government investment represented, on average, 11.9% of total government expenditures in the Western Balkan region, where data are available. This figure is bigger than in OECD and EU countries where it was 7.9% and 6.2% respectively in the same year.
Government investment in the Western Balkan region is extremely heterogeneous. On the high end, investment as a percentage of government spending is 24.4% in Kosovo and 19.1% in Albania; however, between 2018 and 2011 investments in these two economies decreased by 13.3 and 2 p.p. respectively. Overall, during the same period public investment in Western Balkans decreased by 2.4 p.p. on average. Yet, sustaining levels of investment in Western Balkans is important, as infrastructure gaps, particularly in transport and energy, are significant and widely considered as an impediment for countries in the region to substantially catch up economically with European Union members in economic terms (EIB, 2018).
Investment as a share of GDP in the Western Balkans reached on average 3.9% in 2018, above the average for OECD (3.2%) and EU (2.9%) countries. Between 2011 and 2018 government investment in terms of GDP decreased for these three groups: it fell on average at a faster pace in the Western Balkans (-1.1) compared to the OECD (-0.5) and EU (-0.4) countries. Kosovo (-3.6 p.p.) and North Macedonia (-1.7 p.p.) were the economies in the Western Balkans where government investment spending decreased the most while public investment remained relatively stable in Bosnia and Herzegovina (a reduction of 0.2 p.p.). The need to enhance the infrastructure stock is a common need across the Western Balkan region and investment in poorer regions can play a crucial role in reducing inequalities.
Data and drawn from the IMF Government Finance Statistics database, which applies the concepts set out in the Government Finance Statistics Manual (GFSM). The GFSM provides a comprehensive conceptual and accounting framework suitable for analysing and evaluating fiscal policy. It is harmonised with the other macroeconomic statistical frameworks, such as the System of National Accounts (SNA). However, some differences exist between the GFS and the SNA frameworks in several occurrences which led to the establishment, to a large extent, of correspondence criteria between the two. The GFSM and SNA frameworks have been recently revised, as has the European System of Accounts (ESA), which is the European equivalent of the SNA. Among Western Balkans, Albania has implemented the revised statistical standards and other countries will continue implementation over a period of years in order to satisfy the requirements for harmonised data according to the latest ESA/SNA and GFSM statistical standards. For definition of general government see section 2.4.
General government investment includes gross capital formation and acquisitions, less disposals of non-produced, non-financial assets. Gross fixed capital formation (also named fixed investment) is the main component of government investment, consisting mainly of transport infrastructure but also including infrastructure such as office buildings, housing, schools and hospitals. Government investment is recorded on a gross basis (i.e. measured gross of consumption of fixed capital, unless otherwise stated). For the OECD and EU averages, data are derived from the OECD National Accounts Statistics database, which is based on the SNA framework.
Further reading
OECD (2019), Budgeting and Public Expenditures in OECD Countries 2019, OECD Publishing, Paris, https://doi.org/10.1787/9789264307957-en.
OECD (2017), Getting Infrastructure Right: A Framework for Better Governance, OECD Publishing, Paris, https://doi.org/10.1787/9789264272453-en.
EIB (2018), Infrastructure Investment in the Western Balkans A First Analysis, Economics Regional Studies, EIB Publishing, Luxembourg, https://www.eib.org/attachments/efs/infrastructure_investment_in_the_western_balkans_en.pdf
Figure notes
Data for Kosovo, North Macedonia and Serbia are recorded on a cash basis. Data for North Macedonia refer to 2013 rather than 2011. Data for Montenegro are not available. Data for Serbia are not included in the Western Balkan average because of missing time-series.
Source: IMF Government Finance Statistics (IMF GFS) database. Data for the OECD and EU28 averages are based on the OECD National Accounts Statistics database
Source: IMF Government Finance Statistics (IMF GFS) database. Data for the OECD and EU28 averages are based on the OECD National Accounts Statistics database.
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