A sound business environment supports economic growth by creating the right conditions for businesses to thrive, invest and innovate. This chapter evaluates the progress of the Western Balkan economies in converging with the EU, focusing on the conditions that enable businesses to enhance their competitiveness and compete on an equal footing. It specifically examines credit provision and the financial stability of banks, alongside the orientation of foreign direct investment towards tradable sectors, as drivers of private investment. Additionally, it analyses market competition by shedding light on corruption and informality and considers the pace of new business creation as a measure of entrepreneurial dynamism. Finally, the chapter explores trade integration, capturing the region's capacity to participate in international trade.
Economic Convergence Scoreboard for the Western Balkans 2026
Abstract
With an average score of 87 in 2023-2024, Business Environment ranks as the best performing cluster, with a score broadly matching the average for EU neighbouring economies of 94 (Figure 5.1). It also shows the fastest convergence of the six clusters, with the regional average rising by 40 points since 2014-2016. Montenegro leads the region, while Bosnia and Herzegovina records the lowest score.
Notes: “EU neighbours average” is the average cluster score of Bulgaria, Croatia, Greece, Hungary, Romania and Slovenia. For more information on score calculation and the overall methodological approach, please consult the Methodology section.
The region's main strength lies in its ability to attract FDIs (Figure 5.2), with inflows into tradable sectors four times the EU average, supported by an open regulatory environment and generous investor incentives, including tax breaks and special economic zones. This performance, however, has not yet translated into broader trade dynamics: trade flows remain around 30% of the EU average, held back by the region’s limited industrial base and persistent non-tariff barriers.
Although domestic private investment exceeds the EU average by about 6%, it remains insufficient to sustain rapid economic convergence. Investment remains constrained by an uneven competitive environment, an underdeveloped innovation ecosystem, and limited access to finance for businesses. In particular, domestic credit to the private sector remains low, at around two-thirds of the EU average, despite improvements in banking sector stability, as reflected in non-performing loan (NPL) ratios converging towards the EU average. Consistent with these constraints, new business creation remains below the EU average in most Western Balkan economies, reflecting both limited entrepreneurial dynamism and administrative barriers to business entry and operations.
Securing a level-playing field for businesses remains a main weakness in the business environment of the Western Balkan economies, with corruption and informality recording the cluster's lowest scores. Over the last decade, the estimated share of informal employment has declined, but remains nearly seven times the EU average, reflecting low labour productivity, high non-wage costs and the absence of robust social security systems. Regarding corruption, perceptions have shown no improvement over the same period, continuing to affect fair competition and deter investors, amid weak political commitment to comprehensive anti-corruption frameworks.
Notes: Scores are rounded to the nearest whole number. “EU neighbours average” is the average indicator score of Bulgaria, Croatia, Greece, Hungary, Romania and Slovenia. For more information on score calculation and the overall methodological approach, please consult the Methodology section.
Domestic credit to the private sector captures the ease and affordability of access to bank financing, a key determinant of businesses' capacity to invest, innovate and expand.
At 44.8% of GDP in 2023-2024, the region stands slightly above the EU neighbours’ average of 38.9%, while remaining largely below the EU average of 64.4% (Figure 5.3). Despite a contraction of domestic credit to the private sector in four of the six Western Balkan economies, the regional average remained broadly stable from 45.7% in 2014-2016, driven by strong growth in Kosovo. Meanwhile, the EU average fell by 20 percentage points over the same period, from 84.8% of GDP, narrowing the gap between the EU and the Western Balkan economies.
The OECD SME Policy Index 2026 highlights that businesses’ access to bank finance remains constrained by obstacles such as gaps in asset registration,1 challenges in collateral enforcement coupled with corporate governance deficiencies that lead to stringent collateral requirements,2 and the uneven availability or often limited scale of public instruments, such as guarantee funds, which constrains their capacity to ease businesses' access to credit (OECD, 2026[1]).3
Kosovo leads the region with domestic credit at 58.1% of GDP in 2023-2024, while Albania and Serbia remain below half of the EU average, at around 32% of GDP.
Note: Data are unavailable for Germany (2024).
Source: (World Bank, 2026[2]).
NPLs can undermine credit availability by threatening banks' financial stability, limiting businesses' access to finance and constraining private investment.
At 3.4% of total outstanding loans in 2023-2024, NPLs in the region match the EU neighbours' average of 3.2% and remain slightly above the EU average of 2.3% (Figure 5.4). Over the last decade, the region and the EU have both significantly reduced their NPL ratios, from 13.6% and 9.4% in 2014-2016, respectively, maintaining the region’s relative performance at around 70% of the EU average (Figure 5.2). This reflects continuous progress in banking supervision and dedicated NPL-reduction plans, alongside conservative lending practices that have also weighed on credit growth in the region.4
Kosovo is the only economy with an NPL ratio broadly in line with the EU average, at 2.3% in 2023-2024. By contrast, Montenegro recorded the highest NPL ratio in the region, at 4.9%, more than double the EU average.
Note: Data are unavailable for Germany (2014, 2015), Denmark (2014) and Sweden (2014, 2015).
Sources: (International Monetary Fund, 2026[3]). Data for Serbia from (National Bank of Serbia, 2026[4]). Data are imputed for Germany (2016, 2019). For more details, please refer to the Technical Annex, published separately from this report.
Private investment is a major driver of economic growth, as it fosters innovation and the accumulation of physical capital, thereby boosting productivity and expanding the production of goods and services.
At 18.8% of GDP in 2023-2024, private investment in the region slightly exceeds the EU average of 17.8% (Figure 5.5). This represents a modest improvement from 16.8% of GDP in 2014-2016. However, as middle-income economies converging toward higher income levels are typically expected to exhibit higher investment rates, the region will likely need stronger private investment to sustain faster economic growth. As highlighted in the OECD SME Policy Index 2026,persistent barriers, including limited access to finance,5 an underdeveloped innovation ecosystem and market distortions arising from the large economic footprint of state-owned enterprises and the relatively large informal sector, continue to constrain private investment (OECD, 2026[1]).
Kosovo is the only regional economy to largely exceed the EU average, with private investment at 24.4% of GDP in 2023-2024, while Montenegro records the lowest level at 15.2%.
Note: Data are unavailable for Bulgaria (2024), Bosnia and Herzegovina (2024), Montenegro (2024) and Serbia (2024).
Sources: OECD calculations based on (Eurostat, 2026[5]). Data for Kosovo, North Macedonia, Croatia, Poland and Romania from (World Bank, 2026[6]). Data for Albania were sent by INSTAT to the OECD. Data are imputed for Bosnia and Herzegovina (all years), Montenegro (all years) and Bulgaria (2023). For more details, please refer to the Technical Annex, published separately from this report.
By channelling capital and technology transfer into export-oriented and high-value-added industries, FDI in tradable sectors6 supports productivity gains and long-term economic growth.
FDI inflows into tradable sectors rose from 1.0% of GDP in 2014-2016 to 1.6% in 2023-2024 in the region, in contrast to the EU, where they fell from 1.6% of GDP to 0.4% over the same period (Figure 5.6), making this indicator the cluster’s best-performing area. It could also be noted that FDI in tradable sectors grew faster than in non-tradable sectors over the last decade, increasing its share of the region's total net inflows from 17% in 2014-2016 to 26% in 2023-2024. Despite weaknesses in the level playing field weighing on the region’s investment climate, several factors have supported the region’s attractiveness to foreign investors, including relatively competitive production costs and increasing participation in European value chains amid accelerated EU integration. The region also maintains a very open regulatory framework for foreign investment,7 offers generous investor incentives8 and a large network of special economic zones9, complemented by investment promotion agencies that facilitate market entry and provide aftercare services to investors.10
Overall, Serbia is the regional leader with net inflows reaching 2.6% of GDP in 2023-2024, while Kosovo ranks last at 0.4%.
Notes: Data are unavailable for Bulgaria (2014, 2015), Cyprus (2014, 2015, 2024), Czechia (2014, 2016, 2024), Germany (2016, 2024), Denmark (2023), Spain (2024), Croatia (2014, 2015, 2024), Malta (2014, 2015, 2024), the Netherlands (2015, 2016), Romania (2014, 2015, 2024), Slovakia (2014, 2015, 2024), Albania (2014, 2015), Bosnia and Herzegovina (2014, 2015), Kosovo (2014, 2015), Montenegro (2014, 2015), North Macedonia (2014, 2015) and Serbia (2014, 2015).
Sources: OECD calculations. Data for Albania, Bosnia and Herzegovina, Kosovo, North Macedonia and Serbia from (CEFTA, 2026[7]). Data for Bulgaria, Croatia, Cyprus, Romania and Slovakia from (Eurostat, 2026[8]). Data for the remaining economies from (OECD, 2026[9]). Data are imputed for Montenegro (all years), Belgium (2023, 2024), Cyprus (2016, 2023), Czechia (2015), Ireland (2014, 2015, 2023, 2024), Malta (2023), Portugal (all years) and Romania (2016, 2023). For more details, please refer to the Technical Annex, published separately from this report.
By raising operating costs and distorting competition, corruption discourages businesses from investing and expanding.
The Western Balkan economies' performance on the World Bank's Control of Corruption indicator, which assesses perceptions of corruption and the effectiveness of anti-corruption policies, has stagnated over the last decade, at -0.35 between 2014-2016 and 2023-2024 (Figure 5.7). This performance is well below the EU average, which increased from 0.95 in 2014-2016 to 1.0 in 2023-2024, making control of corruption the cluster's second lowest-performing indicator. This widening gap reflects persistent weaknesses in the effectiveness of anti-corruption institutions,11 as well as limited enforcement of anti-corruption legislation and shortcomings in implementing strategic anti-corruption frameworks.12
Overall, Montenegro leads the region with a score of -0.06, while Bosnia and Herzegovina and Serbia lag behind with scores slightly below -0.5—both having seen their performance decline over the last decade.
Source: (World Bank, 2026[10]).
In reducing government revenue and limiting firms' access to capital, training and technology, informality constrains both public investment and business productivity.
The estimated share of informal employment has declined across all Western Balkan economies, with the regional average decreasing from 27.3% of the employed population in 2014-2016 to 18% in 2023-2024 (Figure 5.8). This decline has occurred at a pace similar to that of the EU, from 3.9% to 2.6% over the same period, leaving the region's average still around six times higher, and making estimated informal employment the cluster's lowest-performing indicator. The remaining gap with the EU mainly reflects the region's low labour productivity,13 compounded by high non-wage labour costs14 and gaps in the social security system, all of which reduce incentives for formal employment.
North Macedonia records the lowest estimated informal employment rate in the region, at 11.5% of the employed population in 2023-2024, while Albania and Kosovo exhibit rates about ten times the EU average (at around 26%).
Notes: Data are unavailable for Germany (2014, 2015, 2024), Denmark (2022, 2024), Croatia (2024), Malta (2024), Romania (2014, 2015), Kosovo (2014, 2015, 2024) and Montenegro (2014, 2015, 2024).
Sources: (International Labour Organisation, 2026[11]). Data for Albania from (INSTAT, 2026[12]). Data for Kosovo (2017) from (Government of Kosovo, 2024[13]). Data for Montenegro (2014) from (UNDP, 2016[14]). Data for North Macedonia from (MAKSTAT, 2026[15]). Data for Serbia from (SORS, 2026[16]). Data are imputed for Kosovo (2016, 203), Montenegro (2023), Denmark (2023), Germany (2016, 2023), Hungary (2023), Malta (2023), and Romania (2016). For more details, please refer to the Technical Annex, published separately from this report.
Trade flows capture an economy's integration into regional and global markets, which supports economic growth by expanding market access, encouraging specialisation and driving innovation.
Trade flows in the region stood at USD15 24 731 per capita in 2023-2024, equivalent to 28.5% of the EU average (USD 86 895) and 51.6% of the EU neighbours' average (USD 47 916) (Figure 5.9). Some convergence has taken place over the last decade: the region's trade flows rose from 22.3% to 28.5% of the EU average between 2014-2016 and 2023-2024. This modest convergence has been supported by trade facilitation efforts since the adoption of the Central European Free Trade Agreement (CEFTA) in 2006, which have focused on harmonising trade policies and regulations with EU standards and improving intra-regional infrastructure, with marked progress achieved since 2022,16 as well as by domestic investment promotion agencies supporting SME internationalisation.17 Non-tariff barriers persist, however, alongside limited co-operation between trade authorities on data exchange, the absence of a fully paperless trade environment.18 Together with the region's low industrial base, these factors remain a major constraint on export potential.19
North Macedonia records the highest trade flows in the region, at USD 33 830 per capita, or 38.9% of the EU average, while Albania and Kosovo record the lowest performance, at around USD 17 000 per capita.
Sources: OECD calculations based on (World Bank, 2026[17]) and (World Bank, 2026[18]).
New business creation density captures an economy's capacity to renew its productive base, thereby supporting economic growth by reallocating resources towards more productive activities, intensifying competition and driving innovation.
On average, 6.5 new limited-liability companies (LLCs) per 1 000 working-age persons were registered in the region in 2023-2024. However, when excluding Montenegro (which recorded 20.0 new LLCs per 1 000 working-age persons in this period),20 this figure falls to 3.8, which is substantially below the EU average of 6.6 (Figure 5.10).
The region's relatively low rate of business creation reflects a combination of structural and regulatory barriers. As highlighted in the OECD SME Policy Index 2026, these include limited access to finance, an underdeveloped innovation and entrepreneurial ecosystem, high levels of informality, alongside administrative burdens associated with business entry and operation, including licensing, permitting and registration requirements (OECD, 2026[1]).21
Alongside Montenegro, Kosovo is the only other regional economy to exceed the EU average, with 7.6 new LLCs per 1 000 working-age persons. Conversely, entrepreneurial activity remains low in Albania, Bosnia and Herzegovina, and Serbia, at around 2.0 new LLCs per 1 000 working-age persons.
Note: Data are unavailable for Austria (2024), Belgium (2024), and the Netherlands (2014, 2015, 2024).
Source: (World Bank, 2026[19]). Data are imputed for the Netherlands (2023). For more details, please refer to the Technical Annex, published separately from this report.
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← 1. Asset registration systems across the region remain incomplete in practice, constraining their effectiveness in supporting the use of various assets as collateral. Notably, while registries for movable and intangible assets are broadly in place, gaps persist. For instance, fewer than half of movable assets are documented in Bosnia and Herzegovina, while documentation for livestock and agricultural equipment remains incomplete in Albania (OECD, 2026[1]).
← 2. Collateral enforcement and insolvency frameworks present difficulties across the region, ranging from the absence of out-of-court restructuring options to structural constraints on banks' influence over the restructuring process. For more information, see (OECD, 2026[30]; 2026[29]; 2026[28]; 2026[27]; 2026[26]; 2026[25]).
← 3. Only half of the Western Balkan economies (Bosnia and Herzegovina, Kosovo, North Macedonia) have so far established public credit guarantee schemes, and the existing ones tend to operate at a limited scale, leaving public risk-sharing mechanisms insufficient to meaningfully influence commercial banks' incentives. For more information, see (OECD, 2026[1]).
← 4. Collateral requirements are generally higher across the Western Balkan economies than in the EU. For instance, in Serbia, 43.2% of SMEs were required to provide collateral for a new loan in 2024, compared to 31% in Finland, 19% in Spain, 9.9% in Greece and 6.4% in France (OECD, 2026[43]).
← 5. Over 2023-2025, the share of firms reporting they were partially or fully credit-constrained was 9.5% in Bosnia and Herzegovina, 12.6% in Albania, 14.0% in North Macedonia, 18.4% in Montenegro and 25.2% in Serbia (World Bank, 2026[24]). The estimated financing gap for the region’s businesses amounts to 2.5% of GDP (Akbas, Betz and Gattini, 2023[21]).
← 6. FDI in tradable sectors is introduced for the first time in the 2026 edition of the Scoreboard. Tradable sectors include mining and quarrying, manufacturing, transport and storage, and information and communication (United Nations, 2008[42]). Following insufficient data availability, agriculture has not been included. For more details, see the Methodology section.
← 7. The OECD FDI Regulatory Restrictiveness Index covers statutory measures discriminating against foreign investors, including foreign equity limits, screening and approval requirements, restrictions on key foreign personnel and other restrictions. The region's average score stood at 0.04 in 2024, 20% lower than the OECD average of 0.05. The region obtains an average score of 0 on both restrictions on key foreign personnel and screening and approval (OECD, 2024[35]).
← 8. Available data indicates that the effective average corporate income tax rate reached 22.2% in the OECD in 2025, compared with much lower rates across the Western Balkan economies, including 14.7% in Albania, 9.2% in Bosnia and Herzegovina and 9.3% in North Macedonia (OECD, 2026[45]). For more details on the tax breaks, see (OECD, 2024[22]).
← 9. The region's network of special economic zones, numbering approximately 40, offers incentives that may include value-added tax and customs exemptions, efficient transport links, reliable utilities and facilities for industrial production, depending on the economy and applicable domestic legislation. For more details on the special economic zones, see (OECD, 2024[22]).
← 10. For more details on the investment promotion activities carried out by domestic investment promotion agencies, please refer to (OECD, 2024[22]).
← 11. Anti-corruption bodies across the region face staffing and budgetary constraints that limit their effectiveness. Notably, while dedicated agencies have been established in most economies, resourcing gaps persist. For instance, Albania's General Directorate on Anti-Corruption relies on around 30 staff to co-ordinate preventive work across some 20 institutions, while Montenegro's Agency for the Prevention of Corruption has filled only 54 of its 98 allocated posts and operates below the legal minimum budget. For more details, see (European Commission, 2025[48]; 2025[46]; 2025[41]; 2025[39]; 2025[36]; 2025[31]).
← 12. At the time of writing, Kosovo is the only economy without an adopted anti-corruption strategic framework, and beyond adoption, implementation and monitoring suffer from gaps across the region. Albania's anti-corruption bodies lack the planning and co-ordination capacities to monitor and report on implementation, while in Bosnia and Herzegovina only the Sarajevo Canton has aligned and monitored its strategy with the state-level agency. Montenegro's National Council for the Fight Against Corruption is tasked with oversight, but its working structure, mandate and resourcing remain undefined, North Macedonia fully implemented only 18% of its planned 2024 activities, and Serbia's 2024-2025 action plan lacks an effective monitoring mechanism (European Commission, 2025[48]; 2025[46]; 2025[41]; 2025[39]; 2025[36]; 2025[31]).
← 13. For more details, see the indicator SK.01 on labour productivity.
← 14. The high cost of formalising labour is another barrier to reducing informality in the region. The share of social security contributions (SSC) relative to gross income exceeds 20% in the region, with the highest rates observed in Serbia and Bosnia and Herzegovina (OECD, 2024[22]). The region's tax-benefit systems further discourage formalisation through two additional mechanisms: the loss of social benefits, such as poverty alleviation schemes, child allowances and energy allowances, upon formalisation, and minimum SSC bases that require contributions on at least a specified gross wage irrespective of actual earnings, imposing disproportionately high costs on very low formal incomes (World Bank, 2025[23]).
← 15. Unless otherwise stated, USD refers to 2021 USD PPP throughout the chapter.
← 16. Between 2022 and 2024, Serbia, Montenegro, Bosnia and Herzegovina and North Macedonia were among the ten economies that achieved the most progress in trade facilitation in the Europe and Central Asia region, according to the OECD's Trade Facilitation Indicators (OECD, 2025[34]).
← 17. For more details on policies related to the internationalisation of SMEs, please refer to (OECD, 2026[1]).
← 18. Non-tariff barriers in the Western Balkan economies mainly stem from technical barriers to trade and sanitary and phytosanitary measures, which arise from misaligned regulatory frameworks across the six economies. Initiatives such as the Green Lanes, which prioritise the clearance of designated goods at selected border crossings, have delivered localised improvements, including at the Serbia-North Macedonia crossing, but their regional roll-out remains partial (Steinbach, Vujanovic and Fiore, 2025[20]).
← 19. The exports of goods in the region stood at 22% of GDP in 2024, which is far below the EU’s average level of 33.7% (Eurostat, 2026[44]). Apart from North Macedonia, which outperforms the EU average (41.2%), exports of goods remain low across the region. This is especially evident in Albania (6.7%), Montenegro (8.6%) and Kosovo (9.2%), where exports of services play a much more significant role in total trade.
← 20. Montenegro’s Law on Foreigners allows foreign nationals to obtain a temporary residence permit by registering as the founder and executive director of a locally incorporated company. Montenegro's Revenue and Customs Administration indicate that 5 846 companies were registered to Russian owners between February 2022 and July 2023, compared with 4 600 registered by 2021; 64% of these newly registered companies reported no more than one employee, a pattern consistent with company registration being used to obtain a residence permit rather than to conduct substantial business activity (Balkan Insight, 2023[33]). This migration inflow is identified by the IMF as a contributing factor to Montenegro's economic growth, mainly through increased household consumption (IMF, 2024[38])
← 21. See also (World Bank, 2025[47]; 2025[40]; 2025[37]; 2025[32]) for more details on the barriers to business creation.