Macro-financial stability underpins sustainable economic growth by strengthening resilience and maintaining confidence in the economy. This chapter benchmarks the progress of the Western Balkan economies against relevant EU macroeconomic criteria, exploring how effectively the six economies maintain macro-financial stability across monetary, fiscal and external dimensions. It highlights the role of monetary stability, captured through inflation and exchange rate developments, in anchoring price and currency confidence. The chapter further explores fiscal stability, assessed through government balances and long-term government interest rates, before turning to external sustainability, captured through current account balances.
Economic Convergence Scoreboard for the Western Balkans 2026
Abstract
Macro-financial stability records the second-highest average score among the six clusters, at 83 in 2023-2024 (Figure 2.1), even exceeding the average for EU neighbouring economies (80). The region has converged steadily over the past decade, with the regional average rising by 10 points since 2014-2016. All Western Balkan economies record high scores, with Bosnia and Herzegovina standing as the regional leader, while Serbia records the lowest score.
Notes: “Full compliance with macro-financial stability criteria” implies meeting the reference values defined for all indicators (MS.01, MS.02, MS.03, MS.04, MS.05). Reference values for MS.01 and MS.04 are derived from the European Central Bank Convergence Reports (European Central Bank, 2026[1]). For MS.02, the reference value is derived from the exchange-rate fluctuation margin used under the Exchange Rate Mechanism (ERM II) (European Commission, 2020[2]). For MS.03, the reference value follows the threshold set under the Excessive Deficit Procedure (Council of the European Union, 2026[3]). For MS.05, the reference value is based on the threshold defined under the Macroeconomic Imbalance Surveillance Framework (European Commission, 2026[4]) . Please consult the Methodology section for more details on the scoring. “EU neighbours average” denotes the average cluster score of Bulgaria, Croatia, Greece, Hungary, Romania and Slovenia.
The Western Balkan economies are characterised by robust monetary stability, underpinned by low inflation and stable exchange rates (Figure 2.2). The inflation rate gap with the EU has never exceeded 0.5 percentage point, reflecting the region’s growing economic integration with the European Union. The region also maintains stable exchange rates vis-à-vis the euro, underpinned by monetary arrangements ranging from unilateral euroisation and currency boards to managed floating regimes.
Fiscal stability has strengthened, driven by narrower government deficits than in the EU, although long-term government bond yields continue to point to persistently high sovereign risk premia (Figure 2.2). The region’s average government budget balance is 0.6 percentage points higher than the EU average, driven by strong tax revenue growth and continued improvements in tax compliance. Nevertheless, long-term government bond interest rates remain about 2 percentage points higher than the EU average, suggesting that investors continue to perceive the region as carrying higher sovereign risk than EU member states.
External positions remain characterised by sizeable current account deficits across most of the Western Balkan economies, which are largely financed by FDI inflows across the region (Figure 2.2). Persistent merchandise trade deficits remain the main source of external imbalances, only partly offset by growing surpluses in services exports driven by tourism and ICT services, while declining remittances and rising outward investment income payments add further pressure on the current account balance.
Notes: Economies meeting the reference value for a given indicator receive a score of 100; lower scores reflect increasing deviation from it. For more details, please refer to the Methodology section. Scores are rounded to the nearest whole number. "EU neighbours average" is the average indicator score of Bulgaria, Croatia, Greece, Hungary, Romania and Slovenia.
Price stability reduces uncertainty, creating a predictable environment that enables businesses and investors to make informed operational and investment decisions.
With an average inflation rate of 5.3% in 2023-2024, the region broadly matches the EU average of 4.8% and experiences lower inflation than the EU neighbouring economies, with an average of 6.4% (Figure 2.3). The inflation gap between the region and the EU has consistently been below 0.5 percentage point over the last decade, reflecting the region's growing economic integration with the EU1 and the influence of euro-area monetary conditions.2 The remaining inflation gap is largely explained by food price increases, which had a stronger impact on headline inflation owing to food's larger weight in household consumption compared to the EU.3
Kosovo recorded the lowest inflation rate in the region, averaging 3.3% in 2023-2024, while Serbia experienced inflation nearly twice as high as the EU average, at 8.6%.4
Measured as the maximum fluctuation range vis-à-vis the euro, exchange rate stability is a key condition for closer economic integration within the EU, as it lowers transaction costs and removes the risk premium attached to cross-border trade and investment.
Across the region, exchange rate fluctuations against the euro averaged 3.3% in 2023-2024, an average largely driven by the appreciation of the Albanian lek amid strong tourism receipts, remittances and FDI inflows (Figure 2.4).5 Exchange-rate stability remains a strength of the region's macro-financial stability, underpinned by monetary arrangements ranging from unilateral euroisation and currency boards to managed floating regimes, all oriented towards limiting fluctuation vis-à-vis the euro.6
Apart from Albania, which recorded an exchange-rate fluctuation vis-à-vis the euro of 18.5% in 2023-2024, all other regional economies remained below 1%.
Note: The fluctuation range is calculated as the difference between the maximum and minimum bilateral exchange rates against the euro observed over the period, expressed as a percentage of the minimum exchange rate. For economies that use the euro as their official currency, the fluctuation range is set to zero. Both the EU and EU neighbouring economies average include several non-euro area economies, which remain exposed to exchange-rate fluctuation vis-à-vis the euro.
Maintaining a sustainable general government balance supports economic growth by containing public debt, easing the cost of government borrowing and preserving fiscal space to respond to future shocks.
The Western Balkan economies recorded an average general government deficit of 1.7% of GDP in 2023-2024, a stronger performance than both the EU average (2.3%) and the EU neighbours' average (3.2%) (Figure 2.5). Since 2014-2016, the region has narrowed its general government deficit by 1.3 percentage points, while the EU's deficit widened by 0.4 percentage points over the same period, making the general government balance the cluster’s best-performing indicator for the Western Balkan economies. Over the last decade, the region’s progress has largely been driven by strong tax revenue growth,7 coupled with continued improvements in tax compliance.8
While all Western Balkan economies recorded fiscal deficits in 2023-2024, only North Macedonia exceeded the EU’s 3% deficit reference value, posting a deficit of 4.5% of GDP, whereas Kosovo recorded the strongest fiscal position, with a deficit of 0.3% of GDP.
Long-term government interest rates reflect investors’ perception of sovereign risk and the sustainability of public finances, shaping the cost of government borrowing and its fiscal space.
Unlike for the EU member states, comparable and harmonised long-term government bond yields are not always available for Western Balkan economies, reflecting the limited depth and liquidity of domestic government bond markets and, in some cases, the absence of sufficiently long-dated benchmark securities. Therefore, as needed, 10-year government bond yields are inferred from shorter-term government interest rates, as described in the Technical Annex published separately from this report.
Average long-term government bond yields across the Western Balkan economies stood at 5.1% in 2023-2024, above both the EU average of 3.6% and the EU neighbouring economies' average of 4.6% (Figure 2.6). However, this gap with the EU has narrowed: a decade ago, the region's average yield stood at 7.0%, more than three times the EU average of 2.1%. This progress was supported by consistently strong fiscal discipline, resulting in lower public debt,9 strengthening the Western Balkan economies’ sovereign creditworthiness.10 Nevertheless, relatively illiquid sovereign debt markets across the Western Balkan economies continue to weigh on investor demand for government securities, contributing to higher borrowing costs.11
Kosovo recorded the lowest average level of long-term government interest rates in the region in 2023-2024, standing at 4.1%, while Albania recorded the highest at 6.5%.
Sources: Data for long-term government yields for EU economies from (Eurostat, 2026[8]). Data for Albania from (Bank of Albania, 2026[9]).
Data for Kosovo (2023, 2024) from (Central Bank of the Republic of Kosovo, 2026[10]). Data for North Macedonia (2014, 2015, 2016) from (Government of the Republic of North Macedonia, 2026[11]). Data for Serbia (all years) from (National Bank of Serbia, 2026[12]). Data are imputed for Bosnia and Herzegovina (all years), Kosovo (2014, 2015, 2016), North Macedonia (2023, 2024), Montenegro (all years), and Estonia (2014, 2015, 2016). For more details on imputations, please refer to the Technical Annex, published separately from this report.
A sustainable current account balance preserves an economy's external financing capacity and limits foreign debt accumulation, factors that determine an economy's resilience to external shocks.
Standing at -6.0% of GDP in 2023-2024, the region's average current account deficit exceeds the -4% threshold used under the EU's macroeconomic imbalance surveillance framework, making the current account balance the cluster's lowest-scoring indicator for the region. By comparison, the EU and EU neighbouring economies recorded average balances of 0.3% and -3.2% of GDP respectively (Figure 2.7). Although up from -7.0% of GDP in 2014-2016 thanks to an expanded services surplus supported by the growth of tourism12 and ICT sectors (see the Digital Transformation cluster for more details), the current account deficit remains sizeable due to large merchandise trade deficits13 and declining remittance inflows.14 At the same time, while strong FDI inflows provided an important source of financing for current account balance deficits, the associated outward investment-income payments contributed to a widening primary income deficit in the current account.15
Albania, Bosnia and Herzegovina and North Macedonia remained within the -4% threshold in 2023-2024, while Serbia, Kosovo and Montenegro exceeded this threshold, with Montenegro recording the region's largest deficit at 12.4% of GDP.
Note: In line with the Macroeconomic Imbalance Surveillance Framework methodology, the current account balance is expressed as a three-year backwards-moving average.
Source: Data for the current account balance from (International Monetary Fund, 2026[13]).
References
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← 1. Since the entry into force of the Stabilisation and Association Agreements, the Western Balkan economies have progressively deepened their economic integration with the European Union, which stands as the region’s main trading partner and accounts for around 62% of its total trade in 2025, contributing to the convergence of price dynamics between the two regions (Council of the European Union, 2026[26]).
← 2. Monetary conditions also contributed to the close alignment of inflation developments with the euro area. Bosnia and Herzegovina, Kosovo and Montenegro, which do not conduct autonomous monetary policy, imported the ECB's monetary tightening directly. In Albania, North Macedonia and Serbia, policy rates followed broadly similar tightening cycles to those of the euro area following the exceptionally accommodative conditions of 2014-2016. Average central bank policy rates increased by around 2 percentage points between 2017-2019 and 2023-2024, compared with 3.4 percentage points for the ECB over the same period (European Central Bank, 2026[37]; Bank of Albania, 2026[27]; National Bank of North Macedonia, 2026[24]; National Bank of Serbia, 2026[25]).
← 3. Average food inflation reached 7.3% in both the region and the EU in 2023-2024. However, food accounts for around 42% of the consumer price index basket in the region, compared with around 15% in the EU, leading to a stronger impact of food prices on headline inflation in the Western Balkan economies (Eurostat, 2026[30]; International Monetary Fund, 2023[28]).
← 4. After a hike in inflation between 2021 and 2022, Serbia did not experience the inflation decline observed elsewhere in the region in 2023, as the government implemented a series of regulated electricity and natural gas tariff increases (Balkan Green Energy News, 2023[20]).
← 5. In 2023, tourism, FDI and remittances reached EUR 3.2 billion (+46.6% compared to 2022), EUR 1.1 billion (+10.6%) and EUR 676 million (+14.2%) respectively (Bank of Albania, 2023[42]). Their impact on the exchange rate was amplified by the relatively shallow domestic foreign exchange market, with annual foreign exchange market turnover of around USD 11 billion in Albania compared with an average of USD 52 billion across emerging market economies, limiting the economy’s capacity to absorb such inflows without sizeable exchange-rate adjustments (International Monetary Fund, 2025[33]).
← 6. Although monetary arrangements across the Western Balkan economies differ in their institutional design, they all share a common objective of maintaining exchange rate stability toward the euro. Kosovo and Montenegro have unilaterally adopted the euro as legal tender. Bosnia and Herzegovina operates a currency board while North Macedonia maintains a de facto peg of the denar to the euro. Albania and Serbia operate managed floating exchange-rate regimes, allowing their central banks to intervene in foreign exchange markets to limit excessive exchange-rate fluctuations (International Monetary Fund, 2023[40]).
← 7. On average, government revenues increased by 4.4 percentage points of GDP from 2014-2016 to 2023-2024, compared with 0.5 percentage point for government expenditures. Stronger indirect tax receipts, particularly value-added tax, were supported by robust domestic demand, with real final consumption expenditure rising by 33.8% over the period, associated with higher labour incomes across the region, including significant minimum-wage increases (International Monetary Fund, 2026[35]; World Bank, 2026[36]; World Bank, 2024[15]; Bank of Albania, 2024[41]; Central Bank of Bosnia and Herzegovina, 2024[43]; Central Bank of the Republic of Kosovo, 2024[44]; Central Bank of Montenegro, 2024[45]).
← 8. Improved taxpayer services across all Western Balkan economies, notably through simpler filing procedures and the expansion of electronic tax filing, supported revenue performance (OECD, 2024[16]).
← 9. At 43.4% of GDP in 2023-2024, general government gross debt in the Western Balkan economies was 7 percentage points lower than in 2014-2016 (International Monetary Fund, 2026[31]).
← 10. Over the past decade, sovereign credit ratings followed a broadly positive trajectory across the Western Balkan economies. Albania was upgraded from B+ to BB by Standards & Poor’s between 2014 and 2024, Montenegro from B to B+ and Serbia from BB+ to BBB-, entering investment-grade territory. Bosnia and Herzegovina and North Macedonia sovereign ratings remained unchanged at B+ and BB-, respectively. Kosovo obtained its first international sovereign credit ratings in 2024, receiving a BB- rating from Fitch (Standards & Poor's, 2024[18]; 2024[23]; 2024[19]; 2024[38]; 2025[22]; Fitch, 2024[34]).
← 11. Capital market activity remains underdeveloped, with domestic banks as the main investors in government securities, which are often held to maturity rather than actively traded on the secondary market. Limited secondary-market liquidity is generally associated with a higher liquidity premium demanded by investors, contributing to higher sovereign bond yields (International Monetary Fund, 2025[32]; World Bank, 2026[14]).
← 12. Up from 7.9% of GDP in 2014-2016, the services balance reached 12.2% of GDP across the region in 2023-2024. Strong tourism activity fed that uptrend, with travel services accounting for nearly half of total service exports (47.6% in 2023-2024) (International Monetary Fund, 2026[29]; World Bank, 2026[17]).
← 13. The trade in goods balance remained broadly unchanged over the decade, standing at -26.8% of GDP in 2023-2024, slightly up from -26.2% in 2014-2016 (International Monetary Fund, 2026[29]).
← 14. The secondary income balance remained a major source of external financing, although it declined from 11.8% of GDP in 2014-2016 to 11% in 2023-2024, closely mirroring the evolution of remittance inflows, from 10% to 9.4% of GDP (International Monetary Fund, 2026[29]; World Bank, 2026[21]).
← 15. The primary income balance widened from -0.4% of GDP in 2014-2016 to -1.6% in 2023-2024, as growing FDI inflows financing the current account deficit also increased investment-income payments to foreign investors. Direct investment income owed to foreign shareholders rose from USD 348 million in 2014-2016 to USD 1.1 billion in 2023-2024 (International Monetary Fund, 2026[39]).