




































12 

 

Finance, Accounting and Business Analysis 
Volume 3 Issue 1, 2021 

http://faba.bg 

 

Public Finances on the Balkan Peninsula – A Comparative Study of 

Twelve Countries 

Presiana Nenkova1, Nelly Popova2, Diyana Metalova3 

  
Department of Finance, University of National and World Economy, Sofia, Bulgaria 

Info Articles  
 

Abstract 

History Article: 
Submitted 6 January 2021 
Revised 24 March 2021 
Accepted 18 April 2021 

 
Over the past three decades the Balkan countries have experienced a range of 
transformations, from a change in political and economic governance in some and 
difficult early years of transition to stabilisation and an accelerated economic 
growth, crisis- and post-crisis periods, with certain countries going not only through 
hard economic times but also through political, including military, turmoil. This 
poses major challenges for their fiscal policies, to the extent that these developments 
affect the fiscal sector and its governance both directly and indirectly. After a period 
of enhanced revenues that helped finance higher spending, the Balkan countries like 
the European Union countries and the rest of the world have been enduring severe 
recessions during the years following 2008. Falling revenues and rising spending 
needs together have put heavy stress on fiscal balances thus reflecting in a serious 
increase of government debt. Despite the subsequent recovery in public finance, 
public sector governance in later years again faces serious challenges such as 
mitigating the consequences of the COVID-19 pandemic, while at the same time 
certain Balkan countries continue to experience serious economic problems. The 
aim of this paper is to offer a comparative study of public finances in twelve Balkan 
counties and provide an overall picture of fiscal policies implemented in these 
countries during the period 2004—2018. 

Keywords:  
Budget Balance, Public Sector 
Revenue, Public Sector 
Expenditure, Public Finance, 
Balkan Countries 
 

 

  

   

*Address Correspondence:   
E-mail : pnenkova@unwe.bg1, npopova@unwe.bg2, 
d.myetalova@unwe.bg3 
 
 

 

 

mailto:pnenkova@unwe.bg1
mailto:npopova@unwe.bg
mailto:d.myetalova@unwe.bg


Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

13 

 

INTRODUCTION 
 

The Balkans are often described as a contradictory region that, considering its small size, 

concentrates a huge conflict potential, historical baggage and political tension. Tracing indisputable 

boundaries in the Balkan Region is hampered to a certain extent by the fact that the natural geographic 

borderlines of the Balkan Peninsula do not coincide with state borders. The definition of a region‘s 

borderlines is the result of ―the geographic proximity factor as much as it is the result of other factors such 

as the cultural, social and economic similarity among countries, the economic flows among them and the 

foreign policies they implement‖ (Moraliyska, 2014). According to Karastoyanov and Popov, ―the Balkan 

countries are a geographic space that is unique in its features and stands out with a range of specific 

characteristics in terms of political space, culture and history‖ (2011, p.23). The spatial scope of the Balkan 

Region covers not only the states that are located in their entirety on the Balkan Peninsula such as 

Bulgaria, Greece, North Macedonia, Albania, Bosnia and Herzegovina, and Montenegro, but also 

Slovenia, Croatia, Turkey and Romania, the territories of which are only partially located on the Balkan 

Peninsula. The Balkan Region spans across South-Eastern Europe and the south-west peripheral parts of 

the Asian continent where Turkey is located. The area of the Balkan Region includes, in full or in part, 12 

countries. The Balkan Peninsula is the region‘s heartland but in terms of territory, it takes up only one-

third of the Balkan Region. 

Over the past three decades the Balkan countries have experienced a range of transformations, 

from a change in political and economic governance in some and difficult early years of transition to 

stabilisation and an accelerated economic growth, crisis- and post-crisis periods, with certain countries 

experiencing not only economic hardship but also political, including military, turmoil. This poses major 

challenges for their fiscal policies, to the extent that these developments affect the fiscal sector and its 

management both directly and indirectly. It could be said that at the start of the new millennium the 

Balkan countries in general are seeing an overall stabilisation of their economic and political situation. 

Following a period of intensive economic growth until 2008 which had a positive effect on public revenue 

and spending as well, the Balkan countries, just like the EU, are experiencing a period of slow-down in 

economic activity. Currently, the Balkans are faced also with new serious challenges such as the wave of 

refugee since the main route of migrants to Central and Western Europe crosses the region, and the Balkan 

countries, and in particular Turkey, are suffering some of the gravest economic consequences of the 

current wave of refugees. Another challenge comes from the emerging future fiscal risks for the economies 

caused by the COVID-19 pandemic. To start with, the most serious of these has to do with the need to 

relocate increasing amounts in the government budgets to finance various healthcare activities. Next in 

terms of significance is need for fiscal governance to be able to respond in a timely manner to the capacity 

to allocate budget funding to make an increasing number of social payments, in view of the realization of 

unfavourable forecasts for rising unemployment rates and the growing number of people who need 

financial aid. Social systems experience an additional burden from the worsening demographic trends and 

the increasing life expectancy, with a gap that has appears to be growing.   

Existing research in the problem area tend to focus on a more limited range of countries. In 

particular, some of the authors place the stress on examining fiscal governance in the so-called Western 

Balkans, which encompasses states that are potential candidates for EU membership such as Albania, 

Bosnia and Herzegovina, Kosovo, North Macedonia, Serbia and Montenegro. A core subject of those 

studies are the fiscal vulnerabilities and the possibilities to strengthen fiscal discipline with a view to the 

future EU accession (Teqja and Polena, 2015), and the impact of the global financial crisis on their 

economies (Bartlett, 2010). An evaluation of fiscal policies pursued on the Western Balkans during the 

various stages of the economic cycle in the period 2000—2015 and a comparison to the experience of new 

EU member states are provided also in an IMF study (IMF, Working Paper 15/172).  In another group of 

studies, the analysis focuses on the countries that joined the EU most recently, i.e. Bulgaria, Romania and 

Croatia (Vasiloiu, 2019). There is also research (Gechert and Ansgar, 2015) where the focus is on fiscal 

challenges faced by countries that are already part of the Euro area, and studies on the impact of fiscal 

policy on macroeconomic aggregates in Turkey (Karagöz and Keskin, 2015).  

  This paper aims to provide a brief comparative overview of the current status and the 

development of public finance in 12 countries in the Balkan Region in the period 2004—2018, namely 

Bulgaria, Romania, Slovenia, Croatia, Greece, Serbia, North Macedonia, Kosovo, Albania, Bosnia and 

Herzegovina, Montenegro and Turkey. The first five are EU member states, while the rest are potential 

members. Part One describes the developments in public revenue and presents the mix of tax revenues of 

the Balkan countries by main types of taxes. Part Two traces the dynamics of public spending over the 

same period and presents their structure as per the economic and functional classification. Part Three 

analyses budget balance dynamics in the countries under examination.  

The data sources used to obtain the information necessary for the study include statistical 



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

14 

 

international databases of the IMF, World Bank and Eurostat. To obtain additional data for certain 

periods or countries, the official websites of local institutions such as ministries of finance, statistical 

offices, central banks, etc. have also been used. 

 

Dynamics in public sector revenue  
Developments in the size and structure of public sector revenue of the Balkan countries in the 

period 2004—2018 are largely due to their fiscal policies aimed at promoting investment and economic 

growth. These policies are manifested in the adoption of relatively low tax rates and expanding the tax 

base. Changes in the business cycle stages, and in particular, the global financial and economic crisis, also 

affect the dynamics of budget proceeds via the automatic fiscal stabilizers and via the discretionary 

measures undertaken. As a third determinant, one can be highlighting the consolidation of public finance 

in the post-crisis years.  

In the period under examination, public revenues of the Balkan countries in general remain at 

relatively low levels compared to EU member states. Nevertheless, there are distinct fluctuations, in line 

with the cyclical changes in the economy (Figure 1). In the period from 2004 to 2007, the General 

Government sector revenue share in GDP terms grew from 35.7 % to 37.6 % on the average. Considering 

the fact that, in that period, the tax policies of most of the Balkan countries was aimed at reducing the tax 

burden, the observed growth in fiscal revenue should be attributed largely to cyclical factors, and in 

particular to a strong growth in GDP and in consumption. These cyclical factors are particularly manifest 

in Montenegro, and less so in Kosovo and Albania (Koczan, 2015, p. 6). The period from 2008 to 2011 

exhibits a decrease in public revenue in the Balkan countries to 36.2 % in GDP terms, due to the decline in 

economic activity following the onset of the global crisis. In the following years, fiscal proceeds revamped 

and in 2018 stood at 37.8 % in GDP terms on the average. Throughout the 2004—2018 period, EU 

countries stand out, with a significantly higher level of public revenue in GDP terms. The average figure is 

43.1 % for 2004 and 45.1 % for 2018, respectively. It is noteworthy that in both groups of countries the 

share of public revenue in GDP grew by about 2 percentage points over the analysed period.  

 

 
Source: See Appendix 1, author’s calculations 

Figure 1. General Government sector revenue (% of GDP)  

 

Despite the relatively low average of public revenue, significant differences are observed among 

the Balkan countries. As shown in Table 1, in 2018, the contribution of public revenue in GDP was the 

highest in Greece and Croatia, where it exceeds the EU average. In Slovenia, Bosnia and Herzegovina, 

Serbia and Montenegro, the share of revenue is also above 40 % of GDP. In the same year, Kosovo and 

Albania have the lowest public revenue-to-GDP ratio, at below 30 % in both countries. 

 

Table 1. General Government sector revenue (% of GDP) 

 

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 

Albania 25.0 25.4 26.3 26.1 26.9 26.1 26.2 25.4 24.8 24.2 26.3 26.4 27.6 27.7 27.6 

Bosnia and Herzegovina 38.2 40.4 42.8 43.6 42.7 41.7 42.8 43.3 43.7 42.6 43.7 43.1 42.7 43.0 43.0 

Bulgaria 39.6 37.8 35.5 38.8 38.7 35.2 33.2 31.9 34.1 37.5 37.9 38.7 35.1 36.0 38.5 

Greece 38.8 39.4 39.2 40.4 40.7 38.9 41.3 43.9 46.9 49.2 46.7 47.9 49.5 48.2 47.9 

Kosovo 21.0 21.3 22.8 23.7 24.3 28.2 26.3 27.0 26.1 24.6 23.9 25.1 26.3 26.2 26.1 

35.7 36.0 
36.8 

37.6 37.5 
36.5 36.4 36.2 

37.0 37.1 37.4 37.9 37.7 37.5 37.8 

43.1 43.5 43.7 43.9 43.8 43.6 43.6 44.1 44.7 
45.4 45.1 44.7 44.7 44.8 45.1 

32.0

34.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Balkan countries (average) EU countries (average)



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

15 

 

Romania 32.7 32.7 33.5 34.7 32.3 30.3 33.1 34.1 33.7 33.3 34.1 35.5 31.9 30.8 31.9 

North Macedonia 36.1 33.9 33.7 33.9 35.4 33.0 32.3 31.9 32.1 30.1 29.7 31.0 30.4 30.6 30.5 

Slovenia 44.7 45.1 44.3 43.4 43.7 43.5 44.6 44.2 45.4 45.7 45.3 45.9 44.3 44.0 44.3 

Serbia 38.9 40.9 41.6 41.5 41.0 39.3 39.3 37.7 38.6 37.3 39.0 39.3 40.8 41.5 41.5 

Turkey 30.5 31.7 33.4 32.2 31.5 33.0 33.6 33.9 34.1 34.6 33.8 34.2 34.7 33.1 32.7 

Croatia 43.9 43.3 43.4 43.3 43.0 42.8 42.1 41.1 43.0 42.9 43.4 45.3 46.5 46.1 46.5 

Montenegro 39.7 40.1 45.2 49.4 50.0 45.6 42.2 39.6 41.1 42.9 45.1 42.1 43.0 42.2 42.9 

Source: See Appendix 1, author’s calculations 

 

The dynamics of public revenue in each of the Balkan countries in the period 2004—2018 shows 

significant fluctuations caused by changes in the business cycle and by the discretionary measures 

undertaken. Figure 2 illustrates the change in the revenue amount of the General Government sector in % 

of GDP in the countries on the Balkan Peninsula before, during and after the global financial and 

economic crisis. As indicated above, the 2004—2007 period saw an increase in fiscal proceeds in most 

Balkan countries that was most pronounced in Montenegro (9.7 percentage points) and in Bosnia and 

Herzegovina (5.4 p.p.). In that period, the share of public revenue in GDP terms decreased only in 

Bulgaria, North Macedonia, Slovenia and Croatia, despite the increase in revenue in absolute terms. 

 

 
Source:  author’s calculations 

Figure 2. General government revenue share in GDP (percentage points change)   

 

During the years of the global crisis (from 2008 to 2010), public revenue share in GDP terms 

declined by 1.4 percentage points on the average. The drop was most pronounced in Montenegro (–7.7 

p.p.) and in Bulgaria (–5.5 p.p.). Fluctuations in the figures for public revenue in the countries under 

examination are the result of the openness of their national economies. The strong dependence on foreign 

investments creates conditions for steep shifts in the stage of the economic cycle (the so-called boom-and-

bust cycle). The substantial deterioration of the budget position of the Balkan countries post-2008 shows 

that the spike in fiscal proceeds in previous years was largely cycle-driven (Koczan, 2015, p. 8). Against 

that backdrop, increasing national savings with a view to limiting the dependence on external financing 

can be seen as a major task for the Balkan countries. This challenge is particularly acute for countries with 

ageing populations (European Commission, 2019).  

The dynamics of tax revenue, including social security contributions, as a share of GDP in the 

period 2004—2018 is shown in Table 2. Throughout the analysed period, the Balkan countries saw an 

average growth rate of 2.4 percentage points, most significantly in Greece (9.4 p.p.) and in Bosnia and 

Herzegovina (5.7 p.p.) and Kosovo (4.9 p.p.). Despite the overall upward trend, fluctuations in the share of 

tax revenue in GDP are observed in most countries. From 2004 to 2007, there was a significant increase in 

Montenegro, Bosnia and Herzegovina and in Serbia. 

 

 

 

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Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

16 

 

Table 2. General government tax revenue in % of GDP (including social security contributions) 
  2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 

Albania 22.5 22.9 23.5 23.6 24.5 23.7 23.3 23.4 22.6 22.2 24.1 23.9 25.1 25.7 25.7 

Bosnia and 
Herzegovina 32.4 34.6 37.3 37.5 37.3 36.3 37.3 38.4 38.5 37.4 37.7 37.7 37.6 37.9 38.1 

Bulgaria 31.4 30.2 29.7 31.4 30.5 27.0 26.0 25.2 26.6 28.3 28.3 28.9 28.9 29.3 29.8 

Greece 31.9 33.3 32.5 33.4 33.6 32.8 34.1 36.0 38.7 38.5 39.0 39.4 41.4 41.3 41.4 

Kosovo 18.3 18.4 20.2 19.0 21.1 20.3 20.6 22.3 21.9 21.0 20.9 21.8 23.4 23.3 23.2 

Romania 28.1 28.7 29.3 28.9 27.3 25.8 27.0 28.2 27.7 27.3 27.5 28.0 26.5 25.7 26.7 

North 
Macedonia 30.2 29.0 28.6 29.4 29.8 28.0 27.7 27.6 27.3 25.6 25.9 26.8 26.9 26.9 27.4 

Slovenia 38.7 39.4 38.9 38.1 37.7 37.5 38.2 37.7 38.1 37.7 37.6 37.7 37.8 37.5 37.7 

Serbia 33.0 36.2 36.3 36.2 36.2 34.6 34.2 33.0 33.9 33.2 34.6 33.9 35.1 36.1 36.0 

Turkey 22.8 22.9 23.6 23.3 23.5 24.7 26.4 27.2 26.7 27.2 26.5 27.0 27.6 26.7 26.1 

Croatia 36.4 36.3 36.8 37.0 36.9 36.4 36.0 35.2 35.9 36.4 36.6 37.2 37.7 37.7 38.5 

Montenegro 34.4 35.3 37.3 40.5 40.7 36.8 36.4 35.2 36.1 37.5 40.3 37.3 37.3 37.2 37.4 

Average 30.0 30.6 31.2 31.5 31.6 30.3 30.6 30.8 31.2 31.0 31.6 31.6 32.1 32.1 32.3 

Source: See Appendix 1, author’s calculations 

 
After the onset of the global crisis, in the 2008—2010 period, revenue in GDP terms fell down in 

most countries on the Balkans and the drop was most pronounced in Bulgaria and Montenegro. In that 

period, tax revenue rose substantially in Turkey (2.9 p.p.), less significantly in Greece and Slovenia (0.5 

p.p.), and it remained at its pre-crisis level in Bosnia and Herzegovina. After 2011, the tax revenue-to-GDP 

ratio climbed back up in most of the countries under examination, with the largest increase registered in 

Greece and Bulgaria. To sum up, the dynamics of tax revenues in the period 2004—2018 exhibited strong 

fluctuations in Montenegro and Bulgaria, and to a lesser extent in Serbia as well. In 2018, the tax revenue-

to-GDP ratio ranged from 41.4 % in Greece to 23.2 % in Kosovo, and it averaged 32.3 % for the countries 

under examination. 

Proceeds from taxes and social security contributions dominate within the total amount of 

revenue in the General Government sector in the Balkan countries. As evident from Table 3, the share of 

tax revenue in the analysed period was on the rise in most Balkan countries, with most pronounced 

increases in North Macedonia (6.1 p.p.) and in Turkey (5.1 p.p.). In 2018, the share of tax revenue ranged 

from 77.3 % in Bulgaria to 93.2 % in Albania, with the average for all Balkan countries at 85.7 %. 

 

Table 3. General government tax revenue share in total public revenue (including social security 

contributions) 

 
Source: See Appendix 1, author’s calculations 

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Albania 90.0 90.0 89.6 90.7 90.8 90.6 88.9 92.0 91.1 91.7 91.6 90.3 90.9 92.6 93.2

Bosnia and 

Herzegovina 84.7 85.7 87.2 85.9 87.3 86.9 87.0 88.7 88.0 87.9 86.2 87.3 88.0 88.2 88.5

Bulgaria 79.4 80.1 83.7 80.9 78.8 76.5 78.2 79.1 77.9 75.6 74.7 74.8 82.5 81.2 77.3

Greece 82.3 84.7 83.1 82.7 82.6 84.3 82.5 82.2 82.5 78.2 83.5 82.2 83.6 85.8 86.3

Kosovo 87.3 86.5 88.3 80.0 86.8 72.1 78.4 82.6 83.9 85.4 87.2 87.1 89.0 88.9 89.0

North 

Macedonia 83.7 85.5 84.7 86.5 84.1 85.1 85.7 86.6 85.0 84.9 87.4 86.3 88.4 87.9 89.8

Romania 85.9 87.7 87.5 83.2 84.5 85.2 81.8 82.8 82.3 81.9 80.4 78.9 83.1 83.5 83.8

Slovenia 86.6 87.4 87.8 87.9 86.3 86.1 85.7 85.2 84.1 82.5 82.9 82.2 85.3 85.1 85.1

Serbia 84.9 88.5 87.4 87.2 88.1 87.8 86.9 87.4 87.8 88.9 88.8 86.4 86.1 87.1 86.6

Turkey 74.7 72.3 70.7 72.3 74.7 74.9 78.4 80.2 78.1 78.7 78.2 79.0 79.5 80.8 79.8

Croatia 82.9 83.8 84.9 85.4 85.7 85.1 85.5 85.7 83.6 84.7 84.4 82.1 81.0 81.7 82.7

Montengrgo 86.6 88.1 82.5 82.1 81.4 80.8 86.1 88.8 87.8 87.5 89.4 88.5 86.7 88.1 87.3

Average 84.1 85.0 84.8 83.7 84.2 83.0 83.8 85.1 84.3 84.0 84.6 83.7 85.3 85.9 85.8



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

17 

 

Table 4 shows the structure of tax revenue of the Balkan countries by type of tax (direct, indirect 

and social security contributions) as a ratio to GDP. In most of the countries analysed (except for 

Romania and Slovenia), proceeds from indirect taxes account for the highest relative share which, in 2018, 

averaged 15.7 %. In that year, Kosovo and Croatia were at the top, with the highest proceeds from 

consumer taxes in GDP terms of 20 %, while the lowest ratio is exhibited by Romania (10.4 %) and 

Turkey (11.1 %). Over the examined period 2004—2018, there is an increase of 0.7 p.p. on the average. 

The most significant increases were registered in Greece (5.4 p.p.), Kosovo (4.1 p.p.) and Montenegro (3.2 

p.p.). On the other hand, a more noticeable decrease was recorded in North Macedonia (–3 p.p.). Proceeds 

from social security contributions rank second in terms of relative share of GDP in the Balkan countries. 

In 2018, the average ratio was 10.2 %, ranging from 15.8 % in Slovenia to 5.7 % in Albania. Kosovo does 

not have any revenue from social security contributions. In 2004 — 2018, revenue from social security, 

contributions grew by an average of 1 percentage point in the countries on the Balkan Peninsula. The most 

significant increase was registered in Turkey (3.7 p.p.) and in Bosnia and Herzegovina (3.1 p.p.). During 

the same period, the share of revenue declined more significantly only in North Macedonia (–1.4 p.p.) and 

in Bulgaria (–1.2 p.p.). Finally, revenue from direct taxes account for 6.1 % of GDP on the average in 

2018. The highest ratio is that of Greece (10.2 5), and the lowest are those of Kosovo (4 %) and Bosnia and 

Herzegovina (4.1 %). An examination of the change over the analysed period reveals that revenue from 

direct taxes in GDP terms has increased by an average of 0.6 p.p. The most significant increases were 

registered in Greece (1.9 p.p.) and Kosovo (1.6 p.p.). A notable drop was registered only in Romania (–1.6 

p.p.).    

 

Table 4. Tax revenue structure (% of GDP) 

 
Year Direct Taxes Indirect Taxes Social Security Contributions 

Albania 

2004 3.1 13.5 4.5 

2010 3.8 14.4 4.3 

2018 4.7 14.3 5.7 

Bosnia and Herzegovina 

2004 2.9 17.0 12.0 

2010 3.2 19.0 15.0 

2018 4.1 18.8 15.1 

Bulgaria 

2004 5.8 15.8 9.9 

2010 5.1 14.2 6.7 

2018 6.0 15.0 8.7 

Greece 

2004 8.2 11.6 12.1 

2010 8.4 12.6 13.1 

2018 10.2 17.0 14.2 

Kosovo 

2004 2.4 15.9 0.0 

2010 3.2 18.1 0.0 

2018 4.0 20.0 0.0 

Romania 

2004 6.5 11.9 9.8 

2010 5.8 11.9 9.4 

2018 4.9 10.4 11.4 

North Macedonia 

2004 3.8 15.2 10.0 

2010 3.3 13.1 8.9 

2018 5.4 12.3 8.6 

Slovenia 

2004 8.1 15.4 15.2 

2010 8.0 14.0 16.1 

2018 7.9 14.0 15.8 

Serbia 

2004 5.5 17.5 10.1 

2010 5.3 15.9 11.6 

2018 5.8 16.4 12.2 



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

18 

 

 
Year Direct Taxes Indirect Taxes Social Security Contributions 

Turkey 

2004 5.9 11.7 5.2 

2010 5.9 12.7 7.7 

2018 6.1 11.1 8.9 

Croatia 

2004 6.1 18.5 11.7 

2010 6.6 17.6 11.8 

2018 6.5 20.0 12.0 

Montenegro 

2004 6.0 15.3 11.7 

2010 4.9 17.6 12.2 

2018 5.4 18.5 11.3 
Source: See Appendix 1, author’s calculations 

 

The main characteristic feature of the Balkan countries is the high share of indirect taxes, which, 

on the average, account for almost 50 % of the total amount of tax proceeds (fig.3). It is worth noting the 

extremely high level of indirect tax revenue in Kosovo, where it provides for over 80 % of all tax revenue. 

In Albania, Croatia and Bulgaria, indirect taxes also amount to more than half of the tax revenue. To 

compare, the share of indirect taxes in the EU-28 is about 34 %. At the same time, most Balkan countries 

stand out for their relatively low level of proceeds from direct taxes. In 2018, they account for 19.4 % of 

their tax proceeds, against 34.5 % in the EU, on the average. The lowest share of direct taxes is observed in 

Bosnia and Herzegovina (10.8 %), Kosovo and Croatia (16.8 %), and the highest was that in Greece (24.6 

%). 

 
Source:  author’s calculations 

Figure 3. Tax revenue structure in 2018 (% of total tax revenues) 
 

As a final point, revenue from social security contributions amounts to an average of about 31 % 

of all tax revenues of the Balkan countries, the same as the EU average. However, there are substantial 

differences among the countries. In terms of revenue from social security contributions, Slovenia, 

Romania and Bosnia and Herzegovina stand out, with around 40 %. Notably, no data is available for 

revenue from social security contributions for Kosovo. This is due to the fact that the system of public 

social security in that country is an early stage of development. On the spending side, social benefits are 

financed largely from the general budget revenue, with only a small portion covered through targeted 

social security contributions by employees and employers (Mustafa, Haxhikadrija, 2019, p. 13). The make-

up of tax revenues of the Balkan countries is the result of their fiscal and tax policies. In the first years of 

transition to a market economy, they implemented large-scale reforms aimed at stimulating investment 

and economic growth. These reforms included a considerable decrease of taxation rates for direct taxes, 

and in some cases progressive tax rate scales were replaced by a flat rate applicable to personal income. In 

22.1 
10.8 

20.2 24.6 
16.8 18.3 20.4 20.4 18.7 23.3 16.8 19.9 19.4 

34.3 

55.6 

49.3 

50.8 41.0 

83.2 

39.0 
44.8 37.3 45.7 42.7 52.0 49.6 49.3 

34.7 

22.2 
39.6 

29.0 34.4 
42.7 31.4 41.8 34.0 34.0 31.2 30.0 30.9 31.1 

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Direct Taxes Indirect Taxes Social Security Contributions Other



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

19 

 

exchange, the fiscal burden on consumption was increased. 

The tax structure of the Balkan countries, which is based primarily on indirect taxation, has had 

significant social, economic and fiscal effects. Firstly, that type of tax structure generally has relatively 

limited possibilities to redistribute national income. In specialized literature, taxes on consumption are 

often defined as regressive since they pose a greater burden on lower-income households. Secondly, the 

predominant share of revenue from indirect taxes in total tax revenue implies a certain degree of pro-

cyclicity on the revenue side of the budget and reduces its capacity for macroeconomic stabilisation. 

Revenue from indirect taxation moves in a straight-line dependency with changes in economic activity. In 

their turn, direct taxes, and in particular progressive taxation of personal income, work to soften any 

economic imbalances to a greater extent. A relatively small share of direct taxes implies a weaker effect of 

the automatic fiscal stabilisers, hence the weaker stabilisation role of fiscal policy. It is the structure of tax 

revenue that largely explains the significant fluctuations in budget proceeds observed in the years prior to 

and after the global crisis. 

 

 Dynamics in public sector expenditure 

In the period 2004—2018, there was substantial dynamics in the public sector spending figures of 

the Balkan countries. As can be seen from Figure 4, spending in the General Government sector in 2004 

stood at 38.2 % of GDP, and declined slightly in the following years. After the onset of the global 

economic and financial crisis, the share of public spending in GDP went up and reached 42.1 % in 2009. 

In 2013, it went up again, but as from the following year, the public spending-to-GDP ratio started to go 

down, reaching 34.4 % in 2018. Over the entire analysed period, the average figure for public spending in 

the EU was considerably higher, at45.9 % in 2004 and 45.8 % in 2018, respectively.  

 

Source:  author’s calculations 

Figure 4. General government spending (% of GDP) 

 

Balkan countries differ substantially in terms of the share of public spending in GDP (Table 5). In 

2018, it had the highest value in Greece, Croatia and Montenegro, exceeding 46 % in these three countries. 

In that year, the share of public spending in GDP was the lowest in Kosovo, Albania and North 

Macedonia.   
 

 Table 5. General Government spending (% of GDP) 

 
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 

Albania 30.2 28.9 29.7 29.6 32.5 33.2 29.3 28.9 28.2 29.2 31.5 30.5 29.5 29.7 29.2 
Bosnia and 

Herzegovina 36.7 38.0 40.1 42.5 44.8 46.0 45.2 44.5 45.7 44.8 45.8 42.5 41.5 40.4 40.8 

Bulgaria 37.8 36.7 33.7 37.7 37.1 39.3 36.4 33.9 34.4 37.9 43.3 40.4 35.0 34.9 36.6 

Greece 47.6 45.6 45.1 47.1 50.8 54.1 52.5 54.1 55.8 62.4 50.3 53.6 49.0 47.4 46.9 

Kosovo 26.4 22.4 20.4 17.4 24.3 26.9 27.4 28.1 28.4 27.9 26.5 27.0 27.7 27.6 29.0 

Romania 33.8 33.5 35.6 37.5 37.6 39.4 40.0 39.5 37.3 35.4 35.3 36.1 34.5 33.5 34.8 

North 
Macedonia 35.8 33.7 32.8 33.0 35.3 35.4 34.8 34.3 36.0 34.1 33.9 34.5 33.3 33.8 31.6 

38.2 
37.1 37.2 37.7 

40.0 
42.1 

40.9 40.4 40.8 
42.1 

41.1 40.7 
39.0 38.2 38.4 

45.9 46.0 45.4 44.8 
46.3 

50.2 50.1 
48.6 49.0 48.7 48.0 

47.0 46.4 45.9 45.8 

30.0

35.0

40.0

45.0

50.0

55.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Balkan countries (average) EU countries (average)



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

20 

 

Slovenia 46.6 46.4 45.5 43.4 45.1 49.4 50.2 50.9 49.4 60.3 50.8 48.7 46.3 44.1 43.6 

Serbia 38.9 39.8 43.0 43.3 43.5 43.5 43.7 42.3 45.1 42.5 45.2 42.8 41.9 40.4 40.9 

Turkey 34.5 31.8 32.1 32.4 33.0 38.2 36.4 34.2 35.1 35.2 34.3 34.3 36.1 34.9 35.1 

Croatia 48.8 46.9 46.5 45.6 45.8 48.9 48.6 49.0 48.3 48.3 48.7 48.6 47.4 45.3 46.3 

Montenegro 41.2 41.9 42.0 43.2 50.3 50.9 45.8 44.8 46.4 47.2 47.7 50.0 46.2 46.8 46.2 

Source: See Appendix 1, author’s calculations 

 

It is interesting to explore the developments in the level of public spending in each of the Balkan 

countries prior to and after the global crisis (Figure 5). From 2004 till 2008, public spending in GDP terms 

grew at an average rate of 1.8 percentage points, most notably in Montenegro (9 p.p.) and in Bosnia and 

Herzegovina (8.1 p.p.). The growth in spending in Montenegro was the result of a strong GDP growth in 

that period, and of the transition to an independent state (World Bank, 2019, p. 10). In that period, a more 

significant decrease was reported in Croatia (–3 p.p.) and in Kosovo (–2.2 p.p.)  

The global financial and economic crisis interrupted the predominant upward trend in the value of 

public spending. From 2009 until 2018, public spending in GDP terms experienced a downturn in all 

countries on the Balkan Peninsula except for Kosovo. The most significant decreases were registered in 

Greece (–7.1 p.p.), Slovenia (–5.8 p.p.) and Bosnia and Herzegovina (–5.2 p.p.). The substantial reduction 

in public spending in that period can be attributed to the efforts to consolidate public finance. 

Despite the overall reduction in public spending post-2009, certain countries display temporary, 

significant spikes. For instance, there was a considerable increase in Greece in the period from 2008 until 

2013, after which spending dropped down drastically. Several Balkan countries experienced a banking 

crisis, with the cost of bailing out covered by the public sector. In 2013, the share of public spending in 

Slovenia went up by almost 11 percentage points from the previous year as a result of public refinancing of 

several large credit institutions. In the following year, the amount of spending went back down. A one-off 

increase in spending in GDP terms was reported in Bulgaria in 2014 as a result of problems in the banking 

sector. 

 

 
Source:  author’s calculations 

Figure 5. General government spending share in GDP (percentage points change) 
 

The structure of public spending can be analysed on the basis of both an economic classification 

and a functional classification. The economic classification examines the cost of producing or purchasing 

from a third-party goods and services necessary for supplying goods by the public sector, and the direct 

transfers paid out to households and enterprises (Andjelkovic et al., 2010). Under the economic 

classification, public spending is distinguished into current and capital spending, and the former 

predominate in the total amount of public spending. Current spending includes the following components: 

compensation of employees in the public sector, use of goods and services (intermediate consumption), 

interest payments on public debt, subsidies, social spending, and other current spending. 

Capital spending, in its turn, refers to spending incurred by the institutional entities within the 

General Government sector for the acquisition or improvement of long-term assets (consumption of fixed 

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

A
lb

an
ia

B
o

sn
ia an

d
 H

erzego
vin

a

B
u

lgaria

G
reece

K
o

so
vo

R
o

m
an

ia

N
o

rth
 M

ace
d

o
n

ia

Slo
ven

ia

Se
rb

ia

Tu
rke

y

C
ro

atia

M
o

n
te

n
egro

A
ve

rage

Change 2004-2008 Change 2009-2018



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

21 

 

capital). For EU member states, statistical information about the amount of capital investment is available 

from Eurostat. Since the IMF database does not provide data for this indicator, for the rest of the countries 

under examination, data about the indicator ‗net acquisition of non-financial assets‘ is used as a 

corresponding measure. According to the IMF definition, net acquisition of non-financial assets is equal to 

the difference between non-financial assets acquired and those released. It includes net investment in non-

financial assets and fixed capital consumption. (IMF, 2014, 81). 

Table 6 shows a breakdown of public spending in Balkan countries by type of economic activity as 

a ratio to GDP in 2004, 2010 and 2018. Within current spending, in all Balkan countries except for 

Kosovo, the largest relative share is that of social spending (in cash and in kind) paid out to households in 

order to overcome existing social risks and cover basic needs. Significant differences can be observed 

among the individual countries where, for 2018, social spending accounted for the largest relative share in 

Greece (20.7 % of GDP) and Slovenia (17.6 % of GDP), and the lowest was that in Kosovo (6.6 % of 

GDP) and Albania (10.3 % of GDP). Concerning its dynamics in time, in the period 2004—2018, social 

spending in GDP terms grew in most Balkan countries, with the most significant growth exhibited in 

Kosovo (6.6 p.p.), Greece (5.6 p.p.), Bosnia and Herzegovina (3.2 p.p.). Decreases are observed in Serbia, 

Turkey, Slovenia, Croatia and Montenegro. In the period under examination, social spending in the 

Balkan countries in GDP in terms grew by an average of 1.5 percentage points. 

The second most significant component of current spending was compensation of employees, 

which includes salaries and social security contributions for people employed in the public sector of the 

economy. In 2018, the share of that component ranged from 11.8 % of GDP in Greece and Croatia to 4.5 

% of GDP in Albania. From 2004 to 2018, this spending item decreased in 7 Balkan countries, most 

significantly in Albania (–2 p.p.) and in Serbia (–1.8 p.p.). Spending for compensation of employees 

marked the most substantial increase in Kosovo (2.3 p.p.). 

The ‗consumption of goods and services‘ (intermediate consumption) component measures the 

cost of goods and services (except for long-term assets) invested in the creation of public goods. In terms of 

that indicator, there also considerable differences across the analysed countries. In 2018, the share of 

spending for intermediate consumption ranged from 2.5 % of GDP in Montenegro to 8.1 % in Croatia. In 

2004—2018, that component of current spending decreased in 9 Balkan countries, most significantly in 

Kosovo (–3.3 p.p.) and in Bulgaria (–3.1 p.p.). On the average, this spending item decreased by 0.9 p.p. 

during the analysed period. 

The category of transfers shown in Table 6 brings together two items of current spending: 

subsidies and transfers (grants). Subsidies are defined as unilateral payments to public and private 

enterprises in the respective country with the aim to influence the level of production, the cost of output or 

the profits of those enterprises (IMF, 2014, p. 131). In their turn, transfers are payments to other 

institutional entities with the General Government sector, and payments to other countries and to 

international organisations. In 2018, the spending-to-GDP ratio was the highest in Montenegro (6.3 %), 

and the lowest in Greece (0.3 %). 

Interest payments on public debt, on the whole, account for a small relative share in the GDP of 

the countries on the Balkans, and in 2018 it ranged from 3.3 % in Greece to 0.3 % in Kosovo. With regard 

to capital spending, there are also differences among the Balkan countries. In 2018, it recorded its highest 

value in Kosovo (7.9 % of GDP, while the lowest level was that in North Macedonia (2.5 % of GDP) and 

in Bosnia and Herzegovina (2.7 % of GDP). From 2004 to 2018, capital spending increased in 7 Balkan 

countries, most significantly in Montenegro (5 p.p.). The decrease was most pronounced in Greece (–4.1 

p.p.) and in Croatia (–3.7 p.p.). 

 

Table 6. General government spending structure by economic purpose (% of GDP) 

    
Compensation of 

employees 

Intermediate 

consumption 

Interest 

payments 
Transfers 

Social 

benefits 

Other 

current 

Capital 

expenditure 

Albania 

2004 6.6 3.3 3.9 2.8 6.8 1.6 5.2 

2010 5.3 2.8 3.4 2.8 8.6 1.5 5.4 

2018 4.5 2.8 2.2 3.2 10.3 1.3 4.8 

Bosnia and 

Herzegovina 

2004 10.6 8.5 0.5 1.1 11.8 2.8 1.4 

2010 12.5 10.2 0.5 1.9 14.9 2.8 2.5 

2018 10.2 7.2 0.7 1.4 15.0 3.1 2.7 

Bulgaria 

2004 9.9 7.9 1.8 0.9 12.2 1.3 3.9 

2010 9.1 5.7 0.7 1.1 13.5 1.2 4.9 

2018 9.5 4.8 0.7 2.2 13.0 2.3 4.0 



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

22 

 

Greece 

2004 11.3 6.4 4.8 0.1 15.1 2.0 8.0 

2010 12.4 6.0 6.0 0.2 20.9 1.9 5.0 

2018 11.8 4.6 3.3 0.8 20.7 1.8 3.9 

Kosovo 

2004 6.3 7.0 n/a n/a n/a n/a 6.6 

2010 7.1 4.1 0.1 1.8 3.9 0.0 10.3 

2018 8.8 3.7 0.3 1.7 6.6 0 7.9 

Romania 

2004 8.2 5.7 1.5 2.0 9.8 1.2 5.4 

2010 9.6 5.5 1.5 1.0 13.9 1.9 6.6 

2018 10.9 5.1 1.1 0.4 11.6 1.8 3.9 

North 

Macedonia 

2004 7.6 4.8 0.8 n/a n/a n/a 4.2 

2010 7.9 4.8 0.7 n/a n/a n/a 4.5 

2018 6.3 3.4 1.2 2.4 14.6 0.8 2.5 

Slovenia 

2004 11.5 6.0 1.7 1.7 18.7 2.0 5.2 

2010 12.5 6.8 1.6 1.8 20.1 1.9 5.5 

2018 11.1 6.2 2.0 0.8 17.6 1.8 4.1 

Serbia 

2004 8.7 7.5 1.2 2.9 16.1 0.0 2.4 

2010 11.2 6.3 1.1 2.4 17.8 0.7 3.2 

2018 9.2 6.8 2.1 2.2 14.7 1.4 3.9 

Turkey 

2008 7.3 4.0 4.6 0.8 12.7 1.2 3.7 

2010 8.2 4.8 3.5 1.2 13.2 1.6 3.4 

2018 8.0 4.9 3.0 1.7 11.7 1.1 4.0 

Croatia 

2004 11.8 6.9 1.8 2.3 15.7 1.3 9.1 

2010 12.2 7.6 2.4 2.4 15.9 1.8 6.3 

2018 11.8 8.1 2.3 1.6 15.5 1.5 5.4 

Montenegro 

2004 14.5 4.3 1.5 2.3 13.9 2.7 1.8 

2010 10.9 5.2 1.0 7.7 13.6 0.9 4.7 

2018 11.2 3.1 2.2 6.3 11.7 1.5 6.8 

Source: See Appendix 1, author’s calculations 

 

 Figure 6 shows the structure of public spending in 2018 by economic function. The classification 

of spending according to the functions of Government (COFOG) is a detailed presentation of the functions 

or social and economic purposes, which the institutional entities included in the General Government 

sector aim to achieve by means of the various types of public spending (IMF, 2014). The functional 

classification is a statistical tool suitable for measuring and comparing the relative significance of key 

functions of the public sector in each country. As seen from the graph, spending for social protection 

accounted for the largest relative share in all Balkan countries in 2018, standing at an average of 12.6 % of 

GDP, compared to 18.6 % in the EU. It is worth noting the substantial difference in the percentage of 

social spending among the individual Balkan countries, ranging from 19 % of GDP in Greece to 6.5 % of 

GPD in Kosovo. The second most significant spending category is ‗General public services‘, where the 

average share in GDP for the Balkan countries and for the EU equals 5.8 % of GDP. In 2018, the highest 

numbers for spending in that category were those for Montenegro (10.7 % of GDP), Greece (8.3 % of 

GDP) and in Bosnia and Herzegovina (8.1 % of GDP). Spending for economic affairs ranked third in the 

Balkan countries. It averaged 5.4 % of GDP, compared to 4.2 % for the EU. The substantial share of this 

spending category in Montenegro (7.9 % of GDP) stands out. A significant difference in the relative share 

of health spending among the countries on the Balkan Peninsula and the EU is observed, with 4.9 % and 

7.1 % of GDP, respectively, for 2018. Among the Balkan countries, Slovenia and Croatia (6.6 % of GDP) 

had the highest level of health spending, while the lowest level was that in Albania and in Kosovo (3 % of 

GDP). In 2018, spending for education in GDP terms in the Balkan countries averaged 4 %, against 4.7 % 

in the EU. The share of defence spending was equal in both groups of countries and amounted to 1.2 %. 



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

23 

 

 
Source:  See Appendix 1, author’s calculations 

Figure 6. General government spending according to COFOG in 2018 (% of GDP) 
Note: The heading “Other expenditure” comprises “Environmental protection”, “Housing and community amenities” and “Recreation, culture and 

religion”. 

 

Containing the levels of public debt is key to reducing macroeconomic risks, especially 

considering the non-availability of other mechanisms for macroeconomic stabilisation in some of the 

Balkan countries, including the absence of an independent currency (European Commission, 2019, p. 6). 

After the onset of the crisis, the Balkan countries varied in the fiscal stimulus tools at their disposal, which 

largely depend on the condition of their public finance. The analyses provided by the European 

Commission concerning the structure of fiscal adjustment show that fiscal position improvements can be 

attributed mostly to improved revenue collection rates, while lower interest payments have largely been 

offset by increases in other items of public spending. In Serbia, Montenegro and Albania, corrections to 

budget deficits were archived mostly through measures undertaken on the revenue side. In North 

Macedonia and Croatia, the improvement in the budget balance was the result of cutting current spending. 

The structure of budget consolidation is an indicator for potential weaknesses in public finance in the 

conditions of an economic downturn. If the increase in budget revenue is driven mostly by cyclical factors, 

then it can be expected that revenue would decrease rapidly, once the stage in the business cycles changes 

(European Commission, 2009, p. 7). 

  

9.2 
13.0 12.0 

19.0 

6.5 
11.6 11.5 

16.7 
14.1 

9.9 
14.7 

11.8 12.5 

18.6 
5.2 

8.1 

3.3 

8.3 

3.3 

4.6 2.9 

5.3 
6.0 

5.8 

5.4 10.7 
5.7 

5.8 

0.7 

0.9 

1.1 

2.0 

0.7 

1.7 
0.9 

1.0 
1.7 

1.8 

1.1 

1.5 

1.3 

1.3 

1.7 

3.2 

2.5 

2.1 

2.6 

2.2 

2.2 

1.5 2.5 

2.1 

2.4 

3.6 

2.4 

1.7 

2.8 

2.7 

6.7 

4.4 

6.7 

4.2 

3.3 

4.7 5.2 

4.1 

6.7 

7.9 

4.9 

4.2 

3.0 

5.9 

5.0 

5.0 

3.0 

4.7 

4.9 

6.6 5.4 

5.1 

6.6 

5.3 

5.0 

7.1 

3.1 

4.0 

3.5 

3.9 

4.5 

3.2 

3.5 

5.4 
3.2 

3.7 

5.3 

4.1 

4.0 

4.7 

2.9 

2.0 

2.6 

2.3 

1.7 

2.7 

2.4 

2.3 

2.7 

2.0 

3.9 
1.3 

2.4 

2.5 

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Social protection General public services
Defence Public order and safety
Economic affairs Health
Education Other



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

24 

 

4. Changes in government budget balance  
Budget balance is a key indicator of the direction of the fiscal policy pursued. There is no 

unanimity in economic theory as to whether a balanced-budget policy should be pursued, or whether the 

state should use the budget as a tool to pursue a policy of macroeconomic stabilisation. Moreover, the 

genesis of budget deficit is very important. A budget deficit may be due to ineffective spending policy or to 

a targeted investment policy aimed at upgrading public infrastructure, which is a precondition for a higher 

economic growth in the future. A policy of budget deficit has a counter-cyclical effect on the economy 

when it is implemented in the conditions of a recession (irrespective of whether it is the result of the 

automatic fiscal stabilisers or the discretionary government policy at work). It should be noted that it is 

more difficult to implement a policy of budget surplus in periods of economic growth, particularly in 

developing countries, where there is an acute need for infrastructure improvement (IMF, WP 15/172). 

Governments are often subject to strong pressure from certain interest groups (lobbies, trade unions, etc.) 

which demand that additional spending should be incurred, where such spending had been postponed on 

the argument of non-availability of funds; in the presence of a budget surplus, however, that argument 

does not hold. For that reason, although economic theory prescribes that reserves for absorbing economic 

shocks must be set up, the pursuit of an austere fiscal policy is not a particularly common approach in 

governing public finance. That is why government policies are often pro-cyclical in a period of economic 

expansion. 

The fiscal instability of a country has an impact on the whole monetary and economic union and 

erodes its trustworthiness. Although fiscal policy is a national prerogative, the deepening of the economic 

integration among countries requires a certain degree of coordination. The budget deficit indicator is an 

important indicator of the stability of public finance; hence the EU‘s Stability and Growth Pact sets a limit 

to its share in GDP of up to 3 % of GDP (EU, Council Regulation No 1466/97, Article 2-a). In the case of 

non-compliance with that requirement, an excessive deficit procedure is launched, requiring the country 

concerned to undertake corrective measures to manage the situation. In the period 2010—2011, such 

procedures were launched for 24 EU member states. The common failure to comply with that 

requirement, and with the debt criterion, as well as the need to strengthen the sustainability of public 

finance in EU member states led to the formulation of fiscal ruled that are binding on the member states of 

the Union. The fiscal rules are long-term quantitative restrictions on government spending, deficit, debt or 

other fiscal indicators. Several decades ago, only a few countries had fiscal rules. Currently, however, over 

90 countries abide by such restrictions, including, of course, the EU member states. There is evidence that 

strict fiscal rules promote fiscal discipline, at least in countries that tend to run large deficits (WB, WP 

Fiscal Rules for the Western Balkans, 2019). Western Balkan countries, which are not members of the EU 

yet but wish to accede to it, must comply with the EU requirements for maintaining fiscal discipline and 

must follow the established quantitative fiscal rules. 



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

25 

 

 
Source:  See Appendix 1, author’s calculations 

Figure 7. General government balance (% of GDP) 

 

The budget balances of the countries under examination have fluctuated during the past 15 years, 

which is largely but not exclusively the result of the cyclical development of their economies. The 

discretionary measures undertaken by governments with respect to fiscal incentives or fiscal consolidation 

also play a role. The analysis of the dynamics of one of the most important fiscal indicators, budget 

balance, in the countries from the Balkan Region informs the following conclusions: 

  The countries under examination exhibit a marked tendency to stick to a policy of budget deficit. 

The budget balance is negative, on the average, for the European countries throughout the 

observed period.  

  The global financial and economic crisis in 2009 put the public finance of the Balkan countries to 

the test and reflected in a sharp increase in their budget deficits considerably in excess of the limit 

of 3 % of GDP only for one year. A lesser deficit is recorded only for North Macedonia, and 

Kosovo even has a slight surplus. 

  Still, the severe worsening of the budget balance in 2009 in the countries under examination is not 

as drastic, compared to EU countries (8 of the countries have a deficit below the EU average). 

  As early as in 2010, 8 countries shrunk their budget deficit, which is in line with the economic 

development recovery. 

  Over the 15-year period, the highest surpluses (over 6 %) were achieved by Kosovo and 

Montenegro in 2007, melting away during the next year, 2008. 

  In the period 2010—2014, all countries had a negative budget balance. 

  The deficit in the year of the crisis, 2009, ranged from 2 % to 6 % in GDP terms in most countries, 

but Greece and Romania reached record-high deficits of 15 % and 9 % of GDP, respectively. 

Bulgaria is among the countries with the lowest deficit. 

  In 2014 Bulgaria breached the budget deficit limit for the second time but managed to avoid the 

excessive deficit procedure since the European Commission agreed that it was due to an 

-20

-15

-10

-5

0

5

10

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

%
 o

f 
G

D
P

 

Bulgaria Greece Croatia

Romania Slovenia Montenegro

North Macedonia Turkey Serbia

Bosnia and Herzegovina Kosovo Albania

Threshold EU-28



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

26 

 

extraordinary event relating to the declaration of bankruptcy of a key bank (Corporate 

Commercial Bank) and the need to finance the Deposit Guarantee Fund. 

  During the first 10 years of the period, Greece stands out as the country with the largest deficits, 

but in the last three years it has registered a positive balance already. 

  Slovenia ended 2013 with a much higher deficit than 2009, with –14.6 % of GDP, against –5.8 % 

in 2009, the reason being that the country carried out a major bank recapitalisation (about EUR 3 

billion). 

  In the last 3 years of the period under observation, almost all of the countries had budget balances 

above the threshold of –3 % of GDP (except for Montenegro). 

  A budget deficit policy was pursued throughout the period by Romania and Albania. For Albania, 

a policy to restrict the budget deficit in the last three years is observed, bringing it down to around 

2 %, whereas earlier it was in the range of 4—5 %. In 2018 Slovenia reported a budget surplus for 

the first time in 22 years.  

In the period under examination, the strongest driver behind the fluctuations in the budget 

balances of the Balkan countries was the global financial and economic crisis, along with certain one-off 

events such as the recapitalisation of banks in Slovenia in 2013 (Stability Programme of the Republic of 

Slovenia, 2014, p.21) and the failure of Corporate Commercial Bank in Bulgaria in 2014. Those factors led 

to an increase in the deficit-to-GDP ratio, which, in its turn, raises the issue of sustainability of public 

finance systems and the levels of government debt.   

The overall budget balance is affected also by the countries‘ level of indebtedness, since interest 

costs can be a major spending item. The burden of interest payments over the period under observation in 

the Balkan countries was below 4 % of GDP, except for Turkey and Greece. At the beginning of the 

period, Turkey allocated 10 % of its GDP to interest payments, but in the following 6 years, it managed to 

bring down that share to below 4 %, while Greece registered record-high interest spending of around 7.5 % 

of GDP in 2011. The burden of debt repayment was lower in most Balkan countries compared to the 

average burden in the EU at the start of the period, but the situation reversed post-2013. In the EU, in 2018 

it went down even below 2 % of GDP, while in the Balkan countries it climbed up. 

 

 
Source:  See Appendix 1, author’s calculations 

Figure 8. Government interest expenditure (% of GDP) 

 

To get a better understanding of the fiscal situation, let us examine how the elimination of interest 

spending affects it, i.e. what the budget balance would look like if countries had no debts. To that end, let 

0

1

2

3

4

5

6

7

8

9

10

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

%
 o

f 
G

D
P

 

Bulgaria Greece Croatia

Romania Slovenia Montenegro

North Macedonia Turkey Serbia

Bosnia and Herzegovina Kosovo Albania

EU-28



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

27 

 

us compare the budget balance to the primary budget balance available at the beginning and at the end of 

the period under examination. The results are shown in the figure below. 

 

 
Source:  See Appendix 1, author’s calculations 

Figure 9. Budget balance and primary budget balance ( % of GDP) 

 

The primary budget balance available looks better for all of the countries under examination, since 

each country has some degree of indebtedness, the largest deviations between the two indicators are 

noticeable for the most indebted countries, i.e. Turkey, Greece, Montenegro, Serbia, Slovenia and 

Albania. Compared to the beginning of the period, the largest improvements in the primary budget balance 

are exhibited by Greece, Croatia, Slovenia and Kosovo, while in the case of Turkey there is a serious 

worsening. Overall, in 2018 the primary budget balance available is closer to the budget balance as at the 

beginning of the period (2004). The absence or presence of a correlation between the budget balance 

available and the real rate of economic growth over the period 2004—2018 is shown in the table below. 

 

Table 7. Correlation between the budget balance and the real rate  

of economic growth over the period 2004—2018 

 

Correlation coefficient  

Bulgaria 0.704486 Strong correlation 

Greece 0.494235 Medium correlation 

Croatia 0.596686 Medium correlation 

Romania 0.67786 Strong correlation 

Slovenia 0.598439 Medium correlation 

Montenegro 0.60807 Medium correlation 

North Macedonia 0.690461 Strong correlation 

Turkey 0.478209 Medium correlation 

Serbia 0.682901 Strong correlation 

Bosnia and Herzegovina 0.713847 Strong correlation 

Kosovo 0.691888 Strong correlation 

Albania -0.01925 Very weak negative correlation 
Source: author’s calculations 

 

With the exception of Albania, for all other countries the assumption that there is a statistically 

significant link between the budget balance and the real rate of economic growth is confirmed (the 

correlation factor is between 0.5 and 0.7). Albania has maintained some of the highest growth rates 

throughout the period and it is the only country that did not slip into a recession, even in 2009, but instead 

registered a growth rate of 3.4 %. At the same time, the country stimulated domestic demand through 

major fiscal incentives as well, as it pursued a policy of budget deficit throughout the period. 

 

 



Presiana Nenkova et al. / Finance, Accounting and Business Analysis 3 (1) 2021 

28 

 

CONCLUSIONS 
 

The overview of the dynamics of public revenue in the period 2004—2018 has shown that the 

Balkan countries have a lower public revenue-to-GDP ratio compared to the EU. Over the analysed 

period, there was an increase in revenue but despite that, there are distinct fluctuations in the years prior to 

and during the global economic crisis. These fluctuations are particularly manifest in Montenegro. The 

dynamics in total public revenue and tax revenue of the Balkan countries exhibits a certain pro-cyclicity 

that is the result of the fiscal policy pursued. The structure of tax revenue in a large number of the Balkan 

countries is characterised by a large share of indirect taxes, mostly at the expense of direct taxes. This 

implies both a weaker re-distributional role of the public sector and relatively limited capacity to 

implement macroeconomic stabilisation.  

In the period 2004—2018, the share of public spending in the GDP of most of the Balkan 

countries remained lower than the EU average, with the exception of Greece, Montenegro and Croatia. 

Those three countries stand out among the rest with the considerable involvement of the government in 

the economy. In 2008, the number of countries having a large public sector went up, but at the end of the 

period, this number gradually went down, mostly due to the action undertaken to reduce public spending 

in some of the Balkan countries. The trend shows that at the end of the period in quite a few of the 

countries in the Balkan Region the government yielded in the running of the country‘s economy. Despite 

the overall reduction in spending post-2009, some of the countries display temporary, significant spikes. In 

the structure of public spending according to an economic classification and a classification by function, 

the most significant item in GDP terms was social spending. That is why that component of public 

spending showed the most significant increase in the period 2004—2018. 

The budget balance remained negative during most of the investigated period, which comes to 

show a tendency for the countries in the study to pursue a policy of budget deficit both in times of 

economic downturn and in economically more favourable times. The financial and economic crisis of 

2009 is the main reason for the worsening in the performance of the budget balances across the board in 

the countries examined.  

 

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