2.6. Structure of general government expenditures
In order to carry out the main functions of providing individual and collective goods and services to the population, governments spend public resources in various ways, such as by making transfers (e.g. subsidies and social benefits) and purchasing goods and services (e.g. vaccines). Disaggregating expenditures by economic transaction helps to identify government priorities, the type of service delivery model (e.g. direct provision or outsourcing), and the size of financial commitments.
In 2018, economies in the Western Balkan region with available data allocated 36.9% of their expenditures to social benefits (e.g. pensions, allowances), which represents an increase of 2.8 p.p. since 2011. By comparison, OECD countries spent on average 40.6% on this transaction, while EU countries spent 44.6%, which represents a 1.9 p.p. increase since 2011 for both groups.
Compensation of employees was the second largest category. Although it represented a larger share in Western Balkans (24.6%) than in the OECD (22.7%) and EU (21.7%), its share has decreased by 1.4 p.p. since 2011 in the first group, while it remained stable in the other two. Despite spending proportionately more on compensation of employees than OECD and EU countries, workforce professionalisation is one of the main challenges facing economies in the Western Balkan region, since the principles of merit (e.g. merit-based recruitment) are not always applied and there are persistent political interventions in the civil service (Uudelepp, A., et al., 2018). These factors contribute to increases in wages that are not matched by adequate levels of productivity increase (OECD, 2019)
In the Western Balkan region, property income (mainly debt interest payments) represented 3.6% of expenditures in 2018 on average, a similar figure to EU countries (4%) and significantly below OECD levels (6.5%). Finally, reaching 11.9% of total spending in 2018, Western Balkans invest significantly more on average than OECD (7.9%) and EU countries (6.2%).
In Bosnia and Herzegovina, 37% of expenditures was devoted to social benefits, 25.3% to compensation of employees and 17.8% to intermediate consumption (e.g. goods and services consumed as inputs by a process of production). Kosovo devoted the largest share to compensation of employees (30.2% of total expenditures), while North Macedonia registered the highest share of spending on social benefits (48.4%) and subsidies (7.8%).
Government expenditures expressed as a percentage of GDP provide a measure, in relative terms, of how much the government spends in each category, taking into account the size of the national economy. In 2018, the four economies in the Western Balkan region with available information spent on average 12.2% of GDP on social benefits (transfers), compared to 16.4% in OECD countries and 20.5% in EU countries. Compensation of employees amounted, on average, to 8.1% of GDP in the Western Balkans, below the average in OECD (9.2%) and EU (10%) countries. Bosnia and Herzegovina, at 10.2% of GDP, is the only country in the Western Balkan region that spent above OECD and EU levels on compensation of employees.
Data are drawn from the IMF Government Finance Statistics (IMF GFS) database, which applies the concepts set out in the Government Finance Statistics Manual (GFSM). The GFSM provides a comprehensive conceptual and accounting framework suitable for analysing and evaluating fiscal policy. It is harmonised with the other macroeconomic statistical frameworks, such as the System of National Accounts (SNA).
Expenditures encompass intermediate consumption, compensation of employees, subsidies, property income (including interest spending), social benefits (consisting of social benefits other than social transfers in kind and of social transfers in kind provided to households via market producers), grants and other expenses (mainly current and capital transfers but also other minor expenditures as other taxes on production, current taxes on income and wealth etc. and the adjustment for the change in pension entitlements) and investments. All these transactions at general government level are recorded on a consolidated basis (i.e. transactions between levels of government are netted out).
For the definition of general government, please refer to section 2.4.
For the OECD and EU averages, data are derived from the OECD National Accounts Statistics database, which is based on the SNA framework.
Further reading
OECD (2019), Global South East Europe: Unleashing the Transformation Potential for Growth in the Western Balkans, OECD Publishing, Paris, https://www.oecd.org/south-east-europe/programme/Unleashing_the_Transformation_potential_for_Growth_in_WB.pdf.
Uudelepp, A., et al. (2018), “Analysis of the Professionalisation of the Senior Civil Service and the Way Forward for the Western Balkans”, SIGMA Papers, No. 55, OECD Publishing, Paris, https://doi.org/10.1787/8535b60b-en.
Figure notes
Data for Kosovo, North Macedonia and Serbia are recorded on a cash basis. Data for North Macedonia refers to 2013 rather than 2011. Data for Montenegro are not available. Data for Serbia are not included in the Western Balkan average because of missing time-series.
2.15. Differences with total expenditures in 2.11 might appear due to the use of a different IMF reporting database.
Source: IMF Government Finance Statistics (IMF GFS) database. Data for the OECD and EU28 averages are based on the OECD National Accounts Statistics database.
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