With its deep cultural ties to the European Union and history of resilience, the Western Balkans is well positioned to advance sustainable, inclusive growth. But realising this vision will require bold reforms, a clear regulatory roadmap— and a dynamic and robust private sector.
Despite recent progress, the region faces persistent structural issues. Productivity levels have declined, and state-owned enterprises (SOEs) still dominate critical sectors, crowding out private investment. A substantial share of SOEs—ranging from 23 to 53 per cent depending on the country—operate in high-emission sectors, and about 67 per cent are unprofitable.
Financial markets remain underdeveloped, limiting access to credit, especially for micro, small, and medium enterprises (MSMEs). These MSMEs are the backbone of the region’s economies, comprising 99 per cent of businesses and providing three-quarters of all employment. In Serbia, for example, domestic credit to the private sector stood at about 43 per cent in 2024, well below the EU average of around 75 per cent.
Climate change
Climate change further complicates the outlook. Countries like Serbia and Bosnia and Herzegovina rank among the highest per-capita CO2 emitters in Europe. Others such as Albania rely almost entirely on hydropower, leaving them exposed to increasingly frequent droughts. The energy sector urgently needs modernisation, diversification, and decarbonisation.
The good news is that solutions are within reach. At IFC, we’ve seen firsthand how targeted reforms, effective public-private partnerships (PPPs), and innovative financing mechanisms can unlock private capital and drive sustainable development. Across the region, opportunities exist in renewable energy, digital infrastructure, sustainable transport and manufacturing, and agri-business—sectors with the potential to create jobs, raise incomes, and accelerate EU integration, with private sector support.
Shifting to sustainable energy sources, for example, will require significant additional investment, estimated at 89.4 billion US dollars or 1.9 per cent of GDP annually until 2050—according to the Western Balkans Six Country Climate and Development Report. Given the right conditions, an estimated 85 per cent of the total investment could come from the private sector.
Together with the European Commission, IFC is collaborating with governments to advance the rollout of eco-industrial parks, helping to attract foreign direct investment and promote green, high-value manufacturing. In Albania, we’re supporting competitive auctions to bolster access to electricity through co-investments with the private sector in sustainable energy.
Meanwhile, in Kosovo, reforms in microfinance and labour regulation are bolstering smaller businesses and driving investment in local food systems and retail—momentum that extended late last year to the clean energy sector with the inauguration of the country’s first auction for wind energy, a 100 MW project fully supported by IFC.
In Bosnia and Herzegovina, the modernisation of SOEs and consolidation of the PPP framework are laying the groundwork for infrastructure renewal by improving financial performance and governance in SOEs and strengthening the legal and regulatory environment for private investment.
Meanwhile, in Serbia, we continue to support the development of capital markets through the ongoing Joint Capital Markets Programme (J-CAP)—a World Bank Group initiative aimed at strengthening local capital markets and making it easier for businesses to access long-term financing.
In Montenegro, completing the concession-based PPP for the country’s airports—where IFC has been providing transaction advisory services—is a critical step toward developing the core infrastructure vital for sustainable, economic growth.
Stable, predictable policy
But investment will only flow where it feels safe. That’s why improving the investment climate—through transparent regulations, fair competition, and efficient institutions—is vital. Stable and predictable energy policies, digital transformation, and a streamlined business environment are prerequisites for attracting both domestic and international investors. Reforms must prioritise de-risking private sector participation and levelling the playing field for all players.
IFC, together with the World Bank, is now part of the Western Balkans Investment Framework (WBIF)—a major regional platform for mobilising investment in key sectors. This partnership brings together EU grants, national contributions, and loans from international financial institutions to catalyse private sector engagement in priority areas such as energy transition, climate resilience, and competitiveness.
By leveraging blended finance, the WBIF supports transformative infrastructure and reform programmes that will boost regional economic integration and accelerate the EU accession path.
The Western Balkans stands at a pivotal juncture. With continuing reforms and stronger private sector engagement, the region has an opportunity to forge a more competitive, sustainable, and inclusive economy—one that benefits all its citizens—while advancing further on its path toward European integration.
Photo: Dreamstime.
