Analyzing development finance flows in the Western Balkans’ energy sector: a 2008–2020 perspective

Background

Development finance is vital for low- and middle-income countries to enhance their sustainability agendas, as it provides essential funding necessary to close domestic financing gaps, including in the energy sector. Coal is still a vital power source for the energy sectors in the Western Balkans (i.e., Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia). The energy sector is a critical component in the five countries’ pursuit to decarbonize (i.e., follow the net zero pathways) due to its central role as a primary contributor to greenhouse gas emissions and a critical enabler of sustainability transition. This article presents a mapping exercise of development finance for five Western Balkan countries’ energy sectors. The study conducted a scoping literature review and detailed analysis of the five countries’ energy sector-related development finance flows from 2008 to 2020. This aimed to provide insights into the development finance flows for renewable and non-renewable energy sources in five Western Balkan countries.

Results

The scoping literature review indicated a significant gap in knowledge about the effects and effectiveness of development finance in the Western Balkans. Data analysis identified US$3.2 billion in energy development finance in the examined countries. The disbursement ratios were above the global average of 63%. Serbia received the highest proportion of the total funding, while Montenegro obtained the highest funding per capita. The data analysis did not establish a connection between adopting the Paris Agreement in 2016 and increasing development finance flows for renewable energy projects. Around one-third of the disbursed development finance was invested in projects for energy supply using non-renewable sources. Official Development Aid loans represented 37% (US$1.2 billion) of the total funding, contributing to the increase in indebtedness in the five countries. European-based bilateral and multilateral development finance providers were the most important actors in the five examined countries.

Conclusions

The amount of the disbursed development finance was insufficient to cover a significant percentage of the needs of the surveyed countries. Although carbon-intensive energy infrastructure received considerable funding, the total amount of disbursed energy development finance ranged between 0.15 and 0.62% of the average gross domestic product for the analyzed countries during the study period. Based on the research findings, we recommend that development finance providers and recipient countries pay greater attention to planning for strategic funding disbursement.