Public finances in Southeast Europe (SEE) are highly vulnerable to corruption and state capture. The third SEE Good Governance Report underscores the detrimental consequences of discriminatory and biased fiscal transfers from central to local governments. Fiscal decentralization remains a challenge in SEE countries, with local governments heavily reliant on central government transfers, often exceeding their own tax revenue collection. This dependency hampers their ability to effectively manage their finances and respond to local needs.
The impact of the cumulative distortions created by the misallocation of public finances goes beyond the national borders. Since the European Union is a major financial donor to these countries, their domestic policies and the way they procure services and assets at local level have an impact on whether and to what extent EU aid is effective in promoting balanced economic development. Typically, it is the same state capture cliques that exploit both intranational and EU transfers for the benefit of special interests. To address these challenges, public authorities should collaborate with civil society to establish regular risk monitoring and evidence-gathering for informed prevention policies.