Kosovo is a lower-middle-income country which has experienced solid economic growth over the last decade. Kosovo is one of only four countries in Europe to experience growth in every year since the onset of the global financial crisis in 2008. Read More »
A potential candidate for EU membership, the Republic of Kosovo is a lower-middle-income country with a solid economic growth performance since the end of the war in 1999. It is one of only four countries in Europe that recorded positive growth rates in every year during the crisis period 2008–12, averaging 4.5 percent. The resilience of Kosovo’s economy reflects (i) limited international integration into the global economy; (ii) the success of its diaspora in the labor markets of, especially, the German-speaking countries of Central Europe, resulting in a steady reflux of remittances; (iii) a generally pro-growth composition of the budget, allowing for about 40 percent of public expenditures to be spent on public investments; and (iv) a steady influx of donor support.
Efforts aimed at strengthening domestic productivity—particularly critical in a euroized country—will need to remain the pivotal policy anchor, as Kosovo continues to struggle with high rates of unemployment and poverty. Joblessness in particular - estimated at about 40 percent - remains a central economic-policy challenge. With the difficult labor market conditions affecting youth and women disproportionately, these conditions risk undermining the country’s social fabric. Largely reflecting historical legacies, Kosovo remains one of the poorest countries in Europe, with a per-capita gross domestic product (GDP) of about €2,700 and about one-third of the population living below the poverty line - and roughly one-eighth in extreme poverty
Kosovo declared independence in February 2008, but this step has not been universally supported. By early 2013, 98 of a total 193 UN member states (51 percent) have recognized Kosovo’s independence, including 22 EU member states. The unresolved status issue remains a key obstacle to attaining the country’s overarching objectives of political integration and socio-economic development. In mid-2009, Kosovo joined the International Monetary Fund (IMF) and the World Bank Group and, 3.5 years later it joined as a full member the European Bank for Reconstruction and Development (EBRD). Kosovo’s candidacy for EU membership was given a perspective, following the European Commission’s Feasibility Study in October 2012, according to which there were no legal obstacles that would prevent the EU from opening negotiations for a Stabilization and Association Agreement with the EU. The World Bank Group’s Country Partnership Strategy (CPS) supports Kosovo’s EU aspirations.
The World Bank Group has been working with Kosovo since 1999 and has provided and/or managed around US$400 million through more than 30 operations, including trust funds. Kosovo receives credits from the International Development Agency (IDA), with commitments of about US$76 million during the fiscal years 2012–15.
The World Bank Group is now engaged in helping Kosovo forge an economic growth path that sustainably creates more opportunities and high-quality jobs for the country’s growing, youthful population.
On May 29, 2012, the World Bank Group endorsed the first Country Partnership Strategy for Kosovo, calling for a highly-selective lending program during 2012–15. The CPS focuses on two strategic areas:
(i) accelerating broad-based economic growth and employment generation; and
(ii) improving environmental management.
With technical and financial support provided under these two pillars, the World Bank Group—along with support for EU integration—is focusing its support on accelerating broad-based growth and employment generation as well as improving environmental management. Against the backdrop of the socio-economic costs from (i) the highly polluting and inefficient energy generation (conflicting with Kosovo’s commitments made vis-à-vis the EU as signatory to the Energy Community Treaty); and (ii) frequent power outages (generally viewed as the single most significant obstacle to attracting direct investments), the World Bank Group’s emphasis is placed on the energy sector. With comprehensive support and lending commitment aimed at (i) cleaning up toxic legacies; (ii) supporting a state-of-the-art replacement investment for Kosovo’s 50-year-old power plant; (iii) fostering energy efficiency and renewable energy investments; and (iv) ensuring water security in central Kosovo, the World Bank supports the government in its efforts to address Kosovo’s energy crisis in a comprehensive way and to reach the three key objectives (energy security, energy affordability, and minimal socio-environmental externalities). As such, every effort is made to take into account environmental considerations and mitigate adverse impacts.
The World Bank portfolio in Kosovo consists of six projects of US$70 million in commitments and two Trust Funds with total commitments of US$9 million. In addition, the International Finance Corporation (IFC) is providing Kosovo with US$40-50 million in the form of direct financing to the private sector, as well as additional funds for advisory services. The Multilateral Investment Guarantee Agency (MIGA) plans to provide political risk guarantees in support of the energy sector. Under the current portfolio, the main areas of engagement are—above energy and the environment—public administration, agriculture, education, employment, social services, finance, and competitiveness.
For more than ten years, Kosovo has engaged with the World Bank Group and has succeeded in overcoming considerable challenges en route from the postwar reconstruction to a functioning and competitive market economy that provides its citizens and the enterprises operating therein an economic perspective.
Kosovo increased its latest ranking by 28 ranks to 98 in the Doing Business 2013 survey. This is the result of work undertaken by the high-level Task Force established at a ministerial level by an order of the Prime Minister, charged with improving Kosovo’s Doing Business ratings. A legislative package of related reforms was approved in the Assembly in June 2011, embedded by World Bank-financed projects and programs, in particular the Business Environment Technical Assistance (BETA) project and the Sustainable Employment Development Policy Program (SEDPP). Both operations closed in mid-2012. BETA has supported the streamlining of regulations, while encouraging business development, including through the establishment of 26 municipal business centers where citizens can obtain permits and business registrations, pay taxes and customs fees—as well as receive advice. SEDPP has supported the country in maintaining a stable macro-fiscal framework and improving the conditions for sustainable employment. Through the various SEDPP-inspired reforms, the government has increased the transparency, accountability, and management of public expenditures, while laying necessary institutional and legislative foundations that Kosovo needs to generate sustainable employment and growth. The first SEDPP operation, in the amount of US$34 million, was disbursed in December 2011, while the second SEDPP tranche, a US$49-million grant, was paid out in June 2012.
Critical reforms, many of which supported by the World Bank, are ongoing.
Public Administration: Despite considerable progress achieved in the past few years, Kosovo still needs to improve public financial management and further utilize information technology to make efficient use of scare public resources. The capacity of the civil service to attract, motivate, and retain qualified staff is also a pressing constraint to the effectiveness of government institutions. As part of its engagement in the sphere of public administration, the World Bank is working with the Government of Kosovo to implement the Public Sector Modernization Project, which aims at (i) strengthening the performance of key budget organizations in budget formulation, budget execution, and public procurement; (ii) establishing the foundations for fiscally sustainable payroll management and effective human resource management in the core civil service; and (iii) creating conditions for the further automation of Government work processes and for the development of e-government applications
Agriculture: Kosovo is a country endowed with good quality agriculture land and has been largely food self-sufficient in the past. The agriculture sector currently contributes about 12 percent to the country’s GDP and accounts for approximately 35 percent of total employment in Kosovo. The country has competitive potential in the production of fruits and vegetables and in the livestock sub-sector, with domestic demand for horticulture and livestock products expected to grow as purchasing power increases in the country. This sector faces many challenges—including outdated technology and management practices, unfavorable farm structures, weak rural infrastructure, suboptimal use of inputs, and limited access to credit and investment capital. Agriculture is a priority sector for development and the Government of Kosovo has developed an Agriculture and Rural Development Plan (ARDP) to address this sector. As part of these efforts, The World Bank Group is implementing the Agriculture and Rural Development Project, aimed at helping the Government of Kosovo promote competitiveness and growth in the livestock and horticulture subsectors over the next decade.
Education: Although the net primary enrollment rate in Kosovo reaches 96 percent, the country’s higher education enrollment lags behind other countries in the region. The education infrastructure in the country is insufficient, with more than half of the schools operating on double shifts, and about five percent on triple shifts. The education system remains poorly regulated, resulting in low quality of services and weak linkages with labor demand. As a result, the Government is placing high priority on strengthening the education system and has prepared a multi-year strategy for developing both general and higher education in Kosovo. The Government in Kosovo is working with The World Bank Group to implement the Institutional Development for Education Project, which helps to (i) develop the organization and financing of the education system in Kosovo; (ii) build institutions and management capacities to promote quality improvements in primary and secondary education; (iii) create conditions to introduce efficient and appropriate designs and reduce multiple shifts in Kosovo’s schools; and (iv) strengthen the management capacity at the system and institutional levels for higher education.
Energy: A major obstacle to Kosovo's economic growth and development is inadequate and unreliable electricity, with frequent power outages disrupting manufacturing, education, and health services. Kosovo's electricity supply options are constrained by limited availability of renewable resources, ageing and unreliable power generation plants, supply shortages in the Balkans that limit Kosovo's ability to import electricity, and an absence of any natural gas resources or pipeline to import gas. The Country Assistance Strategy for Kosovo includes several initiatives to address these problems, including an the Energy Sector Cleanup and Land Reclamation Project and a Partial Risk Guarantee (PRG) for private sector investments in, and financing of, the proposed new investments in the Kosovo Power Project that would comply with European Union environmental standards and enable the closure of the Kosovo A Power Plant.
Finance and Competiveness: The financial system in Kosovo is dominated by foreign-owned banks and is primarily funded from large—relatively stable—flows of remittances. Although Kosovo has proven to be relatively resilient to the global financial crisis, it suffers from structural financial sector vulnerabilities that need to be addressed. The government is working with The World Bank Group, in the context of the Financial Sector Strengthening and Market Infrastructure Project, to create a strong regulatory and supervisory framework, strengthen financial system supervision, and improve access to affordable financial services, especially outside of the capital city and for small enterprises.