Overview

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Context
Strategy
Economy
Projects

COUNTRY CONTEXT
Kosovo 2019
Population, million
1.8
GDP, current US$ billion 8.0
GDP per capita, current US$
4,458
Life Expectancy at Birth, years 71.9
Kosovo is a parliamentary republic. It declared independence on February 17, 2008 and is recognized as an independent country by more than 100 United Nations members and by 23 out of 28 members of the European Union (EU). Kosovo is a potential candidate for EU membership and signed a Stabilization Association Agreement with the EU in October 2015 that has been in force since April 2016. Early parliamentary elections were held on October 6, 2019, and a new government has yet to be formed.
Although Kosovo’s economic growth has outperformed its neighbors in the past decade and has been largely inclusive, it has not been sufficient to provide enough formal jobs, particularly for women and youth, or to significantly reduce the high rates of unemployment. The growth model relies heavily on remittances to fuel domestic consumption but has recently shifted to more investment- and export-driven growth.
To continue to grow and fully reap the benefits of EU integration, Kosovo needs to unleash productivity gains and create more quality jobs. This will require addressing infrastructure bottlenecks and creating an environment more conducive to private sector development. Governance and the rule of law must be strengthened.
Kosovo’s young population needs to be equipped with the skills demanded by a modern economy and the most vulnerable of its citizens protected by well-targeted and effective social programs. Gender gaps in access to economic opportunities remain one of the country’s main challenges. Further actions are also needed to promote environmental sustainability, including the fulfillment of the EU’s environmental acquis.
Strategy
Number of projects 9
Lending US$204.3 million (IDA)
Since 1999, the World Bank Group (WBG) has provided to Kosovo and/or managed roughly US$460 million through around 40 operations, including trust funds.
l Bank-supported projects prior to Kosovo’s joining the WBG in 2009 were financed through grants from a variety of sources, principally the Bank’s net income, the Trust Fund for Kosovo, the Post-Conflict Fund, and the International Development Association (IDA). Kosovo is currently still eligible for IDA credit financing (on blend terms) due to its post-conflict fragility. As of October 2019, the active IDA lending portfolio amounted to roughly US$204.3 million across nine projects in the areas of energy, education, agriculture, health, competitiveness, water, the information and communications technology sector, and cadaster reform.
The main strategic objective of the WBG Country Partnership Framework (CPF) 2017–21 is to assist Kosovo in moving on a path toward more sustainable, export-oriented, and inclusive growth in order to provide its citizens more opportunities for a better life. The CPF has three focus areas: (i) enhancing the conditions for accelerated private sector–led growth and employment, (ii) strengthening public service delivery and macro-fiscal management, and (iii) promoting reliable energy and stewardship of the environment.
Key Engagement
World Bank–financed projects have been designed to strengthen the business climate and improve competitiveness.
Active Projects (US$, Million)
Kosovo Digital Economy Project (25)
Agriculture and Rural Development Project (42.2)
Energy Efficiency and Renewable Energy Project (31.0)
Kosovo Health Project (17.3)
Education System Improvement Project (7.52)
Water Security and Canal Protection Project (24.5)
Competitiveness and Export Readiness Project (15.3)
Real Estate and Geospatial Infrastructure Project (16.5)
Financial Sector Strengthening Project (25)
The active portfolio also includes an Energy Efficiency and Renewable Energy Project, which aims to reduce energy consumption and fossil fuel use in public buildings and to support Kosovo in enhancing the policy and regulatory environment for renewable energy and energy efficiency.
Number of projects 7
Lending $116.75 million (IDA Loans)

Last Updated: Oct 25, 2019
Economic Developments
The Kosovar economy grew consistently above the Western Balkan average in the post-global financial crisis period, albeit from a low base. GDP per capita grew from US$1,088 in 2000 to US$4,458, in 2019. Despite this increase of income per capita over the past 20 years, Kosovo remains the third-poorest country in Europe in terms of GDP per capita.
Average growth in the first three quarters of 2019 registered at 4.2 percent. Annual growth is estimated at 4 percent, driven by consumption, both public and private, and service exports. The overall fiscal deficit reached 2.8 percent of GDP in 2019 but was well below the legal ceiling at 0.3 percent of GDP as it excludes capital spending financed by privatization receipts and concessional IFI loans. Revenues increased by 7.5 percent driven by strong growth and higher tax debt collections.
The current account deficit (CAD) dropped from 7.6 percent of GDP in 2018 to 5.5 percent in 2019 as import growth slowed down. Net FDI decreased by 11 percent y-o -y while net remittance inflows increased by 7.9 percent. Labor force participation continues to be chronically low averaging 40.5 percent of the working age population in 2019. Employment rate increased by 1.3 pp as 18,000 people found jobs. Unemployment rate decreased by 3.9 pp reaching 25.7, as labor force participation declined.
Kosovo is a euroized economy. The stock of public debt is low but has been rapidly increasing in recent years. Public and publicly guaranteed debt is estimated at 17.7 percent of GDP for end-2019, the lowest in the Western Balkans, offering the country room to borrow on concessional terms for productive investments with a high rate of return. One-third of public debt is external, mainly from IFIs.
The financial sector in Kosovo, which is dominated by the banking sector, is healthy and sound. Banks are well-capitalized and profitable, with high capital adequacy ratios and a low and declining ratio of nonperforming loans. Both credit and deposits continued to grow.
Economic Outlook
Similarly, to other countries in the region, in Kosovo the economy will experience a contraction in 2020**, even if containment measures were lifted during the second quarter of the year. In addition to the temporary shut-down of key economic activities and the related income loss, the impact of the outbreak in Kosovo will primarily be associated with lower diaspora-driven exports of services, informal remittances, and FDI in residential construction; but the economy is expected to recover in 2021.
However, if the outbreak persists beyond the second quarter of 2020, the impact of COVID-19 will more severely affect the supply side of the economy, leading to long-lasting losses in jobs and production.
*The scenarios in the report are based on data as of March 20, 2020.
** The magnitude of the contraction is subject to continuous updates of the administrative data and national accounts.

Last Updated: Apr 16, 2020
Project Spotlight
Kosovo Energy Efficiency and Renewable Energy Project. The World Bank is supporting Kosovo with an IDA credit of US$31 million to reduce energy consumption and fossil fuel use in public buildings through energy-efficiency and renewable-energy investments and to enhance the policy and regulatory environment for renewable energy and energy efficiency. As part of the Kosovo Energy Efficiency and Renewable Energy Project, 32 public buildings, mainly health clinics and university buildings, have been upgraded for energy efficiency thus far. Work is close to being completed on another 25 buildings, and by the end of the current project, the aim is to have over 80 public buildings improved for energy efficiency. With regard to the initial 32 buildings, the energy-efficiency renovations have so far benefited over 7,500 employees and led to significant improvements in the comfort level of building users. Based on energy audit reports, energy consumption has been reduced by 49 percent, or 13,239 MWh/annum, compared to the baseline. The renovations will also reduce CO2 emissions by 4,700 tons annually. The project has also produced additional co-benefits, such as the Gjakova Regional Hospital in western Kosovo, where an entire unused building was restored and renovated and will now be used for surgery.
Investing in energy efficiency in public buildings can save the public budget some €18 million every year. Energy efficiency also helps Kosovo to enhance energy security by reducing seasonal energy imports, create local jobs, reduce local and global pollution, and meet its commitments under the EU’s Energy Community Treaty. The World Bank has also been working with the Government of Kosovo and the European Commission to establish and provide funding for the new Energy Efficiency Revolving Fund to support energy-efficiency improvements in municipal public buildings. Going forward, the Fund will provide financing to retrofit municipal public buildings and use energy cost savings to repay the investment costs, thereby creating a more sustainable financing mechanism. This would allow the Government to scale up energy-efficiency investments in more than 1,600 municipal public buildings.