Overview

Strategy

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.  

Last Updated: Oct 25, 2019

Economy

Recent 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$4,312 in 2018. Despite this tripling of income per capita over the past 18 years, Kosovo remains the third-poorest country in Europe in terms of GDP per capita.  

During 2009–18 real GDP grew on average by 3.5 percent. This strong growth performance is expected to continue in 2019 with a projected growth rate of 4 percent, driven by consumption and service exports and supported by investment.  

The non-tradable sectors dominate output and employment in Kosovo. Services represent the largest sector in the economy, with a share of value added at more than 50 percent of GDP. Industry is small by regional standards at 17.5 percent of GDP, of which manufacturing is 11 percent. The agriculture sector remained relatively large at 8.3 percent of GDP in 2018.  

The current account deficit (CAD) is projected to be 8.7 percent of GDP in 2019, despite the relatively good performance of exports, as imports are expected to rise from a higher base.  

Kosovo is a euroized economy, and its headline macro-fiscal policies continue to be stable. The fiscal rules in place are supported by a healthy banking sector. The overall deficit is expected to be 2.9 percent of GDP at end-2019 but will be in line with the fiscal rule deficit ceiling of 2 percent, as the definition of the deficit excludes capital expenditures financed by international financial institutions (IFIs) and privatization proceeds.Poorly targeted social protection spending remains high and continues to limit the fiscal space. 

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 that was at 2.5 percent in February 2019. Both credit and deposits continued to grow, reaching a year-on-year growth of 1 percent and 11.9 percent, respectively, at the end of August 2019.  

Economic Outlook

Kosovo’s medium-term growth outlook is positive and on an upward trend. This is subject to the country’s ability to establish some political stability, however, and to maintain fiscal sustainability by limiting growth in current spending and creating a better business climate that enables productive investments. Near-term growth is expected to continue to be driven by investment and consumption. This includes investment in public infrastructure, financed by privatization proceeds, including in new power generation capacity and in new donor-financed projects under the investment clause of the fiscal rule. A better absorption capacity of public investment projects could lead to slightly higher growth, especially in 2019–21. 

Last Updated: Oct 25, 2019

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.