World Bank released Kosovo Country Economic Memorandum

May 11, 2010

PRISHTINA, May 11, 2010 – A new World Bank report identifies the key sources of growth for Kosovo’s economy, as well as the challenges for unlocking this growth potential.  The report, ‘Unlocking Growth Potential: Strategies, Policies, Actions’, calls for the Kosovo authorities to improve the business and trade environment and further develop human capital.  The report also addresses deficiencies in the agriculture sector and examines ways to increase the benefits of migration for Kosovo’s development.

The report was motivated by the need to better understand Kosovo’s potential for faster economic development and more importantly to identify the key obstacles that constrain its growth potential,” said Borko Handjiski, World Bank Country Economist for Kosovo and lead author of the report. “By providing an assessment of the key bottlenecks to economic activity, the report should help motivate greater engagement by the authorities and other stakeholders to address these pressing issues.”

‘Unlocking Growth Potential’ notes that the economic recovery of the last decade was not sufficient to address Kosovo’s most pressing challenges: the high levels of poverty and unemployment. Moreover, the growth model in the past was mostly based on external financing from the donor community and Kosovo’s diaspora, which is not sustainable in the long run.

Kosovo has the potential to shift toward faster, private sector–led growth.  Unleashing that potential would involve bringing on line three critical assets that are now sitting partially idle: labor, land, and natural resources.
Given the small size of Kosovo’s economy, the report emphasizes the critical importance of exports for growth. Kosovo’s products have free market access to the European Union and Southeastern Europe countries, so exports could become an important pillar of growth. The report stresses the importance of foreign direct investment for exports as Kosovo’s domestic capital base is small. Kosovo has several competitive advantages important for foreign investors, including low-cost labor and low taxes.

At the same time, domestic and foreign firms surveyed listed several constraints that block economic growth. Despite progress made in recent years in electricity supply, firms still face regular power outages − a significant deterrent to private investment and growth. Also, business registration and licensing is cumbersome and time consuming.  Furthermore, rule of law is weak and firms do not trust the court system to enforce their rights and protect their property. Finally, foreign investors find that dealing with the public administration is difficult, capacity is weak, and they report a practice of rent-seeking by public officials. The report provides recommendations on how to resolve some of these issues.

“I would like to use this occasion to express my deep appreciation to the representatives of the World Bank for compiling this Economic Memorandum, of great significance for the Kosovo Government,” said Ahmet Shala, Minister of Economy and Finance of Kosovo. “We value its clarity and are confident that it will serve as a guide and a reference for both parties − for us, the Government, and for the other stakeholders engaged in Kosovo’s efforts for sustainable economic development.”

This report comes at an important time for Kosovo’s development.  It reflects Kosovo’s post-independence environment in which the country’s institutions are now fully responsible for developing effective and strategic economic policy. The encouraging news is that unleashing Kosovo’s growth potential is within the country’s grasp, because most of the current obstacles are of a policy nature. However, simultaneous action will be required on several policy fronts. Overcoming the challenges that keep Kosovo’s main resources idle would not only unlock its economic potential, but would also bring Kosovo − through income convergence, economic integration, and institutional reform − closer to the European Union.

We hope that our findings and recommendations will become part of the Government’s strategies and action plans, because we feel that implementing these policies would make a positive contribution to Kosovo’s economic development,” said Laura Kullenberg, Senior Operations Officer at the World Bank Kosovo Office. “At the same time, the World Bank will use the analysis to shape its future work program in Kosovo, and we hope that the findings will be useful to other donors as well.

The ‘Unlocking Growth Potential’ report was released at a conference organized together with the Ministry of Economy and Finance of Kosovo. It was prepared in collaboration with the Kosovo authorities. The Department for International Development (DFID) provided a generous financial contribution to the preparation of the overall document, while the Swiss Cooperation Office co-financed the migration survey which was undertaken as part of this study.

Media Contacts
In Kosovo
Lundrim Aliu
Tel : +381 38 249 459
In Washington
Michael Jones
Tel : (1-202) 473-2588