Challenge
With an unemployment rate of 45 percent in 2009, Kosovo’s labor market outcomes are among the worst in Europe. The poor labor market outcomes are significantly worse for women, as only 12 percent of working-age women are employed, compared to a male employment rate of 34 percent. Weak income earning opportunities have also contributed to the country’s 35 percent poverty rate.
Macroeconomic and fiscal risks, a weak investment climate, underdeveloped labor market policies, worker skills mismatches, and inadequate work incentives were among the most binding constraints to the development of sustainable employment and growth. The global financial crisis has also had a significant impact on Kosovo’s growth prospects. The Government of Kosovo has recently confronted the fundamental constraints to healthier employment and economic growth by tapping into Kosovo’s potential to shift to sustainable private sector-led growth.
Solution
The SEDPP supported the government’s employment reform agenda in three ways. First, SEDPP joined forces with 10 multi- and bilateral donors, making it the largest joint financing activity in Kosovo. Second, the International Development Association (IDA) leveraged a cross-sectoral team that consisted of public financial management, business climate, financial sector, labor market, education, and social protection specialists. Third, financial support was coupled with significant technical assistance, provided by the World Bank and other donors, to ensure adequate implementation in spite of capacity constraints.
Results
- Kosovo’s business climate has improved, and in 2012 the country improved its rating from 126 to 98 in the Doing Business 2013 rankings. The successes are reflected in the 75 percent increase compared to 2008 and 2009 in the number of new businesses registered in Kosovo in the first nine months of 2012;
- the government budget process has improved, as has public financial management, with the deviation of current and capital budget expenditures decreasing to less than 10 percent by 2012 and the variance in expenditure composition declining to less than 5 percent between 2009 and 2012;
- a market for leasing machinery and equipment has been established in Kosovo. The Leasing Law, supported by SEDPP, provided an attractive alternative for credit-constrained enterprises to obtain new machinery and equipment and continue business expansion without traditional bank borrowing. By July 2012, the active leasing portfolio exceeded €20 million, up from zero in mid-2009;
- the shift from welfare to work was promoted by training and moving more social assistance beneficiaries into public works programs, stimulating the transition to regular employment. Social assistance beneficiaries represented less than 10 percent of all public works participants in 2010 and more than 45 percent in 2012;
- the linkage between vocational and higher education and the labor market was strengthened. SEDPP supported the accreditation process of both vocational and higher education as well as training institutions, leading to better overall control of educational quality.
Bank Group Contribution
The program combined a US$39.3 million International Bank for Reconstruction and Development (IBRD) grant with US$6.5 million in IDA funds made available through the Crisis Response Window. A key feature of the program was the pooling of 10 donor contributions in the amount of roughly US$32.2 million. During its lifecycle (2008–12), the program also provided technical assistance to the government to help with implementation arrangements.
Partners
SEDPP was cofinanced by pledges from the Czech Republic, Denmark, Estonia, the European Commission (EC), Finland, Italy, Norway, Sweden, Switzerland, and the United States, which limited the transaction costs. The World Bank team met and worked closely with donors during all the relevant missions. For example, collaboration with the EC included sharing detailed implementation modalities of the public works program and coordination activities in the area of education and training. Similarly, collaboration with the U.S. Agency for International Development (USAID) involved improving the business environment, the Pledge Law, and business inspection and licensing.
Moving Forward
SEDPP has been followed up with programmatic technical assistance to the government to continue reforms in support of a stable macroeconomic framework and sustainable employment. In addition, the financial sector technical assistance continues to support improvements in the central bank’s capacity to supervise bank and non-bank financial institutions, which will strengthen access to finance; the Public Sector Modernization Project promotes civil service, public financial management, and procurement reform; and the Real Estate Cadastre Project supports improvements in property rights, which in turn enhances the investment climate.
Beneficiaries
Under Kosovo’s new public works program, Kadri Hyseni, a 53-year-old father of five, got a job cleaning a riverbed after 24 years of unemployment. The public works program created more than 3,500 temporary jobs in 2012, over 2,000 of which directly benefited the poor and long-term unemployed. Although the public works program offered only temporary jobs, the beneficiaries were nevertheless able to become part of the workforce and provide much-needed income to support their families.
