Click here for search results

Country Brief 2010

Updated October 2010
  • Between 1999 and 2009, Kosovo’s economic recovery has been significant. Growth has averaged 4 percent since the end of the conflict and reached 5.4 percent in 2008.
  • Kosovo economy was one of the very few in the Europe and Central Asia Region to grow during the global financial crisis; experiencing 4percent growth in 2009.
  • Kosovo became the newest member of the World Bank Group institutions on June 29, 2009.
RESULTS

Education

Some 600 schools, approximately half of the schools in Kosovo, have undergone significant improvements including enhanced infrastructure, more computers, musical instruments and equipment, and textbooks and clothes. Also, investments have been made in teacher training and vulnerable groups have greater access to schools as a result of the Education Participation Improvement Project 1 and 2.

Youth Development

Around 5,000 young people benefited directly from the programs offered by the youth centers supported by the Kosovo Youth Development Project, which include courses in English and other foreign languages, IT skills and knowledge, peace and conflict management workshops, and livelihood and life skills (including hygiene skills, dance classes, arts, and sports). More than 15 percent of the beneficiaries are from minority communities, around 35 percent are from rural communities, and about 45 percent are females.

Community Works

Over 300 community works and social services projects, two thirds of which were schools or water supply systems, have been carried out under the Community Development Fund project from 2001-2008. This has been a significant contribution toward improving the lives of individuals and communities across Kosovo.

Health

Over 1,000 patients have undergone testing for A/H1N1 flu in the Virology Lab at the National Public Health Institute, which was constructed and equipped as part of the Avian Influenza project.

ECOMONY

Recent Economic Performance

Country Manager,Kosovo  "Assisting Kosovo to build an efficient, accountable public sector by strengthening public institutions, increasing the transparency of its processes and encouraging private sector development is equally important to the country’s development prospects and improved social cohesion in the longer run,” said Ranjit Nayak, World Bank Country Manager for Kosovo.

With a GDP per capita of €1,850, Kosovo is one of the poorest countries in Europe. Poverty remains persistent and widespread: according to the latest available data (from 2007) 45 percent of the population is living below the national poverty line, and an estimated 17 percent are extremely poor – i.e., unable to meet basic nutritional needs. Extreme poverty is disproportionately high among children, the elderly, households with disabled members and female-headed households. However, the narrowness of the poverty gap suggests that poverty is not deep.

  • With a 47 percent unemployment rate and a very low employment rate (29 percent), Kosovo has the weakest employment track record in Europe, and Kosovo’s 53 percent labor participation rate among the working age population is substantially below the average among all transition economies (65 percent).
  • Kosovo’s economic growth has been solid since the end of the conflict in June 1999, attributable in part to large public investments in post-conflict reconstruction as well as an increase in private investment (albeit from a low base). GDP growth, reflecting the massive donor-funded reconstruction effort and high public and private investment, averaged 4 percent since the end of the conflict and reached 5.4 percent in 2008. At the same time, the rest of the SEE countries were growing faster up to 2008, so Kosovo’s income gap with the region widened. Growth reverted to about 4 percent in 2009 in the wake of the global economic crisis, a much better outcome than in the rest of Southeastern Europe, which suffered declines in output. In 2010, the economy is expected to maintain a moderate growth rate (4.6% according to the IMF). Kosovo has established the euro as the local currency, which has led to relatively low inflation. Inflation picked up in 2008, but prices began to fall again in 2009 (annual average inflation was -2.4 percent in 2009). Inflation is expected to remain positive and low throughout 2010.
  • The relatively small impact of the global financial and economic crisis on real growth up to this point reflects Kosovo’s limited international integration with the world economy. Although Kosovo’s exports suffered a sharp decline (about 20 percent) in 2009 after a 4-5 year period of rapid growth, their still-small contribution (5 percent) to GDP meant the impact on overall growth was proportionately small. The drop in external demand has been offset by rising public expenditures and output growth has been sustained by high inflows of remittances and donor activity. The banking sector has remained stable, with deposits as well as credit to the private sector continuing to grow in double digits. There is some evidence, however, that banks are now more cautious in providing loans.
  • Given the lack of monetary policy instruments, fiscal policy is the main anchor for macroeconomic stability. Kosovo achieved early successes in fiscal policy, including reforms in tax policy and administration and the introduction of new taxes and collection methods that contributed to a five-fold increase in domestic revenues between 2000 and 2004. Import-related taxes and duties collected at the borders account for close to three-quarters of total tax revenues. While revenue collection has remained relatively strong, significant deficiencies in fiscal policy and planning have become apparent in recent years including lack of clarity on policy priorities and loose management of expenditures. The budget achieved a series of surpluses through 2007 when the primary surplus reached 7.1 percent of GDP, due to a conservative policy on recurrent spending, rising government revenues, and under-spending on the capital budget. Since 2008, the government has shifted towards an expansionary stance in part to address Kosovo’s severe infrastructure and social gap and in part to cover costs of implementing commitments as a result of its independence (creating new institutions, implementing the Constitution etc.). As a result, the budget moved to a balance in 2008 and to a deficit of 0.8 percent of GDP in 2009 (or close to 6 percent if the one-off dividend of 5 percent of GDP from the telecom company is excluded). This increase was driven mostly by a larger allocation for capital projects, but also by increases in recurrent expenditures, including wages. Another significant contributor to the deterioration in the public balance in 2009 was the need to finance the publicly-owned energy company. The 2010 budget, which was endorsed by the IMF, had to be substantially revised in a mid-year budget review (in July) following the new policy initiatives introduced in the first half of the year (which were not incorporated in the original budget). The largest new cost item came from the contract that the Government signed to construct a highway to Albania estimated to cost about 25% of the 2010 GDP over the four-year implementation period). This, as well as other spending initiatives such as expansion of pension and war-related benefits, requires more resources than the Government has at its disposal. In July 2010, the IMF Board of Directors approved an 18-month Stand-by Arrangement in the amount of SDR 92.6 million. In addition, the budget is expected to receive EUR 50 million grant from the European Commission in 2010, and possibly a further contribution in 2011 and 2012.
  • When Kosovo became a member of the World Bank, it agreed to take on responsibility for past Federal Republic of Yugoslavia debt to the International Bank for Reconstruction and Development (IBRD) amounting to about €381 million (Kosovo C loan). In parallel, a Bank-administered multi-donor trust fund was established to assist Kosovo to repay the debt. Thus far, the trust fund has received US$ 150 million from the United States, €5 million from the European Commission, and US$ 0.75 million from the Swiss Government. In October 2009, the Ministry of Economy and Finance prepaid one-third of the IBRD loan using funds from the Trust Fund as well as additional funds from the budget. However, Kosovo is facing other contingent liabilities (mostly towards the Paris and London Clubs) which could be similar or greater in amount to the IBRD debt. In the event that Kosovo assumes these liabilities, the consequences for debt sustainability would be significant. Otherwise, a debt sustainability analysis (DSA) undertaken by the IMF and the Bank indicates Kosovo’s risk of debt distress is moderate.

Challenges Ahead

Kosovo faces the following challenges:

  • Generating new sources of economic growth, and ensuring associated environmental and social improvements. The mining and energy sectors are potential key sources of future growth. Kosovo has abundant resources of lignite, lead, zinc, ferronickel, magnetite, and crushed stone, as well as duty-free access and relatively low transportation costs to the EU and Central European markets. In particular, utilization of lignite resources by attracting strategic foreign investment could turn the energy sector into an engine of growth rather than a drain on public resources and major constraint to doing business. Similarly, with fertile land and a temperate climate, agriculture is another potential source of economic growth. Also, Kosovo’s labor cost competitiveness vis-à-vis most of its neighbors could attract FDI in low-skill labor-intensive manufactures, if the authorities were to address the main obstacles in the business environment that foreign and domestic firms face.
  • Ensuring fiscal sustainability, macroeconomic stability and improving the investment climate in the face of an adverse global economic environment. The authorities should ensure that scarce resources are managed prudently and that there is no backtracking on economic reforms that have established an open and liberal trading and labor regime. Instead, further measures in business procedures (registration, licenses and permits), in the energy and transportation sectors, regarding rule of law and property rights are necessary to improve the investment climate in Kosovo.
  • Improvements in public administration; the authorities face challenges in public financial management, notably tax administration, investment planning and procurement and reform of the civil service. The World Bank’s Public Sector Modernization Project would provide support in addressing some of the main challenges in the public administration.
  • Reducing poverty and unemployment by improving employment opportunities, particularly for youth, improving health and education outcomes, increasing the efficiency and equity of social service delivery, and reducing a sense of vulnerability among many members of the population, particularly ethnic minorities.
Annual Real GDP Growth (%)

Back to Top

WORLD BANK PROGRAM

Since 1999, the Bank has committed about US$ 150 million through 30 operations in a broad range of sectors. The Bank also leveraged an additional US$ 70 million from other external partners. Most of these projects have now been completed. Six are active at the moment, representing about US$ 43 million in net commitments.

Since Kosovo was not a member of the World Bank until the end of Fiscal Year 2009, all Kosovo operations supported by the Bank 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.

The activities of the International Finance Corporation (IFC) in Kosovo have been relatively limited to date – focusing mainly on the financial sector and, to a lesser extent, mining. IFC’s activities are expected to increase significantly now that Kosovo is a member of this institution. In the financial sector, the main emphasis has been on supporting small enterprise growth by developing a microfinance institution, ProCredit Bank, as well as by expanding SMEs’ access to credit through the formal banking sector. More recently, IFC has supported Lydian Resources, a base metal company, to enhance exploration of lead and zinc reserves in Trepce. The portfolio of the Multilateral Investment Guarantee Agency does not currently include any projects in Kosovo.
On February 18, 2010, the World Bank Group (WBG) released its new two-year Interim Strategy Note (ISN) for Kosovo. The ISN is the framework of cooperation between the World Bank Group and the Government of Kosovo, and with financing of well over US$ 100 million for the next 18 months (plus over US$ 200 million in donor Trust Funds), it represents a substantial Bank commitment to Kosovo.

The ISN proposes a strategic set of activities focused on 1) accelerating growth that is broad-based, employment-generating and sustainable; and 2) supporting social cohesion through governance reform and transparent, inclusive institutions.

The Sustainable Employment Development Policy Program is the cornerstone of the ISN; a three-part budget support operation (US$ 47m from IBRD/IDA and US$ 56m from 10 other donors) will promote rapid and more inclusive employment and strengthen government transparency and effectiveness. At the same time, the WBG will continue engagement in supporting the development of the energy sector in partnership with the US and EC with the Bank potentially providing a partial risk guarantee for the New Kosovo Power Plant and IFC assisting the privatization of the highly inefficient distribution company.

The strategy builds on lessons learned from the Bank Group’s involvement in Kosovo since the end of the conflict, the execution of ongoing government or donor-sponsored programs, and consultations with the Government of Kosovo and the community of bilateral and multilateral donors.

World Bank Commitments
(US$ millions)

NB: Lending is per fiscal year, July 1-June 30


Active Portfolio by Sector as of September, 2009
(US$ millions)

Back to Top

CONTACT INFORMATION

For general inquiries on the The World Bank Office in Kosovo, please contact:

Lundrim Aliu, Communications Officer

The World Bank Kosovo Office
Mujo Ulqinaku 3
Pristina, Kosovo, 10000

Tel: +381 38 609 333
Fax: +381 38 609169
Email: laliu1@worldbank.org
Website: www.worldbank.org/kosovo




Permanent URL for this page: http://go.worldbank.org/0YN9SSGZP0