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Kosovo Brief 2008

Country brief 2006 Updated September 2006

Kosovo is one of the poorest economies in Europe, with per capita income of an estimated €1243 ($1,600) per annum in 2005. Located in the heart of the Balkans, Kosovo is landlocked. It was adversely affected in the 1990s by civil conflict following the disintegration of the Socialist Federal Republic of Yugoslavia.

Over the course of the 1990s, poor economic policies, international sanctions, weak access to external trade and finance, and ethnic conflict severely damaged the economy. These occurrences led to a reduction of output by half in the early 1990s, and by another 20 percent following the 1998-99 conflict.

Kosovo’s population is approximately two million people, although no census has been conducted recently. Its ethnic composition is 90 percent ethnic Albanian and five percent Serbian, with the remaining five percent made up by other minority groups.

In accordance with UN Security Council Resolution 1244, Kosovo is under the interim administration of the United Nations (United Nations Mission in Kosovo - UNMIK). Following elections in November 2001, the Provisional Institutions of Self-Government (PISG), which include the President, the Assembly, and the Government of Kosovo, were established. Elections followed in October 2004.

Kosovo is entering a decisive phase in its history, as discussions on resolving its final political status have begun.

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Economy

Developments since 1999

Since the end of the conflict in June 1999, Kosovo’s reconstruction has progressed, due to local efforts as well as generous donor support of around €2 billion ($2.57 billion). Much of Kosovo’s basic infrastructure, which was destroyed in the conflict, has been restored. Over 50,000 houses have been rebuilt, providing homes to about 300,000 people, and 1,400 km of roads have been rehabilitated. The construction of health clinics and schools throughout Kosovo has ensured that the basic infrastructure for health and education services is largely in place. In addition, agricultural production has increased significantly, with wheat, beef and milk production now exceeding pre-conflict levels.

However, key challenges still remain for Kosovo, particularly in the economic and social spheres. There is still little integration between the Albanian and Serb communities. Protection of minorities remains a key concern, and empowerment of minorities is particularly problematic. Both income and non-income forms of poverty (such as access to health and education) are highest among non-Serb minorities. However, some efforts on reconciliation have been made. Following the March 2004 riots, the PISG spent €6.6 million ($8.5 million) on rebuilding Serb houses. Decentralization has been one of the key topics discussed as part of the final political status negotiations.

Recent economic performance

Economic environment. After an initial post-conflict acceleration in 2000, economic growth has weakened (from 21.2% in 2000 to -1.5% in 2005) in line with declining donor resources. The industrial sector of the economy remains weak and the electric power supply remains unreliable, acting as a key constraint. Unemployment continues to be pervasive, and is particularly problematic among young people. However, progress has been made in the implementation of liberal market policies. Kosovo is one of the most liberal trading regimes in the world with a zero and 10 percent tariff rate and no quantitative barriers. The use of foreign exchange has been legalized for all domestic transactions, establishing the Euro as the de facto local currency. This has provided a stable exchange rate and low inflation.

Social environment. Poverty is widespread, but shallow. Approximately 37 percent of the population live in poverty (below €1.42 per day); and 15 percent in extreme poverty (€0.93 per day). However, most of the poor are close to the thresholds that classify them as such. Children, the elderly, female-headed households, the disabled, the unemployed, precarious job holders, residents of secondary cities, and non-Serb ethnic minorities (such as Roma and Slav Muslims) are the groups most at risk in terms of income poverty.

In non-income dimensions of poverty, education outcomes are low, but there are signs of improvement. Six percent of the adult population is illiterate, and half of the adult population has only completed primary education. Some progress has been made - primary school enrolment rates are over 95 percent, and the illiteracy rate has been reduced to less than 0.5 percent among children and youth. However, the quality of education still remains a concern. The lack of sufficient space and classrooms means that children do not receive a full-day’s education. Instead, schools operate on 3 to 4 shifts per day.

Health outcomes are among the worst in South East Europe. Infant mortality rates are the highest in the region (18-44 per 1,000 births), with inadequate nutrition a persistent problem. Tuberculosis, disability and mental health problems are major issues.

Challenges Ahead

Kosovo still faces the following challenges:

  • Managing final status resolution. Kosovo is at a critical juncture in its history. Expectations and tensions surrounding the resolution of its future political status have heightened. These expectations and the acceptability of the outcome of Kosovo’s final status in the territory and within the region need to be well calibrated.
  • 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, magnesite, and crushed stone, as well as relatively low transportation costs to the Western 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. With fertile land and a temperate climate, agriculture is another potential source of growth.
  • Ensuring macroeconomic stability. The authorities should ensure that there is no backtracking on economic achievements, including the establishment of the liberal trading regime, either by major fiscal relaxation or by an increase in protectionist policies. Instead, these advantages should be built upon to improve the investment climate in Kosovo.
  • 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.
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World Bank Program

Program to date

Landmark Projects
More projects

The World Bank has committed over $116 million to Kosovo since the end of the conflict, with all assistance provided on a grant basis. Reflecting Kosovo’s post-conflict situation, the Bank has focused on providing opportunities for the poor and for those most affected by conflict, as well as on improving critical social services and ensuring that poor people have access to those services. The World Bank has ensured that opportunities were provided to all communities in Kosovo, including the ethnic Serbian population along with other minority groups. Assistance has also been directed towards building the capacity of local institutions, which is becoming increasingly more important as they assume an increasing number of responsibilities from the international community.

As Kosovo moves from post-conflict reconstruction to longer-term economic development, the Bank’s program will need to respond to this shift. Under the current Transitional Support Strategy for Kosovo, $19 million is being provided to support the two following key objectives:

  • Developing new sources for, and a higher quality of, economic growth. Through a planned Lignite Power Technical Assistance Project and an active Clean-Up and Land Reclamation Project, the Bank will help improve the enabling environment for private sector investment in the energy and lignite mining sector in Kosovo, and will also assist the Authorities to tackle the historic environmental issues related to the energy sector.
  • Ensuring macroeconomic stability through sound fiscal policy and public financial management. Through a fiscal policy support grant, requested by the Kosovo authorities, the Bank will support fiscal adjustment efforts, including helping improve public expenditure management and ensuring that appropriate resources are allocated to poverty reduction priorities.

Lending

Pojeve village
The Community Development Fund has granted some US$15 million in grants to 320 projects in Kosovo. Read more

In total, the World Bank has committed $116.3 million to Kosovo since 1999. Of this, approximately $80 million had been disbursed as of June 30, 2006. All funding has been provided on grant terms.

Financing has come from a variety of sources. Immediately after the conflict, grants were provided from the Bank’s Post-Conflict Fund. In 2000, a Trust Fund for Kosovo was established with financing from the Bank’s net income. With the introduction of post-conflict grants under IDA-13, recent funding has also come from this source. Under IDA-14, grants to Kosovo will continue until there is any change in status.

In addition to financing from these sources, the International Finance Corporation (IFC), the private sector arm of the World Bank Group, has been active in Kosovo, especially in providing equity investments in the Pro-Credit Bank to support small and micro-credit to Kosovo businesses.

Lending data for Kosovo

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Contact Information

Lundrim Aliu
Associate Officer
Email: laliu1@worldbank.org

Phone: Prishtina (381) 38 249 459

Website: www.worldbank.org/kosovo

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