Country Economic Memorandum
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Publication
Removing Regulatory Barriers to Competition
(Washington, DC, 2021-11)Competition can drive productivity growth in Kosovo, especially in the context of the post-Coronavirus disease 2019 (COVID-19) recovery. As the economy rebuilds, it is key that markets function smoothly, and that anticompetitive firm behavior or government intervention do not constrain the path to recovery. Competitive product markets can help a country recover from economic shocks more quickly. Competition in product markets can also prop-up economic recovery in a more inclusive way for the poorest households. Kosovo has made significant progress towards pro-competition regulation of product markets but there is still significant room for improvement. Although the product market regulation (PMR) indicators are limited in scope and should therefore be considered as an entry point for further analysis, this assessment allows to identify potential constraints to competition and possible policy reforms. Kosovo can increase competition by: (a) eliminating public owned enterprise (POE) - related barriers to competition to ensure a level playing field for private and public operators in markets where they compete, (b) improving the regulatory process and facilitating business registration to boost market entry, and (c) introducing policy reforms in network sectors and professional services to eliminate regulatory barriers to competition and avoid anticompetitive practices. -
Publication
Kosovo Country Economic Memorandum, November 2021: Boosting Foreign Direct Investment
(World Bank, Washington, DC, 2021-11)Foreign direct investment (FDI) can bring many benefits to Kosovo’s economy, creating more and better jobs and spurring greater and more resilient economic growth. Many transition economies have used FDI as a pillar of their structural transformation and modernization efforts. The small number of firms in Kosovo that include FDI are more productive than other firms, and they were more resilient in the wake of the Coronavirus disease 2019 (COVID-19) economic recession. In Kosovo, FDI inflows have been concentrated in sectors that provide limited potential for productivity spillovers and benefits to the domestic economy. Kosovo needs to adopt proactive policies to strengthen its investment competitiveness and investor outreach in order to unlock more and higher-quality FDI. This note presents an ambitious reform agenda that can help improve Kosovo’s investment competitiveness and investor outreach. It presents a step-by-step reform program for unlocking the full potential of FDI for economic growth and job creation in Kosovo that the government can implement in the short to medium term. The note is structured in three sections. The first section looks at Kosovo’s FDI performance and assesses the quantity and quality of the FDI attracted so far. The second section benchmarks Kosovo’s locational FDI determinants, considering a set of macroeconomic and microeconomic indicators for its overall FDI competitiveness. The third section combines the findings from the first two sections with an in-depth assessment of Kosovo’s policy, legal, and institutional framework for investment to present a targeted reform agenda and policy action plan to help attract more and higher-quality investments to Kosovo. -
Publication
Kosovo Country Economic Memorandum, November 2021: Raising Firm Productivity
(World Bank, Washington, DC, 2021-11)To boost economic growth and foster sustained formal job creation in Kosovo, igniting firm productivity is crucial. Based on detailed micro-data, this note examines the characteristics and recent evolution of firms in Kosovo, with particular attention to firm productivity. For the last decade, the landscape of firms in Kosovo has been dominated by microenterprises with low productivity, employment, and survival rates. Firm creation and growth,small firm density, average size, and the likelihood of survival are all low, which implies that there are severe constraints on private sector development. Kosovo’s firms are only tenuously linked to global markets and the country is lagging in the share of female-run companies. Positive and rising net job creation in 2015-18 was driven by higher formalization of jobs and the increasing size of incumbent firms, especially young small and medium enterprises (SMEs). Kosovo needs a multidimensional policy strategy to foster growth in firm productivity. Based on the study findings and the results of other notes prepared for Kosovo’s country economic memorandum (CEM), this note presents a policy strategy that targets the three main sources of firm productivity growth: (1) firm productivity (the within component); (2) market reallocation (the between component); and (3) firm dynamics (entry and exit). Section one examines the characteristics and recent dynamics of Kosovar firms. Section two analyzes the drivers and evolution of productivity, with emphasis on the links between productivity and access to credit. It also assesses the main barriers to productivity growth. Section three sheds light on how Coronavirus disease 2019 (COVID-19) has affected Kosovar firms. Section four concludes by discussing tentative policy implications of the analysis. -
Publication
Kosovo Country Economic Memorandum, November 2021: Enhancing Human Capital by Improving Education
(World Bank, Washington, DC, 2021-11)This note assesses pre-university education in Kosovo and identifies policies that can improve education quality and equity. There is a substantial need for improvement to the foundations of the education system, especially in terms of coverage and quality. If Kosovo is to reap the benefits of its demographic dividend for faster growth and poverty reduction, making it a policy to invest in human capital through education must be a priority. The low levels of foundational literacy skills limit the ability of Kosovars to develop the skills the labor market requires, especially for those living in rural areas and minority communities and those of low socioeconomic status. Kosovo has made considerable progress in increasing access to preprimary and primary education, but more needs to be done to equitably increase coverage of preschool and secondary education. Narrowing the wide geographic, ethnic, and socioeconomic disparities in education outcomes and ensuring that all children have access to quality education is paramount. The Coronavirus disease 2019 (COVID-19) pandemic is expected to further erode Kosovo’s modest improvements made in education. Employers in Kosovo note the poor quality of the education system and the limited practical and professional skills students acquire. -
Publication
Kosovo Country Economic Memorandum, November 2021: Gearing Up for a More Productive Future
(World Bank, Washington, DC, 2021-11)Kosovo, one of the youngest countries in an aging Europe, took its first steps on the road to greater prosperity a quarter of a century ago. Kosovo’s economy has experienced significant growth in recent years. The Coronavirus disease 2019 (COVID-19) pandemic has triggered Kosovo’s first ever recession in 2020. While spending on education has more than doubled, the quality of human capital needs to improve. And barriers to women’s economic empowerment need to be lifted. Proximity to major markets in Europe and a youthful population provide an opportunity for growth. Kosovo is one of the youngest countries in an aging Europe. Trade facilitation and logistics connectivity are getting better. Proximity to a large and affluent market, low taxes and labor costs, a resilient and liquid financial sector, and strong ties with its diaspora will help support growth. -
Publication
Kosovo Country Economic Memorandum, November 2021: Raising Agricultural Productivity
(World Bank, Washington, DC, 2021-11)Igniting farm productivity can support growth and job creation in Kosovo. Agricultural production, in real terms, has been decreasing in Kosovo since 2009 but employment has not changed much. This note examines drivers of agricultural productivity and its growth in Kosovo, and implied constraints on growth of agriculture, using farm-level data. The results of the productivity analysis suggest that in Kosovo there is a considerable misallocation of resources that if remedied can boost growth and job creation. In Kosovo, which suffers from low technical efficiency (TE), an average farm can produce the same amount of output using 72.8 percent less inputs. For micro and small farms, the current design of farm support does not facilitate income smoothing. On the other hand, agribusiness, mainly food processing, has been growing steadily in terms of number of firms, annual turnover, and employment. Finally, the impacts of Coronavirus disease 2019 (COVID-19) on Kosovo agriculture have been multiple and so have been policy responses. -
Publication
Boosting Export Performance
(Washington, DC, 2021)Improving Kosovo’s export competitiveness can help to catalyze growth and reduce poverty. As a small economy, Kosovo will benefit from integration, both globally and regionally, to exploit scale economies from access to a larger market. Higher exports will not only contribute to growth and lower current account deficits but can also help heighten productivity due to more innovation and learning by exporting. Exporting firms, which are more competitive, will also be able to create better jobs and economic opportunities for Kosovars. This background note examines export dynamics in Kosovo over the period 2010-19, benchmarking Kosovo against relevant comparator countries. It overviews Kosovo’s trade structure, export dynamics at the firm level, trade policy and regulatory framework, and constraints to trade in goods and services and identifies policy options for consolidating trade growth in growing sectors. The note also spotlights digitalization and digital trade. It analyzes the enabling environment and suggests policies to enhance digital connectivity, improve the regulatory environment for digital trade, and encourage the use of e-payments. -
Publication
Migration and Economic Development in Kosovo
(Washington, DC, 2011-05-25)Kosovo has one of the largest international migration flows in the world. Much emigration has been for economic reasons and to escape armed conflict in the late 1990s; resolution of the conflict does not appear to have offered migrants enough incentive to return. Even though migration slowed with the global economic crisis, a reported 3.5 percent of the working population aged 15 and above have expressed interest in emigrating in the next 12 months. The first objective of this study is to illustrate the importance of migration and remittances for Kosovo, drawing on data from recent surveys. The second is to identify policies implemented in other countries that the Kosovan authorities might find useful for maximizing the benefits from its large migrant population. The study does not specify policies the Kosovan authorities should adopt; instead, it sets out policies and instruments the authorities could consider if they wish to more tightly link migration to development. The study has two parts. The first describes migration and remittances trends in Kosovo and links them to labor outcomes, poverty, and investment. The second presents migration policies other countries have introduced, including some countries that are, like Kosovo, small, post-conflict, developing countries with a large diaspora in developed countries. -
Publication
Kosovo - Unlocking Growth Potential : Strategies, Policies, Actions - A Country Economic Memorandum
(World Bank, 2010-04-29)Kosovo's economic growth in the past decade has been solid, yet, with a gross domestic product (GDP) per capita of 1,760, the country remains one of the poorest in Europe. The end of the conflict, output was growing at double-digit rates, driven by the donor-funded reconstruction efforts. Since 2005, annual growth has decelerated to below 5 percent. However, the other countries in Southeast Europe have been growing faster, so the income gap has widened. Kosovo's economy would need to more than double its growth rate to 10 percent per annum over the next decade to reach Albania's income level (assuming Albania's economy continues to grow at 5.5 percent annually over this period). To reach Montenegro's current GDP per capita level of about 5,700, the economy would have to grow at 12 percent per annum for an entire decade. At the same time, Kosovo has the weakest employment track record in Europe: the unemployment rate has reached 48 percent and the employment rate is extremely low (26 percent). Consequently, poverty remains persistent and widespread (though shallow) with 45 percent of the population estimated to consume less than the national poverty line, while 17 percent are extremely poor. Much of the economic progress in the recent period has been based on donor aid and remittances, which cannot be the foundation of a sustainable economic strategy. Kosovo has the potential to shift toward faster, private sector led growth. Kosovo's products have free market access to the European Union (EU) and Central European Free Trade Agreement (CEFTA) countries, so exports could become an important pillar of growth. Unleashing that potential will involve bringing on line three production factors that are now sitting partially idle: labor, land, and energy and minerals. The encouraging news is that unleashing this potential is within the country's own grasp, because most of the current obstacles are of a policy nature. However, simultaneous action will be required on several policy fronts. -
Publication
Kosovo : Operational Financial Accountability Review
(Washington, DC, 2005-05)The main objective of the Operational Financial Accountability Review (0FAR) has been to identify an agenda for addressing key challenges in the Public Financial Management (PFM) operational framework, and point to areas where additional donor support may be needed. The audience of the OFAR is both the Kosovar authorities and the donor community. The OFAR is not an audit; it is not intended to, and does not, provide assurance on the specific uses to which Bank funds have been, or may be applied. The OFAR focuses on PFM arrangements in the PISG (Provisional Institutions of self Government), rather than in the United Nations Interim Administration Mission in Kosovo (UNMIK) administration, as the OFAR is intended to be used as a tool for strengthening local administration, particularly in a context where the PISG are anticipated to gain increased authority over their own resources, and UN (and, indeed, donor) support might progressively dwindle. The scope of the proposed OFAR is less than that of a full-scope CFAA. The reduced scope of the OFAR has been determined on the basis of: 1) a preliminary assessment of areas of most significant need in terms of capacity and institutional building; 2) a review of existing analyses and support by the Bank (including project financial management) and other development organizations, with the aim of eliminating or limiting overlaps; and, 3) discussions with the Ministry of Finance and Economy (MFE) and with members of the Bank's Kosovo team, with a view to identify priority areas for analysis. The legal framework for financial accountability and public financial management, as set out in the Law on Public Financial Management and Accountability (LPFMA), reflects good international practices, but appears to be too demanding for the PISG, and does not prevent the perception of double standards in its implementation. Furthermore, carry-over practices, and weaknesses in capacity, organization and coordination hamper budget preparation, and undermine the credibility of the budget as a policy management instrument. Financial accountability arrangements for municipalities highlight central control over budget execution, matching severe capacity limitations in the municipalities.