Kosovo Reforms to Strengthen Public Finances and Sustainable Growth, with World Bank Support

WASHINGTON — The World Bank’s Board of Executive Directors today approved a Public Finances and Sustainable Growth Development Policy Financing (DPF), which will support Kosovo’s reform efforts to improve fiscal transparency, enhance private sector development, and strengthen environmental sustainability in the wake of the COVID-19 crisis. This financing in the amount of EUR 50.6 million ($56.4 million equivalent) supports selective priorities of the Government Program for the period 2021–2025.

“The reforms supported by this operation will help the Government of Kosovo in charting a sustainable growth pathway looking beyond the COVID-19 recession,” said Massimiliano Paolucci, World Bank Country Manager for Kosovo and for North Macedonia.

The pandemic weighed heavily on the government’s fiscal position in the last two years. Going forward, and after a strong growth recovery in 2021, it will be important for the authorities to maintain and strengthen fiscal policy to ensure adequate space to address sizable developmental gaps and promote faster poverty reduction. In this context, the DPF will support measures aimed at improving fiscal transparency with a view to enhancing fiscal sustainability in the medium term.

The pandemic has also increased the importance of providing an enabling environment for the private sector to fulfill Kosovo’s aspirations for higher growth and faster poverty reduction. Kosovo’s private sector falls below expectations in terms of job creation and productivity growth. Among the constraining factors are a burdensome and uncertain regulatory framework, with many licensing requirements and business inspections, inadequate energy supply, and an incomplete legal framework for e-commerce, including electronic identification. The DPF will support a series of measures to improve the enabling environment for private sector development.

The sustainability and inclusiveness of growth in Kosovo is also significantly endangered by its pressing environmental and climate change challenges. Kosovo has been experiencing more frequent and severe droughts and floods. Energy production that is highly dependent on fossil fuels and inadequate waste management contribute to heavy air pollution and environmental degradation and negatively affect the health of the country’s citizens, risking Kosovo’s long-term growth prospects. To help Kosovo’s efforts for a green transition, the DPF will also support environmental reforms in sustainable power generation and waste management.

The DPF is financed with a concessional credit from the International Development Association (IDA) of the World Bank Group. It has a maturity of 25 years and a 5-year grace period. The project will be implemented by the Ministry of Finance, Labor and Transfers.