Document of

The World Bank Group

FOR OFFICIAL USE ONLY

Report No. 95397-XK

INTERNATIONAL DEVELOPMENT ASSOCIATION

INTERNATIONAL FINANCE CORPORATION

MULTILATERAL INVESTMENT GUARANTEE AGENCY

PERFORMANCE AND LEARNING REVIEW

OF THE COUNTRY PARTNERSHIP STRATEGY

FOR

THE REPUBLIC OF KOSOVO

FOR THE PERIOD FY12–15

May 19, 2015

South East Europe Country Unit

Europe and Central Asia Region

International Finance Corporation

Europe and Central Asia Department

Multilateral Investment Guarantee Agency

Europe and Central Asia Department

This document has a restricted distribution and may be used by recipients only in the performance

of their official duties. Its contents may not otherwise be disclosed without World Bank authoriza-

tion.

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The Country Partnership Strategy FY12–FY15, Report No. 66877-XK, was discussed by the Board

of Executive Directors on May 29, 2012.

CURRENCY EQUIVALENTS

(Exchange Rate as of December 31, 2014)

Currency Unit = Euro

€1.00 = US$1.214

US$1.00 = €0.824

GOVERNMENT’S FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AAA Analytical and advisory assistance KEEREP Energy Efficiency and Renewable Energy

Project

AF Additional Financing KEK Kosovo Energy Corporation

ARD Agriculture and Rural

Development Project

KEDS

KfW

Kosovo Electricity Distribution Company

Kreditanstalt für Wiederaufbau (Bank for

BETA Business Environment Technical

Assistance Project

KPP

Reconstruction, Germany)

Kosovo Power Project

BREF Best Available Techniques

Reference Document

KRPP Kosova e Re (New Kosovo) Power Plant

BREP Balkans Renewable Energy

Advisory Program

KYPD2 Second Kosovo Youth Development

Project

CBK Central Bank of the Republic of

Kosovo

LPTAP Lignite Project Technical Assistance

Project

CEA Country Environmental Analysis MCO Municipal Cadastral Office

CFA Country Fiduciary Assessment MIGA Multilateral Investment Guarantee Agency

CLRP Clean-Up and Land Reclamation

Project

MS rating Marginally satisfactory

CLRP-AF Additional Finance to the Clean-Up

and Land Reclamation Project

MSME Micro, Small, and Medium-sized Enterprise

CPF Country Partnership Framework PEFA Public Expenditure and Financial

Accountability

CPS Country Partnership Strategy PFR

PPP

Public Financial Review

Public-private partnership

DO Development Objective PLR Performance and Learning Review

EBRD European Bank for Reconstruction

and Development

PSIA

PTK

Poverty and Social Impact Assessment

Post and Telecommunications Company

EC European Commission PRG Partial Risk Guarantee

ECA Europe and Central Asia Region PSMP Public Sector Modernization Project

ECCU4 South East Europe Country Unit RAE Roma, Ashkali, and Egyptian community

ECSEE Energy Community of South East

Europe

RECAP Real Estate Cadastre and Registration

Project

EIB European Investment Bank RfP Request for Proposal

-ii-

EMIS Education Management and

Information System

ROSC Report on the Observance of Standards and

Codes

ESIA Environmental and Social Impact

Assessment

S rating Satisfactory

ESW Economic and Sector Work SAA Stabilization and Association Agreement

EU European Union SCD Systematic Country Diagnostic

FDI Foreign Direct Investment SEDPO Sustainable Employment Development Pol-

icy Operation

FSAP Financial Sector Assessment

Program

SEDPP Sustainable Employment Development Pol-

icy Program (with two SEDPOs)

FSSMIP/

FSTAP

Financial Sector Strengthening and

Market Infrastructure Project

SFDCC Strategic Framework for Development and

Climate Change

FY Fiscal Year SILED Social Inclusion and Local Development

Project

GDP Gross Domestic Product SME Small and Medium-sized Enterprise

GNI Gross National Income TA Technical assistance

IDA International Development

Association

TF Trust fund

IDEP Institutional Development for

Education Project

UN United Nations

IED Industrial Emissions Directive UNDP United Nations Development Programme

IFC International Finance Corporation UNSC United Nations Security Council

IFI International financial institution UK United Kingdom

IMF International Monetary Fund US United States

IP Implementation Progress USAID United States Agency for International

Development

IPA Instrument for Pre-Accession

Assistance

WBG World Bank Group

ISN Interim Strategy Note WBIF Western Balkans Investment Framework

KAS Kosovo Agency of Statistics

IBRD IFC MIGA

Vice President Laura Tuck Karin Finkelston Keiko Honda

Country Director Ellen Goldstein Tomasz Telma Ravi Vish

Task Team Leader Jan-Peter Olters Thomas Lubeck

Gjergji Konda

Franciscus Johannes

Linden

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JOINT IDA/IFC/MIGA

PERFORMANCE AND LEARNING REVIEW

OF THE COUNTRY PARTNERSHIP STRATEGY

REPUBLIC OF KOSOVO

TABLE OF CONTENTS

I. INTRODUCTION ............................................................................................................... 1

II. MAIN CHANGES IN COUNTRY CONTEXT ................................................................. 3

A. Political Developments ............................................................................................. 3

B. Economic Developments .......................................................................................... 4

C. Social Developments ................................................................................................. 5

III. SUMMARY OF PROGRAM IMPLEMENTATION ......................................................... 7

A. Overall Progress ........................................................................................................... 7

B. Pillar I: Accelerating Broad-Based Growth and Employment Generation ................... 8

C. Pillar II: Improving Environmental Management ........................................................ 9

D. Portfolio Performance ................................................................................................... 9

E. Analytical and Advisory Assistance ............................................................................. 12

IV. EMERGING LESSONS .................................................................................................... 12

V. ADJUSTMENTS TO THE CPS ....................................................................................... 13

VI. RISKS TO THE CPS PROGRAM .................................................................................... 13

Tables

Table 1: Life Expectancy at Birth, 2012 ................................................................................................ 7

Table 2: Kosovo: Country Program, CPS FY12–FY16 (proposed) .................................................... 11

Table 3:Risk Rating ............................................................................................................................. 15

Figures

Figure 1: Europe: Per Capita Gross National Income, 2013 .................................................................. 5

Figure 2: Kosovo: Labor Market, 2012–13 ........................................................................................... 6

Figure 3: Poverty Rates, 2009–11 .......................................................................................................... 6

Figure 4: Relative Portfolio Performance, FY11–14 ........................................................................... 10

Annexes

Annex 1: Kosovo: Selected Economic Indicators, 2008–15 ................................................................ 16

Annex 2: Addressing Gender Disparities in Kosovo ........................................................................... 17

Annex 3: Updated Results Framework for the Extended CPS Period and Progress toward CPS

Outcomes ............................................................................................................................................. 18

Annex 4: Analytical Work Underpinning World Bank Operations ..................................................... 27

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I. INTRODUCTION

1. This Performance and Learning Review (PLR) assesses the implementation of, and

presents the changes to, the World Bank Group’s Country Partnership Strategy FY12–15 (CPS)

for the Republic of Kosovo.1 It proposes a one-year extension of the CPS period to end-FY16 to allow

sufficient time to formulate, jointly with the new Government, a successor Country Partnership

Framework (CPF), based on the preparation of an upstream Systemic Country Diagnostics (SCD).

Reflecting the most pressing development challenges in one of Europe’s poorest and most polluted

countries, the two CPS pillars have focused on (i) accelerating broad-based growth and employment

generation; and (ii) improving environmental management. The CPS, which was Kosovo’s first-ever

such strategy following a series of Interim Strategy Notes (ISNs), was presented to the Board in May

2012.

2. While important changes have occurred in the country context since Board presentation

of the CPS, high and persistent rates of poverty and unemployment, particularly pronounced

among youth and women, have remained the economy’s Achilles’ heel. Labor market outcomes

remain worse than in neighboring countries, with an employment rate of only 28 percent. Labor market

statistics, compiled on an irregular basis (data are available for 2009, 2012, and 2013), suggest that

unemployment rates have gradually declined in response to (i) consistent growth; and (ii) the increased

registration and gradual formalization of small and medium-sized enterprises (SMEs). At the same

time, discouraged job seekers have dropped out of the labor market altogether, as reflected in excep-

tionally low employment rates. Especially worrisome are statistics on the deterioration in labor market

outcomes for young women aged 15–24; these figures have begun to decouple from otherwise gradu-

ally improving labor market trends.

3. During the CPS period to date, the government has implemented a number of important

reforms. These aimed at enhancing the legal environment, strengthening public administration, devel-

oping institutions, and reinforcing physical infrastructure. They have resulted in the improvement of

certain preconditions for inclusive and sustainable growth (reflected also in the Doing Business indi-

cators). Still, the overarching business environment has not improved sufficiently to translate into a

noticeable improvement in formal employment, social conditions, and the socio-economic welfare of

the most disadvantaged segments of society. Since autumn 2014, Kosovo has been witnessing an ac-

celerated rate of illegal outward migration into the European Union (EU), reflecting both political un-

certainty and limited economic opportunities at home.

4. The CPS pillars remain highly relevant, as Kosovo will have to generate additional formal

employment in larger numbers than hitherto possible. The authorities will have to continue to im-

plement reforms as outlined in the two CPS pillars for the country to be able to broaden its still narrow

production base and attract private-sector investment at the scale and scope necessary to import sector

know-how, employ state-of-the-art technology, adopt international standards and practices, increase

domestic productivity, and, on that basis, generate dynamic rates of endogenous, sustainable, and in-

clusive growth. These pillars will remain pertinent for—and beyond—the remainder of the CPS period,

and are consistent with the objectives of increasing (i) economic prospects of the bottom 40 percent,

including Kosovo’s poorest; and (ii) households’ access to energy, education, health, and finance.

1 Kosovo declared its independence in February 2008 and joined the International Monetary Fund (IMF) and the World Bank Group

(WBG) as full members in June 2009.

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5. The energy sector remains the keystone of the CPS, for all the reasons summarized in the

original strategy. Kosovo continues to suffer from frequent power outages, especially during the high-

demand winter months or during periods of maintenance and repairs. These come with significant costs

to the economy2. The situation has worsened after the hydrogen-tank explosion at the outdated Kosovo

A power plant in June 2014 that has claimed lives. For the economy, the absence of—and increasing

concerns about—energy security remains the single most important bottleneck to socio-economic de-

velopments, constraining domestic companies and deterring potential investors from locating their

businesses in Kosovo. The reform of the energy sector must take as a starting point the following:

• abundant endowments of lignite (the fifth largest reserves worldwide);

• the lack of viable energy alternatives (cf., e.g., the External Panel-vetted Options Study);

• the almost complete reliance on two fragile (accident-prone), highly inefficient and polluting

coal-fired power plants; and

• a full commitment to adhere to all environmental EU Directives.

Through the implementation of a multi-pronged energy strategy, Kosovo aims at decommissioning

the half-century old Kosovo A power plant by 2017, as per commitment made in the Energy Com-

munity Treaty, or shortly thereafter, once a replacement is connected to the power grid. The World

Bank’s support to the implementation of Kosovo’s energy strategy—anchored in the preparation of

a Partial Risk Guarantee (PRG) for an eventual private sector-led replacement investment in energy

generation—remains the keystone intervention under the CPS. As such, the CPS has supported the

government and the public power utility (KEK) in their attempts to

• avert a looming crisis and bring about an end to Kosovo’s energy shortages;

• align the energy sector with the obligations spelt out in the Energy Community Treaty (and,

hence, with the EU’s environmental acquis communautaire);

• foster investments in energy efficiency and the use of renewable energy;

• modernize the supportive infrastructure and strengthen responsible institutions in regulation,

distribution, and transmission; and

• address the most important environmental legacy issues.

6. Considerable progress has been made in achieving CPS objectives in five of seven priority

areas. Many CPS outcomes have been met, while energy sector-related interventions—reflecting their

technical, financial, and political complexity—experienced considerable delays. Portfolio performance

has also been satisfactory overall, notwithstanding capacity issues, and disbursements in the past two

fiscal years have exceeded the Europe and Central Asia (ECA) averages.

7. The content of the CPS will remain unchanged, but a one-year extension will be adopted

in order to develop the CPF together with the recently formed government. This additional time

will also help clarify whether it is possible to bring the private sector-financed Kosovo Power Project,

the key intervention of the World Bank Group strategy, to a satisfactory commercial and financial

closure. Finally, the extension will also allow the delivery of the other two remaining operations en-

visaged in the CPS in education and water. Underlying analysis has begun for completion of the SCD

2 Frequent power outages pose a serious constraint to investment and business expansion and the overall quality of life. The absence

of energy security increases production costs by necessitating the use of expensive and polluting diesel-fired power generation and

prevents investment in sophisticated equipment, costing the economy, according to a recent United States Agency for International

Development (USAID) study, an estimated 5 percent of GDP annually; see USAID (2012), “The Effect of Unreliable Power Supply

and Quality on Kosovar Businesses,” mimeo. The fragility of existing generation capacities is reflected in inefficient energy gen-

eration, high pollution, and the susceptibility to accidents.

-3-

in early FY16, examining trends in growth, poverty reduction, and shared prosperity in order to identify

better the constraints and opportunities to make progress towards the twin goals. With a new govern-

ment now in place, the SCD will be followed by a participatory process to develop the next CPF for

FY17-21 during the course of the next fiscal year.

II. MAIN CHANGES IN COUNTRY CONTEXT

A. Political Developments

8. Kosovo’s relationship with the EU has strengthened considerably. Following the country’s

constructive approach to challenges in regional integration (even in the absence of immediate and tan-

gible rewards), Kosovo has accumulated considerable political good will.

• Kosovo signed and ratified an EU-moderated agreement with Serbia on the normalization of

bilateral relations (the “Brussels Agreement”). While Serbia continues to object to the recognition

of Kosovo’s independence, the Brussels Agreement has allowed, inter alia, the organization of

municipal and general elections on Kosovo’s entire territory (i.e., including in the four Serb-

majority municipalities in northern Kosovo) and the mutual commitment not to block the respective

other country’s path towards eventual EU membership. The agreement provided the foundation for

cross-border cooperation in a number of important sectors (including trade, transport, and energy),

notwithstanding important implementation challenges.

Kosovo concluded negotiations on a Stabilization and Association Agreement (SAA) with the

EU, the first formal step towards eventual EU membership. The SAA, once signed, could prove a

breakthrough for the country’s EU integration process, as it would be the first contractual agree-

ment between the European Commission (EC) and Kosovo. Relative to other countries in South-

eastern Europe, Kosovo experienced considerable delays in the EU integration process, reflecting

EU member states’ non-unanimity in their decisions on the recognition of Kosovo’s independence.

Despite some progress in the negotiation on visa liberalization, Kosovo remains the only country

in the Western Balkans without the freedom of movement. This impacts the domestic economy

from developing trade relations with countries in the EU.

9. Kosovo’s inconclusive general elections of June 2014 triggered a protracted politico-con-

stitutional crisis before it could be resolved through the formation of a grand coalition plus ethnic

minority parties. Rulings by the Constitutional Court invalidated key planks of a post-electoral coa-

lition agreement among initially three (and later four) opposition parties, which had sought to secure

the positions for the Assembly Speaker and Prime Minister. The half-year period of a polarizing polit-

ico-constitutional crisis culminated in a grand coalition comprising the country’s two largest parties

and the ethnic-minority representatives. Parliament and Government were formed just in time to pass

the 2015 budget at end-December in order to avoid a complete government shutdown by early February

2015.

10. Kosovo faces an increasingly difficult authorizing environment for the implementation of

its energy strategy. Major World Bank shareholders have tightened their coal policies, while largely

continuing to support Kosovo in its attempts to replace the antiquated Kosovo A with a state-of-the-

art coal-fired power plant. In a parallel development, the EU confirmed that the planned replacement

power plant would meet efficiency standards of the EU (implying that it could be built anywhere in

the EU)—having transmitted written confirmation of minimum efficiency levels for 300-MW power

-4-

plants that it would consider consistent with the Industrial Emissions’ Directive (IED) and accompa-

nying Best Available Techniques Reference Documents (BREFs) and hence the EU’s environmental

acquis communautaire.

B. Economic Developments

11. Kosovo’s young and resilient economy has come out of the post-2008 crises without de-

bilitating macro-fiscal or financial legacies. During 2008–13 (and against the backdrop of the global

financial and eurozone crises), Kosovo’s real gross domestic product (GDP) has grown at rates in the

range of 2.8 to 4.5 percent, considerably more dynamic than its neighbors (Annex 1). The robust

growth rates have largely been fuelled by exogenous factors (mainly remittances, donor support, and

large public investments) and, to a lesser degree, by improvements in the business climate (which led

to an increased number of registrations of new or hitherto informal SMEs). The latter reform agenda

has been embedded in (i) the “rule-of-law” requirements defined by the EU (provided in the context

of Kosovo’s European integration objective); (ii) the macro-fiscal anchor provided through the IMF-

supported Stand-By Arrangement 2012–13; and (iii) the macro-structural support provided through

Sustainable Employment Development Policy Program (SEDPP), a multi-donor, World Bank-exe-

cuted budget support operation. These reinforcing reforms helped Kosovo to rein in post-electoral fis-

cal slippages in 2010/11, which had led the IMF to declare its previous Stand-By Arrangement “off

track” in May 2011. Despite some improvements in economic management realized during the CPS

period up until end-2014, the country has lacked an overarching growth model that will be needed to

increase domestic productivity and thereby “endogenize” more dynamic rates of sustainable and inclu-

sive growth. This, in turn, would transform the economy’s Achilles’ heel—especially the very high

rates of youth unemployment—into a source of strength.

12. From mid-2011 to end-2013, Kosovo pursued a successful program of fiscal consolidation

and structural reform. In December 2013, Kosovo graduated successfully from a 20-month, €107-

million Stand-By Arrangement with the IMF, after having adopted a fiscal rule that limits budgetary

deficits (with a few exceptions) to 2 percent of GDP. This reform has aimed at ensuring the sustaina-

bility of the fiscal consolidation undertaken since mid-2011. At end-2013, following an established

trend of generally prudent fiscal policies, Kosovo accumulated public debt in the amount of 9.3 percent

of GDP3 (Table 1). The budget comprised important pro-growth elements, with almost 40 percent of

expenditures having been reserved for capital expenditure (mainly for road transport investments). At

the same time, a conservative and risk-averse banking sector has remained sound, profitable, and liquid

(albeit at the expense of high credit rates, short maturities, and access-to-finance constraints), meaning

that—contrary to many neighboring countries—it did not accumulate contingent liabilities that could

develop into a source of macro-fiscal instability now that the external environment shows signs of

deceleration and vulnerability. A comprehensive structural reform agenda, anchored in the EU inte-

gration agenda and supported by the Bank’s country program, has had a tangible impact on the business

climate, as reflected, inter alia, in Kosovo’s 40-rank improvement in the Doing Business survey during

the two-year period 2012–13 and a further increase in the relative ranking recorded in the latest survey

published in October 2014.

13. The general election campaign coincided, as it had done three and a half years earlier,

with a new political business cycle and an ensuing political crisis. In the months immediately pre-

ceding the general elections of June 8, 2014, Kosovo implemented an across-the-board 25-percent

3 This excludes roughly the same amount of Paris and London Club debt that is currently being serviced by Serbia as part of its

ownership claims.

-5-

salary increase for public sector employees and increased pensions by the same amount (at an annual-

ized cost of almost 3 percent of GDP). At the same time, new social benefits for political prisoners and

war veterans were introduced, with still uncertain fiscal impacts. During the post-electoral interregnum

(June–December 2014), the Government signed an ill-advised four-year motorway construction con-

tract, with an accumulated impact—excluding expropriation costs—of about 12 percent of GDP. Over

the new Government’s mandate, pre-committed spending obligations will exceed revenue/financing

sources based on existing tax policy/administration, the fiscal rule, and domestic borrowing capabili-

ties4—even in the absence of any potential need for emergency responses in the energy sector.

C. Social Developments

14. With a per capita GNI in 2013 of US$3,890, Kosovo remains the fourth poorest country

in Europe (Figure 1). Social and labor market outcomes have remained dire, with only about 28 per-

cent of Kosovo’s working-age population being gainfully employed (Figure 2). The rate of economic

inactivity, at 63 percent of the total population (82 percent for women), is the highest in Europe.

Women and youth face particular difficulty:

• Women. Employment rates

(the ratio of employed to

adult population) are con-

siderably worse for women

(13 percent) than for men

(44 percent).5

• Youth. Only one in ten

among the 15–24-year-olds

is employed. The employ-

ment rates improved only

marginally, from 9.8 per-

cent in 2012 to 10.0 percent

in 2013. The dire situation

of young women, however,

has not shown any sign of

improvement, stuck at a

dreadful 4.6 percent. At the

same time, young women’s unemployment rate has risen from 63.8 percent in 2012 to 68.4 percent,

pointing to almost unsurmountable barriers to formal employment.

These low rates of economic activity (even by low regional standards)—paired with an official unem-

ployment of 30 percent—indicate that many discouraged Kosovars have withdrawn from the labor

force altogether.

4 Budgeted revenues for 2015 exceed the estimated outturn for 2014 by more than 18 percent, foreshadowing that the government’s

efforts to compress expenditures in goods and services, improve tax/customs collections, and fight against the informal economy

would not be sufficient to absorb the additional expenditures and limit the budget deficit to the constraints contained in the fiscal

rule. For this reasons, it can be expected that a combination of higher tax rates, reduced recurrent and capital expenditures, the

relaxation of the fiscal rule, and/or the accumulation of (growth-asphyxiating) payment arrears would be required to finance the

expansionary measures already implemented. The government considers (but has not decided on) a follow-up program with the

IMF. 5 See Annex 2 for further discussion on gender issues in Kosovo.

Figure 1: Europe: Per Capita Gross National Income, 2013

-6-

15. Kosovo’s most urgent challenge of socio-economic development consists of addressing the

alarming rates of youth unemployment, estimated at about 56 percent. Every year, approximately

30,000 new jobseekers enter the labor market, while economic growth does not generate more than

around 15,000 additional jobs—contributing to the dismal labor market data, especially for the youth

highlighted in the previous

paragraph. The risk of a “lost

generation” is reflected in the

share of young people not in

employment, education, or

training (NEET)—estimated

at more than 35 percent of the

youth population. But also for

young university graduates,

professional prospects are

bleak. According to the 2013

Labor Force Survey, 15.3 per-

cent of Kosovars that com-

pleted tertiary education have

remained unemployed—

pointing to unresolved chal-

lenges of (i) the quality of

higher education and the mis-

match between school/univer-

sity curricula and labor market needs; (ii) the relative importance of personal and/or political connec-

tions over skills; and (iii) access-to-capital and business climate constraints to entrepreneurship.

16. With the state budget being skewed towards public

investments, social protection coverage has failed to reach

many of the poor. Reducing poverty remains one of the main

challenges. In 2011, 30 (10) percent of the population were

living in poverty (extreme poverty); this represents a moderate

worsening relative to 2010 (Figure 3). With only about one-

third of households in the bottom quintile receiving social as-

sistance, improvements in the targeting and coverage of last-

resort social assistance scheme could help to reduce extreme

poverty.

17. Available data suggest that economic growth dur-

ing 2006–11 favored the poor and the bottom 40 percent of

the population. Household data show that, between 2006 and

2011, economic growth in Kosovo has been shared widely,

leading to improvements in both poverty and “shared prosper-

ity” (defined as the share of wealth going to the poorest 40

percent of the population). Over this period, both the poor and

the poorest 40 percent of the population saw average annual

increases in consumption of around 4 percent, while the

wealthiest 20 percent saw their consumption rise by between

one and three percent.

Figure 3: Poverty Rates, 2009–11

Figure 2: Kosovo: Labor Market, 2012–13

-7-

18. Poverty is negatively associated with the level of education, and the poor may not receive

sufficient healthcare. In 2011, more than one-third of individuals who did not complete primary ed-

ucation were poor compared with 12 percent of individuals with university degrees. Almost two-thirds

of the poor have not completed secondary education—implying that the enhancement of education in

terms of coverage and quality will be a key factor to reducing poverty. The Government believes that

early childhood education is especially effective in helping individuals to break out of the poverty trap.

19. Kosovo has some of the worst health sector outcomes in Europe. Life expectancy at birth

in 2012 was 70.5 years, ten years less than in the EU. The latest available estimates by the National

Institute of Public Health suggest that

the infant mortality rate lies at 9–11

per 1,000 live births. This is consider-

ably worse than the EU (4.1) but bet-

ter than other countries at Kosovo’s

per capita income level. According to

the same source, perinatal and respir-

atory conditions are among the main

causes of mortality across the population as a whole. These figures are consistent with the hypothesis

that poor health outcomes reflect the high concentration of air pollution, especially in the most densely

populated areas of Kosovo (as discussed in the Country Environmental Analysis), and the low priority

given to the health sector (as reflected in total health expenditure, which is low relative to the region

and other countries at similar income levels). The substandard provision of health care, combined with

access limitations, has resulted in a comparatively high ratio of out-of-pocket household health spend-

ing (estimated to account for about 40 percent of total spending of health). This has contributed signif-

icantly to increased poverty.

III. SUMMARY OF PROGRAM IMPLEMENTATION

A. Overall Progress

20. The CPS has delivered on many envisaged results (see Annex 3) and is expected to deliver

on the rest if the remaining CPS period is extended by one year. Of the seven outcome areas under

the two CPS pillars, five have registered good progress, with the ex-

pected outcomes either already achieved or on track for the end of the

extended CPS period. These outcome areas relate to (i) strengthening

private sector development and financial sector; (ii) boosting agricul-

tural development; (iii) investing in education and skills; (iv) promot-

ing sustainable employment and social inclusion; and (v) reducing the

environmental footprint of development activities, reducing environ-

mental hazards to human welfare and moving towards the harmonization with EU environmental

standards. Progress has been more mixed in the area of public financial management and anti-corrup-

tion. Finally, due to the complexity of the rehabilitation process of Kosovo’s lignite-based electric

power generation, progress has been lagging in the attempts to strengthen the related infrastructure,

including the replacement power generation investment.

CPS Milestones

Achieved 17 65.0%

Partially

Achieved

7 27.0%

Not

Achieved

2 8.0%

EU ALB BIH SRB MKD MNE RKS

Total 80.5 77.4 76.1 75.2 75.0 74.6 70.5

Male 77.8 74.4 73.6 72.6 72.8 72.4 72.7

Female 83.5 80.5 78.7 78.0 77.4 77.0 68.4

Source: World Bank, World Development Indicators database.

Table 1: Life Expectancy at Birth, 2012

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B. Pillar I: Accelerating Broad-Based Growth and Employment Generation

21. The CPS program has delivered important outcomes necessary for private-sector growth

and employment. The Government has undertaken, with WBG support, reforms to address legal, in-

stitutional, and infrastructure bottlenecks that hamper private-sector activities and foreign direct in-

vestment (FDI). Financial transactions have been facilitated through the reform and development of

the payment system. Business registration processes have been simplified and the timeliness of real

estate registration improved. These and other investment climate reforms have led to a 40-rank im-

provement of Kosovo’s standing in the Doing Business survey within a two-year period, with the coun-

try being highlighted as a top reformer in 2013. Important progress has been made in the education

sector through the new system of accreditation of training providers, increased financial decentraliza-

tion, the transfer of autonomy of schools, and the use of modern management information systems,

capturing drop-outs and retention (including by gender and community). In the long run, these changes

in the education system could lead to a workforce that is better equipped to meet the fast-changing

demands of the labor market. The development of a new labor market information system, along with

public works and other labor market programs, helped with the design and implementation of more

pro-active labor market policies. The support to micro and small enterprises in the agricultural sector

has created new job opportunities and incomes in rural areas. These results have been achieved, in

large part, through the support provided through (i) the Sustainable Employment Development Policy

Program (SEDPP), a World Bank-executed multi-donor trust fund; and (ii) World Bank-financed pro-

jects supporting the financial sector, business climate, land administration, agriculture and education.

Analytical and advisory assistance (AAA) has complemented the overarching institutional reform pro-

gram led by the EU and financed with funds from the Instrument for Pre-Accession Assistance (IPA).

The IFC’s investment climate projects are supporting the Government to reduce the regulatory burden

(permits, licenses, trade logistics) for businesses, improve the competitiveness of the Kosovo economy,

and help to increase investment levels and FDI inflows in, particularly, employment intensive sectors.

The Financial Institutions Project works with the financial institutions on credit reporting, secured

transactions and financial literacy. The Corporate Governance Program leverages the resources of

local partner institutions and has assisted four Kosovo companies to implement good corporate gov-

ernance practices.

22. Thus far, the CPS program has been less successful in helping Kosovo to increase its

energy supply and reform its public sector management. The delay in implementing the investment

in energy generation, through the replacement of the 50-year old Kosovo A power plant, has been due

to the complexity and cost of such investment, resulting in limited investor interest. However, in De-

cember 2014, bidding was completed and review is underway. Full achievement of CPS objectives

would require a successful conclusion of this procurement process, but it remains a high-risk under-

taking which may very well require alternative solutions if the procurement process is unsuccessful or

financing cannot be ensured. The limited progress in public administration reform reflects Kosovo’s

delicate political situation. During the periods prior to the municipal and parliamentary elections in

December 2013 and June 2014, respectively, the Government was unable to generate sufficient con-

sensus on sensitive civil service reforms. Nonetheless, a Bank-funded project has helped to install a

national data center, which will increase the efficiency of public administration in the longer run.

23. Especially energy sector interventions benefit considerably from the close collaboration

across the WBG. As part of the overall energy reform—the cornerstone of the WBG-supported coun-

try economic development—IFC had been awarded the mandate to act as the lead advisor to the Gov-

ernment to unbundle and privatize the supply and distribution business of the Kosovo electricity com-

pany. The mandate was successfully completed and resulted in the sale to a private strategic investor

-9-

in spring 2013, thus providing a creditworthy off-taker for the planned future electricity generation

facility which is envisaged to be financed and operated by a private investor. The privatization, led by

IFC, already resulted in significant increases in efficiencies and decrease in electricity distribution

losses and is considered as a critical step in the overall energy reforms. IFC continues to engage through

post-privatization advisory support to ensure that there is proper monitoring of the privatization. IFC’s

Balkans Renewable Energy Project has advised the government on setting the tariffs for solar energy

and preparing required documentations that will improve the renewable energy regulatory framework

and will enable Kosovo to increase the use of renewable energy. It also continues to work with financial

institutions in Kosovo on capacity building to increase the volume of lending to renewable energy

projects. Moreover, IFC’s Sustainable Energy Finance Program works to improve access to finance

for energy efficiency investments and create capacity of banks.

C. Pillar II: Improving Environmental Management

24. Environmental externalities and negative health impacts from electricity generation have

been reduced tangibly and sustainably. The relatively low life expectancy in Kosovo partly reflects

the health impact from the generation of electricity from two outdated plants and the legacy of decades

of production. With support from the Clean-Up and Land Reclamation Project (CLRP), two major

externalities have been eliminated. First, the practice of open, uncontrolled dry-ash dumping at the

existing Kosovo A ash dump (at a rate of about 9,000 tons a year)—which had the residents in the cities

and communities around the Kosova A power station be exposed to periodic clouds of fine ash parti-

cles—was stopped, having supported the installation of a hydraulic ash transport system into an ex-

hausted, underground mine. With this, KEK is remediating the last open ash dump—stabilizing, re-

shaping, and sealing it so as to stop any dust arising from the dump. Second, the removal of all highly

toxic substances from the former gasification site is co-financed and underway through this project.

25. In the energy sector, technical support has been provided to ensure that Kosovo’s future

energy generation is fully in line with the EU’s environmental acquis communautaire. The World

Bank took the lead—through the commissioning of a comprehensive technical study and communica-

tion with the EU—in obtaining confirmation from the EU on the definition of an efficiency level that

is compliant with the EU’s Industrial Emissions Directive and accompanying Best Available Tech-

niques Reference Documents, without which the Government would not have been able to launch the

Request for Proposal (RfP) to prequalified investors in 2014. In addition, World Bank support provided

through the recently approved Energy Efficiency and Renewable Energy Project will contribute to the

implementation of Kosovo’s multi-pronged energy strategy by reducing energy demand in public

buildings and expanding the availability of clean energy from renewable sources.

D. Portfolio Performance

26. Since the beginning of the CPS period in FY12, two projects and one additional financing

have been approved for a total of US$61 million in IDA credits while three projects exited the

portfolio. Only two changes have occurred relative to the plans spelt out in the original CPS document:

(i) unanticipated delays in preparing the support to Kosovo’s energy strategy, reflecting its exceptional

complexity and controversial nature; and (ii) the inclusion of a health project into the country program,

which was approved by the Board of Directors in May 2014 under the IDA-16 envelope. The latter

modification was possible because of (i) exceptionally available IDA resources for Kosovo; (ii) the

ongoing, high-quality policy dialogue in the health sector; (iii) the preparation of a Swiss-financed

-10-

trust fund in the health sector; and (iv) strong Government ownership. At the same time, the health

project—which, inter alia, supports the implementation of national health insurance—is explicitly

aimed at securing access to the health sector by, and improving the financial protection for, the poorest

and most vulnerable households in Kosovo. As such, the project contributes directly to achieving the

Bank’s twin goal of reducing extreme poverty.

27. Overall portfolio indica-

tors have strengthened since the

beginning of the CPS. Currently, there

are seven active projects with an undis-

bursed balance of US$81 million. Pro-

ject-specific challenges are being ad-

dressed, and currently no projects are

rated unsatisfactory or moderately un-

satisfactory. After Kosovo joined the

WBG in mid-2009 and received IDA

credits (rather than IDA grants), the

Constitution required parliamentary

ratification—with a two-thirds major-

ity—of any external borrowing by gov-

ernment. Just prior to the CPS period,

the effectiveness of the Public Sector

Modernization Project (PSMP) and the Real Estate Cadastre and Registration Project (RECAP), the

first World Bank-financed operations in Kosovo, had been delayed by about a year and a half, reflect-

ing unfamiliarity with the processes required and inadequate consultation with opposition parliamen-

tarians. In FY13 and FY14, following intensified cooperation with Parliament and strengthened col-

laboration between the Bank and government teams, not least in the context of the Minister of Finance-

led Quarterly Portfolio Review with the Bank teams, both the ratification processes and project imple-

mentation improved markedly. Disbursement rates at end-FY14 stood at a healthy 27 percent, exceed-

ing both past performance and the ECA average. Disbursement trends are shown in Figure 4.

28. For FY15 and FY16, Kosovo’s IDA envelope is, respectively, SDR 17 million and SDR

17.2 million—or, at about US$24 million each year.6 It is being proposed that, for the remainder of

the CPS period, the pipeline projects will be funded with IDA funds up to US$17 million for water,

US$11 million for education and at least US$20 (80) million for the energy sector PRG. If the current

plans materialize, total new lending in the extended 5-years CPS period would amount to about

US$109 million, compared to US$76 million envisaged for the original 4-year CPS period (at the then

prevailing exchange rate).

6 The amount shown for FY16 is indicative only. The actual allocation will depend on: (i) the total IDA resources available; (ii)

the country’s performance rating, per capita GNI, and population; (iii) the terms of IDA assistance (grants/credits); (iv) the alloca-

tion deductions associated with MDRI annual debt service foregone as applicable; (v) the performance, other allocation parameters,

and IDA assistance terms for other IDA borrowers; and (vi) the number of IDA-eligible countries.

Figure 4: Relative Portfolio Performance, FY11–14

-11-

Table 2: Kosovo: Country Program, CPS FY12–FY16 (proposed)

Project name

(as per CPS)

Board

date

Commit-

ment, in mil-

lions of US

dollars

Status

(as of May 2015)

Disbursed

(as of May 2015)

Portfolio of projects from pre-CPS Interim Strategy Notes (ISNs)

Business environment (BETA) FY05 7.0 (grant) closed in FY12 7.0

(100 percent)

Clean-up, and land reclamation

(CLRP) FY06

10.5 (grant)

14.7 (total) extended

13.2

(90 percent)

Institutional development for educa-

tion (IDEP) FY08 10.0 (grant) closed in FY14

10.0

(100 percent)

Financial sector strengthening, market

infrastructure (FSTAP/FSSMIP) FY08 8.9 (IDA) active

5.8

(65 percent)

Real estate cadastre and registration

(RECAP) FY10 12.3 (IDA) active

6.3

(51 percent)

Public sector modernization (PSMP) FY10 8.0 (IDA) active 5.8

(72 percent)

Agriculture and rural development

(ARD) FY11 20.2 (IDA) active

9.1

(45 percent)

Projects during the extended CPS FY12–FY16 period

Sustainable employment development

policy (SEDPO-2) FY12 47.0 (grant)

closed

in FY12

47.0

(100 percent)

Sustainable energy development and

diversification TA (SEDDTAP)* … 2.5 (IDA)

merged into the

CLRP-AF …

Additional finance, clean-up, land rec-

lamation (CLRP-AF) FY13 4.2 (IDA) active

Disbursement con-

tained in CLRP fig-

ures

Energy efficiency and renewable en-

ergy (KEEREP) FY14 31.0 (IDA)

active

0.0

Health FY14 25.5 (IDA) active

(not in original CPS) 0.0

Partial risk guarantee for New Kosovo

power plant (PRG for KRPP) FY16

20.0 (80.0)

(IDA) pipeline …

Education FY16 11.0 (IDA) pipeline …

Water security and canal protection FY16 17.0 (IDA) pipeline …

New total lending in CPS period 108.7 (IDA)

* The funds originated from the Lignite Power Technical Assistance Project (LPTAP), closed prior to the CPS period (at a period

during which Kosovo benefited from IDA grants). As Kosovo could only access these funds as IDA credits, requiring a separate

parliamentary ratification, a political decision had been made to merge related activities—the preparation of the Environmental and

Social Impact Assessment (ESIA)—into the Additional Finance for the CLRP.

29. IFC’s committed portfolio for Kosovo comprises of US$20.8 million (own account, allo-

cated to 75 percent in financial markets and 25 percent in manufacturing). During the CPS period, IFC

has invested a total of around US$5million in the financial sector as subordinated loans used to support

micro and small and medium-sized enterprises (MSMEs) as well as trade. An additional US$369 mil-

lion was mobilized for the privatization of the Kosovo Electricity Distribution Company (KEDS)—

one of the largest private sector investments in the country. IFC’s total financing of US$374 million

was much higher than the total amount IFC had been aiming for at the beginning of the CPS period

(US$40-50 million). However, IFC’s own account financing was much less than expected due the non-

-12-

realization of several large privatization projects by the government such as Posta dhe Telekomu-

nikacioni i Kosovës (PTK) and the Kosova e Re Power Plant. Also, corporate governance issues (e.g.,

the integrity of business owners and double bookkeeping) have prevented IFC to invest in the real

sector in Kosovo, including in SMEs and in the agribusiness sector.

E. Analytical and Advisory Assistance

30. Lending operations have been underpinned and complemented by a robust program of

AAA and technical assistance/capacity building (Annex 4). In addition to the monitoring and anal-

ysis of the macro-fiscal and financial framework, the socio-economic situation (labor market, poverty,

and gender), and ongoing IFC advisory support for the investment climate, trade logistics, infrastruc-

ture PPPs, renewable energy, energy efficiency and corporate governance, key AAA work in the CPS

period comprised the first-ever Financial Sector Assessment Program (FSAP), three financial-sector

Reports on the Observance of Standards and Codes (ROSCs), a Country Environmental Analysis

(CEA), the preparation of a multi-sector Public Financial Review (PFR), and programmatic assistance

to strengthen public expenditure management, the fiduciary framework and anti-corruption efforts.

Kosovo has benefited from a number of regional AAA activities, including analytical work on Smart

Safety Nets and Health Finance, as well as several EU-financed Western Balkans Investment Frame-

work (WBIF) trust funds in the environment, energy, water, and education sectors. There is ongoing

work on the Environmental and Social Impact Assessment (ESIA) and Poverty and Social Impact As-

sessment (PSIA) for the proposed PRG for the energy sector.

IV. EMERGING LESSONS

31. The two-pillar approach has proven effective in addressing critical challenges

constraining growth and the improvement in socio-economic welfare. For the foreseeable future,

the focus will have to remain on (i) accelerating broad-based growth and employment generation; and

(ii) improving environmental management. These will remain central to achieving the overarching

development objectives aimed at benefitting the poorest and most vulnerable households. However,

Kosovo remains prone to short-term political challenges, which distract the Government’s attention

and focus away from the longer-term socio-economic development challenges. As a result, the

budget’s composition has not consistently been aligned with related objectives, while political leader-

ship has not been consistent on focusing on those issues most directly related to citizens’ standards of

life.

32. Against this backdrop, the portfolio of Bank-supported projects has proven an important

policy anchor. Regular portfolio reviews, led by the Ministry of Finance, the intensified contacts with

Parliament and other stakeholders, and the policy and technical dialogue during and between missions

have helped to maintain the overall focus on reforms linked to the country program. Given the unstable

politico-economic environment in Kosovo, Bank teams—going forward—will have to adjust quickly

to changing realities in order to provide this anchor and help the government to realize its overarching

objective of accelerating growth and increasing employment.

33. Privatizations and infrastructure investments with private-sector participation require

consistent World Bank Group support at all stages. Inherent risks stemming from capacity

constraints in the public administration and inexperience in negotiations with international investors—

paired with a public largely skeptic on process and transparency—can be mitigated, to a large extent,

-13-

by strategic transaction advice and pre-/post-privatization support so as to ensure that the private

companies’ investments lead to a tangible increase in the corresponding sector’s productivity.

V. ADJUSTMENTS TO THE CPS

34. The original CPS objectives and instruments remain highly relevant, notwithstanding im-

portant progress in key elements of the underlying business climate. The high rates of unemployment—

or, more accurately, the exceptionally low rates of employment—reflect the country’s narrow produc-

tion base and high external deficits and these, in turn, point to low domestic productivity as root cause

of Kosovo’s socio-economic challenges. Surveys among private firms identify unreliable electricity

supply as the single most important obstacle to investment in new equipment and business expansion

(thereby affecting job and employment creation), for which reason the energy sector (IED-compliant

thermal generation, energy efficiency, renewable energy, environmental remediation, and complemen-

tary infrastructure modernization) will remain the CPS central focus. The proposed follow-up educa-

tion project (foreseen in the original CPS) and the health project (not foreseen in the CPS), both with

particular focus on the most disadvantaged and poorest groups in society as well as on women and

youth, will ensure that the broad-based growth and employment generation agenda is also an inclusive

growth (shared prosperity) agenda. The main modifications to the CPS have been the inclusion of the

health project into the program, benefiting the poorest quintiles of Kosovo’s population and the pro-

posed one-year extension of the CPS period.

35. Taking advantage of the PLR, the CPS results framework has been adjusted. The original

broad and overly ambitious energy sector outcome has been revised to reflect what is realistically

achievable within the extended CPS timeframe. Three of the private sector development outcomes

have also been adjusted to make them more measurable, and the outcome on labor programs has been

modified due to data unavailability. The formulation of the health outcome has been changed to focus

on increased access rather than on improved health outcomes that could only be achieved over time.

Baseline indicators, where available, and new targets for end-FY16 have been added (Annex 3).

VI. RISKS TO THE CPS PROGRAM

36. Political and Macroeconomic Risks: The pre-election political business cycle has left the

current Government with a very tight fiscal situation over the course of its entire mandate. While

Kosovo’s legislative framework precludes the authorities from pursuing loose fiscal policies, key risks

stem from the new Government’s inability to finance the already implemented or pre-committed

spending obligations by sufficient expenditure cuts, improved tax administration, higher taxes, domes-

tic financing, and/or the softening of the fiscal rule. In the absence of other macroeconomic policy

instruments, the default outcome would be an accumulation of payment arrears by government, which

would poison affected firms’ balance sheets and asphyxiate economic growth. This risk could be mit-

igated by deepening the dialogue with the new Government on a broader macro-fiscal framework,

building on the results from the Public Financial Review, and encouraging the country to request a

new IMF-supported program. This would be complemented by the continuation of a substantial en-

gagement on the institutional and administrative strengthening and EU alignment in selected areas with

high long-run payoffs in terms of macro-fiscal management, including public-sector administration,

(centralized) procurement, and treasury operations.

-14-

37. The finalization of the Kosovo Power Project continues to face major uncertainties, with

energy shortages remaining a key risk to the economy. The ongoing competitive procurement pro-

cess is fraught with risks and will continue for months to come. An unsuccessful outcome would deal

a harsh blow to Kosovo’s comprehensive energy strategy. Alternative energy financing strategies have

been made considerably more complex by the caretaker Government’s decision to finance other infra-

structure priorities, especially the motorway to FYR Macedonia. The fragility of the two outdated

power plants has been amplified by the explosion at the Kosovo A power plant in early June. These

developments have increased the risk of a serious energy crisis, for which there is no obvious—or

timely—solution.

38. Institutional Capacity Risks: Portfolio implementation risks will increase. A tighter fiscal

situation might result in the potential reduction of the Ministry of Finance-allotted fiscal space for

Bank-financed projects and other administrative obstacles during project implementation. More gen-

erally, and despite improvements in the disbursement ratio during the last two recent years, the Bank’s

program faces implementation obstacles as a result of weak capacity and/or insufficient political will.

Bank staff and management will continue to work closely with project units and Government to reduce

this risk by enhancing engagement with implementation agencies and their authorizing ministries, in

particular for new operations. The close cooperation with deputies will have to continue with the new

Assembly.

39. Environmental and Social Risks: The main environmental risk relates to the air pollution

caused by Kosovo’s power plants. In order to mitigate that risk, the World Bank’s energy agenda has

included support for publicly-available air quality monitoring. It also focuses most importantly on the

replacement of the most polluting coal-fired plant by one that will be consistent with the EU’s Indus-

trial Emissions’ Directive and accompanying Best Available Techniques Reference Documents and

hence the EU’s environmental acquis communautaire. Furthermore, a key component of World Bank

Group support is the focus on improved energy efficiency and increased use of renewable energy,

complementing ongoing efforts by the privatized distribution company to reduce commercial and tech-

nical losses.

40. Regarding broader social risk, Kosovo remains the poorest country in the region with

several vulnerable groups such as women, young people, children, the elderly, minority groups (e,g,

Roma), disabled and internally displaced people being particularly vulnerable to social exclusion and

poverty. In operational terms, the main social risk relates to the Government’s low capacity and unclear

allocation of responsibilities regarding involuntary resettlement. Even though the World Bank-funded

projects currently under implementation in Kosovo do not directly generate resettlement, there is some

indirect exposure to this issue through resettlement monitoring activities at the Sibovc lignite mine

being supported through the Clean-Up and Land Reclamation Project. In the future, there could be

further exposure to this issue through the Kosovo Power Project, of which the Sibovc mine is an

associated facility. In order to mitigate this risk, the Bank continues to build on previous efforts to

strengthen Kosovo’s intuitional framework and technical capacity, and is providing technical training

to government officials, and maintains an open dialogue with the Government to address gaps in this

area. Finally, an Environmental and Social Impact Assessment for the Kosovo Power Project,

currently underway, will help identify resettlement, and other social, risks and corresponding

mitigation measures.

41. The current risks to the program are similar to those highlighted in the CPS and remain

substantial overall.

-15-

Table 3:Risk Rating

Risk categories Rating (H, S, M, or L)

1. Political and governance S

2. Macroeconomic S

3. Sector strategies and policies M

4. Technical design of project or program M

5. Institutional capacity for implementa-

tion and sustainability

S

6. Fiduciary M

7. Environment and social S

8. Stakeholders M

9. Other

Overall

S

Ratings are: high (H); substantial (S); moderate (M), and low (L).

ANNEX 1

-16-

Annex 1: Kosovo: Selected Economic Indicators, 2008–15

2008 2009 2010 2011 2012 2013 2014 2015

Est. Proj.

Income and economic growth

GDP (millions of euro) 3,882.8 4,069.6 4,401.9 4,814.6 5,058.9 5,326.6 5,404.2 5,611.8

GDP growth (percentage change, y-o-y) 4.5 3.6 3.3 4.4 2.8 3.4 2.5 3.0

Per capita GDP (euro) 2,222 2,310 2,479 2,690 2,802 2,920 2,931 3,017

Private consumption growth (percentage change, y-o-y) 10.9 1.1 6.8 9.9 7.6 4.4 2.4 3.7

Gross investment (percent of GDP) 27.1 27.8 29.6 30.7 26.0 24.8 23.7 23.0

Public (percent of GDP) 7.3 9.2 10.4 10.8 10.7 10.0 7.6 7.1

Private (percent of GDP) 19.8 18.6 19.2 19.9 15.3 14.8 16.0 15.9

Inflation, consumer prices (percentage change, y-o-y, end of year) 9.4 -2.4 3.5 7.3 2.5 1.8 0.6 …

Fiscal (percent of GDP, unless otherwise indicated)

Revenues 23.9 28.3 27.1 27.2 25.9 25.2 24.7 25.6

Expenditures 24.1 29.0 29.5 28.8 28.5 28.1 27.0 27.6

Current 16.8 19.8 19.1 18.0 17.8 18.1 19.4 19.7

Capital 7.3 9.2 10.4 10.8 10.7 10.0 7.6 7.9

Overall fiscal balance -0.2 -0.7 -2.4 -1.6 -2.6 -2.9 -2.3 -2.0

Total public debt 0.0 6.1 6.3 5.9 8.6 9.3 10.9 11.9

External 0.0 6.1 6.3 5.9 7.2 6.4 6.2 5.6

Internal 0.0 0.0 0.0 0.0 1.5 2.9 4.7 6.3

Debt service ratio (percent of revenues) 0 16.8 1.3 1.1 7.4 8.9 9.7 11.2

External accounts (millions of current euro, unless otherwise indicated)

Export growth (percentage change, y-o-y) 11.3 14.1 26.4 7.5 -2.3 0.6 7.0 4.8

Import growth (percentage change, y-o-y) 17.7 0.3 15.6 12.0 -3.2 -1.4 4.0 2.2

Merchandise exports 216.6 177.2 305.0 324.9 286.9 305.1 326 348

Merchandise imports 1,866.3 1,828.9 2,057.1 2,383.9 2,359.7 2,297.1 2,389 2,461

Services, net 151.6 232.3 186.9 265.7 346.2 308.4 338.5 375.7

Workers' remittances, net 609 586 584 585 605 619 639 661

Current Account Balance -461 -374 -516 -658 -380 -339 -464 -512

in percent of GDP -11.9 -9.2 -11.7 -13.7 -7.5 -6.4 -8.6 -9.1

Foreign direct investment 342 277 331 378 213 312 181 250

External debt, total 64 248 341 297 367 347 358 337

as percent of GDP 1.7 6.1 7.7 6.2 7.3 6.5 6.6 5.8

Multilateral debt (% of total external debt) 0.0 100.3 76.0 86.1 92.7 95.2 88.8 88.1

Debt service ratio (percent of exports goods and nfs) 0.2 18.1 3.5 3.9 4.4 5.0 2.4 2.7

Population, employment, and poverty

Population, total (millions) 1.7 1.8 1.8 1.8 1.8 1.8 1.8 1.9

Population growth (percentage change, y-o-y) 0.8 0.8 0.8 0.8 0.8 1.0 1.0 1.0

Unemployment rate (percent of labor force) … 45.4 … … 30.9* 30.0* … …

Poverty headcount ratio at national poverty line (percent of population) … 34.5 29.2 29.7 … … … …

Poverty headcount ratio at US$1.25 a day, PPP (percent of population) … 12.5 8.2 10.2 … … … …

Inequality - Income Gini … 30.2 29.0 27.6 … … … …

Note: Debt service ratio (percent of revenue) is measured by dividing debt service to revenues (i.e., not considering the possibility of rolling over existing debt).

* Changes in methodology, implying that the 2009 and 2012, 2013 unemployment rates are not directly comparable.

ANNEX 2

17

Annex 2: Addressing Gender Disparities in Kosovo

At the political level, Kosovo has a female president and one female mayor in a large municipality. One-

third of the country’s deputies in the Assembly are female, as per constitutional and legal stipulations.

Progress has been made in tackling gender inequalities, but substantial gender gaps persist, while the em-

ployment situation of young women—contrary to other segments of the labor market—continues to deteri-

orate from an already extremely weak position.

Labor market outcomes in Kosovo are among the poorest in the region, particularly for young women.

Already being disadvantaged in the labor market, the unemployment rate of young women increased from

63.8 percent in 2012 to 68.4 percent in 2013, while the share of female youth not in employment, education,

or training (NEET) rose from 40.1 percent in 2012 to 40.9 percent in 2013. These trends are opposite to

those for male youth or the labor market more generally.

The CPS has been gender informed, with a diagnostic having been undertaken to identify most critical

disparities and gender gaps in education, labor force participation and employment rates, entrepreneurship,

and political influence (“Gender gaps in education, health and economic opportunities” (2013). World

Bank-financed activities in, especially, education, land administration, and agriculture, have placed a par-

ticular focus on ensuring that women benefit from interventions—to reduce high drop-out rates in second-

ary education, remove obstacles to land ownership by women (including joint ownership by married cou-

ples), and grant female farmers access to innovation grants. For example, the percentage of woman farmers

who have received such grants has doubled in less than three years. A new health project will, among other

components, seek to reduce high rates of maternal mortality, at the CPS’s outset estimated at 43.3 per

100,000 births, one of the highest rates in Europe and Central Asia.

Training and Mentoring Program for Women in Business in Kosovo

The six-month training and mentoring program for female junior and middle career professionals from Kosovo real

sector companies was launched in the spring of 2014 and concluded in December 2014. The program started by

mobilizing female board members from various companies as mentors to the program. IFC delivered a training of

trainers program that trained the identified mentors on issues related to corporate governance practices; manage-

ment and leadership; building credibility, self-awareness, and networking skills. The program mentored and trained

15 female professionals working in junior/middle management in companies of IT; construction; food processing;

pharmaceuticals production; insurance; trade and financial services sectors in Kosovo. The sponsored female ex-

ecutives took part in (1) an intensive 3-day group training and (2) a series of individual mentoring sessions. The

trained mentors provided group training – and beyond teaching curriculum content, also communicated their own

experiences and knowledge to the young female professionals and empowered them to achieve their career goals

and organizational objectives. The training concluded with the participants developing individual action plans in-

cluding specific personal and professional development goals to be achieved in 3, 6, 9 and 12 months’ time. The

woman-to-woman mentoring sessions focused on soft-skills developed and provided further guidance and encour-

agement and built up confidence of the female mentees. It also helped female mentees to address the very gender-

specific challenges of reconciling family responsibilities with professional performance and career development,

by allowing the mentee to draw on the own exigencies of the female mentor. With the acquired skills and

knowledge, the female program graduates then developed initiatives in consultation with their sponsoring line man-

agers - based on the actual specific business needs of their respective company. Overall, the program empowered

young women to successfully build their careers while helping to grow the companies they work in. The program

further allowed participating female professionals to become champions of good business and corporate governance

practices within their own companies. IFC is in the process of supporting a second cohort of women mentees.

ANNEX 3

-18-

Annex 3: Updated Results Framework for the Extended CPS Period and Progress toward CPS

Outcomes

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

Pillar I — Accelerating Broad-Based Growth and Employment Generation

Country Development Goal No. 1. Strengthening infrastructure, with a focus on energy

Original: Increase the

production, efficiency,

financial, and environ-

mental sustainability

of the energy sector.

Revised: Preparations

completed for replace-

ment of the 50-year-

old, highly inefficient

and pollutant Kosovo

A power plant with a

private sector-financed

replacement power

plant, in line with rele-

vant Directives of the

EU’s environmental

acquis communau-

taire.

Original: Kosovo B

has been rehabilitated to

comply with EU envi-

ronmental standards by

2018.

The Sibovc South lig-

nite mine and the New

Kosovo Power Plant

(KRPP) are being de-

veloped, through pri-

vate participation.

Revised: The tender for

the Kosova e Re power

plant concluded suc-

cessfully, with (i) a

winning bidder an-

nounced; (ii) successful

negotiations between

the winning bidder and

the Government, allow-

ing the commercial and

financial close and the

tender for the engineer-

ing, procurement, and

construction (EPC) and

operations and mainte-

nance (O&M) contracts;

and (iii) the preparation

of required documenta-

tion for the proposed

PRG for Board consid-

eration, based on the

ESIA and PSIA.

Not achieved: The original out-

come remains relevant, but

with some modifications in

strategy and timing. The origi-

nal milestones related to Ko-

sovo B and the Sibovc mine are

no longer relevant, and the

KRPP tendering process—now

excluding Kosovo B and the

mine—has experienced im-

portant delays, with considera-

ble risk of not achieving the

original objective by the end of

the revised CPS period. Thus,

the respective CPS outcome

has been revised to reflect ad-

justments to the tender process

as well as a more realistic am-

bition and timetable.

The tender for the

Kosova e Re power

plant has been suc-

cessfully concluded

(commercial and fi-

nancial close, with

the tendering on the

EPC and O&M con-

tracts being prepared)

and a winning bidder

has been announced.

On the basis of the

ESIA and PSIA, the

proposed PRG has

been negotiated with

Government and the

winning bidder. The

project has been pre-

pared for Board con-

sideration.

World Bank:

CLRP and CLRP-AF,

incl. ESIA for KPP

(active);

KEEREP (active);

PRG for KPP (in prep-

aration);

Water Security in Cen-

tral Kosovo Project (in

preparation);

CEA (published).

IFC: Transaction support

for KEDS Privatiza-

tion and Post privati-

zation support.

Balkans Renewable

Energy Advisory Pro-

gram (BREP). Sustain-

able Energy Finance

(capacity building for

banks for energy effi-

ciency)

MIGA: Possible political risk

guarantee for KRPP

Partners: European Commis-

sion, USAID, The

Netherlands, EBRD,

KfW, and UNDP.

ANNEX 3

-19-

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

Improved quality of

service, with secure

supply to all paying

customers; elimination

of the need for subsi-

dies from Government

and donors to pay for

electricity purchases

and investment in the

Distribution Company.

Electricity distribution

has been privatized and

technical and non-tech-

nical losses have been

reduced by 3–5 percent.

Achieved: The electricity dis-

tribution was privatized in May

2013, with technical and com-

mercial losses having been re-

duced by 2.7 percentage points

during 2011–13, from 38.2 per-

cent in 2011 to 35.5 percent in

2013 (data are not yet available

for 2014). Load shedding (i.e.,

energy not supplied) has been

reduced from 155 GWh in

2011 to 51.6 GWh in 2013.

Government and donor subsi-

dies to the sector have been

eliminated, starting in 2013.

The public electricity

distribution company

has been privatized,

with (i) technical and

non-technical losses

having been reduced

by 5 percent during

2011–15; (ii) negoti-

ated import prices re-

duced by 21.8 per-

cent during 2012–13;

and (iii) the reliance

of the energy sector

on government subsi-

dies ended.

Improvement in en-

ergy efficiency in the

building sector; insti-

tutional strengthening

of a to-be-created En-

ergy Efficiency

Agency to promote en-

ergy efficiency.

At least 15–20 public

buildings (schools, hos-

pitals, community

buildings) have been

retrofitted; revised

building codes have

been established, and

households have access

to finance to retrofit

their houses.

Partially* achieved: Some

public buildings at the munici-

pal level (data are not yet avail-

able) have been retrofitted; the

central and municipal govern-

ments are in the process of bor-

rowing for the purpose of in-

vesting in energy efficiency

measures in buildings. Revised

building codes are in the pro-

cess of being established;

households have access to fi-

nance to retrofit their houses

with improved insulation and

more efficient appliances. An

Energy Efficiency Agency has

been established and is being

supported with technical assis-

tance.

At least 20–25 public

buildings (schools,

hospitals, community

buildings) have been

retrofitted; revised

building codes have

been established, and

households have ac-

cess to finance to ret-

rofit their houses. An

Energy Efficiency

Agency has been cre-

ated and its capacity

has been developed.

At least 25 bankable

projects have been

prepared for private

sector investment in

renewable resources;

and a financing

mechanism for pri-

vate sector renewable

energy projects is in

place.

Increased use of re-

newable resources for

electricity generation.

At least 3 bankable pro-

jects have been pre-

pared for private sector

investment in renewable

resources; and a financ-

ing mechanism for pri-

vate sector renewable

energy projects is in

place.

Achieved: About 24 projects

are being prepared for private

sector investments in renewa-

ble resources, mainly small hy-

dro and wind energy invest-

ments. Five renewable energy

projects with a total of 38.8

MW of installed capacity have

received the final authoriza-

tions from the Energy Regula-

tor. A financing mechanism for

private sector renewable energy

projects, supported by EBRD

and IFC, has been made availa-

ble for qualified investors.

ANNEX 3

-20-

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

Country Development Goal No. 2. Promote private sector development and financial strengthening

Original: Provision of

knowledge inputs to

Government’s efforts

to promote private sec-

tor led growth through

simplified processes

for business licensing,

inspection and regula-

tion.

Revised: Simplified

processes for doing

business introduced.

(Baseline:

In the 2008 BEEPS, 38

percent of firms said

licenses and permits

were a problem.

Overall ranking in the

2012 Doing Business

survey: 117, with sub-

categories starting a

business, registering

property, and enforc-

ing contracts being,

respectively, 168, 73,

and 157.)

Original. Reduction in

percentage of firms in-

dicating problems with

business licensing and

regulation from 47 to 37

percent.

Revised: Reduction in

percentage of firms in-

dicating problems with

business licensing and

regulation from 38 per-

cent in 2008 to 28 per-

cent in 2015.

Partially* achieved: While

original benchmark data and

outcomes are not directly com-

parable, the percentage of firms

indicating problems with busi-

ness licensing and regulation,

the business registration pro-

cess has been streamlined and

28 one-stop-shops established,

issuing a single document with

registration, fiscal, and VAT

numbers.

During 2011–14, procedures

for starting a business have

been reduced from 10 to 5,

from 58 to 11 days, and from

104.6 percent of income per

capita to 1.2 percent.

In the 2013 BEEPS, 31 percent

of firms said that licenses and

permits were a problem.

In the 2015 Doing Business

survey, Kosovo ranked 75

overall, with the subcategories

on starting business, registering

properties, and enforcing con-

tracts being, respectively, 42,

34, and 138.

Less than 28 percent

of firms indicate

problems with busi-

ness licensing and

registration. The

number of days to

start a business has

been reduced to 11,

and the cost of start-

ing a business has

been reduced to 1.2

percent of income per

capita.

World Bank: BETA (closed),

SEDPP (closed), RE-

CAP (active), PSMP

(active), SILED (grant,

closed), KYDP2

(grant, closed), FSS-

MIP (active), various

TA operations for the

Central Bank (active).

AAA and ESW: FSAP (finalized and

published), several

ROSCs (published),

PFR (finalized and

published).

IFC Advisory: Trade Logistics, In-

vestment Climate

(business regulations

and investment pol-

icy), Corporate Gov-

ernance, Doing Busi-

ness Report (analysis

and advisory services)

Financial Institutions

project (credit report-

ing, secured transac-

tions and financial lit-

eracy)

IFC Financing: Support to SMEs, mi-

crofinance institutions,

and banks with a focus

on the SME sector.

Partners: IMF, USAID, US.

Property and cadastral

services have im-

proved as indicated by

increase in registered

real estate transactions

and decrease in the av-

erage days to register a

standard sale or pur-

chase of a residential

property.

Average number of

days to register a stand-

ard transaction of resi-

dential property de-

creased from 30 days in

2012 to 20 days in

2013; 11 out of 23

MCO facilities are re-

engineered.

Achieved: The average number

of days to register a standard

transaction of residential prop-

erty has decreased from 30

days in 2012 to 27 days in 2013

and 10 days in 2014; 20 out of

23 MCO facilities have been

re-engineered.

Average number of

days to register a

standard transaction

of residential prop-

erty decreased from

30 days in 2012 to 10

days in 2013; 22 out

of 23 MCO facilities

are re-engineered.

Average number of

days to register a

standard transaction

of residential prop-

erty has decreased

from 30 days in 2013

to 20 days; 21 out of

23 MCO facilities

have been reengi-

neered.

ANNEX 3

-21-

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

Original: Direct sup-

port to development of

small and micro enter-

prises through grants,

training, and TA.

Revised: Creation of

new small and micro

enterprises.

300 small and micro en-

terprises created or

strengthened.

Revised: 300 small and

micro enterprises cre-

ated.

Achieved: A large number of

small and micro enterprises,

beyond the figure initially fore-

seen, have been created.

At least 300 small

and micro enterprises

have been created.

Original: Increased

access to credit for

SMEs.

Revised: Increase en-

try of formalized

SMEs.

Benchmark: 7879

new enterprises regis-

tered in 2011.

Original: Support de-

velopment of SMEs in

key areas such as agri-

business and construc-

tion through helping to

overcome financial con-

straints.

Revised: Increase by at

least 15 percent, relative

to 2011, number of

new, registered compa-

nies.

Achieved: Support provided to

the development of SMEs

through improved cadastral ser-

vices, property registration, fi-

nancial reporting, and interest

rate subsidies in key areas such

as agribusiness, energy effi-

ciency investments, and con-

struction through helping to

overcome financial constraints.

Number of new, registered en-

terprises increased to 9576 in

2012 (+21.5 percent), 9420 in

2013 (+19.6 percent), and 9404

in 2014 (+19.4 percent).

Benchmark: At end-2014, 15.6

percent of all enterprises were

female-owned.

Increase by at least

15 percent, relative to

2011, number of

new, registered com-

panies.

Increase the share of

female-owned busi-

nesses by at least one

percentage point.

Stronger financial sys-

tem through support of

the regulatory and in-

stitutional reform of

Kosovo's financial

system.

Reform of the payment

system, and implemen-

tation of Real Time

Gross Settlement; har-

monization of existing

regulations and proce-

dures with Kosovo’s

new Banking Law, and

assurance of conformity

with EU practices, par-

ticularly in the area of

financial reporting and

auditing.

Partially achieved: Reforms of

the payment system and the im-

plementation of the real time

gross settlement system have

been initiated; existing regula-

tions and procedures have been

harmonized with existing regu-

lations and procedures with

Kosovo's new Banking Law;

assurances of conformity with

EU practices, particularly in the

area of financial reporting and

auditing, have been provided.

Kosovo has become a member

of SWIFT and introduced

IBANs. TA is being provided

to follow up on FSAP recom-

mendations.

Reform of the pay-

ment system, and im-

plementation of Real

Time Gross Settle-

ment; harmonization

of existing regula-

tions and procedures

with Kosovo’s new

Banking Law, and as-

surance of conform-

ity with EU practices,

particularly in the

area of financial re-

porting and auditing.

ANNEX 3

-22-

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

The sustainability of

the CBK and its ca-

pacity to supervise

banks and non-bank fi-

nancial institutions

have been strength-

ened.

CBK has developed

plans to ensure access

to long-term resources

and supervises Ko-

sovo’s main banks and

pension funds on a reg-

ular schedule.

Achieved: The CBK has devel-

oped plans to ensure access to

long-term resources, including

in the CBK Strategies 2010–14

and 2015–19, and supervises

Kosovo's main banks and pen-

sion funds on a regular basis.

The CBK has devel-

oped plans to ensure

access to long-term

resources and super-

vises Kosovo's main

banks and pension

funds on a regular ba-

sis, while increasing

the preparedness for

potential crisis situa-

tions.

Country Development Goal No. 3. Strengthening agriculture development

Promote competitive-

ness and growth in the

livestock and horticul-

ture sub-sectors

through implementa-

tion of selected

measures of agricul-

tural strategy and insti-

tutional development.

Women farmers tar-

geted through the

awareness campaign.

More women farmers

engaged in agriculture

and agribusiness in

Kosovo. Strengthen

capacity of the Minis-

try of Agriculture to

include support to

women farmers.

At least 80 agricultural

enterprises have

adopted improved prod-

ucts and/or processes.

At least 20 new agricul-

tural micro and small

enterprises have been

established.

Percentage of women

farmers awarded grants

is doubled

(Baseline: 4.4 percent

in 2011).

At least one quarter of

all participants trained

in grant preparation are

women.

(Baseline: 0).

Achieved: 406 agricultural en-

terprises have adopted im-

proved products and/or pro-

cesses.

325 new agricultural enter-

prises have been established in

2011, 741 in 2012, 753 in

2013, and 674 in 2014.

Achieved: By October 2014,

202 of 1931 grants (or 10.5

percent) went to female farm-

ers. By the same date, 23 per-

cent of participants trained

were female.

420 agricultural en-

terprises have

adopted improved

products and/or pro-

cesses; 1,400 new ag-

ricultural micro and

small enterprises

have been established

during 2014–15.

At least 10 percent of

grant beneficiaries

and at least 25 percent

of training partici-

pants are female

farmers.

World Bank: ARD (active), Danish

TF (active), SILED

(grant, closed)

IFC: Western Balkans Agri-

business Competitive-

ness Project

Partners: Denmark, US

ANNEX 3

-23-

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

Country Development Goal No. 4. Investing in education and skills

The central and local

capacities to monitor

financial and quality

trends and plan and

carry out investment is

strengthened, as indi-

cated by (i) the trans-

fer of budgetary auton-

omy to municipalities;

(ii) the adoption of a

per-capita funding for-

mula that directs re-

sources to areas of

need; (iii) the monitor-

ing and publication of

annual current expend-

itures of key parame-

ters.

Financial decentraliza-

tion and transfer of au-

tonomy to schools

(Baseline: 13 munici-

palities in 2011, target

37 municipalities in

2013).

Percentage of munici-

palities that use EMIS

data to report on the sta-

tus of drop-outs and re-

tention disaggregated

by gender and commu-

nity.

(Baseline: 0 percent in

2011; 60 percent in

2013).

Partially achieved: Financial

decentralization and transfer of

autonomy to schools took place

in 31 (out of 38) municipalities.

80 percent of municipalities use

EMIS data to report on the sta-

tus of drop-outs and retention,

disaggregated by gender and

community.

Financial decentrali-

zation and transfer of

autonomy to schools

have taken place in

35 (out of 38) munic-

ipalities. 85 percent

of municipalities use

EMIS data to report

on the status of drop-

outs and retention,

disaggregated by

gender and commu-

nity.

National Qualifica-

tion Framework doc-

ument and adminis-

trative instruction of

accreditation criteria

have been developed

and approved. Deci-

sions about the ac-

creditation of training

providers made pub-

licly available.

World Bank: SEDPP (closed), IDEP

(closed), follow-up ed-

ucation project (in

preparation)

Partners: Sweden, European

Commission, Austria,

US. Improved opportuni-

ties for relevant train-

ing and life-long learn-

ing as indicated by the

establishment of a Na-

tional Qualifications

Framework and con-

tinued accreditation of

vocational training in-

stitutions.

National Qualification

Framework document

and administrative in-

struction of accredita-

tion criteria developed

and approved. Deci-

sions about the accredi-

tation of training pro-

viders made publicly

available.

Achieved: National Qualifica-

tion Framework document and

administrative instruction of

accreditation criteria have been

developed and approved. Deci-

sions about the accreditation of

training providers made pub-

licly available.

Country Development Goal No. 5. Promoting sustainable employment and social inclusion

Original: Labor pro-

grams strengthened

and employment op-

portunities enhanced,

as indicated by the in-

crease in the number

of annual job place-

ments made by Public

Employment Services

and decrease in the in-

formal employment

rate.

Revised: Employment

opportunities en-

hanced.

Pilots of labor market

programs with in-

creased participation of

regional and local em-

ployment offices carried

out.

Public works program

expanded.

Achieved: Public works pro-

gram implemented during

2010–12. Pilots of labor market

programs with increased partic-

ipation of regional and local

employment offices have been

carried out in 2011 and 2012,

with the target of at least 33

percent of public works partici-

pants being Category II social

assistance benefit recipients

having been surpassed in 2011

(34 percent) and 2012 (42 per-

cent).

World Bank: SEDPP (closed),

SILED (grant, closed),

KYDP2 (grant,

closed).

AAA and ESW: Kosovo Human Devel-

opment Technical As-

sistance (2012, 2013),

Kosovo Statistical and

Analytical Capacity

Development (Labor

Force Surveys pub-

lished for 2012 and

2013), Programmatic

Poverty and Gender

monitoring (ongoing).

Partners: UK, UNDP.

The capacity for moni-

toring strengthened, as

indicated by improved

statistical data collec-

tion and analysis.

The development of a

Labor Market Infor-

mation System has been

initiated.

Achieved: The development of

a Labor Market Information

System has been completed.

The development of a

Labor Market Infor-

mation System has

been completed.

ANNEX 3

-24-

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

Original: Health out-

comes are improved,

as indicated by the

passing of a health in-

surance law that trans-

forms the financing of

health care to improve

the financial protec-

tion of the poor with-

out threatening the fis-

cal sustainability and

increasing labor taxes.

Revised: The health

insurance law is

adopted as necessary

condition to improve

access to health care.

Health insurance law

passed.

Partially achieved: Health in-

surance law has been passed,

but it comprises a payroll tax.

The health insurance

law has been passed

and is being imple-

mented.

Support social cohe-

sion through the reha-

bilitation of small-

scale social and eco-

nomic infrastructure in

the poorest villages

and in mixed/minority

communities as well

as promoting MSMEs

in a socially inclusive

manner; and through

youth centers, promot-

ing inter-ethnic collab-

oration among youth,

especially from mar-

ginalized and vulnera-

ble groups.

At least 20 basic com-

munity infrastructure

objects have been reha-

bilitated or built

through a socially inclu-

sive approach and at

least 300 small and mi-

cro enterprises have

been created or ex-

panded with a socially

inclusive approach.

At least 16 Youth Cen-

ters have fully devel-

oped sustainable strate-

gies.

Partially achieved: 31 basic

community infrastructure ob-

jects have been rehabilitated or

built through a socially inclu-

sive approach and 256 small

and micro enterprises have

been created or expanded with

a socially inclusive approach;

18 Youth Centers have fully

developed sustainable strate-

gies.

31 basic community

infrastructure objects

have been rehabili-

tated or built through

a socially inclusive

approach and 300

small and micro en-

terprises have been

created or expanded

with a socially inclu-

sive approach; 18

Youth Centers have

fully developed sus-

tainable strategies.

Country Development Goal No. 6. Strengthening public financial management, procurement and anti-corruption efforts

ANNEX 3

-25-

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

Long-term focus on

public financial man-

agement with strength-

ened internal controls

and audit, strength-

ened external audit, as

measured by improved

performance in the

PEFA indicators.

In no more than one out

of last 3 years has the

actual expenditure devi-

ated from budgeted ex-

penditure by more than

10 percent of budgeted

expenditure (PEFA in-

dicator PI-1).

Achieved: After the 2010

budget, which had to absorb a

major, budget-financed motor-

way investment, the subsequent

budgets were considerably

more stable, with actual ex-

penditures not deviating from

budgeted expenditure by more

than 9 percent.

In no more than one

out of last 3 years has

the actual expendi-

ture deviated from

budgeted expenditure

by more than 10 per-

cent of budgeted ex-

penditure (PEFA in-

dicator PI-1).

World Bank: PSMP (ongoing),

SEDPP (closed).

AAA and ESW: CFA (published).

Partners: European Commis-

sion.

Increased bidder par-

ticipation in public

procurement tenders

and cost savings

achieved through

Quick Gains actions

and e-procurement

modules.

Bidder participation in

public procurement ten-

ders increases by 15

percent (Baseline:

8,270 bidders).

Partially achieved: In 2013,

bidder participation in public

procurement tenders, relative to

the baseline, has increased by

about 10 percent.

Bidder participation

in public procure-

ment tenders, relative

to the baseline, has

increased by 15 per-

cent.

Transparent and co-

herent pay and grading

structure introduced in

the core civil service.

Grading system is fully

introduced and there is

an equal base pay for

posts of equal grade and

salary step across civil

service bodies.

Not achieved: Grading system

has not been fully introduced

and there has not been an equal

base pay for posts of equal

grade and salary step across

civil service bodies.

Grading system is

fully introduced and

there is an equal base

pay for posts of equal

grade and salary step

across civil service

bodies.

Pillar II — Improving Environmental Management

Country Development Goal No. 7. Reduce the environmental footprint of development activities, reducing environmental hazards to

human welfare, and moving towards harmonization with EU environmental standards.

Broader appreciation

of environmental is-

sues and of strategies

for addressing them

throughout Govern-

ment and among

stakeholders.

Completion of Govern-

ment’s Kosovo Envi-

ronmental Action Plan

(2011 draft) and the

State of the Environ-

ment Report.

Achieved: The Government’s

Kosovo Environmental Action

Plan and the State of the Envi-

ronment Report have been

completed. Most of the legisla-

tion has been harmonized with

the EU's environmental acquis

communautaire.

The Government’s

Kosovo Environmen-

tal Action Plan and

the State of the Envi-

ronment Report have

been completed.

Most of the legisla-

tion has been harmo-

nized with the EU's

environmental acquis

communautaire.

World Bank:

CLRP and CLRP-AF

(ongoing), Dutch TF

(ongoing), Water Se-

curity in Central Ko-

sovo (in preparation)

AAA and ESW:

CEA (published)

ANNEX 3

-26-

Original and Re-

vised CPS

Outcomes

Original and Re-

vised CPS Outcome

Indicators (Origi-

nally Denoted as

Milestones)

Progress to Date

(Compared to Original

CPS Milestones)

CPS Targets for

end-FY16

CPS Instruments

and Partners

Pollution in mining

operations has been re-

duced and environ-

mentally sound mining

operations have been

strengthened though

the elimination of

dumping on open land

of ash from the Ko-

sovo A power plant.

Baseline: particulate

matter (PM10) in cen-

tral Prishtina in 2010

is 74.7 μg/m3; NO2

20.8 μg/m3, and SO2

11.2 μg/m3:

Mirash open pit mine

has been prepared for

Kosovo A ash manage-

ment, and the wet ash

handling system has

been installed.

Achieved: The Mirash open pit

mine has been prepared for Ko-

sovo A ash management, and

the wet ash handling system

has been installed (and is oper-

ational).

Particulate matter (PM10) in

central Prishtina in January

2015 is 51.7 μg/m3; NO2 27.7

μg/m3, and SO2 5.9 μg/m3:

The Mirash open pit

mine has been pre-

pared for Kosovo A

ash management, and

the wet ash handling

system is operational.

Air pollution indica-

tors for PM10, NO2,

and SO2 fall below

the January 2015

values.

Partners:

European Commis-

sion, The Netherlands,

Switzerland, Germany,

KfW, and UNDP.

Initiate and enable

KEK to achieve land

reclamation for natural

habitats, agriculture,

resettlement or other

land use purposes.

At least 55 percent of

the total overburden

area has been re-

claimed.

Achieved: 70 percent of the to-

tal overburden area has been re-

claimed.

80 percent of the total

overburden area has

been reclaimed.

Removal of highest

priority hazardous

substances from stor-

age tanks at the gasifi-

cation site.

4,300 tons of tars, ben-

zene, phenols, metha-

nol, and oily com-

pounds have been re-

moved.

Achieved: Approximately

6,000 tons of high organic con-

tent materials (tars, benzene,

phenols, methanol, and oily

compounds) have been re-

moved and 15,000 tons of low

level organic content materials

have been treated locally.

Approximately 6,000

tons of high organic

content materials

(tars, benzene, phe-

nols, methanol, and

oily compounds)

have been removed

and 15,000 tons of

low level organic

content materials

have been treated lo-

cally.

The KRPP program

adheres to good envi-

ronmental practices

and options for deriv-

ing energy from re-

newable sources.

Regular environmental

monitoring of air, soil,

and groundwater in the

KRPP area is estab-

lished. A low-carbon

growth strategy for Ko-

sovo is prepared.

Achieved: Regular environ-

mental monitoring of air is es-

tablished and of soil and

groundwater in the KRPP area

has begun. A low-carbon

growth strategy for Kosovo is

prepared.

Regular environmen-

tal monitoring of air

is established and of

soil and groundwater

in the KRPP area has

begun. A low-carbon

growth strategy for

Kosovo is prepared.

* Milestones have likely been achieved, but there are not yet data published to make a final determination

ANNEX 4

27

Annex 4: Analytical Work Underpinning World Bank Operations

Energy Efficiency and Renewable Energy Project (approved)

Development and Evaluation of Power Supply Options (2011, being updated)

Kosovo Power Project (PRG, pipeline)

Environmental and Social Impact Assessment (ongoing)

Poverty and Social Impact Assessment (ongoing)

Kosovo Power Project Report of the SFDCC External Panel (2012)

Development and Evaluation of Power Supply Options (2011, being updated)

Water Security and Canal Protection Project (pipeline)

Water Security Study (2012)

Kosovo Health Project (approved)

TA for Health Financing, Capacity Strengthening of the Health Financing Agency (IDF, ongoing)

Health Poverty and Social Impact Assessment (2014)

Studies and TA for Health Sector Reforms (2014)

Kosovo Education Project (pipeline)

School Transition and Retention Rates from Primary to Upper Secondary Education Study (ongoing)

STEP Skills Measurement Household Survey (ongoing)

Public Financial Review (2014)

Country-wide Key Analytics

Systematic Country Diagnostic (ongoing)

Public Financial Review (2014)

Country Environmental Analysis (2013)

Financial Sector Assessment Program (2012)

Fiduciary Assessment (2012)

Migration and Economic Development (2011)

Consumption Poverty Report (2011)

Public Expenditure Review (2010)

Country Economic Memorandum (2010)