Key Reforms Can Boost Kosovo’s Growth and Raise Living Standards

PRISTINA  – By stepping up key reforms, Kosovo can accelerate growth and potentially reach the current living standards of EU countries such as Latvia, Estonia, Lithuania, the Czech Republic, and Slovenia, in the next twenty years,, says a new World Bank Country Economic Memorandum for Kosovo, presented today.

Over the past 25 years, per capita income in Kosovo has increased more than 10-fold – from about $400 in 1995 to over $4,000 in 2022. Despite this progress, however, per capita income is still only 12 percent of the average EU member state, or 20 percent of aspirational peers.

“With the right reforms, Kosovo can gear up for a more productive future,” said Massimiliano Paolucci, World Bank Manager for Kosovo. “Harnessed in the right way at the right time, Kosovo’s strengths could prove a catalyst for accelerating growth to achieve higher living standards.”

According to the report, a package of reforms to entrench macroeconomic stability and sound governance, increase firm productivity, raise farm productivity, enhance human capital, and boost exports, competition and private investment, especially foreign direct investment), could see Kosovo close the gap with its peers.

A more dynamic private sector is central to Kosovo achieving higher living standards, yet the country faces several challenges. The lack of jobs is a major impediment to growth. Just 2 in 5 people of working age are currently participating in the labor market, and 1 in 4 people cannot find a job.

Productivity growth in business and in farming is too low. Labor productivity is only one third of that of an average EU company, and the average farm could produce the same amount of output using 70 percent less inputs. Business is dominated by small enterprises that often fail to grow and survive. In addition, barriers to women’s economic empowerment remain in place. Only 20 percent of women actively participate in the labor market, while women’s participation in the economy as entrepreneurs is also limited.

While spending on education has been increased, the quality of human capital needs to improve, notes the report. Kosovo spends 4.6 percent of GDP and 16 percent of total government spending on education, which is similar to peer countries. However, only 23 percent of pre-school children are on track in terms of expected literacy and numeracy skills.

The report underlines that proximity to major markets in Europe and a young population are providing an opportunity for growth, while trade facilitation and logistics connectivity are getting better.

“Proximity to a large and affluent market, low taxes and labor costs, a resilient and liquid financial sector, and strong ties with its diaspora will help support growth,” said Richard Record, Lead Country Economist for Kosovo.