76274 Armitage Stresses Further Need for Improvements Remarkable Resilience 2012, in Business Climate and Transparency Required Reforms 2013 The year 2012 has been a very turbulent year worldwide—with strong head- winds coming from not only the euro- zone, still struggling to overcome debt and competitiveness challenges and to provide the common currency area with a reinforced institutional frame- work, but also from deteriorating public finances in the US, increasing food prices, and the sliding-back into reces- sion of some of Kosovo’s most impor- tant trading partners. So what remains as a lasting image from the outgoing year? It is—somewhat surprisingly— the resilience of Kosovo’s economy The outgoing Country Director and Regional Coordinator for Southeast Europe Jane Armitage during the farewell meeting with President of Kosovo Atifete Jahjaga and the ability to protect strong funda- mentals. Public finances have remained Having guided the World Bank’s program in stressed that business environment reforms, under control, with a remarkable 40 Kosovo since the country’s independence and including those begun under the umbrella of percent of public spending reserved for its membership in the World Bank Group, the multi-donor Sustainable Employment Devel- capital expenditures, the banking sector outgoing Country Director and and Regional opment Policy Program, would have to continue has proven healthy and profitable, while Coordinator for Southeast Europe Jane Ar- and deepen. Against the backdrop of the GDP has continued to grow at close to mitage has expressed her gratitude for the ―intensive privatization debate,‖ she encour- 4 percent (while those in the region contracted by an average 1 percent). excellent collaboration during her 5-year man- aged the government to respond to calls for Progress has been made in strengthen- date. Her contribution to, and the foundation increased transparency and—as had recently ing the business climate, albeit from a laid for, Kosovo’s socio-economic develop- been the case for the electricity distribution low level, with the Doing Business and ment, not least relative to the enormous chal- company—and publish privatization con- Corruption Perception Indices having shown lenges in key sectors of the economy, such as tracts: ―This is highly welcome and should impacts on the ground. Of the factors energy, banking, or education, has been em- allow for a constructive dialogue among all that would prevent a rebound of phasized by, among others, President Atifete relevant stakeholders on the inherent benefits growth, once the external environment Jahjaga, Prime Minister Hashim Thaçi and key and costs of the involvement of private- improves, such as high levels of indebt- cabinet members, Assembly Speaker Jakup sector investors in key sectors of Kosovo’s edness and payment arrears within the public and private sectors, Kosovo Krasniqi, Central Bank Governor Gani Gër- economy.‖ remains a regional outlier in the positive guri. In her press conference, Ms. Armitage sense. This bodes well for the medium term, while defining the socio- Public Financial Management Improvement Project Kicks-Off economic challenges for 2013. If The implementation of a World Bank-funded ―Public administration and procurement are macro-fiscal stability is maintained and project component aimed at improving public core challenges Kosovo is facing, and the government continues to focus its ef- financial management in a number of institu- World Bank-financed project can provide forts on increasing the quality of public tions was launched by the Government of essential support to the Government’s ef- services, strengthening the institutions, Kosovo on October 18, 2012, at an event at- forts,‖ said the World Bank’s Country Man- and improving the business climate, tended by public officials and donors working ager for Kosovo, Jan-Peter Olters, at the critical elements are put in place for on deepening the reforms in this sector. event held in the premises of the Ministry of rising domestic productivity and dy- Education, Science, and Technology. He namic rates of sustainable growth. As called upon the staff of the budget organiza- the diaspora has shown, Kosovars— with an encouraging external environ- tions working with project-funded external ment—can be very successful! With experts to use the expertise to the maximum this, and on behalf of the entire Coun- extent, to make sure that experts were asked try Office, I should like to convey to pertinent questions, to benefit from this two- you and your families the best wishes year technical assistance so that, in the future, for a happy, healthy and successful they could become experts themselves. Evis 2013! Sulko, the task team leader for the Public Sector Jan-Peter Olters, Management Improvement Project (PSMP), was Country Manager convinced that ―we might see some very policy design and review so as to create an efficiency, and inter-operability of its good results starting from next year.‖ Dep- environment that will enable budget organi- information systems (through central- uty Minister of Finance and Director of zations to comply with the Public Finance ized data storage and systems mainte- Project Implementation Unit, Ramadan and Accountability Law as well as with in- nance, security standards, and inter- Avdiu, explained that the Government saw, structions and guidelines set by the Ministry operability frameworks). The PSMP was as the primary focus of this project, the in- of Finance. The project activities will be approved by the Board of the Executive crease of the quality in budget preparation, supported and coordinated with the Budget Director of the World Bank on February execution, and reporting in the selected or- Department of the Ministry of Finance and 4, 2010. It was declared effective, follow- ganizations. The beneficiary institutions with the Strategic Planning Office in the ing the ratification of Letters of Agree- would subsequently act as advisors and Office of the Prime Minister. An inception ments in the Parliament of Kosovo, on guides to other organizations. report has already been prepared, based on June 17, 2011. It is scheduled to be com- The World Bank has committed to the document assessments and interviews with pleted by December 31, 2014. The pro- PSMP combined grant and credit funds officials in five budget organizations, the ject is being implemented in coordina- totaling about €6 million. Its Public Finan- Ministry of Finance, the Office of the Prime tion UK’s Department for International cial Management component will be imple- Minister, and with various development Development (DfID), which has con- mented over two years, with main objective partners and international consultants. tributed to some of the activities related being the improvement of the public finan- In addition, the World Bank-funded PSMP to project preparation, such as support cial management capacity in the Ministry of supports the introduction of a transparent for drafting the civil service legislation Health, the Ministry of Justice, and the Kos- and coherent pay and grading structure in and financial impact assessment of civil ovo Judicial Council. Project activities will the civil service, together with improvement service pay reform. DfID, the European focus on strengthening policy-based me- of information and communications tech- Commission, and USAID have also sup- dium-term planning, annual budget formu- nology (ICT) systems that enable effective ported the development of the Public lation as well as the monitoring of budget fiscal and management controls in payroll Financial Management Reform Action implementation and, to some extent, public- administration. It also aims at helping the Plan and the public procurement reform. Government to achieve enhanced security, Southeast Europe Economy Shrinks in 2012, Faces Risks in 2013—Kosovo Leads in Growth The economic outlook remains gloomy and put pressure on the middle class. In the reform labor markets, attract foreign challenges daunting. Largely for reasons of neighboring SEE6 countries more so than in direct investment, rebuild their export external factors, the combined economies Kosovo, public-sector arrears pose special base, and ensure financing. Several coun- of the six Southeast European countries are challenges to fiscal management and the tries improved their investment climates expected to shrink by 0.6 percent in 2012, private sector, with policymakers being faced and moved up on the global Doing Busi- facing formidable risks going into 2013. with and unfinished structural-reform ness ratings, especially Kosovo and Ser- According to the forecasts contained in the agenda. In 2012, deteriorating external con- bia. But without further labor market World Bank’s third edition of the South East ditions, the impact of the severe winter on reforms and significant infrastructure Europe Regular Economic Report, published on investments, especially in energy, it will December 18, 2012, growth is expected to be difficult to reduce unemployment, rebound to a modest 1.6 percent, leaving improve competitiveness, and achieve governments with the twin tasks of foster- robust growth. Intensifying the privati- ing growth while consolidating public fi- zation process is seen as one option that nances. Kosovo remains an outlier, with governments are increasingly consider- generally stronger fundamentals in terms of ing as part of ―a second wave of privati- growth, budgetary deficits, and public debt, zation‖— a general effort to ease the with large current-account deficits (and the financing constraint and improve com- implicit productivity implications) remain- petitiveness. SEE6 governments are ing the principal macroeconomic challenge. economic activity, and a continuing rise in therefore looking for sources of capital Relative to its neighbors in the region, Kos- unemployment took a toll on consumption, not only in the OECD countries but also ovo is projected to have the highest rates of investments, and exports, explains the re- in resource-rich and growing middle- economic growth in 2012 and 2013. port. It also notes that credit recovery and income countries such as Turkey, Russia, The report covers the six SEE6 countries fiscal consolidation are under threat, while China, and Azerbaijan. New privatiza- and foresees the road to sustained recovery non-performing loans are again on the rise. tions should draw on the lessons learnt, being arduous and with significant risks. As a result, both within and outside the re- highlighting the fundamental importance Among the dark clouds on the 2013 hori- gion, the environment has become much of transparency in the process. The re- zon are the risks to recovery of the euro- more difficult to navigate, and the policy port underlines that, if such accelerated zone, policy inactivity in the US that would trade-offs necessary to stabilize economies reforms materialized, external support delay bringing its public finances under and reignite growth are tougher. Pressured from the EU and global international control, and high commodity prices––risks by the external environment, more competi- financial institutions could help to ease to which all SEE6 countries are highly vul- tive global economy, and inadequate reve- the transition to a more sustained nerable. The danger emanating from a new nues, SEE6 governments are seeking ways to growth in medium term. food price shock could deepen poverty and improve efficiency, strengthen infrastructure,