These remarks were delivered during the panel session “Advancing Sustainability: Infrastructure, Energy Solutions, and Financing Opportunities” during The Economist Impact’s Western Balkans Summit 2024.
Honorable ministers, dear colleagues, participants,
I am pleased to be here today to discuss with you how Kosovo and the Western Balkans region can unlock the potential for higher and more sustainable growth. The crises that the region has experienced over the past years have clearly indicated the need for stronger integration within the Western Balkans and with the EU, as well as of sustained structural reforms.
After growth slowed down to 2.6 percent in 2023, the medium-term outlook for the region is slightly more optimistic, with projected growth averaging 3.2 percent in 2024 and accelerating further to 3.8 percent by 2026. However, this pace of development is insufficient to enable convergence with EU income levels anytime soon.
To grow more and better, to create better paid and higher value jobs for people, to promote a more sustainable improvement in living standards, the countries in the region are confronted with one obvious choice: pursuing a bold structural reform agenda that will transform the economies and allow them to take full advantage of their proximity to the affluent and aging EU market. To become more productive, the economies in the region must reduce their infrastructure and human capital gaps with the EU, guarantee sound governance, unleash the power of the private sector, and remove obstacles to regional and EU economic integration.
In this context, the Berlin Process and the EU’s new Growth Plan for the Western Balkans offer an opportunity to catalyze growth-enhancing reforms and investment through much needed resources. Trade and transport facilitation, as well as access to the Single Euro Payments Area could significantly bolster integration and competitiveness. World Bank research suggests that reducing border clearance times to those in the average OECD economies would be equivalent to lowering tariffs in the Western Balkans by around 2 percent and increasing real incomes by 1.5-3.0 percent.
Let me now zoom in on Kosovo. Strategic reforms targeting macroeconomic stability, governance, and productivity enhancement across firms and farms, alongside investments in human capital and export promotion, including FDI, hold the key to narrowing the gap with regional and EU peers. And let me be clear. Kosovo has come a long way since independence. But the challenges that the global economy poses to it require deepening reforms.
Kosovo's advantageous location and youthful population offer significant growth potential. However, labor force participation is still low, especially among women. Bringing women from inactivity to the labor market is urgent, especially given the migration pressures. Educational quality needs improvement, and women's economic empowerment – including through higher access to early childhood education – holds the promise of accelerating growth.
Exports have recently increased, but firms need to grow faster and access foreign markets, contributing to a more dynamic private sector. The World Bank is actively supporting initiatives to streamline the movement of goods and improve transport networks across the Western Balkans through the regional Trade and Transport Facilitation project, and we are delighted to see that Kosovo will soon join this regional project as well. Recent efforts to reduce the compliance costs of regulations and inspections and to attract more greenfield FDI and more diversified financial products need to be intensified.
To meet its productivity and growth challenge, and mindful of the strong push to promote green growth at the EU level, Kosovo would need to continue investing in greening its infrastructure. That means sustaining the implementation of its Energy Sector Strategy, boosting energy efficiency, decarbonizing the transport sector, enhancing resilience of its water and wastewater network, and capitalizing on digitalization.
Renewable energy and energy efficiency can bolster Kosovo’s energy security and its resilience to volatile energy prices while lowering energy costs. The recent investment projects in solar power and wind power, coupled with the ongoing projects in energy efficiency, are important steps in the right direction. A good example is the Kosovo Energy Efficiency Fund, the first fund of its kind, designed to operate on a revolving basis, scaling up investments and ensuring the sustainability of financing to achieve the government's ambitious energy efficiency targets. With World Bank’s support more than 130 public buildings – hospitals, university buildings, and schools - across Kosovo have been renovated and upgraded for energy efficiency, delivering not only improved comfort and reduced pollution, but also energy and cost savings. With IFC and MIGA, our sister agencies in the WBG, we are partnering with the government to meet its renewable energy targets by fostering private sector investments in wind and solar energy. Additionally, we are looking into ensuring their integration into the national grid and regional markets.
Allow me to quickly elaborate on digitalization. All villages in Kosovo have access to fast broadband internet. Thanks to a WB-led program, fiber-optic cables were extended to more than two hundred remote villages across Kosovo, connecting over 60,000 rural people, schools, and hospitals to high-speed internet. Kosovo can now focus on capitalizing on its well-developed digital infrastructure to create higher-value and better paid jobs for its population, to boost the provision of public services efficiently and effectively, to enhance financial sector development and more.
To sum up, investing in infrastructure is key, but without investments in the countries’ most important resources—their people -, long-term growth will remain below potential. Investing in human capital– as a precondition to unlock higher potential growth— while preserving fiscal adequacy, requires effective and comprehensive reforms. Our current Country Partnership Framework will support Kosovo to enhance the quality of its human capital foundation, through operations in the areas of ECD and foundational skills, health sector financing reform, and social assistance reform.
We at the World Bank will continue to support Kosovo and the region in its structural reform agenda for a more sustainable and inclusive development.
