Representatives of 20 countries and 12 international organizations met in Pristina on February 25-26, 2001 to discuss past achievements and future needs for reconstruction and economic recovery of Kosovo.¹ Donor plans of financial support for the Kosovo Consolidated Budget 2001, and the Public Reconstruction and Investment Program for 2001-2003 were also discussed.

This technical meeting for donors was co-chaired by Ms. Thérèse Sobieski on behalf of the European Commission and Mr. Christiaan Poortman on behalf of the World Bank. The meeting was organized in close collaboration with the United Nations Interim Administration Mission in Kosovo (UNMIK).

Participants welcomed the decision of having the meeting in Kosovo, as a follow-up to two previous Donors’ Conferences held in Brussels in July and November 1999. The previous two meetings had allowed the international community to mobilise sufficient resources to avoid a humanitarian crisis during the winter that followed and set the path firmly towards significant reconstruction and development activities, the results of which are very visible today.

Participants agreed that assistance by the international community for reconstruction and development will be effective only if these activities can be carried out in a peaceful environment characterised by tolerance, respect for the law and human rights. In this respect, the participants expressed their strong condemnation of the recent attacks on Serb civilians and noted that such events undermine both the achievements to date and prospects for future support to Kosovo.

The participants heard an opening statement from Mr. Andy Bearpark, Deputy Special Representative for Economic Reconstruction, Recovery and Development. Mr. Bearpark described the current situation of Kosovo: while the emergency is clearly over, the challenge now lies in addressing Kosovo’s development needs and supporting its economic transition so as to allow sustainable economic growth. Mr. Bearpark urged donors to continue to stay engaged in supporting Kosovo’s medium-term development needs as laid out in the comprehensive 3-year Public Reconstruction and Investment Program prepared by UNMIK. He placed particular emphasis on the need to assist with capacity building, training, and social development.

The Co-Heads of the Central Fiscal Authority (CFA), and representatives of the World Bank and the International Monetary Fund described the significant progress made in the implementation of the economic policy and institutional agenda. UNMIK acted rapidly to create a liberal trade regime, permit the use of the Deutsche Mark, and establish the CFA to manage the budget, as well as a Banking and Payments Authority to supervise banks and provide payments services. It was generally agreed that the budget has been managed in a highly responsible manner and has benefited from the input of professional tax and customs administrations. The foundations have been laid for sustained private sector led growth and work is underway to develop an appropriate social protection framework. Participants welcomed the significant progress, and complimented UNMIK on the impressive achievements made last year. They agreed that the policy priorities for the future rest in the following areas:

• Fiscal: There needs to be a further advance towards budget sustainability by a broadening of the tax base, by a reduction in public employment, by maintenance of reasonable salary levels, and increased cost recovery in public services. In particular, there is a need to reduce subsidies to the electricity sector through staff reductions and greater revenue collection. Continued strengthening of civil service capabilities in policy planning, budget and management, and the establishment of an auditing function are important. It was noted that the launching of a corruption prevention strategy supporting civil society monitoring of public services would strengthen confidence in government.

• Supporting the growth of private markets: This requires continued reforms in trade policies and customs administration to close fiscal loopholes; the enactment and enforcement of laws to foster new business formation and growth; deepening of financial institutions and the regulation of insurance. In addition, the revival of the private sector will also require clarification and settlement of property ownership questions and work on devising a privatization program that assures high standards of corporate governance.

• Social protection: The adoption of modern labor legislation is necessary for sustained private sector growth; moreover the development of a social safety net targeted on the poor of all ethnic groups is a critical underpinning of reform.

During the second day of the meeting, the Co-Heads of the Department of Reconstruction gave an overview of major achievements in 2000, in terms of physical reconstruction. Of the 120,000 houses damaged or destroyed during the conflict, more than 60,000 have been either rehabilitated or reconstructed. Following significant investments by donors in the electric power sector, electricity generation has become much more stable, and now exceeds pre-conflict levels. Over 300 km of main roads and associated bridges have been rehabilitated or repaired. Agriculture production has also rebounded significantly, providing employment opportunities to the rural population, and 32,000 businesses have been registered. Basic health care is available to the entire population, and all children are now back at school. However, much is still to be done in all sectors.

The Co-Heads presented the Public Investment and Reconstruction Programme (PRIP) for 2001-2003. The European Commission and the World Bank commented that the PRIP provides a sound strategic basis for guiding donor investments. The integrated approach linking the public investment budget with the recurrent budget allowing for provision of a clear picture of Kosovo needs was welcomed. The European Commission also welcomed the commitment to increase self sustainability, not only for the recurrent budget, but also for capital investments. Recommendations were made to UNMIK to continue work on its investment planning to make it more strategic and selective, within a regional context.

Participants agreed that private sector development will be the main source of growth and employment in Kosovo. To lay the basis for such growth, there is a continued need for further investments and donor interventions in (i) economic infrastructure, (ii) social infrastructure, and (iii) law and justice. Environmentally sustainable investments should be promoted.

• Economic infrastructure: To lay the basis for sustainable economic growth, there is a continuing need for further donor involvement in physical infrastructure, including public utilities and transport. Continued investment in agriculture also remains important, given its prominent role in rural development, employment and output.

• Social infrastructure: Health and education services in Kosovo remain very basic. With its large young population, a sound education system is critical for the socio-economic development of Kosovo. And although many houses have been reconstructed, approximately 35,000 vulnerable families still need housing, there is need for further donor support in these areas.

• Law and justice: Strengthening security, legal enforcement and justice are basic conditions for maintaining stability, promoting growth, attracting foreign investment, and fighting against all forms of criminality. Donor funding continues to be needed for this purpose.

Finally, strong attention must be paid to the further development of local capacity and institutions, involving all ethnic groups in Kosovo.

A representative of the joint European Commission/World Bank Office for South East Europe presented a report on the status of pledges made at the two previous Donors’ Conferences. The report shows that donors have fully supported Kosovo’s most urgent budget needs, and made significant progress in implementing their assistance programs. As of the end of 2000, the $1.1 bn of commitments projected to be required for reconstruction and recovery and budget support in November 1999 had been successfully mobilized.² Of this, 86% has been contracted, and 66% spent.

UNMIK reported on their plans to increase the domestically financed proportion of the recurrent budget from about half in 2000 to about two thirds in 2001. Nevertheless, donor grants in an amount of about DM150 million³ will still be required in 2001 to fill the gap. In addition, UNMIK announced that in 2001 the capital expenditures incorporated in their medium term plan would have to be fully funded by donors. This amounts to DM1.3 billion in the year 2001. While part of this amount is expected to be financed by commitments made in 2000, there is still a need for new commitments to cover the remaining shortfall in required expenditures this year.

Following the various statements by the donors, the Co-Chairs were pleased to note that donor contributions had been identified that would fill the gap in the 2001 recurrent budget and that expected disbursement of donor grants on account of past and new commitments will likely cover the planned level of capital expenditures in 2001.