Presented to the Kosovo Donors Meeting but updated with new figures as of March 2001

by Rory O’Sullivan,
World Bank Special Representative
for South East Europe Reconstruction

You will recall that there were two donors conferences for Kosovo organized after the hostilities in 1999, one in July 1999 which was mainly for humanitarian needs but also included some reconstruction needs and a second one in November 1999 for the needs of the reconstruction of Kosovo. At the second conference a Joint World Bank/European Commission report on the Reconstruction and Recovery of Kosovo was tabled. The cost of the program described in this report for the period through 2003 was estimated at the time to be $2.3 bn, covering the requirements for sector investments and budgetary support. An amount of $1.5 bn was pledged at these two donors conferences for reconstruction, budget support, and peace implementation. The Joint Office has circulated separately at this meeting a report on the current outcome regarding commitments and expenditures of these pledged amounts. During the next few minutes, I am going to run through some of the figures with you, and evaluate the status of the donors’ support to Kosovo.

As you know, this work has been done by the European Commission / World Bank Joint Office which has been set up precisely to track the progress of reconstruction in South East Europe and in particular, the outcome in financial terms from the various donors conferences.

The latest results are summarized in the table shown in the first table.

As you can see, the amount committed from the $1.5 bn pledged is so far reported to be 84% of the total pledges, while the amount spent at $874 mn is 57% of the total pledges.

The progress in commitments since we first started assembling this data in December 1999 is shown in the next slide where data from December 2000, June 2000, and December 1999 can be compared regarding both commitments and the amount spent.

The basic story here is one of considerable success in the mobilization and allocation of funds. If this is true from a financial point of view, what is thoroughly encouraging is the positive assessment on the physical side by UNMIK and many donors that much of this money has been well spent and provided handsome benefits for the Kosovar people. I believe that this level of commitment and expenditure in a program of this nature is a great tribute to the donors and the people implementing these projects. Programs elsewhere have taken many years to be fulfilled, while here we are already seeing rapid progress.

But is the level of commitments anything close to what we hoped for by now? If we go back to the original objectives of the Reconstruction and Recovery program issued in 1999, it was foreseen that under a first phase until December 2000 an amount of $1.13 bn was required to be committed for reconstruction and recovery, as well as for the recurrent budget. According to the information we have received from the donors the actual amount committed was $1.2 bn, which is remarkably close to the original objective. We can certainly say that the target we set ourselves some 18 months ago has been fully achieved in financial terms, and we can surely take some comfort from this. The distribution of these commitments between sectors was not fully satisfactory, however, because there were some shortfalls in allocations to sectors such as private sector development and education, but overall the results are there.

Looking to the future, how do we see the situation? I think there is a very important difference between the way funds were committed in the past and the way they will be committed in the future, and we need to recognize this in assessing the state of financing of Kosovo’s reconstruction and recovery program. In the past 18 months, projects have generally been of a relatively short-term type dealing with emergency and urgent needs in the shortest possible time so that we would expect the turn-around time between commitment and expenditure to be quite short. As we can see from the medium term expenditure program issued by UNMIK, we are now moving into a new phase which emphasizes development and reform rather than reconstruction. There is also a very important difference between the way financing requirements are presented now compared with the past. In the past financial requirements were expressed in terms of commitments required and now we are getting into the real world of expenditure requirements. This is a great improvement, and we commend UNMIK for moving in this direction so quickly.

The important point for the donors in this changeover is to recognize that a certain level of expenditures requires a much higher level of commitment. In the beginning of this process, there was probably a gap of 12-18 months between commitment and expenditure while in the future we should be thinking in terms of 2-3 years on average. All this argues for continued and determined efforts to maintain and expand the level of commitment in support of this medium term program so that the momentum of expenditure and hence, real physical output can be achieved. The apparent strength of carry over resources still available for the Kosovo program should be seen in this light. New commitments are needed now to maintain the coherence of the program.

1 A donor contribution of $68 mn included in the Kosovo Police Service category was pledged towards International Police. Given that contributions to international police fall outside the Kosovo budget and reconstruction program, the commitments of 78.5 mn, contracts and spending will not continue to be recorded in this report.