Kosovo

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Office for South East Europe European Commission / The World Bank

Report on Progress Made in Committing, Contracting and Spending Donor Pledges to Kosovo ¹

May 2002

Commitments, Contracts and Spending as of December 31, 2001 ²

The European Commission / World Bank Joint Office has prepared updated summary tables on the status of donor pledges³ to Kosovo as of December 31, 2001 based on a new set of reports by donors. 

This annual reporting on donor pledges to Kosovo from the Joint Office is part of the two institutions' follow-up work from three donors meetings held since July 1999. The information from the Joint Office Kosovo donor database complements the quarterly reports produced by the Interim Administration's Ministry of Finance and Economy based on local project information.

Overall Results of the Survey

As of December 31, 2001, the overall external financing to Kosovo is shown in Table 1 below. Main findings are:

• Donor commitments, contracts and expenditure remained high throughout 2001

• 95% of the pledges made for Kosovo has been committed

• 73% of the pledges made for Kosovo has been spent

These results are further explained in the section on overall commitments, contracts and expenditure 1999 - 2001.

Table 1: Summary of Total Donor Assistance from 1999-2001

Pledges for Budgetary Assistance are the same in $ and €. Amounts converted at the exchange rate of the meeting dates and added together. Percentage variations are due to substantial exchange rate fluctuations from 1999-2001

I. Background

Needs for Kosovo have been substantial. Even before the dissolution of the Socialist Federal Republic of Yugoslavia (SFRY), Kosovo had been its poorest province. The 1990s were marked by a severe economic crisis, compounded by the breakup of SFRY and of the international sanctions imposed on the FRY. The economic situation in Kosovo worsened further by the conflict which ended in 1999, and which had resulted in extensive damage to housing, agriculture, and telecommunications. However, the reconstruction program has boosted economic recovery with growth rates into the double digits. As a result, per capita income today is estimated at around $900. Nonetheless, a poverty assessment published by the World Bank shows that poverty is widespread yet shallow, with just over half of all people in Kosovo living in poverty.

When the military conflict occurred, the international community quickly recognized the need for a coordinated response. Over the past three years, three donor meetings for Kosovo were held to mobilize and coordinate international assistance to cover well identified, specific needs. A reconstruction and recovery program presented by the World Bank and European Commission in November 1999 set out a framework with three main objectives: (i) to develop a thriving open and transparent market economy; (ii) to support the restart of public administration and to establish transparent, effective and sustainable institutions; and (iii) to mitigate the impact of the conflict and to start addressing the legacy of the 1990s.⁴ The cost of reconstruction and recovery was estimated to be $2.34 bn from 1999-2003, with capital-intensive investments particularly for housing, energy, water and waste. The program also put a strong emphasis on private sector development and rehabilitation of agriculture.

The three donors meetings served to share information between the Interim Administration and the donor community on needs, supporting donor activity, and progress made from the Interim Administration and its Central Fiscal Authority in economic reform and reconstruction. In the context of these donors meetings, donors announced assistance of over €2.1 billion to support the Kosovo budget, reconstruction and recovery program, and peace implementation activities.⁵

This report provides an overview of the overall amount of assistance and how it developed over time. The figures reflect the willingness of the international community to help stimulate the economy, build up the public administration, and address poverty through reconstruction and economic development activities, and budgetary support. The next section of this note looks at how the overall program is progressing in financial terms, the third section looks at the sources of these funds, and the fourth at sector allocations. The full results of the survey are attached as tables in annex.

II. Overall Commitments, contracts and expenditure 1999 - 2001 for Kosovo's recovery ⁶

As of the end of 2001, donors had pledged about $2 billion for budgetary support and reconstruction and recovery activities, and committed about $1.8 billion, which is close to the original targets of the reconstruction program. While the original estimates pointed to a requirement of $2.34 billion until 2003, these estimates continue to be reviewed on a regular basis by the Interim Administration in consultation with the donors, and are now incorporated in the official Public Investment Program of the annual budget. An additional amount of over €300 million has been reported by donors as expected to be committed by the end of 2002.

Figures 1€ and 1$ below show the increase of donor commitments and expenditure since December 1999. The recorded expenditure for overall donor assistance to Kosovo until the end of 2001 was €1.6 billion. Figure 2$ shows similar information but only for reconstruction. Again, a healthy growth in commitments, contracting and expenditure has been recorded during 2001.

Budget Support

Budgetary assistance in the annexed tables have been separated to show the 1999, 2000, and 2001 budget contributions from donors. No amounts have been recorded as committed for undesignated budgetary support for 2002 as of December 31, 2001. In 2002, own revenue will increasingly replace donor support for this purpose, and the Interim Administration has estimated that only 7% of 2002 budgetary requirements will be needed from donors.

Reconstruction and Recovery and Peace Implementation Activities

For Reconstruction and Recovery and Peace Implementation Activities, about 91% of the pledged funds have been committed, 82% contracted and 69% have been spent. Of the amounts spent for reconstruction and recovery and peace implementation activities between 1999-2001, some 41% (or €551 mn) of the total was delivered in 2001 alone.

III. Sources of Funds for Kosovo 1999-2001 - Donor contributions (Annexed Tables 1 and 2)

The various donors have shown a strong and concerted effort to support Kosovo. The table below gives an overview of the overall source of funds, split between Financial Institutions (EBRD, World Bank, Council of Europe Development Bank, Islamic Development Bank), bilateral donors, and the European Community. Bilaterals and the European Commission have taken a lead role in supporting Kosovo through grant funds. The European Commission and EU Member States have donated about 65% of the overall amount. The US another major donor, provides 15% of overall support. Non EU Member States, including Japan and Switzerland, have also substantially contributed to the reconstruction effort. While financial support from IFIs to Kosovo has been considerably less than bilaterals because of their limited ability to provide grant funds, they have actively supported the reconstruction efforts through support of the private sector, and extensive analytical work and policy advice together with the IMF.

Table 3. Sources of Funds for Kosovo 1999-2001 by commitments in €

IV. Sector Allocations (Annexed Tables 3-6)

The sectors which received the largest amount of external financing are utilities, notably energy; housing; institutions; and private sector development. The utilities sectors (energy, solid waste and water) received €458 mn, some 28% of donor commitments for reconstruction activities. Energy alone, funded mainly from investments from the European Commission, accounted for €346 mn, or about 21%. Institutions is now the second highest funded sector in the reconstruction and recovery program. This is because the definition has expanded from support to banking and fiscal authorities, customs, judiciary, municipal level administration to cover additional areas identified by the Interim Administration.⁷ Housing, which was heavily damaged during the conflict, received substantial support, amounting to 13% of the total. The social sectors, health and education received about 12%.

Since the Reconstruction and Recovery Program was presented in November 1999, the Interim Administration has developed its own framework for budgetary planning and capital investment; and monitoring systems for transparent reporting of fiscal revenue and external financing. The Interim Administration prepared a Budget for 2002, and its Budget 2001 ⁸ included a Public Reconstruction and Investment Program (PIP) for 2001-2003. This Public Investment Program was expenditure rather than commitment based, thus not directly comparable to the commitment based reporting of donor pledging. The Public Investment Program, as well as other donor project assistance, is being tracked in Kosovo through a database kept by the Ministry of Finance and Economy. In response to the Interim Administration, the Joint Office prepares summary tables of donor data according to PIP sector headings, which enables the Administration to match disbursements from donor pledges to their own expenditure system. This information is found in Tables 5 and 6 in Annex.

V. Next steps

The high level of donor assistance made available to help Kosovo in the immediate crisis period was exceptional and Kosovo is already starting to reduce its dependence on donor flows.

However, there remain high priority areas for further reconstruction which continue to depend on donor flows. The financial reports by the Ministry of Finance and Economy and the data tracked through the Joint Office donor polling exercise provide a basis to determine financing available, identify gaps and continue the improved allocation of available funds.

As Kosovo has built up its capacity to monitor data flows, the Joint Office has scaled down its reporting to once a year. The Joint Office expects to carry out this exercise again next year to capture further progress for 2002, and will continue to cooperate closely with the Ministry of Finance and Economy to maintain and improve, as necessary the monitoring of donor assistance to Kosovo.

Attachments: (pdf, 419 KB)

Table No. 1 Kosovo: Results by Donor in USD
Table No. 2 Kosovo: Results by Donor in euro
Table No. 3 Kosovo: Results by original Sectors in USD
Table No. 4 Kosovo: Results by original Sectors in euro
Table No. 5 Kosovo: Results by PRIP Sectors in USD
Table No. 6 Kosovo: Results by PRIP Sectors in euro
Annex 7 Kosovo: Donor Sector Tables at a Glance