World Bank: Kosovo economy projected to suffer 4.5 per cent decline

Regional growth in the Western Balkans is projected to be between -3 and -5.6 percent, according to the latest publication of the Economic Rule Report ( The World Bank's RER, which examines the basic scenario and most pessimistic scenario in meeting with the high uncertainty brought about by the pandemic. The basic scenario assumes that the outbreak of pandemic in Europe will begin to slow very quickly, so that the containment measures could be lifted by the end of June and gradual recovery could begin in the second half of 2020. The most pessimistic scenario assumes that the blast will be extended and the containment measures could only be lifted at the end of August, with economic activity recovery only in the last quarter of 2020.

The size of the recession depends on the duration of the pandemic in Europe. While it is difficult to predict the continued economic impact of pandemics in the region, where there is little uncertainty that this pandemic is burdening the lives of citizens throughout the region by paying attention to health care systems, paralyzing economic activity and affecting citizens' welfare, says Linda Van Gelder, World Bank Director for the Western Balkans.

“Over the medium term, growth in the region is expected to return strongly, while economic activity gradually returns to normality, but this will also depend on the duration and intensity of the current crisis, as well as the steps policymakers take to address this crisis. ”

In all Western Balkan countries, recession will be driven by a significant decline in domestic and external demand during pandemic. Travel restrictions and social distance measures have a particularly profound impact on the tourism and services sector, where the latter make up about 50 percent of total employment in five countries in the region and about 75 percent in Montenegro. Beyond that, the obstacles to the supply side and lower demand affect many production sectors, while restrictions on liquidity and acute uncertainty lower investments.

The main risk for the Western Balkans is that the prolonged pandemic, as well as the deepest recession in the European Union, could make it difficult to cope with the developing economic crisis.

The report says that quick, bold and carefully designed buffer measures can limit the social and economic impact of this crisis. The governments of the six countries have announced fiscal and social measures to support family economies and businesses during the emergency period, ranging from 1 percent to 6.7 percent of GDP. Countries that entered the crisis with greater fiscal reserves and external reserves have more room to finance larger support programmes.

Short-term measures announced are necessary, and comply with policies undertaken by EU countries. However, there are more citizens in the Western Balkans who rely on self-employment, part-time work, and information activities. These groups are more vulnerable to the crisis, but it is even harder to support themselves through conventional measures.

According to the report, the supplementary support properly adapted to the local context may be necessary to help all vulnerable groups in the region. Several Western Balkan countries, for example, announced the expansion of existing social transfer programmes to support self-employed families and more vulnerable citizens. Given the uncertain duration of this crisis, policymakers everywhere are facing the same dilemma at the level of policies: the use of all fiscal space available to ease the immediate impact could turn boomerang if the crisis continues longer. Thus, policy - level responses must be calibrated to soften the immediate effects, adapt to new realities that may arise, and leave space to prepare the economy for recovery.

For Kosovo, the report predicts that the economy will suffer 4.5 per cent decline in 2020, followed by increased returns in 2021. The explosion of COVIDD-19 and necessary braking measures are causing unprecedented pressure on investments, private consumption, but also on exports and remittances from the diaspora. While consumption can be restored as the economy recovers, service exports and investments will take more time to recover. In this context, public revenues will suffer significant decline.

Because Kosovo entered into crisis with several fiscal covers (high government claims, relatively low public debt), it now has some fiscal space to ease the effects of pandemic, though this space is limited by the simultaneous growth of current spending. However, extending pandemic and containment measures could lead to deeper recession and greater lack of revenues, further limiting fiscal space for policy response. In addition to delaying the total payment of tax duties, the government in office acted swiftly and announced the emergency response package of about 2.8 percent of GDP to support citizens, businesses and affected professions. Accrued marking in providing package for the most needy remains crucial for easing immediate impact on the economy, poverty and society. It will be important to maintain some fiscal space to be able to provide additional support if the crisis lasts longer, and to support later the necessary economic recovery.

The World Bank is finalising a programme of activities, which is likely to exceed 120m euros, to support Kosovo in managing and easing the impact of COVID-19. This programme includes a new project with accelerated procedures to respond to urgent health sector priorities and to protect household economies' incomes, includes restructuring of already approved projects to mobilise funds in support of NVMs, as well as budgetary support for economic recovery and to help authorities meet their funding needs.

The World Bank is committed to remaining a strong partner for Kosovo during these difficult times, and our teams are working to help Kosovo and respond to the COVID crisis-19”, said Marco Mantovanelli, World Bank Country Manager for Kosovo. “After approval by the World Bank, quick signing of the government's agreement is necessary, as well as ratification by the Parliament to ensure that funds are available to benefit Kosovo and its citizens”.

The report focuses on the macroeconomic impact of COVID-19 in the Western Balkan countries, opening up the context for supplementary analysis. A series of notes from the Economic Rule Report, which reviews the impact on specific economic areas, social sectors and on poverty and the distribution of incomes in the region, will be published electronically in May.