Kosovo Eyes Next Growth Phase as World Bank Calls for Better Skills, Finance and Clean Energy Reform

Kosovo has strengthened finance, institutions and energy efficiency, but weak education outcomes, health reforms, energy security and implementation capacity continue to constrain development. The World Bank evaluation calls for realistic reforms, stronger coordination, better private investment conditions and greater focus on skills, clean energy, affordable finance and measurable results.

Kosovo has made important progress in strengthening institutions, expanding access to finance and reforming its energy sector, but weaknesses in education, healthcare, electricity security and government implementation capacity could slow its next phase of economic development. A World Bank Group Independent Evaluation Group assessment covering fiscal years 2012–25 finds that Kosovo has moved beyond many immediate post-conflict challenges, but now faces the harder task of converting institutional progress into higher productivity, stronger businesses, better public services and quality jobs.

The World Bank Group achieved significant influence despite being a relatively small development partner. During the evaluation period, the World Bank committed $727 million through 35 investment projects, the International Finance Corporation invested $51 million, and the Multilateral Investment Guarantee Agency issued four guarantees totaling $428 million. The evaluation finds that the strongest results came when financing was combined with technical expertise, institution building and gradual reforms. Progress was weaker when projects depended on difficult legislation, political stability or government institutions that lacked sufficient capacity.

Human Capital Remains Kosovo's Biggest Development Challenge

Kosovo has Europe's youngest population, which could become a major economic advantage. But poor education outcomes threaten that opportunity. In the 2022 PISA assessment, 85 percent of students performed below basic proficiency in mathematics, 83 percent in reading and 79 percent in science.

World Bank support strengthened school management, student assessments and education information systems. By the end of one major intervention, 80 percent of municipalities could report dropout and retention data. However, stronger administrative systems did not produce major improvements in learning. Teacher development remains particularly weak, with only around 25 percent of teachers participating in professional-development programmes.

Early childhood education presents another major gap. Fewer than 5 percent of children have access to preschool and childcare centres, while 77 percent of children entering preprimary education perform below established literacy and numeracy benchmarks. Government spending on early childhood education is estimated at just 0.1 percent of GDP. A planned $22 million World Bank programme could help expand services, particularly for vulnerable families, but implementation has faced parliamentary delays.

Health shows a similar contrast between immediate achievements and difficult long-term reform. During COVID-19, World Bank support helped renovate or equip 58 health facilities, equivalent to 28.2 percent of facilities nationwide, while 16,811 health personnel, at least 80 percent of the health workforce, received training. However, reforms involving mandatory health insurance, health financing and information systems progressed much more slowly.

Access to Finance Expands, but Business Barriers Persist

The financial sector provides some of the clearest evidence of successful institution building. World Bank assistance strengthened the Central Bank of Kosovo and supported closer alignment with European regulatory standards.

A particularly important intervention for businesses was the Kosovo Credit Guarantee Fund. By February 2026, it had guaranteed more than 20,000 loans worth over €1 billion to almost 13,000 micro, small and medium enterprises. The mechanism helped reduce collateral requirements and opened credit to businesses that banks might otherwise have considered too risky.

For policymakers and development partners, the experience shows how credit guarantees can use limited public or development resources to mobilize much larger volumes of private finance.

However, significant barriers remain. Smaller businesses still struggle with informality, weak financial reporting, property-rights problems and contract enforcement. Microfinance has expanded with IFC support, but average interest rates of around 15–21 percent remain a concern. Future financial reforms will therefore need to focus not simply on increasing lending but also on lowering structural risks that make credit expensive.

Green Energy Offers Opportunity, but Supply Security Is a Risk

Energy represents both one of Kosovo's biggest investment opportunities and one of its most serious economic risks. The country has historically generated more than 90 percent of its electricity from lignite, leaving households and businesses exposed to ageing infrastructure, pollution and supply problems.

Reforms have produced measurable improvements. Following IFC-supported privatization of electricity distribution and supply, technical and commercial losses dropped from 43 percent in 2012 to 12.7 percent in 2024. Around 100,000 additional grid connections were enabled, while improved billing, collection and lower subsidies generated an estimated €100 million in fiscal savings.

Energy efficiency also delivered results. Ninety-eight central-government buildings, about one-quarter of the government building stock, were retrofitted, reducing energy consumption by roughly 30–40 percent.

Renewables now offer substantial opportunities for private investors. Reforms supported more than 270 megawatts of renewable capacity under earlier mechanisms and facilitated another 250 megawatts through solar and wind auctions. Kosovo aims to reach around 1,600 MW of renewable capacity and generate approximately 35 percent of electricity from renewable sources by 2031.

The major risk is reliability. After plans for a new lignite power plant were abandoned in 2018, Kosovo was left without an immediate replacement for ageing generation capacity. Electricity imports, grid limitations and insufficient balancing capacity therefore remain concerns for businesses and investors.

Better Implementation Will Decide Kosovo's Next Development Phase

The evaluation's broader message is that Kosovo does not simply need more development financing; it needs stronger implementation. World Bank investment projects recorded an average disbursement rate of 17.5 percent during FY12–25, compared with 22.4 percent in other Europe and Central Asia countries. Political uncertainty, parliamentary delays, procurement problems and limited administrative capacity repeatedly slowed projects.

For government, the priority is to design reforms that institutions can realistically implement while improving education quality, healthcare, energy reliability and the business environment. Development partners should coordinate their programmes more closely and concentrate resources where they have clear expertise.

For private investors, opportunities are emerging in renewable energy, energy efficiency, SME finance, digital payments and childcare services. But regulatory predictability, reliable infrastructure and faster government decision-making will determine whether these opportunities translate into investment.

Kosovo has built many of the institutions needed for development. Its next challenge is making them deliver measurable results, better skills, affordable finance, reliable clean energy, stronger businesses and productive jobs.