Evaluation of the Economic Management 
for Stability and Growth Program
 
APRIL 2009
This publication was produced for review by the United States Agency for International Development. It was prepared
by AECOM International Development under the subcontract to IBI International.
as prepared
Evaluation of the Economic Management for Stability 
and Growth Program
Submitted to: 
USAID/Kosovo 
Prepared by: 
F. Stevens Redburn 
James W. Fox 
Mark Gellerson 
The authors’ views expressed in this document do not necessarily reflect the views of the United States Agency 
for International Development or the United States Government.
Contents 
1. Executive Summary ..............................................................................................................................1
Summary of Specific findings and recommendations:
1.1 For Budget, Treasury, and Economic Policy ..............................................................................1
1.2 For Tax Policy and Administration ............................................................................................2
1.3 For the Central Bank of Kosovo .................................................................................................2
1.4 For Commercial law development .............................................................................................3
1.5 For public/private partnerships ...................................................................................................3
2. Responses to Specific Question in the Statement of Work...................................................................4
3. Introduction and Background................................................................................................................8
3.1 Background to USAID Assistance ..............................................................................................8
3.2 Results from Previous Activities.................................................................................................8
3.3 Situation at the Outset of Task Order 6 .....................................................................................10
4. Assessment by Area / Institution ........................................................................................................11
4.1 Budget, Treasury and Economic Policy ....................................................................................11
4.1.a Objectives..............................................................................................................................11
4.1.b Status in June 2007................................................................................................................11
4.1.c Progress Under the Current Program ....................................................................................15
4.1.d Recommended Next Steps ....................................................................................................19
4.2 Tax Administration (Including Property Tax)...........................................................................20
4.2.a Objectives..............................................................................................................................20
4.2.b Status in June 2007................................................................................................................20
4.2.c Progress Under the Current Program ....................................................................................22
4.2.d Recommended Next Steps ....................................................................................................27
4.3 Central Bank of Kosovo ............................................................................................................28
4.3.a Program Objectives...............................................................................................................28
4.3.b Conditions at Program Initiation...........................................................................................29
4.3.c Progress Under Current Program..........................................................................................29
4.3.d Recommended Next Steps ....................................................................................................31
4.4 Commercial Law Development.................................................................................................32
4.4.a Objectives..............................................................................................................................32
4.4.b Conditions at Program Initiation...........................................................................................32
4.4.c Progress Under the Current Program ....................................................................................33
4.4.d Recommended Next Steps ....................................................................................................34
4.5 Pristina Airport and Public/Private Partnerships.......................................................................34
4.5.a Program Objectives...............................................................................................................34
4.5.b Conditions at Program Initiation...........................................................................................35
4.5.c Progress Under Current Program..........................................................................................35
4.5.d Recommended Next Steps ....................................................................................................36
5. Final Observations and General Recommendations...........................................................................38
Annex 1. Numbers of USAID/BearingPoint Advisors: 2001 to 2009 .......................................................42
Annex 2. Interviews Conducted in Kosovo ...............................................................................................43
1. Executive Summary 
The current EMSG Program, which began in June 2007 and will end in June 2010, continues to be 
effective. It has already achieved many of its intended results and is on target to achieve most others. 
This helps further validate the long-term resident advisor model followed by the EMSG Program. This 
model contrasts with that used by some other projects, whose work is less directly integrated on a daily 
basis with that of the government offices and functions they support. 
The continued effectiveness of the EMSG Program is threatened by its reduced scope and vulnerability to 
external factors: 
• By sharing insights and coordinating communications with the Kosovo government, the project team 
has multiplied its effectiveness in ways that technical assistance efforts of narrower gauge cannot. As 
the scope of the EMSG Program has narrowed, there has been a growing risk it will lose some of the 
synergy that has helped define its approach to crosscutting issues. This risk to the project’s continued 
effectiveness can best be addressed through closer coordination between USAID and other donors to 
ensure their technical assistance efforts are complementary and closely synchronized. 
• The increased capacity in major governmental institutions is fragile because the number of 
internationally trained professionals in senior management positions is small, and the merit systems 
for recruiting, training, and promoting professional staff is not well developed. USAID can work with 
other international projects to develop a new, combined strategy to ensure management training that 
meets international standards for a sustained senior cadre of managers and technical specialists, who 
are integrated into a permanent civil service structure and funded in the budget through annual 
appropriations for salaries. 
• The core processes for managing government finances – including budgeting and treasury functions – 
are vulnerable to political interference. If the budget process is routinely bypassed, as was the case in 
2008, or if there should be a turnover of senior leadership in the Budget and Treasury, as there has 
been in Tax Administration, many of the gains in governing capacity of the past few years could be 
quickly lost. USAID should work with other international donors to reduce these risks by supporting 
broad strengthening of capacity in the budget organizations and by endorsing the efforts of 
international organizations to strengthen basic government processes, including those for personnel 
systems reform, procurement reform, and strengthened financial management. 
Specific findings and recommendations for each of the five areas/institutions supported by the EMSG 
Program are as follows: 
1.1 For Budget, Treasury, and Economic Policy 
• We find that the Budget and Treasury Departments are highly professional, well-managed operations. 
Further training of staff and systems development is needed, but the needs are identified and owned 
by two managers. They can proceed, within resource constraints, to make needed improvements, with 
occasional consultation and expert advice from the EMSG Program or other international projects. 
Both are receptive to such continuing advice and support. The Macroeconomic Policy unit retains a 
core of professional economists who continue to perform excellent quantitative and qualitative 
analyses of policy options. The integration of their work with the budget analysts has increased 
through a restructuring of the MTEF process. 
• We recommend that USAID encourage the MFE to explore options and seek expert, neutral advice on 
requirements for an integrated Budget and Treasury system, linked electronically with MPS for 
personnel and payroll, to Tax Administration and Customs for revenues, and to CBK for debt 
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management. As part of this review, expanded capacities to support fiscal decentralization should be 
considered. (Note: This responds to questions 14 a. i., ii., and iii. in the Statement of Work.) 
• We recommend that the EMSG Program give highest priority to reestablishing the MTEF this year as 
the Government’s vehicle for turning policies into concrete multi-year plans and targets for collection 
and use of resources to advance the Government’s highest priorities. 
• We recommend that EMSG Program advisors revive a previous emphasis on training and procedures 
for incorporating performance and program budgeting information into budget decision-making both 
centrally and in the preparation by budget organizations of budget proposals for the coming year(s). 
• We recommend that efforts of the new EMSG Program advisor in Treasury focus on developing 
regulations for internal financial controls and stronger auditing functions, on support for linking 
Treasury, Budget, and payroll systems, and on other priorities established by the Treasury director. 
1.2 For Tax Policy and Administration 
• We find that Kosovo has made tremendous strides since 1999 in developing a modern tax system. An 
adequate legal framework exists and there is at least a core of well trained managers and staff. 
Finally, a comprehensive (if somewhat unfocused) plan to modernize and strengthen TAK has been 
agreed upon and is being implemented. Under the EMSG Program, USAID/BearingPoint advisors 
are making good progress in achieving most tax-related results identified in the statement of work. 
TAK’s performance, while not stellar, is in line with that of some other countries in the region—with 
the exception of a seemingly under-performing personal income tax. 
• We recommend that assistance to TAK be held steady over the remainder of Task Order 6. The 
assistance being provided at present is well targeted. Advisors are focusing their efforts on helping 
TAK better target audits, improve collections, better coordinate business registration, and strengthen 
its IT system (SIGTAS). Gains in these areas have the potential to improve TAK’s revenue 
performance. Between now and June 2010, it would be prudent for USAID/BearingPoint advisors to 
continue to focus on the priorities identified above and thus avoid being spread too thin across the full 
gamut of needs identified in the Strategic Plan. 
• We support the decision to end EMSG assistance relating to property tax as of November 2009. 
• We recommend that USAID assistance to TAK beyond June 2010 continue the downward trend 
established over the last few task orders. We recognize that TAK could likely improve its revenue 
performance by adding roughly 100 additional staff1
—if these staff were sufficiently educated and 
trained. If TAK decides to move in this direction, USAID might consider supporting the development 
of training programs that ultimately enhance TAK’s revenue generation potential. 
1.3 For the Central Bank of Kosovo 
• We find that the assistance to the CBK has largely accomplished its objectives, and we agree with the 
decision to end further long-term support to the institution. Significant support from other donors is 
being programmed.
• We recommend that USAID continue to monitor developments in the CBK through consultations 
with the US Treasury Advisor during his periodic visits and with other donors for potential problems 
that might require additional assistance. 
 
1 Given Kosovo’s population, the size of TAK’s staff is relatively low when compared with most other countries in the region 
and even when compared with higher income countries.
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1.4 For Commercial law development 
We find that the EMSG Program’s commercial law program has a number of strengths: (1) It builds on 
an ambitious USAID-supported effort over the past five task orders aimed at helping Kosovo put in place 
the commercial law framework needed to foster private sector-led growth as well as corresponding legal 
capacity; (2) It uses an innovative and relatively hands-on approach to training; (3) It emphasizes building 
and using local training capacity; and (4) It at least partially institutionalizes this training within KJI and 
KCA. 
• We recommend that USAID/BearingPoint support the development and implementation of a 
methodology to assess the actual impact on the performance on judges and lawyers of the training 
being provided by USAID/BearingPoint. 
• We note the importance of agreeing upon and developing a certification process for judges/lawyers. 
• We note the importance of ensuring that commercial law training is sustainable. The current absence 
of admissions fees for trainees means that such training is not inherently sustainable (absent donor or 
Ministry of Justice funding) and does little to ensure that the training is targeted as effectively as 
possible. 
• Finally, we suggest the benefits of the types of legal training provided under the EMSG Program may 
be limited in the absence of broader efforts to streamline court procedures and develop alternative 
dispute resolution mechanisms. 
1.5 For public/private partnerships 
• We find that progress on the Pristina Airport concession process is quite satisfactory at present, and is 
consistent with awarding a concession by early 2010. We find that the Public-Private-Partnership 
(PPP) unit in the Ministry of Finance and Economy is making good progress toward 
institutionalization, and that the new PPP law, expected to pass second reading during May 2009, will 
constitute a major step forward to creating conditions for widespread use of PPP’s to attract foreign 
investment for Kosovar infrastructure. Nevertheless, we find that USAID support for a substantial 
period – perhaps 4-5 years beyond the end of the current Task Order – is likely to be needed to fully 
institutionalize PPP in Kosovo 
• We recommend that USAID continue to support the incipient effort to promote PPP in Kosovo, with 
particular attention to the Pristina Airport concession. Short-term support should be made available at 
key stages in the process of awarding the concession. 
• We recommend that USAID begin the process of planning for significant long-term support to the 
PPP unit of the MFE for several years beyond the end of the current Task Order. Particular attention 
needs to be given to creation of a regulatory framework that would provide assurances to both the 
government and to future concessionaires of fair adjudication of contract disputes. 
• We recommend that USAID consult widely among political leaders about PPP in order to determine 
the extent to which commitments to concessionaires would be regarded as commitments by Kosovo, 
and not just of one administration. 
• We recommend that USAID condition its future PPP-related support on both a national consensus on 
the desirability of this vehicle, and on a commitment to staff enlargement and development and 
institutionalization plan for the PPP unit in the Ministry of Finance and Economy, and for suitable 
staffing plans in line ministries responsible for implementing PPP programs. 
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2. Responses to Specific Question in the Statement of Work 
1. What has been the impact of the EMSG Program? 
The EMSG Program has had continuing positive impact on the institutional capacities of the Government 
of Kosovo. Resident advisors continue to identify specific areas where their expertise can be most 
effective in improving procedures. As a result, there has been a continued maturing of the budget process 
at both the central and municipal levels, further development of the systems for tax collection and 
property tax assessment, completion of the planned support for CBK, continued strengthening of the legal 
framework for commerce, and rapid progress in establishing new capacities to support public/private 
partnerships. 
During the year of independence, the EMSG Program leveraged its presence and expertise to assist the 
new Government of Kosovo in meeting the challenges of organizing new ministries and functions capable 
of drafting and implementing a host of new laws. Some of this work may have displaced more routine 
advice and assistance, representing a pragmatic approach that served the interests of both USAID and the 
Government of Kosovo. 
2. What specific impacts did the program have on the capacities of the ministries/institutions 
assisted? 
Specifics are provided in discussions of each area/institution that has received program support. 
3. Has the assistance provided had sustainable results? 
The question of sustainability is a complicated one. For its part, the EMSG Program has recognized the 
need to look ahead to a point when continuing technical assistance is no longer provided. The EMSG 
Program has taken specific steps – such as its advice to the Government in support of the Brain Fund and 
its co-sponsorship of AUK’s new Public Policy Master’s Degree program for government managers – to 
build broader, lasting institutional capacity. 
4. This current program emphasized increasing capacity of Kosovars. Has this been well￾implemented and effectively carried out? 
Particularly in the MFE when compared to the preceding period, its advisors have been more inclined to 
step back into coaching and consultation roles in order to permit Kosovar principals and staff to take the 
lead. Successful design and implementation of the Brain Fund will help increase and sustain the capacity 
of the Government of Kosovo. 
5. Did the activities carried out under each objective contribute to the achievement of the goals? If 
so, how? If not, why not? Would other activities have been more appropriate? 
By and large, the activities carried out under each objective were appropriate and contributed to 
achievement of the EMSG Program’s goals. Specifics are given in discussion of each area/institution. It 
is difficult to second-guess the prioritization of activities by resident-advisors in each area/institution. 
6. Is the program meeting stated objectives? 
Yes, but the gains are inherently fragile as noted elsewhere in this report. 
7. Were the established targets reasonable, relevant, and achievable? 
Yes. In the future, however, it would be useful to agree in advance on indicators for the various results 
(or targets) established for EG programs so that progress in achieving these results can be more easily 
tracked. 
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8. Can any identified deficiencies in the program’s current target areas be remedied in the 
remaining life of the program, and what are recommendations? 
At the broadest level, the diminished scope of the current program, relative to previous 
USAID/BearingPoint projects, has reduced synergies and probably the overall capabilities of the project 
team to coordinate and combine their efforts to address cross-cutting issues. This can only be remedied 
going forward by strengthening coordination between the EMSG Program and other donor technical 
assistance projects. 
As noted, training and capacity building to support performance or program budgeting approaches was set 
aside during the year of independence. This is a continuing need the current budget advisor intends to 
address in the coming year. More broadly, building and sustaining capacity in the key GOK institutions 
that the EMSG Program works with should be a priority during the remainder of the program. 
9. Are there other areas where USAID assistance is needed, in the short term that will result in 
greater impact in improving institutions? 
This is a difficult question. Clearly, direct support to these institutions is essential to such improvements. 
Another aspect of strengthening such institutions is the creation of demand for their effective 
management. Business associations, economists’ groups, academic entities and public-policy oriented 
think tanks and NGOs, and journalists can all play useful roles on the demand side for improved 
government institutions. A stronger public reaction by some of these non-governmental actors to the 
abandonment of the MTEF framework in the 2009 budget might have created political pressures to avoid 
a repetition. Nevertheless, it is difficult for short-term evaluators to judge which institutions are best 
served to promote greater demand for governmental effectiveness. Efforts to improve the functioning of 
the real economy can complement the institution building carried out under the current EMSG Program 
and previous task orders. 
10. Is the program properly addressing and prioritizing ad hoc needs and requests for assistance? 
Are these requests more or less critical and priority use of resources compared to the main 
stated objectives? 
As noted, the EMSG Program continues to show laudable flexibility and pragmatism in responding to 
requests for assistance, including ad hoc requests from USAID and the Government of Kosovo. In this 
regard, the demands on the project’s legal advisor for advice on draft laws or even for help in drafting 
new laws has displaced other critical work, including training and technical assistance to support 
implementation of existing laws. 
11. What is the level of participation/coordination with other donors? 
Based on limited conversations with other international donors, there is less coordination than would be 
optimal given the close relationships and potential synergies between various technical assistance efforts. 
An underlying problem may be distrust of USAID’s efforts stemming from a perception that it pursues its 
interests at times without regard for others. The Government of Kosovo also has some responsibility for 
coordinating donor assistance; however, its nascent capacity for donor coordination, including integration 
with the budget process, has been weakened by a recent decision to merge this function with others. 
12. Does the program coordinate sufficiently and effectively with other programs on related issues? 
See above. While there is a good deal of coordination, it appears to be less than optimal. At the same 
time, we recognize that “donor coordination” also has costs. Trying to link one donor’s activities with 
those of others can lead to delays, misperceptions, and other obstacles to effective assistance. The more 
pressing issue is often the fact that some donors produce ineffective projects, either because of poor 
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diagnoses, long lags between project decisions and effective implementation, or from poor choices of 
personnel to carry out projects. There is no amount of coordination can prevent these ills. 
13. What are key lessons learned from the EMSG Program? 
As noted elsewhere, the EMSG Program has further validated the strengths of a broad-scale resident￾advisor model for capacity building in this setting. However, as evidenced by the slower development of 
tax administration than of treasury or budget, gains have been greatest in the institutions that have had 
stable local leadership. 
Viewed in retrospect, the current program has continued to build capacity on a foundation of professional 
procedures and management created in a few short years in a country with almost no recent experience in 
self-government. At the same time, the limitations of such efforts are apparent. The foundation is fragile 
both because governing processes are not rooted in tradition and because of the small numbers of senior 
professionals in government who understand their institutional responsibilities. These make the gains to 
date vulnerable to quick reversal. 
14. Specific questions to be considered during your review 
Specific questions are summarized under discussion of each area/institution in the body of the report. 
Recommendations regarding individual items are summarized below: 
• Regarding 14.a: An independent technical assessment of system development options is 
recommended. 
• Regarding 14.b: No advisory support for insurance supervision is recommended, given pending help 
support from other donors. 
• Regarding 14.c: The main focus of the next Treasury advisor should be in support of new central 
functions and other priorities set by the Treasury director, which could include the items mentioned. 
• Regarding 14.d: We note the demands on the legal advisor and a continuing need for such assistance 
and for assessment of the current training approach. 
• Regarding 14.e: We see a potential increase in demand for PPPs and need for continuing advisory 
support to the new function. 
• Regarding 14.f: We note the mature performance of Kosovar staff and see no need for a resident 
international advisor. 
• Regarding 14.g and 14.h: We note both the growing capacity of the MFE and its fragility; we propose 
conversations between USAID and the Minister about a strategy anticipating future termination of 
long-term advisory support to the Ministry. 
15. Based on a review of implementation and results for the EMSG Program, what 
recommendations do you have for possible future USAID programming in the economic 
institution area? 
For most areas/institutions we recommend continuing support by USAID but on a reduced scale, 
especially if that would allow more USAID economic growth-related assistance to the real economy. 
With regard to MFE Budget and Treasury, we see a continuing need for resident advisor support, with 
renewed focus on training of budget staff and on development of regulations and procedures to support 
new Treasury functions identified by the Treasury director. We believe that when a new general budget 
director is selected there will be a need for an advisor to support the new role and coordination between 
Page 6 
central and municipal budget functions. However, this need can be met by reassignment rather than 
adding a new advisor position. 
Concerning tax administration, many of the major improvements in information systems, better 
procedures, risk-based audits, and improved taxpayer identification should be largely in place by mid￾2010. Moving forward, USAID assistance should focus on helping TAK develop the capacity to increase 
its revenue performance. 
As noted elsewhere in this report, the PPP unit in the MFE is small and young in an activity where both 
are serious liabilities. Effective PPP requires that potential private investors have confidence that the 
rules of the game will not change during the life, or at least the early years, of their concession, and that 
effective government oversight of concessionaires will not be prevented by the politically-powerful. 
Substantial USAID involvement for the next 4-5 years in this area as the “honest broker” is likely to be 
crucial to the success of PPP in Kosovo. 
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3. Introduction and Background
3.1 Background to USAID Assistance 
During the 1970s, Kosovo gained considerable autonomy as a province in Serbia, with its own 
parliament, the establishment of Albanian as the language of instruction at the University of Pristina, and 
with the Albanian-speaking majority assuming key roles in the economic, political and social institutions 
of the province. By the mid-1980s, this process began to be reversed, with Serbian control from Belgrade 
gradually reducing Kosovo’s autonomy. By 1991, the reversal became almost complete, with Albanian￾speakers pushed out of leadership positions in politics, economic institutions, and educational and health 
institutions. For the following decade, conflict escalated as increasing Serbian centralization of control 
was met with resistance by Albanian speakers. This culminated in the 1999 NATO bombings of Serbian 
infrastructure that led to the uneasy return of Kosovar autonomy, though still as a part of the Serbian 
republic. 
With the departure of the Serbian authorities, Kosovo needed to begin to rebuild its government 
institutions from scratch. At that time, Kosovo lacked both a legal and regulatory framework for 
governance and experienced Kosovars to manage it. 
This was the background to the onset of USAID assistance in 1999, aimed at creating economic 
governance institutions for Kosovo that would collect taxes, manage government spending, control 
financial institutions, and move the economy from a reliance on planning to markets. Over the next 
decade, USAID contracted consulting services to carry out these tasks through a series of six Task Orders. 
All six were carried out by BearingPoint. The individual Task Orders were developed sequentially in 
response to changing conditions on the ground. Initially, expatriates were placed in the top management 
positions of the newly-formed Kosovar economic governance institutions. Over time, the tasks assigned 
to the consultants gradually shifted control of these institutions to Kosovars, with the attendant training 
and advising of both senior and mid-level professions in the key institutions supported by USAID through 
its contractor. The assisted institutions included the Ministry of Finance and Economy, the Tax 
Administration of Kosovo, the Kosovo Central Bank, and the Kosovar Trust Agency (charged with 
privatization of socially owned enterprises). 
3.2 Results from Previous Activities 
The first four Task Orders were evaluated in 2003 (Skogstaad, et al., November, 2003). That evaluation 
applauded the speed with which resources were mobilized and the program put in place, stating that it “set 
an exceptionally high standard.” Overall, the evaluation concluded that the four Task Orders “followed a 
logical and practical sequence, and were meticulously crafted,” adding that the USAID strategy was 
appropriate to the country’s circumstances. 
 
Still, the evaluation found several weaknesses in the program. It suggested that expectations of the ability 
of Kosovars to take over highly-specialized professional and technical functions had been overestimated, 
arguing that a shortage of personnel with appropriate foundation education had only been gradually 
identified as a serious problem. Implicitly, the evaluation suggested that more advanced skills training 
would have been useful in the earlier stages of the program. The evaluation also suggested that more 
emphasis on informing and educating the public on the directions being pursued under the program would 
have been valuable. 
In terms of coordination with other donors, the report praised the performance of the project and the 
donor community in general for working together to achieve the purposes of the assistance with a 
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minimum of conflict and inconsistency of approach. Finally, the report made seven recommendations for 
follow-on activities: 
• There should be one more year of assistance on banking, with a continued emphasis on training in 
bank supervision and regulation, including major formal training of professionals. 
• Further assistance for one more year on fiscal reform is warranted, prior to transfer of leadership to 
Kosovars. 
• Continued assistance on pensions for another year would build on a highly-successful effort. 
• Commercial law reform is well established, and further assistance could come from other sources. 
• On privatization, logjams currently limit progress, but considerable further assistance would be 
warranted if they are addressed. 
• Great progress has been made on insurance, and further assistance in this area seems unnecessary. 
• Although USAID appears ready to withdraw from assistance for public utilities reform, further work 
on telecommunications privatization and the power sector might yield high payoffs. 
Overall, these recommendations suggested a relatively modest follow-on program after Task Order 4. 
Nevertheless, Task Order 5 was considerably more ambitious when implemented, with the number of 
resident advisors declining only from 29 under the previous task order to 25. (Annex 1 shows the number 
of resident advisors under each of the six task orders by area of specialization.) 
For Task Order 5, no final evaluation was undertaken. The contractor, BearingPoint, submitted a final 
report (BearingPoint, 2007) in June 2007, and there was a mid-term program review that dealt broadly 
with the USAID economic growth portfolio (Singletary, 2006) in May 2006. The Singletary report dealt 
at considerable length with the activities under Task Order 5, as well as other parts of the USAID 
economic growth portfolio. 
The Singletary report termed the activities under the task order “highly successful,” but proposed a 
“scaling down or phasing out of USAID’s technical assistance to these [i.e., the Ministry of Finance, the 
Kosovo Trust Agency, the Central Bank of Kosovo, and the Kosovo Pension Savings Trust] institutions, 
with some exceptions designed to provide insurance against backsliding or to enable certain new 
functions.” Instead, the report suggested shifting USAID attention toward infrastructure, public utility 
reform, enforcement of contracts and addressing legal claims, and improving connectivity among 
government institutions and greater transparency through connectivity with the general public. Overall, 
the Singletary report reinforced the conclusion of the Skogstaad evaluation that a shift from high levels of 
technical assistance to the economic governance institutions to other areas was warranted. 
As discussed below, USAID continues to provide substantial, although reduced technical assistance to the 
core economic governance institutions during the current Task Order 6. The number of resident advisors 
was reduced from 25 under Task Order 5 to 18 under Task Order 6. And these numbers declined during 
implementation, with 12 on the ground at the time of this evaluation (March 2009) and with further 
reductions expected to occur in the near future. 
Given that no final evaluation was carried out for Task Order 5, the question of whether and to what 
extent resources might be better deployed in other areas was not addressed at the end of the project. The 
only document available from this time period is the end-of-project report by BearingPoint (Smith, June 
2007). The end-of-project report could not be expected to address these issues, as the contractor was only 
reporting on its degree of achievement of the tasks that USAID had set out for it. The status of the 
institutions being assisted by USAID at that time is well described in the end-of-project report. The main 
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features of the situation at the outset of Task Order 6 are described briefly below, and in more detail in 
each of the sections of Chapter II. 
3.3 Situation at the Outset of Task Order 6 
The USAID/BearingPoint Chief of Party concluded that all benchmarks established by USAID for the 
task order had been met, and many exceeded. Broad achievements included: 
• More than half of socially owned enterprises had been privatized, with substantial investments by the 
new owners. 
• The capacity of the Kosovo Pensions Trust was fully developed, and USAID assistance withdrawn. 
• The Ministry of Finance and Economy and the Central Banking Authority have local staff that is 
firmly entrenched in management, and undertaking all functions independently of foreign advisors. 
• A vast array of laws are firmly in place to underpin the Kosovo economy, with an established process 
for future legal development. 
• A professional development program at the American University of Kosovo (AUK) for government 
professionals was running, with results exceeding expectations. 
The report described three outstanding issues for the future: 
• A need to deepen professional capacity in the future, in part through the AUK professional 
development program. 
• A need to address salary issues in the government for high-level professionals. 
• A need to implement processes across government institutions for performance management and 
accountability. 
The following sections of the report look in depth at five areas/institutions assisted by the Economic 
Management for Stability and Growth (EMSG) Program. These are: (1) the Budget, Treasury, and 
Economic Policy units of the Ministry of Finance and Economy; (2) Tax Policy and Administration and 
Property Tax, also in the MFE; (3) the Central Bank of Kosovo; (4) commercial law development; and (5) 
the Public/Private Partnership Unit of MFE, including plans to commercialize Pristina International 
Airport. Each section begins with a summary of the EMSG Program objectives for that area/institution, 
followed by a review of conditions at program initiation in summer 2007, progress under the current 
program, and findings regarding current level of development, noting both strengths and weaknesses. 
Each section concludes with the identification of possible next steps to improve the program’s 
performance during its remaining months. 
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4. Assessment by Area / Institution
4.1 Budget, Treasury and Economic Policy 
The current project is the continuation of a sustained effort to build capacity and strengthen the 
organization of the core budget and financial management functions of the government of Kosovo, 
centralized in the Ministry of Finance and Economy (MFE). 
4.1.a Objectives 
Broadly, the goal of the current project is to ensure these institutions and processes are mature, 
professionally managed, compliant with law and requirements of the status settlement document, and 
performing competently. The specific objectives include: 
• Enactment of legislation relevant to MFE and its functions. 
• Formulation of new policies and procedures required for fiscal decentralization (to municipal 
governments) including new grants procedures. 
• A macroeconomic strategy for Kosovo that is fiscally sound, feasible and promotes economic 
development over the medium to longer term. 
• A level of proficiency in the budget, treasury, and economic policy units that can be sustained without 
need for full-time technical assistance. 
• For the Budget Department, strong analytical skill in assessing budget submissions, proactive work 
with budget organizations to develop better budget submissions and better conceived capital projects. 
• For the Macroeconomic Policy unit (Economic Policy Department of MFE), strong analytical 
capacity that is evidenced by the quality of the annual updates of the Medium-term Expenditure 
Framework (MTEF) and by regular solicitation of its policy advice and analysis by the Minister and 
the Government. 
• For the Treasury Department, sophisticated management applying modern and sophisticated public 
accounting and cash management standards, as evidenced by timely reconciliations, clean external 
audits, and similar indicia. 
• Also for Treasury, development of new modules connecting Treasury’s FMIS system with those of 
municipalities. 
4.1.b Status in June 2007 
At the start of the current EMSG Program in June 2007, the Budget, Treasury, and Macroeconomic units 
were each functioning at a professional level, with Kosovars directing the day-to-day operation and 
occasionally seeking the advice and participation of full-time EMSG Program consultants. 
 
It should be noted that this status was in part a product of a substantial investment in building and 
supporting these institutions through earlier phases of the project. A 2003 evaluation of predecessor 
USAID technical assistance observed: “This effort has been exceptionally successful in getting the MFE 
up, running and efficient. Nevertheless, it too is unready for operation by Kosovars. A final year of TA 
should address that problem, and develop a plan for dealing with issues raised in the evaluation report, 
especially project evaluation in the budget function (Skogstad, et al., November 2003).” 
Since then, Kosovars have assumed full responsibility for the development and execution of the budget. 
The budget has been generally prepared, adopted, and executed in a manner consistent with the law on 
Page 11 
public finance drafted by internationals and providing relative autonomy to the Government, although 
subject to final review and approval by the UN’s Special Representative prior to independence. The 
process now includes a role for the EU’s ICO, but that role has been limited so far to monitoring. 
The process now includes annual preparation of the Medium-term Expenditure Framework (MTEF), a 
three-year integrated fiscal and development framework that includes macroeconomic analysis and 
sectoral plans for development and fiscal targets for central and municipal current and capital spending 
reflecting sectoral priorities and strategies. The first MTEF was prepared in 2006, consistent with 
international standards, but was largely a product of international advisors, who worked alongside and 
instructed Kosovar counterparts. The next MTEF, prepared at about the time as the current EMSG 
Program began, was largely a Kosovar product (described below). It was used as the basis for 
presentation to donors of the Government’s priorities for assistance as well as the starting point for the 
annual budget process. 
At the start of the current EMSG Program, the Budget Department had recently been divided, with 
separate directors for central and municipal budgets. Nevertheless, the annual budget process produced a 
single, integrated fiscal plan for the coming year. 
As of mid-2007, the central budget department was leading a well-established orderly annual budget 
process, including hearings with each budget organization led by budget department staff, research into 
specific issues such as capital under spending, and limited program or performance budgeting elements. 
The quality of decision-making was limited by the skills of budget analysts but more significantly by lack 
of basic analytical capacity and experience in budgeting in the budget organizations. In hearings, 
Ministries and other budget organizations could not effectively defend their spending requests. 
At the time, the new municipal budget department had an inexperienced director with limited 
management skills. With considerable coaching and effort at coordination, however, the municipal 
budget department was able to communicate with municipalities and to complete its part of the budget 
preparation consistent with requirements of the law and established procedures. 
The EMSG Program provided full-time advisors to each budget department, who sat with the director and 
provided regular advice and support upon request. This was a change in role from past years, when 
advisors had taken more initiative in drafting budget instructions and writing or heavily editing budget 
presentation materials. 
A Public Expenditure and Financial Accountability (PEFA) assessment prepared by the World Bank for 
and concurred in by the Government (World Bank, March 2007) saw a fundamental weakness of the 
Kosovo budget process (of the prior year) as “lack of long-term direction” while noting the promise of a 
more policy and strategy driven three-year planning process emerging through preparation of the MTEF. 
Performance in budget preparation during 2007 can be assessed by examining the 2008-2010 MTEF. 
This was largely the product of a five-person Kosovar staff in the Economic Policy Department 
(Macroeconomic Policy unit) of the MFE, a staff of young economists recruited and heavily supported – 
both analytically and financially – primarily by USAID. The document itself was substantially more 
sophisticated than its predecessors, in that it based fiscal targets on more specific prioritization and 
costing of alternative uses of public resources, based on negotiations between the Minister and his 
counterparts regarding their priorities and in some cases difficult political choices that were debated and 
compromised between the MFE and line ministries. 
In contrast to preparation of the prior MTEF, which depended on internationals to develop and run the 
required macroeconomic models and to write most parts of the final document, the analysis and drafting 
Page 12 
of the 2008-2010 MTEF was largely a Kosovar effort, with the USAID/BearingPoint advisor (who also 
served as the Minister’s advisor) providing direct leadership and guidance. The resulting document was 
not only adopted formally by the Government as the three-year framework for the Kosovo budget but was 
presented by Kosovars, with support from the Macroeconomic Policy unit staff, at international donors’ 
meetings as the Government’s plan and basis for possible donor assistance. 
Budget execution in Kosovo requires carefully planning from early in the year to ensure that appropriated 
amounts are fully spent and for the intended purposes. Because Kosovo cannot borrow and has limited 
cash reserves, it has budgeted recently on a cash basis and created systems to allow close monthly 
monitoring of spending. Budget analysts were receiving regular monthly reports on commitments and 
spending, by accounts, for the budget organizations in their portfolios. Budget and Treasury coordinated 
in producing the information, which was actively analyzed and used by Budget department staff. 
As noted in the 2007 PEFA assessment, errors in forecasting revenues and spending, combined with 
limited capacity in the budget organizations to plan and execute budgeted capital projects contributed to 
substantial deviation between the approved 2007 budget and actual spending. A major emphasis of 
EMSG Program advisory support to the budget department in the period just prior to the current project 
was on working with budget staff to identify reasons for capital under spending and to developing a 
proactive approach to working with budget organizations, in cooperation with other donor technical 
assistance projects, to inform them of requirements and help build capacity. A Possible result from this 
effort is that the rate of capital execution in 2008 increased substantially. 
The Treasury Department, like central budget, was led in 2007 by an experienced professional director 
who had benefited from previous rounds of USAID advice and support. He also was receiving regular 
advice and specific technical assistance at his request from one or more EMSG Program advisors. 
The World Bank’s PEFA Assessment (March 2007) identified weaknesses in internal financial controls 
and audits and in external audits (a responsibility of the Auditor-General, a UN official). 
Transparency in reporting was aided by on-line availability of quarterly and annual financial statements, 
albeit with some months lag. Both budget preparation and transparency were weakened by the lack of 
donor coordination and failure to incorporate the amounts provided, in most cases, in the Kosovo budget. 
While both donors and Government attempted to improve information and coordination regarding donor 
assistance, the failure to achieve these goals as of mid-2007 has to be attributed mainly to donors rather 
than to the Government. 
The budget document, detailing the 2007 budget as adopted was not published until late spring 2008. 
When presented to the Assembly in November 2006 it was in the form of legal text and detailed 
schedules, limiting public visibility and understanding. The 2008 budget, the first adopted after 
independence, was submitted within six days of the legal deadline. 
At the time the current EMSG Program began, the Government faced the challenge of incorporating into 
its budget and financial processes new institutions, including creation of new ministries. It faced 
uncertainties with regard to consequences of independence, including effects on revenues and spending 
needs, such as possible servicing of the former Yugoslav debt. It faced new elections that could bring a 
new group of less experienced political leaders and put at risk the positions of experienced civil servants 
who had received a substantial investment of international technical assistance. Also, with independence, 
it needed to quickly write or revise a substantial body of basis law governing public finance and to write 
and adopt new laws required by the UN representative’s plan for independent status, such as new laws on 
local government and local government finance. 
Page 13 
At the time the current EMSG Program began, the Budget and Treasury departments and the 
Macroeconomic Policy unit faced several specific challenges, listed below: 
• The MTEF was not yet the intended bridge between Government policies and the annual 
budget process: The MTEF is intended to inform the annual budget process by providing a three-year 
sustainable path for spending that reflects the Government’s strategy and policy priorities. The 2008-
2010 MTEF, which was focused heavily on identifying projects that might attract international donor 
support, was finished too late to be used as the basis for ceilings or targets for individual budget 
organizations to use in preparing their 2008 budget proposals. For this purpose, it must be completed 
earlier in the year; and, in fact, the new law on public finance adopted in 2008 requires MTEF submission 
to the Assembly by April 30. Also, the MTEF’s content must be modified to focus less on capital 
projects that may possibly attract donor support and more on general ceilings and targets consistent with 
the fiscal outlook and Government priorities. This requires close coordination between the Budget 
Department and Macroeconomic policy unit. It is perhaps most important that the MTEF be preceded and 
shaped by clear, specific decisions about changes in policy and priorities from the prior year that are 
seriously deliberated and endorsed by the Government at the beginning of the process. While these can 
be revisited later in the process, any revisions should be such that they can be accommodated within the 
fiscal framework set in the MTEF. 
• The focus of budget choices needed to shift from inputs to outcomes: For the budget process to 
effectively support the Government’s policies and for the Government and its leaders and managers to be 
held accountable for outcomes that improve people’s lives, the budget process must be the primary 
vehicle for converting policies into concrete spending plans that can be realistically executed in the 
coming year. This requires an informed analysis and discussion of the expected results of proposed 
spending, based on evidence that these will contribute to achievement of the Government’s major policy 
goals. Further progress in this direction depends on developing capacities throughout the Government, 
not just in the MFE’s budget departments. Weakness of the policy development process in the line 
ministries and municipalities, combined with absence of regular, reliable performance reporting 
requirements, are major obstacles to further development of this approach to budgeting. 
• Planning for and execution of capital projects needed further strengthening: The studies by the 
Government’s working group (led by the Budget Department) and World Bank consultant Andrew Bird 
reached similar conclusions in 2007 regarding steps needed to reduce under spending and improve the 
execution of capital projects. Implementing those recommendations must be a joint undertaking of the 
MFE, the procurement agencies, and internationally funded technical assistance projects. Budget 
organizations with major capital programs should be supported in developing their three-year capital 
planning procedures, with technical assistance provided by the PIP and EAR Strategic Planning projects. 
For multi-year projects, the full estimated cost of proposed capital projects should be included in the 
budget as information. Further restrictions on shifting of funds between capital projects during the year 
may also be needed to introduce foresight and discipline into planning as well as management of capital 
projects. 
• Government credit and guarantees were not clearly subject to appropriation, and their costs 
were not included in the budget as they arose: Government loans to POEs have been treated as 
financing transactions and not included in the budget totals or appropriations. Subsidies to those entities 
to repay loans were not identified as such in the budget. New appropriations of credit should be 
anticipated to support economic development and for other purposes, so it is important to establish a 
sound precedent to budget for and control the cost of these obligations. Decisions to extend Government 
support in the form of loans or support of private borrowing incur costs that should be recognized in the 
budget when the decision is made to provide credit. An approach consistent with Kosovo’s budget 
Page 14 
process and capacities would recognize the expected cost of credit beginning at the time credit is extended 
and require the annual appropriation of a reserve for potential cash expenditures each year. 
• Procedures for monitoring and control over budget execution needed to be tightened: The 
budget department’s monitoring of the budget’s execution and of actions which have budget implications 
is crucial to the integrity of the governmental process – especially due to the weakness of financial 
controls in many organizations. To ensure that the budget is executed as enacted and to ensure proper 
prior review of proposed legislation or proposed Government decisions to assess their budget impact, 
proper procedures must be followed. The MFE’s budget department often learns about actions with 
budget implications long after they occur. In some cases, actions by budget organizations that are 
inconsistent with the budget regulation or other legal requirements has gone undetected for some period, 
undermining Government policies and increasing costs. The MFE must work with others to clarify the 
legal authorities for observed increases in compensation and must work with Treasury to draft a new 
administrative instruction providing budget organizations with a list of narrow circumstances under which 
it is appropriate to propose allowances. Uncontrolled increases in salary levels and compensation tend to 
undercut the budget process and accelerate spending without a corresponding gain in output. 
• The budget department’s performance needed further improvement: The capacities of the 
budget department were stretched thin. Department staff had received regular training in general budget 
processes, specific analytical techniques, and specific methods immediately applicable to their work. 
Progressively more responsibility has been placed on budget analysts to develop detailed knowledge of 
the budget organizations which they oversee and to provide informed, timely analysis of budget issues. In 
2007, the analysts led reviews of capital spending and were more proactive in engaging with budget 
organizations about problems affecting budget execution. Further professionalization and skill 
development are dependent in part on having adequate staffing levels for this function; staffing was lower 
in 2007 than in 2006. 
• Information systems for budget and treasury needed to be integrated and strengthened: 
Treasury and Budget use separate donated systems for their work, which is problematic since these 
systems do not connect. Moreover, there is no integration between the Treasury system and the payroll 
system maintained by the Ministry of Public Services. The Treasury system has an unused budgeting 
module with greater functionality than the current budget system, which could be the basis for an 
integration of budget and treasury production and reporting of financial information for purposes of both 
departments. Although this has been recognized for a few years as a possibility, there has yet to be a 
decision to move forward. 
• More active management of the Government’s cash balances was needed: Preliminary steps had 
been taken by mid-2007 to develop policies and apply practices of modern cash management, resulting in 
higher returns on balances. However, further policy development and design, with additional systems 
support, was needed to fully modernize this Treasury function. 
• Debt management policies and procedures had to be developed: The need for these was clearly 
identified by Treasury, pursuant to the anticipated change in Kosovo’s status and assumption of a portion 
– to be negotiated – of the old Yugoslav debt. It was recognized that international expertise would be 
needed to establish the necessary functions, in cooperation with the Central Bank. 
4.1.c Progress under the Current Program 
Several specific indicators suggest continued strengthening in the last 18 months of the budget and 
financial management processes and systems that are the focus of EMSG Program assistance. At the 
same time, surrounding circumstances have complicated the work of the Budget Department and the 
Page 15 
Macroeconomic Policy unit in particular and may limit immediate prospects for a strong budget planning 
and preparation process that can serve to rationally allocate public resources based on the Government’s 
policies and priorities. 
Specific accomplishments that were identified during the March 2009 evaluation include the following 
(Results indicators in parentheses): 
• A new law on public finance and accountability, a new law on municipal finance, and other new or 
revised laws required by independence were drafted with intense involvement of the EMSG Program 
advisors and with the advice of IMF and World Bank representatives, and enacted in short order 
following independence. The new law on public finance is highly specific regarding the structure and 
process of budget and treasury functions and therefore provides a firm foundation for continuation of 
orderly processes (1.1.2). 
Budget and Macroeconomic Policy: 
• The MTEF for 2009-2011 is an advance over the previous year’s document both in the manner of its 
development and in its content. Its content was shaped by a very general statement of Government 
priorities adopted in May and showed how these could be addressed within spending totals, as well as 
what additional could be accomplished with specified donor support. Ceilings were finalized in June, 
earlier than in 2007 when they were prepared too late to serve as targets for 2008 budget planning. 
While the Macro unit worked on a broader economic framework and forecast, the budget analysts 
were given the lead in convening working groups of the relevant ministries to develop sector analyses. 
Recommendations of the sectoral analysis groups were given to the MFE’s working group for MTEF. 
This parallel work required closer coordination of the two units than in the past, a challenge which 
was met as evidenced by the final document. Issues regarding the MTEF’s use as a framework for the 
2009 budget and the relationship between the budget process and other policy making processes are 
explored below (1.1.1; 1.1.8; 1.1.9; 1.1.12; 1.1.13). 
• The 2009 budget was presented to the Assembly within three days of the statutory deadline, and with 
unprecedented detail describing and justifying spending proposals. The Central Budget Department 
staff accomplished most of this work without involvement of international advisors. The Central and 
Municipal Budget Departments managed the close coordination required to meet this deadline (1.1.3; 
1.1.8). 
• As noted, 2008 capital spending execution improved, probably for several reasons, including active 
efforts at both political and technical levels and improvements in procurement regulations. All capital 
projects are now listed in the appropriations schedules. Overall, 80 percent of the budgeted amounts 
were spent, although some funds were reprogrammed late in the year and thus not applied to the 
originally budgeted projects. No carry forward of unspent funds was permitted. The PIP system (an 
EU-supported effort) continues to provide incomplete information on proposed projects, in part 
reflecting the inability of budget organizations to adequately plan and analyze capital projects. Heavy 
turnover in the Budget Organization staff and weak participation by their chief financial officers in the 
process hampered progress. Much of the capital spending occurred at the end of the year and changes 
were approved from projects approved in the budget (1.1.12; 1.1.13). 
• Required cost reviews of proposed legislation by MFE, conducted in the Budget Department before 
legislation may be presented for decision by the Government, which are being conducted with greater 
frequency but not in all cases (1.1.1; 1.1.10). 
• The municipal budget department worked with municipalities to develop a new chart of accounts for 
the municipal budget that is more program and function oriented and therefore provides additional 
clarity to citizens regarding the use of public monies. This work was done with intensive involvement 
by the EMSG Program advisor (1.1.3; 1.1.5). 
Page 16 
• The municipal budget department and advisor worked with others to develop procedures and 
instructions to implement the new laws on local self-government and local government finances, 
including new bases for central general grants and special purposes grants for health and education 
and clarification of the status of own-source municipal revenues, as required by the agreement for 
Kosovo’s independent status (1.1.2; 1.1.5). 
• The municipal budget department, with assistance from the EMSG Program advisor, developed and 
adopted a business and staff development plan for 2010 which, for the first time clearly states strategy 
and specific actions to be taken by the Department during the year to meet an array of performance 
objectives tied to the Department’s mission (1.1.1; 1.1.3). 
• A senior budget staff member is leading the secretariat that has drafted a PEFA self-assessment. By 
all accounts, this work has been effectively led by Kosovars, in contrast the 2007 PEFA assessment, 
under direction of the Deputy Minister of MFE and other policy officials. The government is 
committed to a public financial management action plan to address shortcoming identified in the 
PEFA assessment and other reviews (1.1.1; 1.1.12). 
• The Macroeconomic Policy unit, under time constraints, developed multiple tax policy options for the 
Minister at his request, showing the pros and cons of each, in advance of a Government decision to 
adjust tax rates (1.1.7; 1.1.8; 1.1.9). 
Treasury: 
• Treasury, with advice from the EMSG Program and others, developed the systems and procedures 
needed to support decentralization of payments processing to municipalities and is ready to pilot that 
process with qualifying municipalities. An administrative instruction has been drafted, but not issued, 
to hand over responsibility in an orderly progression (1.1.5; 1.1.16). 
• Treasury obtained assistance of a US Treasury advisor to guide implementation of the new law on 
debt and is prepared on reasonable notice to manage acquired debt and other international obligations 
(1.1.5; 1.1.15). 
• Treasury continued to build new financial reporting capabilities and has continued to produce timely, 
transparent quarterly and annual reports using an internationally approved accounting scheme (1.1.14; 
1.1.17; 1.1.18). 
• Treasury set up a cash management unit to make projections and carry out an investment strategy 
(1.1.15). 
• The Treasury director continued to drive improvements, based on his own analysis of the highest 
needs. He has identified a set of specific developmental projects needed in the coming year, including 
an on-line payment system, an assets module to help budget organizations keep track of their assets, 
interface between the Treasury and CBK systems, and improved internal controls. The last of these 
would be a major effort to strengthen the internal audit function and establish a new internal financial 
control unit. He has identified a specific need for additional international advice with regard to these 
planned projects (1.1.14; 1.1.19). 
The established budget procedures had been used effectively in 2007 and again initially in 2008 to 
develop a framework for budget decisions and as a discipline during budget development for the 
following year, as well as to restrain various demands for new programs or other changes during the year. 
However, as explained below, initial use of the MTEF and budget processes was circumvented by 
decisions made outside and inconsistent with the initial budget framework and ceilings. 
Page 17 
Last year, which also saw Kosovo’s independence, the MTEF and budget planning for 2009 were initially 
shaped to influence donor decisions at a mid-year conference. Although promised donor support has not 
been delivered, the promise of future support distorted the timing and content of the Government’s 
decision-making processes in 2008 as it had in the prior year. 
Moreover, immediately following the donor conference, the Government announced important policy 
changes with major budget implications that were at odds with both the MTEF and expectations of 
donors. This required major adjustments prior to submission of the 2009 budget to the Assembly. More 
significantly, it raised doubts everywhere about the integrity of the recently established processes. The 
pattern of budget process circumvention established last year may have long-term implications for the 
sustainability of the institutions and processes that have received substantial USAID support. 
Today, the Budget and Treasury Departments are highly professional, well-managed operations by all 
accounts. Their continued development was further validated by a forthcoming PEFA self-assessment, 
led by MFE staff, which shows improvement in scores since 2007 on most performance elements. The 
budget’s credibility, transparency, and comprehensiveness have been upgraded. Budget execution 
receives modest upgrades, except for effectiveness of taxpayer registration, assessment, and collection 
(discussed in the following section). Higher scores also are given for some timeliness of some financial 
reporting and for the scope of external audit reports. 
The Budget and Treasury Departments now use separate donated information software to support their 
functions. The Budget’s Department’s BDMS system has limited capability to support further 
development of performance or program budgeting approaches or to support and display multi-year 
capital project details. It also has limited reporting capabilities. The Treasury’s Freebalance system is 
more sophisticated and includes a performance budgeting component – not currently used. It is 
maintained and updated on a regular basis by expert staff. Systems are adequate to support fiscal 
decentralization, including electronic submissions and reporting; however, expanded capacities could be 
considered as part of a review of technical options for future systems development. It is beyond the scope 
of this evaluation to assess the technical requirements for further systems development or the merits of 
alternative software solutions. However, we note that the limitations of the current system used for 
budgeting and see this as a constraint on further development of important aspects of the budget process. 
Further training of staff and systems development is needed, but the needs are identified and owned by 
the two managers. Within these resource constraints, they can proceed to make needed improvements, 
with occasional consultation and expert advice from the EMSG Program or other international projects. 
Both are receptive to such continuing advice and support. However, the Treasury Director believes that 
future advisor support can focus less on technical training of his staff and more on policies and 
procedures to support stronger financial controls and internal and external auditing. 
The Macroeconomic Policy unit retains a core of professional economists who continue to perform 
excellent quantitative and qualitative analyses of policy options. The integration of their work with that 
of the budget analysts has increased through a restructuring of the MTEF process. Their presentation and 
answers to questions by international representatives at the first fiscal surveillance meeting, held during 
our visit, was praised privately by IMF and ICO representatives who were present. We do not see a 
continuing need for an international expatriate advisor to the Macro unit as currently constituted. 
However, we do foresee future opportunities for short-term assistance in further developing the models 
for forecasting and other applications, such as revenue forecasting techniques, that would strengthen 
specific capacities of the Macro unit. 
Recent changes external to MFE complicate the effort to establish sound sustainable budget formulation 
as the core of policy development and fiscal discipline for Kosovo. These include: 
Page 18 
• Untimely intervention in last year’s budget process, accompanied by a shift in locus of decision to the 
Prime Minister’s office from MFE – this has reduced the ability of that Ministry to manage pressures 
on the budget. Unless accommodated in some fashion, this could undercut the integrity of the budget 
process as a disciplined focus for setting priorities within a negotiated overall fiscal constraint and 
specific targets tied to the Government’s development strategy. 
• Dismantling of the Government’s donor coordination unit as part of a reorganization of functions – 
this complicates the task not only of coordinating international assistance to the Government but also 
of incorporating revenues from those sources in annual budgets. 
• Failure to implement the Brain Fund as originally conceived – this raises doubts about whether this is 
a viable strategy for establishing and sustaining a top layer of professional administrators and subject 
experts that can outlast changes in political control and can lead and deepen the emerging culture of 
professionalism in Kosovo’s civil service. 
Development of the 2010-2012 MTEF has been slow to start. During our visit, a decision to post the 
central and municipal budget positions raises further questions about whether this process will proceed 
quickly. The prospects for a continued orderly, disciplined budget process are in question. The budget 
director, other senior MFE staff, and EMSG Program advisors are aligned in supporting an early review 
of priorities by the Government, to be approved at Cabinet level, and then used as the basis for the MTEF, 
which in turn will set targets for the 2010 budget. With the late start and unclear commitment to this 
policy process, it is doubtful that the statutory April 30 deadline for MTEF submission to the Assembly 
will be met and questionable if this can serve as the fiscal framework for the 2010 budget formulation. 
4.1.d Recommended Next Steps 
Several adjustments can be made in the short run to the EMSG Program and the work of its advisors to 
improve prospect of meeting the program’s goals by June 2010. 
1. Give highest priority to reestablishing the MTEF this year as the Government’s vehicle for turning 
policies into concrete multi-year plans and targets for collection and use of resources to advance the 
Government’s highest priorities. 
2. Encourage the MFE to explore options and seek expert, neutral advice on requirements for an 
integrated Budget and Treasury system, linked electronically with MPS for personnel and payroll, to 
Tax Administration and Customs for revenues, and to CBK for debt management. As part of this 
review, expanded capacities to support fiscal decentralization should be considered. (Note: This 
responds to questions 14 a. i., ii., and iii. in the Statement of Work.) 
3. Revive a previous USAID/BearingPoint emphasis on training and procedures for incorporating 
performance and program budgeting information into budget decision-making both centrally and in 
the preparation by budget organizations of their budget proposals for the coming year(s). 
4. Focus efforts of the new EMSG Program advisor in Treasury on development of regulations for 
internal financial controls and stronger auditing functions, on support for linking Treasury, Budget, 
and payroll systems, and on other priorities established by the Treasury director. This could include 
limited technical assistance to municipalities in support of fiscal decentralization, in coordination with 
the municipal budget department. (Note: This responds to question 14 c. in the Statement of Work.) 
5. Upon appointment of the new General Director of Budget, offer to provide a full-time advisor 
(probably by reassigning an existing advisor) to that individual to define operating procedures, 
policies for an integrated budget operation; and propose a training program to provide common and 
integrating processes for reintegration of the central and municipal budget departments as needed for 
coordinated, efficient budget formulation and execution. 
Page 19 
4.2 Tax Administration (Including Property Tax) 
4.2.a Objectives 
In the area of tax policy/administration, the objective of the EMSG Program is to strengthen the ability of 
MFE/TAK to develop appropriate tax policies and administer them effectively consistent with 
international standards and the mandates of the settlement document. An important goal of EMSG in this 
area is to build and strengthen key Kosovar institutions responsible for tax policy and administration—
primarily MFE and TAK—so that they have the organizational capacity and human resources needed to 
implement and sustain Kosovo’s tax system. 
A modern and efficient tax system is essential to the development of a market-driven and self-sustaining 
economy in Kosovo. As a newly established country, Kosovo clearly has significant resource needs—for 
infrastructure, education, and social programs among others. Donor assistance and foreign investment 
will meet some of these needs. However to sustain its growth and development, Kosovo must raise 
significant resources via an efficient and well run tax system that minimizes both disincentive effects on 
aggregate production and distortions on the structure of production. Thus, the EMSG Program’s progress 
in the area of taxation should be judged primarily in terms of its contribution to the development of an 
efficient, well run, and sustainable tax administration in Kosovo. 
4.2.b Status in June 2007 
Background 
At the inception of the EMSG Program in July 2007, Kosovo enjoyed a simple but reasonably well 
developed tax system. This system was essentially built from scratch starting in 1999 through the 
combined efforts of dedicated Kosovars, UNMIK, and various donors—primarily the US and EU2
. It is 
important to note that during the period covered by the previous 5 task orders implemented by 
USAID/BearingPoint (2000 to mid 2007) approximately 24 person years of tax-related assistance were 
provided by resident expatriate advisors.3
 There can be no doubt that many, if not most, of the 
improvements in Kosovo’s tax system realized during that period were the result of this tax-related 
technical assistance provided by USAID and implemented by USAID/BearingPoint advisors.4
Data on tax revenues collected in Kosovo by type of tax between 1999 and 2008 are summarized in Table 
1. It should be noted that domestic tax collections started in 2000 via simple sales, hotel/food/beverage, 
and presumptive taxes. In 2001, the former two taxes were eliminated in favor of a value added tax, and 
in 2002 wage and profits taxes were introduced and the presumptive tax was partially eliminated. By 
2005, more full blown personal and corporate income taxes were adopted—incorporating previous profit 
and wage taxes and further reducing the presumptive tax. Equally important, tax administration was 
given a sounder legal basis with the adoption in April 2005 of the Law on Tax Administration and 
Procedures, which provides for sanctions against tax evasion, sufficient powers for collection, protection 
 
2
 The tax system discussed in this section covers primarily the personal and corporate income taxes, the VAT 
collected on domestic economic activity, a small presumptive tax, and municipal property taxes. USAID technical 
assistance has been directed toward these taxes. Taxes and duties collected at the border—primarily VAT, customs, 
and excise (mainly on oil products)—are very substantial in terms of revenue generation (accounting for roughly 75 
percent of total tax revenues collected), but have not benefited from significant amounts of USAID-provided 
technical assistance. Thus border taxes are not treated in this chapter. 3
 See Annex A for a summary of the number of long term resident advisory supplied under the various task orders 
implemented by USAID/BearingPoint. 
4
 Evaluations in 2003 and 2006 of prior USAID/BearingPoint task orders support this conclusion. 
Page 20 
of taxpayer rights, and a code of ethics for tax officials. Municipal property taxes were also collected 
from at least 2003 onward. 
Table 1. Kosovo Tax Revenues (millions Euros) 
Revenues/Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Total Tax Revenues5 15.5 125.3 324.6 501.1 526.7 555.5 568.6 629.2 724.5 817.0 
 
Domestic Tax - 6.5 45.7 80.0 109.4 114.1 129.0 167.4 191.5 221.6 
 VAT - - 12.5 28.7 39.5 44.7 46.4 47.8 58.8 58.4 
 Income 6.5 33.2 52.1 69.9 69.4 82.7 119.6 132.7 163.2 
 VAT Refunds - - - - - - (1.8) (3.3) (9.0) (21.3) 
 
External Tax 15.5 113.9 242.4 370.1 413.8 435.9 434.4 457.5 533.7 605.0 
 Border VAT/Sales Tax 9.9 63.4 117.7 169.0 180.6 186.4 195.2 210.8 255.0 304.8 
 Customs 4.8 30.9 47.6 67.5 72.3 73.4 74.1 82.3 81.2 93.4 
 Excise 0.8 19.5 77.0 125.6 153.3 176.0 164.3 161.9 191.4 203.9 
 Other border taxes - - - 8.0 7.5 0.1 0.8 2.5 6.1 3.0 
 
Municipal and non-tax rev. 4.9 36.5 50.2 64.6 69.1 74.9 91.5 108.1 137.1 
Municipal Property Tax - - - - 3.5 5.5 7.0 7.6 8.3 11.7 
Source: Ministry of Finance and Economy 
Government of Kosovo 
EMSG Baseline 
For the purpose of this evaluation, FY 2006 will be used to establish a baseline for the current EMSG 
Program. In that year, and as summarized in Table 1, approximately 175 million Euros worth of domestic 
taxes were collected. Domestic VAT, income tax (both personal and corporate), and municipal property 
tax accounted for roughly 27%, 68%, and 4% respectively of the total tax revenues collected.6
 
More important than the amounts of domestic tax revenues collected from different taxes is the state of 
Kosovo’s tax administration regime as of FY 2006 since this largely determines a baseline to EMSG 
Program’s efforts to strengthen tax administration and build capacity. Fortunately, the IMF’s Fiscal 
Affairs Department completed an assessment of the state of Kosovo’s tax administration as of November 
2006.7
 This assessment concluded that Kosovo’s tax administration had made good progress in 
establishing a sound legal basis, developing a simplified income tax structure, and better aligning VAT 
legislation with the EU’s Sixth VAT Directive. The IMF also concluded that there was a significant need 
for TAK to adopt administrative procedures more consistent with international best practices. 
Recommendations of the IMF report provided much of the basis for TAK’s Strategic Plan 2007 – 2010, 
which was adopted by the Government of Kosovo as a blueprint for reform and strengthening of TAK.8
 
 
5
 Total tax revenues equal total domestic, external, and property taxes refunds. 
6
 Taxes collected at the border accounted for 457.5 million Euros in FY 2006. This was approximately 73 percent of 
total tax revenues. Over time, one would hope to see the share of border tax revenues in total tax revenues decline 
as Kosovo’s economy grows and greater emphasis is placed on direct taxation of income as opposed to indirect 
VAT, excises, or customs duties at the border. 
7
 International Monetary Fund, “Kosovo: Opportunities for Strengthening Tax Administration”, November 2006. 8
 Further input from the IMF in early 2008 resulted in this document being revised into a Strategic Plan for 2008 – 
2010. 
Page 21 
This plan identified needed reforms in the following areas, among others: 
a. Dealing with customers 
• Improve taxpayer communications 
• Improve tax registration of businesses 
• Improve debt management (collections) procedures 
• Increase voluntary filing and identify non-filers/stop filers 
b. Organizational reform 
• Improve planning and oversight 
• Strengthen headquarters responsibilities and lines of communications 
c. Staff strengthening 
• Implement a management performance system 
• Provide needed staff training/development 
d. System improvements 
• Develop risk-based systems for direct and indirect taxes 
• Improve management information systems 
• Increase SIGTAS operational capabilities 
4.2.c Progress under the Current Program 
Tax revenue trends 
Progress under the EMSG Program in the area of taxation can be assessed in several different ways. 
Total domestic tax revenues have continued to increase at a good pace since the start of the EMSG 
Program. Specifically, total domestic tax revenues increased by about 14 percent and 15 percent between 
2006/2007 and 2007/2008 respectively, as compared with increases of 13 percent and 30 percent between 
2004/2005 and 2005/2006. The share of direct tax revenues (from personal and corporate income taxes) 
in total domestic non-property tax revenues increased slightly from the start of EMSG—from 71 percent 
in base year 2006 to 74 percent in 2008—while the share of indirect non-property tax revenues (from 
VAT) declined from 29 percent to 26 percent. However, this slight trend is not expected to continue into 
2009 due to the reduction in personal and corporate income tax rates from 20 percent to 10 percent and 
the increase in the VAT rate from 15 percent to 16 percent implemented on January 1, 2009. As part of 
total domestic tax revenues, municipal property tax revenues are small—accounting for only five percent 
of total domestic tax revenues in FY 2008. However, there is potential for municipal tax revenues to 
increase significantly in the future. To summarize, domestic tax revenue trends under the EMSG Program 
are “good” and represent a continuation of what was observed in prior years. That is, domestic tax 
revenues have been relative buoyant (growing faster than the economy) with a slight relative growth in 
revenue from direct income taxes. This continuity of revenue trends under the EMSG task order is not 
surprising since it is very much a continuation of prior USAID task orders, as well as part of a broader 
and on-going donor-led effort to build key economic institutions in the Government of Kosovo. 
Achievement of EMSG Results:9
Another way to assess the EMSG Program’s achievements to date in the area of tax is to look at its 
performance against desired results specified in the EMSG Program statement of work. These desired 
results for TAK and MFE (re. the property tax), and their status to date, are discussed below.10
 
9
 It is also worth keeping in mind that USAID is not the only donor providing assistance to TAK. Specifically, the 
EU’s CAFAO activity has provided technical assistance to TAK in the past; and additional EU technical assistance 
is scheduled to start later in 2009. 
Page 22 
TAK-related Results
Result 1.2.1 TAK is a well-functioning agency, able to competently carry out its responsibilities 
without full-time USG assistance. 
Status: Partially achieved. TAK continues to make progress towards becoming a well functioning 
agency, although by general agreement this progress has been hampered by steady 
turnover among top management. Most of the necessary legal framework is in place (or 
expected shortly)—including a revised Law on Tax Administration and Procedures 
(approved in January 2009) and a revised VAT Law (approved in December 2008) --both 
drafted with significant EMSG Program input. TAK still needs to strengthen its 
management, operations, and systems if it is to come closer to meeting international best 
practices. According to TAK management, current EMSG Program advisors are 
indispensable in helping TAK develop and implement these improvements 
Result 1.2.2 TAK collects taxes in a competent, professional and even-handed manner, with the result 
that taxpayers are increasingly compliant, having confidence that TAK is assessing taxes 
accurately. 
Status: Partially achieved. Tax payer compliance rates are up marginally. See status of Result 
1.2.14. 
Result 1.2.3 TAK Headquarters managers (director, deputy directors and department heads) have 
strong management skills, asserting appropriate oversight of regional offices so that taxes 
are collected in a consistent manner across Kosovo. 
Status: Partially achieved. Significant amounts of professional skills training have been provided 
to many managers. It is difficult to assess to what extent such training has led to a more 
consistent application of the tax system across Kosovo. 
Result 1.2.4 Secondary legislation and manuals exist for interpreting tax laws. 
Status: Achieved. USAID/BearingPoint advisors have helped with secondary legislation/manuals 
over the last few task orders. Under the EMSG Program, advisors have drafted secondary 
legislation on implementing new tax rate, and for levies on bank accounts. This work is 
on-going with sub-legal act drafting underway for implementation of fiscal cash registers 
and enforced collections. 
Result 1.2.5 Tax legislation is amended, as needed, to comply with settlement document. 
Status: Achieved. EMSG Program advisors have assisted with drafting amendments for the Law 
on Religious Freedom, the Law on Tax Administration and Procedures, the VAT Law, 
and the Laws on Personal and Corporate Income Taxes. EMSG Program assistance with 
drafting tax legislation and implementing regulations is an on-going need. 
Result: 1.2.6 TAK procedures, including selection of taxpayers for audit, are transparent and objective 
so that opportunities for political or other influence are minimal. 
Status: Partially achieved. EMSG Program advisors are helping TAK develop a risk-based audit 
methodology that will minimize political and other influences. This methodology is not 
yet fully implemented. 
 
10 The evaluation team’s assessment of various results specified in the EMSG Program statement of work is 
hampered by the lack of agreed upon indicators for these results. Many of the specified results are rather vague or 
subjective, and thus their status is difficult to determine with certainty. 
Page 23 
Result 1.2.7 VAT refunds are made in a timely manner. 
Status: Not achieved. Limited evidence suggests average VAT refund times have not declined 
significantly. However, the number of VAT refund claims has increased (from 23 in 
2005 to 128 in 2008), which has been the focus of TAK efforts. Most refund delays are 
due to problems with processing by regional tax offices. 
Result 1.2.8 Procedures for VAT refunds are based on best practice, effectively utilizing risk-based 
audits. 
Status: Not achieved. The current work of EMSG advisors is helping TAK to develop a risk￾based audit methodology that applies to taxpayers overall. It will determine which 
taxpayers are most “risky” and thus deserving of audit. This methodology will not focus 
specifically on VAT refunds. However, and as noted for Result 1.2.7 above, most delays 
with VAT refunds result from problems in the regional tax offices, not because of slow or 
ill-targeted audits. 
 
Result 1.2.10 The Large Taxpayer Unit (LTU) effectively and transparently manages its taxpayers. 
Status: Achieved. The LTU has been in operation since 2000. It services 350 taxpayers 
characterized by an annual turnover of at least 2 million Euros and more than 100 
employees. In FY 2008, the LTU collected roughly 67 percent of total TAK revenues, 
with 92 percent of those revenues being paid voluntarily. The LTU is currently using an 
early version of the risk-based audit methodology. 
Result 1.2.11 Audit departments (particularly LTU) implement risk-based, objective audits. 
Status: Partially achieved. As noted for results 1.2.6 and 1.2.10 above, a relatively sophisticated 
risk-based audit methodology is currently under development with the support of EMSG 
advisors. 
Result 1.2.12 Taxpayers have clear, understandable tax guides. 
Status: Partially achieved. An all inclusive tax guide is available, but needs to be update to 
reflect current versions of various tax laws. 
Result 1.2.13 Management Information Systems are effectively used to guide management in assessing 
and improving performance. 
Status: Not achieved. The current SIGTAS IT system generates various reports, but they are not 
used for management purposes. An upgrade of SIGTAS is underway and this upgraded 
system will produce most of the reports needed for effective tax management. 
Result. 1.2.14 Increased compliance is shown by improved rates of collection, with direct taxes 
(personal and corporate income taxes) showing an increasing proportion of all tax 
revenue. 
Status: Achieved. The share of tax revenues collected voluntarily increased slightly from 82 
percent in FY 2007 to 86 percent in FY 2008. The share of direct taxes in total domestic 
non-property tax increased from 71 percent in FY 2007 to 74 percent in FY 2008. As 
noted previously, this trend is unlikely to continue in FY 2009 due to the January 2009 
reductions in income tax rates and the increase in the VAT rate. 
Property Tax-related Results
Page 24 
Result 1.1.20 Municipalities have increased capacity to use market valuations for assessing properties 
for property tax 
Status: Achieved. Municipalities now regularly used data on arms-length real estate transactions 
in their assessment jurisdiction to establish average market values (on the basis of square 
meter) for each property class in each valuation zone. The MFE’s Property Tax 
Department audits the municipal property tax offices to ensure that these values 
correspond with available market data and the general experience of real estate agents 
and other professionals. While the limited amount of property data available permits only 
a rudimentary estimation of property values, the current approach to valuation reflects the 
overall market, is highly transparent, and easy to administer. 
Kosovo is on the cusp of a dramatic improvement in municipalities’ ability to appraise 
real estate according to market value. A tender is being finalized to resurvey all existing 
records in the fiscal cadastre. The resurvey is being coordinated with the Kosovo 
Cadastre Agency (KCA) and will verify existing information as well as record the 
external characteristics of properties, x-y coordinates, and a photograph of the property. 
It is expected that this effort will start with a pilot in May 2009 before being rolled-out to 
the rest of Kosovo’s municipalities later in the summer. The entire resurvey effort will 
likely finish in the first quarter of 2010. Once these additional data elements are included 
in the fiscal cadastre, more sophisticated mass appraisal models can be developed 
Result 1.1.21 Property tax collections increase yearly 
Status: Achieved. As reported in Table 1, property tax revenue increased steadily from 2004 
through 2008. The significant increase in 2008 was the result of major improvements in 
administration and enforcement efforts. In January 2008, work began on ad hoc changes 
to the existing property tax IT system to facilitate the outsourcing of bill production and 
delivery by Post & Telecom Kosovo (PTK). PTK was able to print and delivery bills at a 
cost of €0.247 per bill which represented a 60% savings on the municipalities’ cost of 
service. In addition to its ability to print and deliver bills more cheaply and quickly, PTK 
had a 95% delivery success rate–far above what any municipality could achieve using 
their own staff. 
Also at the beginning of 2008, the MEF Property Tax Department submitted detailed 
recommendations on improving enforced collections to the newly elected local 
government administrations. These focused on requiring taxpayers to provide their 
receipt of property tax payment before municipalities provide services. For example, 
before taxpayers could register their vehicles, register a change in property ownership, or 
be issued a business license or building permit, they had to prove they were up-to-date in 
their property tax payment. This proved to be very effective and resulted in the collection 
of a significant amount of arrears. The roll-out of a new IT solution for municipal 
property tax administration will also help to ensure that property tax revenue continues its 
upward trend. Among other things, it will allow municipal collectors to quickly identify 
delinquent taxpayers and organize their efforts to visit those taxpayers or deny municipal 
services when the taxpayer submits an application. 
Result 1.1.22 New municipalities are certified and trained in financial management and in collection of 
property tax 
Page 25 
Status: Achieved. The initial three pilot municipalities of Mamusa, Junik and Hani i Elezit 
established their municipal property tax offices in 2007. The MEF Property Tax 
Department trained these staff in all aspects of property tax administration and spent a 
significant amount of time providing on-the-job training. These municipalities were 
formally certified to administer the property tax in 2008. 
Result: 1.1.23 Property Tax Department proactively works with municipalities to improve collections 
Status: Achieved. See the discussion of Result 1.1.21 above. In addition, the MEF Property Tax 
Department conducts training on enforced collections with each municipality at least 
twice per year and more often with municipalities whose revenue does not increase year￾over-year. Finally, in 2008, the MEF Property Tax Department and TAK, together with 
the Bankers Association of Kosovo, established the procedures for seizing the bank 
accounts of delinquent taxpayers. 
Regional Comparisons 
A final way to assess progress made in strengthening Kosovo’s tax system is to compare its performance 
with the performance of tax systems in other similar or neighboring countries. Simple tax information on 
collections, rates, and revenue performance for Kosovo, neighboring countries, and corresponding 
average figures for countries at Kosovo’s approximate level of per capita income are summarized in 
Table 2. Several salient facts are worth noting: 
1. Kosovo’s overall tax revenue mobilization (12.5 percent of GDP) in 2007 is comparable to (if slightly 
below) several neighboring countries, and well below the tax revenue mobilization found in Croatia or 
Serbia. Kosovo’s tax revenue mobilization is slightly below that found, on average, in other 
countries at the same level of per capita income. More or less the same general pattern is found when 
it comes to tax revenues mobilized by the corporate income tax. Revenue mobilization by the VAT in 
Kosovo is somewhat higher than found in several other regional countries and is higher than the 
average for similar income countries. In contrast, revenues mobilized by the personal income tax are 
low in Kosovo even relative to its neighbors, let alone other similar countries. 
Table 2. Tax Benchmarks in Selected Countries (2007)11
Country\Benchmark 
Total 
Tax12
GDP 
VAT13
GDP
CIT14
GDP 
PIT15
GDP 
VAT16
MAX 
VAT17
PERF 
CIT18
MAX 
CIT19
PERF 
PIT20
MAX 
PIT21
PERF
Albania 12.8 9.1 2.2 1.5 20 58 10 0.22 10 0.15 
Croatia 20.8 13.9 3.3 3.6 22 113 20 0.17 45 0.09 
Kosovo 12.5 9.7 1.7 1.1 16 75 10 0.08 10 0.06 
Macedonia 12.9 8.7 1.5 2.7 18 51 10 0.06 10 0.27 
Montenegro 10.5 7.2 0.8 2.5 17 74 29 0.04 12 0.21 
Serbia 17.7 11.0 0.9 5.8 18 87 10 0.09 27 0.18 
Average Low- Mid 13.2 6.8 3.5 2.9 15.5 65 26 0.13 28 0.11 Income Country 
 
11 For more details on the tax benchmarking methodology used in Table 2 see Mark Gallagher, “Benchmarking Tax 
Systems” at http://www fiscalreform net/index.php?option=com_content&task=view&id=545&Itemid=139 
Page 26 
2. Kosovo’s tax rates for the VAT, corporate income, and personal income are relatively low—even 
compared with its neighbors where tax rate reductions to increase national competitiveness and 
improve the investment climate have been the rage recently. Such low tax rates, of course, result in 
lower tax revenue mobilization absent major supply side effects. 
3. Table 2 also provides measures of individual tax revenue performance in Kosovo and other countries. 
These essentially measure how well a country does in mobilizing resources from a particular tax while 
controlling the tax rate. Factors relating to tax administration, such as non-compliance, avoidance, 
corruption, and general administrative efficiency can impact these measures of revenue performance. 
However, structural measures such as thresholds, allowances, exemptions, and the general nature of 
the tax base can also influence these performance measures. Once again, a fairly consistent pattern 
emerges. Specifically, revenue performance for the VAT and corporate income tax in Kosovo is 
comparable to revenue performance in several neighboring countries, while performance for the 
personal income tax in Kosovo lags well behind that found in most neighboring countries. 
What tentative conclusions can be drawn from these tax comparisons? Overall, Kosovo’s tax structure 
and performance are not drastically different than what is observed in other regional countries. However, 
the overall level of tax revenue mobilization is low relative to the tax mobilization found on average in 
lower middle income countries. The regional tendency towards relatively low tax rates may go a long 
way towards explaining this relatively low tax revenue mobilization in the region. Given that many of the 
countries in the region—especially Kosovo–have significant public expenditure needs for infrastructure, 
health, education and so on, low tax revenue may be a significant problem. 
Finally, the personal income tax in Kosovo stands out in terms of its relatively low revenue mobilization 
and its low revenue performance, with the corporate income tax performing somewhat better but still 
below what is observed, on average, in lower-middle income countries. It might be wise to attempt to 
identify and address as appropriate the structural and administrative factors that are responsible. This is 
especially true since over time and as Kosovo develops one would expect to find direct income taxes 
accounting for an increasing share of tax revenues. 
4.2.d Recommended Next Steps 
There is no doubt that Kosovo has made tremendous strides since 1999 towards developing a modern tax 
system. An adequate legal framework exists and there is at least a core of well trained managers and 
staff. Finally, a comprehensive (if somewhat unfocused) plan to modernize and strengthen TAK has been 
agreed upon and is being implemented. TAK’s performance, while not stellar, is in line with that of other 
countries in the region—with the exception of a seemingly under-performing personal income tax. This 
progress would not have been possible without the expert advice and hand-on training provided by 
technical advisors from the USG, EU, IMF and elsewhere working with TAK. It is clear that 
USAID/BearingPoint advisors supplied under the six task orders to date have made a huge contribution to 
the growth and development of TAK. Under the EMSG Program, USAID/BearingPoint advisors are 
making good progress in achieving most tax-related results identified in the statement of work. 
 
12 Total Tax revenue/GDP (percent) 
13 Total VAT revenue/GDP (percent) 
14 Total Corporate Income Tax/GDP (percent) 
15 Total Personal Income Tax/GDP (percent) 
16 Maximum VAT rate (percent) 
17 Total VAT revenue/Total Private Consumption divided by VAT rate 
18 Maximum corporate income tax rate (percent) 
19 Total corporate income tax revenue/GDP divided by CIT rate 
20 Maximum personal income tax rate (percent) 
21 Total personal income/tax revenue/GDP divided by PIT rate 
Page 27 
Within this context, the following actions/next steps between now and June 2010 are recommended: 
1. Stay the course. The amount of technical assistance supplied to TAK/MFE by USAID/BearingPoint 
advisors declined steadily—from six advisors during Task Order 2 to three advisors for Task order 6 
(plus a recent arrive to work on IT issues). This level of assistance appears about right for the 
remainder of the current task order. 
2. Assistance being supplied by USAID/BearingPoint to TAK is well targeted. Advisors are focusing 
their efforts on helping TAK better target audits, improve collections, better coordinate business 
registration, and strengthen its IT system (SIGTAS). Gains in these areas have the potential to 
improve TAK’s revenue performance. TAK’s current 2008–2010 Strategic Plan is very 
comprehensive and ambitious. Between now and June 2010, it would be prudent for EMSG Program 
advisors to continue to focus on the priorities identified above and thus avoid being spread too thin 
across the full gamut of needs identified in the Strategic Plan. 
3. The decision to end EMSG Program assistance relating to property tax as of November 2009 makes 
sense. The Property Tax Department benefits from strong capable leadership and is receiving 
assistance from SIDA. Property tax revenues have increased steadily and methods for assessment and 
collection are being improved and modernized. USAID/BearingPoint’s job with respect to property 
tax is done. 
4. TAK could likely improve its revenue performance by adding roughly 100 additional staff22—if these 
staff were sufficiently educated and training. If TAK decides to move in this direction it might make 
sense for USAID to make limited additional resources available (through USAID/BearingPoint or 
some other mechanism) to help structure appropriate training programs. 
4.3 Central Bank of Kosovo 
4.3.a Program Objectives 
The Scope of Work for Task Order 6 called for the contractor to supply a full-time advisor to the bank 
supervision department of the Kosovo Central Bank (CBK), along with targeted short-term assistance to 
the pension and insurance departments. Overall project objectives from the statement of work include 
strengthening the ability of key economic institutions (including CBK) to support economic growth. A 
specific sub-objective for CBK is to strengthen its supervision departments. 
Thirteen progress indicators were established for this activity. From reviewing the indicators, it is clear 
that the actual objective of the assistance was considerably broader: to strengthen the overall capacity of 
the CBK to oversee the financial sector of the country. The progress indicators were as follows: 
1. CBK’s supervision departments exercise strong, competent oversight and regulation of the 
commercial banks, insurance companies, Kosovo Pension Savings Trust and private pension 
companies. 
2. Public confidence in the commercial banking sector is shown by an increasing level of deposits. 
3. Core Basle Principles scores for CBK show annual improvement. 
4. Supervision Department competently performs Basle Core Principles self-assessment and drafts 
action plan for remedying deficiencies. 
5. Bank inspectors are knowledgeable about new banking products and changing commercial practices. 
6. Supervisory profiles of all licensed banks are established. 
 
22 Given Kosovo’s population, the size of TAK’s staff is relatively low when compared with most other countries in 
the region and even when compared with my higher income countries. 
Page 28 
7. For both on-site and off-site examinations, bank examiners are knowledgeable, analytical and 
appropriately proactive in supervising banks, able to detect problems early, devise action plans and 
enforce appropriate corrective action. 
8. Bank examiners perform meaningful analysis of commercial bank reports and update CAMELS 
ratings for commercial banks. 
9. Bank licensing manual is updated and procedures are significantly improved. 
10. CBK vigorously implements bank licensing requirements. 
11. Bank inspectors rigorously enforce Anti-Money Laundering laws. 
12. Bank inspectors effectively audit internal controls of commercial banks. 
13. Insurance and pension supervisors competently supervise insurance companies and pension plans. 
4.3.b Conditions at Program Initiation 
The CBK’s primary role is prudential supervision of banks, insurance companies and pension funds. As 
Kosovo does not have its own currency (the Euro circulates as the medium of exchange), the Bank cannot 
conduct monetary policy. The financial institutions in all three areas needed to be created from scratch 
after 1999. In all three areas, USAID advisors were involved in basic legislative frameworks and in 
promoting the establishment of regulatory institutions. The banking system is the most developed, with 
two international and five local banks, with deposits at the beginning of Task Order 6 of more than one 
billion Euros. 
USAID assistance to the CBK had been ongoing since its establishment after the 1999 war. 
USAID/BearingPoint staff had gradually shifted from executive positions in the bank to advisory ones. 
In early 2006, the last executive position of deputy managing director staffed by USAID/BearingPoint 
was transferred to a Kosovar, although the managing director continued to be an expatriate funded by the 
IMF. The level of USAID support steadily declined from six long-term advisors under the first two Task 
Orders to three under Task Order 5. 
The institutionalization of supervision of commercial banks was well-established, with methodologies 
and procedures for risk-based supervision implemented. Capacity building of CBK staff had become 
institutionalized, and the regulatory oversight by the CBK was being steadily upgraded. 
Nevertheless, the end-of-project report for Task Order 5 also concluded that continued mentoring would 
be needed in the future, noted that a professional certification program for CBK staff had not been 
implemented, and stated that a number of prudential rules needed to be revised to bring them into closer 
compliance with Basle II standards. 
4.3.c Progress Under Current Program 
The USAID/BearingPoint advisor on bank supervision required under the current Task Order was brought 
on board in early 2008. He remained held this position for 13 months, departing at the end of March, 
2009. Progress in improvement of bank supervision continued during this period, as discussed below. In 
early 2008, the position of managing director was transferred to a Kosovar who had been groomed for the 
position by BearingPoint. 
The CBK has reached a level of professionalism and institutionalization that has allowed USAID to pull 
back from extensive support. There are still tasks to be done, particularly in strengthening of CBK 
oversight of insurance and pension funds, and in establishing a system of deposit insurance, but other 
donors appear prepared to provide the necessary support. 
Page 29 
As noted below, regulation of insurance and pension funds has lagged behind bank supervision in terms 
of professional development. The World Bank is expected to provide a long-term advisor to help address 
this problem in 2009. Deposit insurance is an activity that KfW has been supporting, although progress 
has continued to lag because of policy disagreements over details of the insurance scheme. Legislation in 
this area is now expected during the last half of 2009. 
In terms of the thirteen indicators established by USAID for Task Order 6, the following summarizes the 
current state: 
Indicator 1 CBK’s supervision departments exercise strong, competent oversight and regulation of 
the commercial banks, insurance companies, Kosovo Pension Savings Trust and private 
pension companies. 
Assessment Partially Achieved. The supervision of commercial banks has improved during the tenure 
of the long-term advisor. Oversight of insurance companies and pension funds is weaker, 
although improving. The World Bank has tentatively agreed to provide a long-term 
advisor in this area, so further USAID assistance is no longer necessary. 
Indicator 2 Public confidence in the commercial banking sector is shown by an increasing level of 
deposits. 
Assessment Achieved. Deposits in the commercial banks have continued to rise steadily and rapidly, 
showing growing public confidence. Deposits rose 22% in 2008 to 1.35 billion Euros, 
after having risen 25% during 2007. 
Indicator 3 Core Basle Principles scores for CBK show annual improvement. 
Assessment Achieved. An IMF/World Bank assessment in early 2008 found significant improvement 
by the CBK in complying with Basle standards. The Bank was found to be materially 
non-compliant with six of the 25 standards. None of these six were considered serious 
obstacles to the Bank’s effectiveness in supervision. The BearingPoint advisor reported 
that further progress had been made during the subsequent year, although he did not 
quantify the gap beyond stating that the CBK was about two years behind Western 
European banks in implementing Basle II. The advisor also expressed concern that future 
progress might falter in the absence of external advisor in the Bank. While the European 
Commission provides some assistance, he reported, this tends to be short-term and 
focused on specific issues, rather than on overall strategies for meeting international 
standards. 
Indicator 4 Supervision Department competently performs Basle Core Principles self-assessment and 
drafts action plan for remedying deficiencies. 
Assessment Achieved. An action plan for remedying deficiencies has been drafted, approved by CBK 
management, and is being implemented. 
Indicator 5 Bank inspectors are knowledgeable about new banking products and changing 
commercial practices. 
Assessment Partially achieved. The entrance of international banks into the Kosovo market has led to 
the introduction of new products and practices. Some training has been undertaken to 
acquaint bank inspectors about such issues. Yet, there is some risk of the CBK falling 
behind developments in the future. 
Indicator 6 Supervisory profiles of all licensed banks are established. 
Page 30 
Assessment Achieved. These profiles were established in the first half of 2008, and the CBK has 
continued to refine them. 
Indicator 7 For both on-site and off-site examinations, bank examiners are knowledgeable, analytical 
and appropriately proactive in supervising banks, able to detect problems early, devise 
action plans and enforce appropriate corrective action. 
Assessment Substantially achieved. Skills have been upgraded, but the lack of English competency 
by many examiners limits their ability to obtain advanced certification and other 
international training opportunities. 
Indicator 8 Bank examiners perform meaningful analysis of commercial bank reports and update 
CAMEL ratings for commercial banks. 
Assessment Achieved. CAMEL ratings for commercial banks have become institutionalized, and are 
being used as a tool for CBK oversight. 
Indicator 9 Bank licensing manual is updated and procedures are significantly improved. 
Assessment Achieved. The manual has been updated and procedures significantly improved. 
Nevertheless, the continued evolution of banking practices and standards will require 
further revisions over time. 
Indicator 10 CBK vigorously implements bank licensing requirements. 
Assessment Completed. Licensing requirements established by UNMIK were fully implemented. 
Indicator 11 Bank inspectors rigorously enforce Anti-Money Laundering laws. 
Assessment Substantially achieved. The CBK examiners include anti-money laundering as part of 
annual examinations of commercial banks. Two specialists in this area, with extensive 
training, address this issue. 
Indicator 12 Bank inspectors effectively audit internal controls of commercial banks. 
Assessment Completed. Regulations were drafted and approved by the CBK board, and are being 
implemented. 
Indicator 13 Insurance and pension supervisors competently supervise insurance companies and 
pension plans. 
Assessment Not achieved. There is general agreement that supervision in these areas lags significantly 
behind supervision of commercial banks. Nevertheless, Task Order 6 did not propose a 
long-term advisor in this area. Given the presence of other donors, this seems a prudent 
decision. The World Bank is said to be close to agreement on providing a long-term 
advisor to help address these issues. 
4.3.d Recommended Next Steps 
As part of the phase-down of USAID assistance, the USAID/BearingPoint advisor on bank supervision 
ended his tour on March 31, 2009, with no further long-term assistance planned. Going forward, US 
assistance will be in the form of 8-10 visits per year from a Treasury advisor resident in Bosnia, so 
USAID’s connection with CBK is expected to be close. 
Despite the steady improvement in the operation of the institution, the CBK has requested additional 
assistance from USAID in the form of a long-term advisor on overall financial management. The Bank 
Page 31 
considered the relatively limited experience of the CBK executives and professionals to be a risk at a time 
of huge turmoil in international financial markets. The Bank regarded an experienced foreign advisor as 
potentially providing important support for the Bank at a crucial time. 
USAID support for the CBK has been critical to its development as a competent institution. As 
challenges remain, the IMF and other donors are also contributing to the deepening of the skills of the 
CBK. Therefore, we support the USAID decision to end long-term advisory support to the CBK, and 
recommend that no further long-term assistance be provided. 
4.4 Commercial Law Development 
4.4.a Objectives 
For a country to grow, develop, and prosper in a sustainable fashion, it needs a healthy and vibrant private 
sector. Private sector growth depends, among other things, on the adequacy of the enabling environment 
within which it operates. This enabling environment is characterized by the laws, rules, regulations, and 
implementing institutions that establish how private sector firms operate. A key element of this private 
sector enabling environment is the commercial law regime. This consists of the laws, regulations, and 
institutions that define how firms form, register, hire labor, interact with other firms, compete, resolve 
commercial disputes, and dissolve. Without an adequate commercial law environment, a country’s 
private sector will not thrive. 
The overall objective of USAID/BearingPoint’s work in this area under Task Order 6 is to help stimulate 
trade, investment, and growth in Kosovo through the development and implementation of a modern and 
effective regime of commercial laws, rules, and regulations. Specifically, the contractor is to train 
Kosovo’s legal community (primarily commercial court judges, other interested judges, and commercial 
law attorneys) on the new commercial law regime put in place since 2000. This training is to include 
formal classroom training and workshops, on-the-job training, and mentoring. Finally, the contractor is to 
ensure training is institutionalized so that it can be sustained in the future. As described in greater detail 
below, the commercial law objectives established for Task Order 6 represent a clear continuation of the 
support to commercial law development provided in prior task orders. 
4.4.b Conditions at Program Initiation 
Approximately 22 years of technical assistance in the area of commercial law development have been 
funded by USAID and supplied by USAID/BearingPoint advisors since the first task order started. Since 
the earliest task orders, this assistance focused in three areas: (1) drafting of commercial legislation and 
implementing regulations; (2) providing support and capacity building to the Office of Legal Services 
Support (OLSS) in the Office of the Prime Minister aimed at improving the legislative development 
process; and (3) providing assistance to the Assembly to facilitate enactment of commercial legislation. 
This emphasis on drafting support and capacity building for the OLSS and the Assembly continued 
through Task Order 5, which ended in June 2007. In addition, starting with at least Task Order 5, the 
contractor also provided commercial law training to commercial court and other judges as well as private 
and public sector lawyers. 
As noted in the June 2007 Final Project Report for Task Order 5 (Kosovo Economic Development 
Initiative), “nearly all core and commercial legislation needed to support the proper functioning of a 
market economy has now been promulgated.” This includes laws on collateral, bankruptcy, commercial 
arbitration, competition, foreign trade, foreign investment, trademarks, procurement, and so on. Also, as 
a result of the contractor’s assistance in this area, the Government of Kosovo adopted a set of 
standardized procedural rules to govern the drafting of legislation. These rules required stringent quality 
control and EU compliance checks before a draft law is submitted to the Assembly. By the end of Task 
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Order 5, drafting skills within the OLSS had improved to the point the contractor rarely needed to 
produce first drafts and instead, could focus on advising on drafts produced by counterparts. 
4.4.c Progress Under the Current Program 
A number of results relating to commercial law development are specified in the EMSG Program’s 
statement of work.23 Those results, and the extent to which each has been achieved to date, are 
summarized below: 
Result 2.0.1 Practical material and training plans on new commercial laws have been developed. 
Assessment Achieved. Very clear and detailed training materials have been, or are being, prepared 
for many key commercial laws in Kosovo. These training materials are developed by 
local Kosovar lawyers (with project oversight), who are then engaged to provide the 
actual training. This approach to training appears thorough, detailed, and is very hands￾on—emphasizing case studies, interactive discussions, and exercises. 
Result 2.0.2 Judges who hear commercial cases and commercial law attorneys understand policies and 
concepts underpinning the laws – how and why enforcement of these laws will support a 
market economy. 
Assessment Partially achieved. To date, approximately 73 Kosovar judges and 48 Kosovar lawyers 
have been trained under EMSG. The feedback obtained from course evaluations has 
reportedly been very positive, albeit no attempt has been made to assess the impact or 
long term benefits of the training. 
Result 2.0.3 Judges who hear commercial cases and commercial law attorneys understand and enforce 
Kosovo’s new commercial laws. 
Assessment Unknown—no information. 
Result 2.0.4 Commercial law training is institutionalized, including a certification process; this may be 
in the Kosovo Judicial Institute (KJI) or some other organization identified by the 
Contractor in consultation with USAID. 
Assessment Partially achieved. Training for judges and lawyers is being implemented in conjunction 
with the KJI and the Kosovo Chamber of Advocates (KCA). To some extent, this 
training has been institutionalized since it is conducted in conjunction with KJI/KCA. In 
addition, the development of the training material has had the long-term benefit of 
creating a small cadre of Kosovar lawyers who are well versed in the new commercial 
laws and well prepared to provide training. KJI receives funds through the Ministry of 
Justice and various donors (including USAID). KCA is supported by membership dues. 
A certification process for the judiciary is under discussion, but not yet in place. 
Result 2.0.5 Legal community enforces commercial laws to the extent that business community, 
including foreign investors, is assured that rights will be protected. 
Assessment Status could not be determined. 
Besides the formal training of judges and lawyers discussed above, there are several other ways in which 
the EMSG Program is continuing to help strengthen the commercial law environment in Kosovo. 
 
23 No indicators for these results have been agreed upon. 
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Specifically, the USAID/BearingPoint legal advisor continues to provide legal advice and drafting 
assistance when requested for the steady stream of new laws that are being prepared.24 
Other advisors also provide substantial technical input and guidance when laws or implementing 
regulations relating to specific sectors are being prepared (e.g. amending the corporate tax law or revising 
the VAT law to bring it into full compliance with the EU’s VAT directive). 
4.4.d Recommended Next Steps 
The main strengths of the EMSG Program’s commercial law program are: (1) it builds upon an ambitious 
USAID supported effort over the past five task orders aimed at helping Kosovo establish a commercial 
law framework to foster private sector-led growth and developing the “in-house” capacity to develop, 
draft, implement and administer this legal framework; 2) it utilizes an innovative and relatively hands-on 
approach to training; (2) it emphasizes building and using local training capacity; (3) it at least partially 
institutionalizes this training within KJI and KCA; and (4) its apparently provides a beneficial impact—
based on the very positive feedback received from trainees on the quality of the training and materials 
provided. 
Possible next steps include: 
1. Development and implementation of a methodology to assess the actual impact on the performance on 
judges and lawyers of the training being provided by USAID/BearingPoint. Hopefully, findings 
derived from this methodology will allow interested parties to better assess the on-going need, if any, 
for such training. 
2. Support for development of a certification process for judges/lawyers once there is agreement to move 
forward with it. 
3. Focus more on the sustainability of such training. Currently, the absence of admissions fees for 
trainees means that such training is not inherently sustainable (absent donor of Ministry of Justice 
funding) and does little to ensure training is targeted as effectively as possible. 
4. Finally, a “Doing Business” study for southeast Europe in 200825 indicates that enforcement of 
contracts is a slow and costly business in the region. This is especially true in Kosovo, which ranks 
near the bottom in terms of overall ease of contract enforcement. The benefits of relatively narrow 
judicial training may be limited in the absence of broader efforts to streamline court procedures and 
develop alternative dispute resolution mechanisms. 
4.5 Pristina Airport and Public/Private Partnerships 
4.5.a Program Objectives 
In the original scope of work for Task Order 6, the objective was to privatize or commercialize publicly 
owned enterprises (POEs). Principal among these was the Kosovo Energy Corporation (KEK). In 
addition, the Task Order requested assistance to the Government to concession the Pristina airport, and to 
promote divestiture of other POEs, most notably the Post and Telecom of Kosovo (PTK), but also of 
other “big-ticket” enterprises like the Brezovica ski area or Sharr Cement. 
While the efforts to deal with the “big-ticket” POEs continued to be a major objective, the emphasis 
gradually shifted towards supporting the concessioning of the Pristina airport and to supporting creation 
of a permanent administrative unit to promote public-private partnerships (PPPs). 
 
24 More that 100 new laws were approved by the Assembly in both 2007 and 2008. 
25 World Bank, Doing Business in South East Europe 2008, pp. 16 – 18. 
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This evaluation was explicitly enjoined from addressing the KEK privatization, perhaps because this was 
regarded as so political to the degree to be beyond the influence of technical advisors. Four other 
program objectives were assessed. These are: 
1. Pristina International Airport is operating under a concession. 
2. Relevant legislation relating to the transfer of POEs and civil aviation pursuant to the settlement 
document is enacted. 
3. Government has policies and strategies for POEs. 
4. Another POE, such as PTK, is commercialized or is being prepared for commercialization (if the 
Government takes such a decision and after a decision by the USG to provide such assistance). 
4.5.b Conditions at Program Initiation 
Since the start of the current Task Order, much progress had been made in privatizing most government￾owned enterprises, creating hundreds of viable private enterprises, and liquidating numerous others. 
Some 550 companies had been transferred to private ownership or liquidated. Nevertheless, the “big￾ticket” enterprises in electricity, telecom, cement, and the ski resort, remained in government hands 
despite extensive efforts by the Privatization Agency of Kosovo and its predecessor KTA to privatize 
them. 
4.5.c Progress Under Current Program 
None of the “big-ticket” items have been transferred to private ownership, and one can only speculate 
whether any or all of them can be privatized during the remainder of the project. It seems clear that 
political factors well beyond the control of USAID/BearingPoint are likely to determine the future 
direction of these enterprises. 
On the other hand, progress on the concessioning of the Pristina airport has proceeded satisfactorily, with 
USAID/BearingPoint intervening at times to keep progress on track. Rather than treating this concession 
as a “one-off” transaction, as stipulated in Task Order 6, the airport concession was considered by USAID 
as a model for a potential series of PPP transactions under the direction of a unit in the Ministry of 
Finance and Economy created for this purpose. 
A number of important steps have been taken under the program. A consensus has been achieved on the 
process for concessioning the Pristina airport. A civil aviation law drafted with substantial support from 
USAID/BearingPoint has been approved, which a European Union report has described as a model for 
other countries in the region. A PPP law, again drafted with strong USAID/BearingPoint input, is 
expected to be passed by the Assembly in April 2009. While supporting PPP, the law also requires 
government budgets identify the possible contingent liabilities that could flow from PPP contracts. 
The small PPP unit in the MFE is staffed competently, although the tasks it may face in the future will be 
demanding. This unit has great potential for attracting outside investment of hundreds of millions of 
dollars for infrastructure in Kosovo, but its current staffing of four professionals is clearly insufficient for 
the expansive PPP program envisioned by some government ministers. Also, it cannot be expected to 
address the myriad technical issues – to say nothing of the issues likely to be raised by politically 
connected concessionaires – without external support for at least several years into the future. 
The concessioning of the Pristina airport is maintaining forward movement. A reputable company was 
selected as a transaction advisor by the Kosovar government in February, and is expected to produce a 
report outlining the various options for concessioning the airport in May 2009. It is expected that any 
concessionaire would be required to construct a new airport terminal, as the current one is inadequate and 
Page 35 
there is a need to undertake some additional works to address smaller problems. The transaction advisor 
expects that the concession, if properly constructed, will generate considerable investor interest. Unless 
the process is delayed by political factors, the Pristina airport should be concessioned before the end of 
Task Order 6. 
The USAID/BearingPoint long-term advisor for the Pristina Airport and for PPP is held in high regard by 
the Kosovar government officials whom she assists. Her extensive experience in PPP work, including 
airports, makes her a valuable asset for completion of the airport concession, and for PPP generally. 
For the four results expected by USAID from this activity, the assessment of progress is as follows: 
Result 1 Pristina International Airport is operating under a concession. 
Assessment Not achieved but on track for completion by June 2010, when the current task order ends. 
There are many possible sources of delay, but the Kosovar authorities and EMSG 
Program advisors have given great care to minimizing such obstacles. Nevertheless, it is 
possible that the global financial crisis may delay the award process. 
Result 2 Relevant legislation relating to the transfer of POEs and civil aviation pursuant to the 
settlement document is enacted. 
Assessment Partially achieved. As mentioned above, Kosovo has enacted a model civil aviation law. 
Nevertheless, no agreement has been reached with Serbia that would allow commercial 
aircraft traveling to or from Kosovo to pass through Serbian airspace. 
Result 3 Government has policies and strategies for POEs. 
Assessment Partially achieved, but partly beyond the contractor’s manageable control. The 
Government of Kosovo has taken steps in this direction, but more remains to be done. 
The USAID contractor has little capacity to influence the ultimate outcome, as it depends 
on political considerations, international negotiations, and high-level Kosovar 
government decisions. 
Result 4 Another POE, such as PTK, is commercialized or is being prepared for 
commercialization (if the government takes such a decision and after a decision by the 
USG to provide such assistance). 
Assessment Unclear. This result as a measurement of contractor performance is so limited by “if’s 
and after’s” as to be bereft of value as a performance indicator. At mid-term, it is not 
evaluable. 
4.5.d Recommended Next Steps 
Despite the high quality of the assistance being provided for the Pristina airport concession and for PPP 
more generally, it is clear that the need for USAID assistance is required to continue several years beyond 
the end of the current task order in June 2010 to reach USAID’s goals. Even between now and the end of 
the task order, additional support, at least in the form of short-term advisors at key points in the airport 
concessioning process, is probably warranted, depending on how the process unfolds. 
While PPP arrangements are simple in concept, they are extremely difficult in practice. The problem lies 
in the long-term nature of the relationship. It is not enough that the current government of Kosovo 
strongly embrace agreements made with a concessionaire; subsequent governments must also honor those 
commitments. For USAID to commit substantial resources to this activity, it would be important to gain 
Page 36 
an indication from the principal opposition political party that it considers PPP to be in the national 
interest, and not just the whim of a particular government. 
Governments managing PPP arrangements need to appreciate the potential issues in enforcing 
performance by the concessionaire. The government needs to have the monitoring capacity and authority 
to require that the concessionaire to fulfill the terms of the agreement. Concessionaires in some other 
countries have managed to use political influence and rhetoric to prevent proper oversight of their 
commitments. 
With the expected passage of a PPP law in early April, there appears to be the potential for an explosive 
increase in demand, particularly from municipalities, for PPP arrangements. Acceding to this demand 
would be a mistake since the government needs to proceed slowly and deliberately because a single 
scandal about a concession could taint the entire effort. The MFE PPP unit needs to exercise great 
caution in proceeding with large numbers of PPP actions. 
The only straightforward situation for PPP is one in which there is a long history of such arrangements, 
with substantial experience. In practice, this means that the concessionaire can expect the legal system to 
be strong enough to prevent the government from unilaterally changing the terms of the concession; that 
government oversight is sufficiently professional and above political influence to assure that the 
concessionaire fulfills the commitments made in the agreement; and that disagreements between the 
government and the concessionaire can be expected to be adjudicated fairly in the courts. 
Clearly, Kosovo does not enjoy the country conditions that would make PPP easy. In this situation, trust 
by potential concessionaires must come from other sources. In the case of Kosovo, there are two: 
1. First, the expectation that USAID would continue to support PPP for a substantial period into the 
future, acting as an honest broker between concessionaires and the government – this would make a 
valuable contribution to increasing the level of trust between the two parties to the agreement. 
2. Second, a clear commitment on the part of the government to a steady stream of future PPP 
concessions that would provide comfort to investors in the early PPP concessions – failure of the 
government to be perceived as treating the initial concessionaires fairly would be likely to dissuade 
serious investors from bidding on subsequent PPP concessions. 
The importance of this second factor is limited by the fact that changes in government in a young country 
like Kosovo are problematic. Popular resentment of an early concession could lead a new government to 
believe that further PPP projects would be unpopular, so it might unilaterally revise the terms of the 
existing concessions in favor of the government. 
In sum, it is the expected support of the US government over the near term – at least the first four or five 
years of the initial concessions – that is likely to provide the primary source of confidence for foreign 
investors to undertake PPP activities in Kosovo. 
1. Proper support for PPP will require another four or five years of USAID involvement. As discussed 
above, there is no substitute for USAID involvement as an “honest broker” in complex and long-term 
arrangements. Still, the hundreds of millions of dollars of potential international investment in 
Kosovo’s infrastructure are likely to make this a high-payoff activity for USAID. 
2. At present, the success of the Pristina Airport concession is the key to future PPP effectiveness in 
Kosovo. USAID should be prepared to offer short-term assistance for the concession at key stages of 
the process to ensure its success. 
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5. Final Observations and General Recommendations 
The EMSG Program is widely believed by those who know it best to have been effective in the period 
since June 2007, and our observations regarding progress in each area examined generally confirm this 
belief. Senior people interviewed in the Government, without exception, praise the efforts of specific 
USAID/BearingPoint advisors with whom they have regular contact. They also often express a desire for 
more similar assistance in the future. 
Our evaluation tends to validate the long-term resident advisor model followed by the EMSG Program. 
This model contrasts with that used by some other projects, whose work is less directly integrated on a 
daily basis with that of the government offices and functions they support. As a result of their proximity 
and intimacy with the work, EMSG Program advisors have multiple opportunities both to advise on real￾time decisions and to directly transfer their knowledge – both theoretical and practical – to the 
government employees working alongside them in their offices. 
The EMSG Program is one in a series in which USAID/BearingPoint has supported a range of technical 
assistance across a number of ministries and other budget organizations, including those at the municipal 
level. The scope of the project and close communication among the advisors has increased the project’s 
overall effectiveness. By sharing insights and coordinating communications with the government, the 
project team has multiplied its effectiveness in ways that narrower gauge technical assistance efforts 
cannot. As the scope of the EMSG Program has narrowed, the risk has grown that it will lose some of the 
synergy that has helped define its approach to crosscutting issues. 
The capacity in major governmental institutions – while it continues to increase as a result of the EMSG 
Program and other efforts – is fragile, because the number of internationally trained and supported public 
administration in senior management positions is small and merit systems for recruiting, training, and 
promoting professional staff are not well developed. Moreover, the core processes for managing 
government finances – including budgeting and treasury functions – are vulnerable to political 
interference. If the budget process is bypassed routinely as it was in 2008 or if there should be a turnover 
of senior leadership in the Budget and Treasury, as there has been in Tax Administration, many of the 
gains in governing capacity of the past few years could be lost. 
Observer opinions differ regarding whether USAID/BearingPoint advisors have drawn back sufficiently 
or quickly enough from outright conduct of administrative functions to coaching and supporting roles as 
their Kosovar counterparts have gained experience in their positions. It appears in specific instances, 
especially where counterparts have not been in their positions for a long time, advisors occasionally still 
direct activities and produce first drafts of instructions or key documents. However, these are 
increasingly exceptions rather than the norm. 
We do not recommend major changes in direction at this point in the EMSG Program. However, in 
addition to recommendations above regarding specific project elements, we propose the following: 
1. As the project’s scope narrows, USAID should increase its efforts to draw the EMSG Program into 
closer collaboration with other donor-funded projects, in order to retain some of the synergies of 
coordinated technical assistance that have been inherent in the EMSG Program until recently. 
USAID’s auspices and leverage can be used to convene donors supporting projects aimed at 
development of Budget, Treasury, Tax, and related public administration capacities. Together they 
can pursue a joint strategy for sustainable performance of the core policy support functions that until 
recently have heavily focused on the MFE. With the shift in locus of policy making to the OPM and 
with the continuing downsizing of the EMSG Program – including recent or pending withdrawal of 
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advisors from OPM, CBK, and the Assembly – the need for an integrated approach and strategy 
across donor-funded projects is evident. 
2. Under USAID’s guidance, the EMSG Program should work with the Government to support the 
implementation of the Brain Fund as originally proposed Again, under USAID guidance, the EMSG 
Program should work with other international projects to develop a new, combined strategy to ensure 
management training that meets international standards for a sustained senior cadre of managers and 
technical specialists. This strategy also would contribute to the integration of this senior group into a 
permanent civil service structure funded through annual appropriations for salaries. 
3. USAID/BearingPoint advisors should, except when asked by their counterparts, avoid any direct role 
in advising senior policy officials, directing staff, or producing first drafts of memoranda, instructions, 
or other government documents and limit their participation to the coaching of principals or, when 
requested by principals, the coaching or training of staff. USAID can ensure that this occurs by 
clarifying for senior Government officials the limits of the advisory role. 
4. Finally, USAID and USAID/BearingPoint staff should initiate discussions with key Government of 
Kosovo officials aimed at reaching a common understanding of the reduced magnitude and more 
limited scope of any follow-on activity aimed at the continued strengthening of key economic 
institutions. Such discussions should seek to identify the highest Government priorities for continued 
assistance. 
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References 
BearingPoint. Annual Work Plans, July 2, 2007 – June 30, 2008 and July 1, 2008 – June 30, 2009. 
BearingPoint. Kosovo Economic Development Initiative: Final Project Report. June 2007. 
BearingPoint. Kosovo Economic Management for Stability and Growth Performance-based Monitoring 
Plan. September, 2008. 
Gallagher, Mark. Benchmarking Tax Systems. Public Administration and Development, 2005, pp.125-
144. 
Government of Kosovo (Provisional Institutions of Self-government). Kosovo: Public Expenditure and 
Financial Accountability (PEFA) Public Financial Management Assessment. March 2007. 
Government of Kosovo. Ministry of Finance and Economy. Kosovo: Public Expenditure and Financial 
Accountability (PEFA) Public Financial Management Assessment. Draft, March 2009. 
IMF. Kosovo: Opportunities for Strengthening Tax Administration. November 2006. 
IMF Staff Visit to Kosovo, September 24-26, 2008, Aide-Memoire. 
Ministry of Economy and Finance, Republic of Kosovo. Medium-term Expenditure Framework 2009-
2011. June 16, 2008. 
Ministry of Economy and Finance, Treasury Department, Nine-month Report 2008. November 19, 2008. 
Ministry of Economy and Finance, Republic of Kosovo. Guide to Kosovo’s Budget and Planning 
Process. December, 2008. 
Ministry of Economy and Finance, Treasury Department, Republic of Kosovo. Annual Financial Report 
2007. January 15, 2009. 
Republic of Kosovo. Law on Public Financial Management and Accountability. July 24, 2008. 
Republic of Kosovo. Law on Local Government Finance. July 25, 2008. 
Skogstad, Samuel, et al. Evaluation of the USAID/Kosovo Economic Reconstruction Project. Prepared 
for USAID Kosovo, Cecchi and Company Consulting/Louis Berger. November 2003. 
Tandberg, Eivind and Mia Pavesec-Skerlep. Advanced Public Financial Management Reforms in 
Southeast Europe. Working Paper – Draft not for quotation, International Monetary Fund, 2008. 
Tax Administration, Government of Kosovo. Tax Administration Strategic Plan, 2007-2010. 2007. 
Tax Administration, Government of Kosovo. Tax Administration Strategic Plan, 2008-2010. 2008 
USAID. Kosovo Economic Performance Assessment. May 2008. 
World Bank. Doing Business in South East Europe 2008. 2008.
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Acronyms
BDMS Budget Data’s Management System 
CAMEL Bank Rating (Capital adequacy, Asset quality, Management, Earnings, Liquidity) 
CBK Central Bank of Kosovo 
CAFAO Customs and Fiscal Assistance Office of the EU 
CIT Corporate Income Tax 
EMSG Economic Management for Stability and Growth 
EU European Union 
FMIS Freebalance Management Information System 
GDP Gross Domestic Product 
ICO International Civilian Office of the EU in Kosovo 
KEK Kosovo Energy Corporation 
KCA Kosovo Chamber of Advocates 
KJI Kosovo Judicial Institute 
LTU Large Taxpayers Unit 
MFE Ministry of Finance and Economy 
MTEF Medium-term Expenditure Framework 
PIP Public Investment Program 
PIT Personal Income Tax 
POE Publicly Owned Enterprise 
PPP Public/Private Partnerships 
PTK Post and Telekom of Kosovo 
SIDA Swedish International Development Cooperation Agency 
SIGTAS Standard Integrated Government Tax Administration System 
TAK Tax Administration of Kosovo 
USAID United States Agency for International Development 
USG United States Government 
VAT Value Added Tax 
Annex 1. Numbers of BearingPoint Advisors: 2001 to 2009 
Position Task Order I Task Order II Task Order III Task Order IV Task Order V Task Order VI Comments 
Chief of Party 1 1 1 1 1 1 
MoF￾Macro Economic 
2 1 1 2 1 
MoF-Treasury/ 
Budget/Intergov 
7 8 4 4 4 3 
MoF￾Property Tax 
1 1 1 1 1 1 Institutionalized, full time 
assistance withdrawn 2008 
MoF￾PPP/Concessions 1 New initiative 
MoF￾Tax Policy/Admin. 
4 5 4 3 3 2 
Central Bank 6 6 5 3 3 1 Institutionalized, full time 
assistance withdrawn 2009 
Commercial Law 3 4 5 4 4 2 Down to 1 full time, January 09 
Energy 2 2 1 1 3 Down to 2 full time, February 09 
Privatization 1 5 3 5 5 1 90% by value completed; full 
time assistance withdrawn 2008 
Pension 3 2 1 Institutionalized, full time 
assistance withdrawn 2006 
Trade 
Procurement 1 1 
Telecom 1 1 1 
Training 1 1 
Public Utilities 1 2 2 
Public Education 1 1 1 1 
Information Tech 2 1 1 
Total 25 38 36 29 25 18 
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Annex 2. Interviews Conducted in Kosovo 
March 2009 
General
Ahmet Shala, Minister of Finance and Economy 
Matthew Smith, USAID/BearingPoint COP for EMSG Program 
Edgardo Ruggiero, IMF Resident Representative 
Shpend Ahmeti, Executive Director, GAP Institute for Advanced Studies 
Hajdar Korbi, Advisor to Minister of MFE 
Doug Todd, USAID/BearingPoint Senior Economic Advisor 
Vito Intini, World Bank 
Mark Poston, Head of Office, DFID Kosovo 
Chris Hall, President, American University in Kosovo 
Freek Janmaat, EC Economic Advisor 
Valerie Bilgri-Holm, Economic Officer, US Embassy, Kosovo 
Robert Newsome, Political Officer, US Embassy, Kosovo 
MFE Budget and Treasury
Bedri Hamza, Deputy Minister of Finance and Economy 
Agim Krasniqi, Central Budget Director, MFE 
Mehmet Simnica, Senior Budget Analyst, Central Budget Department, MFE 
Lulzim Ismajli, Treasury Director, MFE 
Liridon Mavriqi, Policy Advisor to Minister Shala 
Kris Kauffman, USAID/BearingPoint Central Budget Advisor 
Magda Tomczynska, USAID/BearingPoint Municipal Budget Advisor 
Anne Schwartz, US Treasury 
Bernard Nikaj, PIP staff (EU) 
Steve Leeds, World Bank PEFA 
Azem Reqica , Budget Department, MFE 
Petrit Popova, Municipal Budget Director, MFE 
Semra Tyrbedari, Economic Policy Department, MFE 
Selim Thaqi, Economic Policy Department, MFE 
Valmira Rexhebeqaj, Economic Policy Department, MFE 
Sally Houstoun, PIP (EU) Team Leader 
Flora Fazliu, Budget Department Coordinator with PIP 
Ardiana Meholli, Economic Officer, International Civilian Office, EU Special Representative 
MFE Tax Administration (including Property Tax)
Stan Beesley, USAID/BearingPoint Tax Advisor 
Etienne Cosyns, USAID/BearingPoint Tax Advisor 
Josh Aslett, USAID/BearingPoint Tax IT Advisor 
Naim Fetahu, Director of Tax Administration of Kosovo 
Chad Corson, USAID/BearingPoint Property Tax Advisor 
Darlene Berthod, US Treasury 
Fortuna Haxhikadrija, Director of Property Tax Department, MFE 
Isen Lipovica, Manager of Large Taxpayers Unit of Tax Administration of Kosovo 
Central Bank of Kosovo
Noble Fenson, USAID/BearingPoint Central BankAdvisor 
Hashim Rexhepi, Governor, Kosovo Central Bank 
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Page 44 
Peter Nichols, US Treasury Advisor (by phone) 
Skendije Himaj Zekaj, Chief Financial Supervision Officer, Kosovo Central Bank 
Edgardo Ruggiero, IMF Resident Representative 
Philip Sigwart, Pro-Credit Bank, President of the Kosovo Bankers’ Association 
Commercial Law Development
Bill Klawonn, USAID/BearingPoint Legal Advisor 
Kent McNeil, USAID/BearingPoint Training Advisor 
Besim Beqaj, President, Kosova Chamber of Commerce 
MFE P/P/P (including airport concession) 
Jill Jamieson, USAID/BearingPoint PPP Advisor 
Fatmir Limaj, Minister of Transport and Communication 
Agron Mustafa, Managing Director, Pristina International Airport 
Dritan Gjonbalaj, Director General, Civil Aviation Authority 
Lorik Fejzhullahu, Acting Director, PPP Unit, Ministry of Finance and Economy 
Kirk Adams, USAID/BearingPoint Mining Advisor 
Hans Mohrmann, Pristina Airport Transaction advisor (by email) 
USAID
William Lawrence 
Besa Ilazi, Economic Growth Officer 
Luan Gashi, Program Economist 
Susan Fritz, Deputy Mission Director