RFI-ECON_CRPT-Kosovo.pdf

USAID/Kosovo Request for Information (RFI): Economic Corruption

Introduction:

USAID/Kosovo seeks to gain further insight on challenges facing businesses and potential solutions. The input may contribute to upcoming activity design(s).

Initial Problem Statement:

Kosovo’s uncertain business environment constraints investment (both foreign and domestic), and therefore economic growth. A major cross-cutting problem is opportunities for economic corruption, including perception of corruption, which negatively affects investors’ willingness to do business in Kosovo. We are defining economic corruption as the extent to which there is abuse of power and/or exploitation of an unpredictable business environment for economic gain.

Challenges that contribute to an uncertain business environment seem to fall under four categories:

Low confidence among investors in the justice system, caused primarily by commercial judgements not being decided and enforced in predictable or timely ways, as well as a low level of legal literacy among businesses. Inconsistent and inefficient commercial law enforcement is due to capacity limitations at the institutions responsible for enforcement (Basic Court of Pristina and Court of Appeals, Chamber of Enforcement Agents, and the State Attorney Department), incentives in courts to only work on the easiest cases, and unpredictable application of laws, caused in part by the lack of a uniform commercial code. Inefficiencies in the commercial law enforcement system create opportunities for corrupt behavior.

Risks to macroeconomic instability. Safeguarding macroeconomic stability remains a critical area for the Government of Kosovo (GoK). Implementation of the newly adopted fiscal rules is crucial for ensuring adequate adoption of these rules in the budgeting process. The GoK may lack adequate capacities for economic and fiscal policy analysis and forecasting which underpin the budgeting process. The budget often does not align with government strategies or Kosovo’s development needs, in part due to limited budgeting and analysis capacity at the Ministry of Finance (MOF), and weak intergovernmental budget coordination.

Business regulatory framework and economic governance improvements are needed to enhance competition and reduce the space for corruption. Inconsistent application of regulations and inefficiencies in the regulatory framework create opportunities for, and perceptions of, corruption. Reform activities centered around the World Bank Doing Business Methodology have been proven successful in streamlining the business regulatory framework. This framework could further be used as an effective platform for focusing the reforms by reducing the opportunities for corruption, introducing e-solutions to reduce the administrative burden wherever possible, to streamline the regulations and procedures for operating and expanding business and counterbalance the tendency for over regulation.

Uncertainty around construction permitting and property rights.While the first phase of the legalization of unpermitted constructions has been completed, resulting in a large number of constructions registered in the central registry, it is important the actual legalization starts to be implemented subsequent to the completion of the legislation.

Implementation may be challenging for the Ministry of Environment and Spatial Planning (MESP), especially for municipalities given their limited resources and capacities. Construction permitting is being implemented in municipalities in varying degrees. It is important to ensure an effective construction permitting regime, so that there are no additional unpermitted buildings due to lack of implementation.

Additionally, spatial planning is lacking in many municipalities, leaving potential investors uncertain as to where they can build. Property cases are backlogged, and property titles are uncertain and inaccessible. These problems make it difficult for potential investors and business owners to know where and how to build, and have implications for businesses to be able to use property as collateral to obtain financing.

The permitting regime is is also rife with opportunities for corruption.

Questions for Industry Feedback:

● What are the obstacles to and possible solutions for enforcing commercial rights both in and out of courts (private enforcement, mediation, arbitration, etc.)?

● What is the quality of commercial laws and regulations (including the quality of decisions)?

● Is there a gap between the existence of laws and their implementation? If yes, what should be done about it?

● What can increase investors’ trust in Kosovo and/or reduce opportunities for economic corruption?

● Given the problem statement above, are there any other issues that contribute to a weak business environment and low confidence in the judiciary among the private sector?

● Given the problem statement above, how would you rank (prioritize) the aspects (whether or not captured in the problem statement) that create the most opportunities for corruption?

● What are some of the key interventions required for improving the business environment?

● How can economic governance be improved so that it is more service-oriented towards businesses and citizen needs?