Kosovo is one of the poorest countriesin Europe, and a growing proportion of the population is atrisk for social exclusion and long-term poverty. Overallspending on social protection has increased significantlyover recent years, largely because of increases in pensionsand war related benefits resulting in increased fiscalpressure. Pensions are a mechanism to substitute income dueto a permanent loss of income generating capacity, such asold age or disability and should not be used as acompensatory measure for other reasons. For this reason, inthe early 2000s and faced with the impossibility of usingcontributory pension records to pay pensions, a universalbasic pension was introduced in Kosovo.To contain theexpansion of pension spending going forward, the governmentmust refrain from introducing new benefits, disallowincreasing benefit levels for all but the basic pensions,and pro-rate existing benefits above basic pension levelscontingent on funding availability. The expansion ofprograms targeted at specific population groups have crowdedout spending of the social assistance targeted to the poor,which is both low and declining. Increasing programs'coverage and benefit levels and prioritizing the mostdisadvantaged are key for increasing the effectiveness andequity of social assistance. Public investments inemployment promotion and active labor market programs arelimited and insufficient to meet Kosovo's labor marketchallenges. Given that low levels of health spending,including on drugs, is a leading cause of poverty, thesocial health insurance reform should not only work toimprove health outcomes but also to improve financial riskprotection, especially for the poor.
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