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Kosovo

Published on: 20 May 2019

Capital Pristina
Population (million) (2017) 1.8
GDP (current USD billion) (2017) 7.1
GDP per capita (current USD) (2017) 3,877.0
Life expectancy (years) (2017) 71.0

History and Politics

On 17 February 2008, the Kosovo Assembly declared Kosovo independent. Since then, over 110 countries have recognized Kosovo, and it has joined numerous international organizations. The International Court of Justice (ICJ) released the advisory opinion in July 2010 affirming that Kosovo’s declaration of independence did not violate general principles of international law, UN Security Council Resolution 1244, or the Constitutive Framework.

Demonstrating Kosovo’s development into a sovereign, multi-ethnic, democratic country the international community ended the period of Supervised Independence in 2012. Kosovo held its most recent national and municipal elections in 2017. Serbia continues to reject Kosovo’s independence, but the two countries agreed in April 2013 to normalize their relations through EU-facilitated talks, which produced several subsequent agreements the parties are engaged in implementing, though they have not yet reached a final settlement.

Kosovo seeks full integration into the international community and has pursued bilateral recognitions and memberships in international organizations. Kosovo signed a Stabilization and Association Agreement with the EU in 2015, and was named by a 2018 EU report as one of six Western Balkan countries that will be able to join the organization once it meets the criteria to accede. Kosovo also seeks memberships in the UN and in NATO.

Kosovo is a parliamentary republic. It is recognized as an independent country by 114 out of 193 United Nations members and by 23 out of 28 European Union (EU) members. Kosovo is a potential candidate for EU membership, a process that was accelerated with the signing of the Stabilization Association Agreement in October 2015, in force since April 2016. The current Government was voted in on September 9, 2017.

Macroeconomic Environment

The Kosovar economy has grown consistently above the Western Balkan average in the post-global financial crisis period, albeit from a low base. GDP per capita grew from USD1,088 in 2000 to USD3,877 in 2017. Despite this tripling of income per capita over the past 17 years, Kosovo remains the third-poorest country in Europe.

During 2009-2017, real GDP grew on average by 3.5%. This strong growth performance is expected to continue in 2018 with a projected growth rate of 4.2%, driven by higher public investment and service exports and supported by consumption. Kosovo continues to be the fastest-growing economy in the Western Balkans

The non-tradable sectors dominate output and employment in Kosovo. Services represented the largest sector in the economy, with a share of value added at 54% of GDP during 2009-2017. Industry is small by regional standards at 16.8% of GDP, of which manufacturing is about 10%. The agriculture sector remains relatively large at 11% of GDP.

Agriculture, stock raising, forestry, and mining are the major occupations. There are rich deposits of lignite (brown coal), lead, nickel, zinc, and other minerals.

The current account deficit is expected to rise slightly from 6.6 to 6.9% of GDP in 2018 due to a decline in exports of goods despite the fast rise in service exports.

Kosovo is a euroized economy, and its headline macro-fiscal policies continue to be stable. The fiscal rules in place are supported by a healthy banking sector. The fiscal deficit, according to the fiscal rule definition, is expected to be 1.8% of GDP at end-2018, driven by higher untargeted social protection spending and higher public investment.

The stock of public debt is low but has been rapidly increasing in recent years. Public and publicly guaranteed debt are estimated at 17.2% of GDP in 2018, the lowest debt level in the Western Balkans, offering the country room to borrow on concessional terms for productive investments with a high rate of return. Half of the public debt is external, mainly from international financial institutions.

In June 2009, Kosovo joined the World Bank and International Monetary Fund, the Central Europe Free Trade Area (CEFTA) in 2006, the European Bank for Reconstruction and Development in 2012, and the Council of Europe Development Bank in 2013. In 2016, Kosovo implemented the Stabilization and Association Agreement (SAA) negotiations with the EU, focused on trade liberalization. In 2014, nearly 60% of customs duty-eligible imports into Kosovo were EU goods. In August 2015, as part of its EU-facilitated normalization process with Serbia, Kosovo signed agreements on telecommunications and energy distribution, but disagreements over who owns economic assets, such as the Trepca mining conglomerate, within Kosovo continue.

The official currency of Kosovo is the euro, but the Serbian dinar is also used illegally in Serb majority communities. Kosovo’s tie to the euro has helped keep core inflation low.

Kosovo’s medium-term growth outlook is positive and on an upward trend but needs a stable political environment and better business climate to attract productive investments. The near-term growth is expected to continue to be driven by investment and consumption, including investment in the energy sector to build new generation capacity as well as new donor-financed projects under the investment clause of the fiscal rule. A better absorption capacity of public investment projects could lead to slightly higher growth, especially in the 2019-2021 period.

Labor Market

Most of Kosovo’s population lives in rural towns outside of the capital, Pristina. Inefficient, near-subsistence farming is common – the result of small plots, limited mechanization, and a lack of technical expertise. Kosovo enjoys lower labor costs than the rest of the region.

Kosovo’s per capita GDP (PPP) is USD10,400 in 2017. An unemployment rate of more than 30%, and a youth unemployment rate near 60%, in a country where the average age is 26, encourages emigration and fuels a significant informal, unreported economy. Unemployment is very high, because of the disruptions caused by the end of communist rule, conflict of 1999 and the struggle for independence thus the economy is dependent on foreign aid and remittances sent from Diaspora.

Banking System

The financial sector in Kosovo, which is dominated by the banking sector, is healthy and sound. Banks are well capitalized and profitable, with high capital adequacy ratios and a low and declining ratio of nonperforming loans at 2.7% in July 2017. Both credit and deposits have continued to grow at an accelerated rate in the past several years, reaching a year-on-year growth of 11.5% and 6.3%, respectively, in 2017.

Kosovo uses the euro as its national currency even though the country is not a member of the European Central Bank and has no independent monetary policy of its own.

Kosovo’s banking system is well regulated, profitable, and liquid. The Central Bank of Kosovo (CBK) is an independent public agency with the authority to license, supervise, and regulate financial institutions and insurance companies in Kosovo. The CBK has adopted banking rules and regulations in line with the Basel Accords and EU directives.

Ten commercial banks operate in Kosovo, representing 65.5% of total assets in the financial sector, eight of which are foreign-owned and comprise about 88.1% of total banking system assets. Two domestic banks account for the remaining 11.9%. Commercial banks account for 65.5% of financial sector assets. Pension funds (28.0%), insurance companies (3.0%), and other financial intermediaries comprise the rest. In December 2016, financial-sector assets amounted to €5.91 billion, recording an annual growth rate of about 10%.

Neither the banking sector nor local commercial enterprises are sufficiently capitalized to finance large investment projects. In 2017, new investment loans represented 34.2% of total new loans issued during that period. As of December 2017, approximately 77.2% of bank loans have maturities of two years or more, with maturities of two to five years accounting for 35.3% of loans. Nearly 63.6% of loans are directed towards enterprises and 4.3% towards the agricultural sector. Transferable deposits represent 48.4% of banks’ liabilities.

Kosovo signed the Foreign Account Tax Compliance Act (FATCA) with the United States in March 2015. FACTA is an information-sharing agreement between the GoK and the U.S. Department of Treasury that ensures that American citizens and legal permanent residences with foreign-held bank accounts comply with their U.S. tax obligations.

Healthcare

The Kosovo Ministry of Health (MoH), established February 2002, is responsible for monitoring, supervising and supporting the health care system in general. More concretely it is responsibility of MoH to do the policy/ies development, strategic planning, licensing for all health institution whether private or public, quality assurance for all medical related tools and services, as well as budgeting.

The healthcare structures in Kosovo can at present stage not provide health for all, the problem being most notably in rural areas, and large parts of the population have no access to healthcare services or health information.

Joint efforts have been made by the different stakeholders including the Ministry of Health, the International Federation, UNICEF and the local Red Cross organizations to improve the healthcare knowledge and awareness of the population by organizing courses on reproductive health and family planning, general family health issues, good parenting and better practice to prevent disease in the rural and urban areas through certified public health trainers.

Social Welfare

Social services are provided through 30 Centres for Social Work that operates Kosovo-wide under the direct supervision of the Ministry of Labor and Social Welfare/ Department of Social Welfare. They offer assistance to different categories of persons who meet the eligibility criteria/preconditions.

Sources

http://www.worldbank.org/en/country/kosovo/overview#1
https://www.cia.gov/library/publications/the-world-factbook/geos/kv.html
http://www.bamf.de/SharedDocs/MILo-DB/EN/Rueckkehrfoerderung/Laenderinformationen/Informationsblaetter/cfs_kosovo-dl_en.pdf?__blob=publicationFile
https://www.export.gov/article?id=Kosovo-Banking-Systems
http://files.returningfromgermany.de/files/CFS_2017_Kosovo_EN.pdf
http://www.ks.undp.org/content/kosovo/en/home/countryinfo.html