| KOSOVO |
Economy:
Over the past few years Kosovo's economy has shown significant progress in transitioning
to a market-based system and maintaining macroeconomic stability, but it is still highly
dependent on the international community and the diaspora for financial and technical
assistance. Remittances from the diaspora - located mainly in Germany, Switzerland, and
the Nordic countries - are estimated to account for about 13-15% of GDP, and donor-
financed activities and aid for another 7.5%. Kosovo's citizens are the poorest in Europe
with an average annual per capita income of only $2,800. Unemployment, around 40% of
the population, is a significant problem that encourages outward migration and black
market activity. 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 lack of technical expertise. With international assistance, Kosovo has
been able to privatize 50% of its state-owned enterprises (SOEs) by number, and over
90% of SOEs by value. Minerals and metals - including lignite, lead, zinc, nickel, chrome,
aluminum, magnesium, and a wide variety of construction materials - once formed the
backbone of industry, but output has declined because of ageing equipment and
insufficient investment. A limited and unreliable electricity supply due to technical and
financial problems is a major impediment to economic development, but Kosovo has
received technical assistance to help improve accounting and controls. The US
Government is cooperating with the Ministry for Energy and Mines and the World Bank to
prepare a commercial tender for a project to include construction of a new power plant and
the development of a coal mine to supply the new power plant as well as two existing
plants. Privatization of the distribution and supply divisions of Kosovo Energy Corporation
is also planned. The official currency of Kosovo is the euro, but the Serbian dinar is also
used in Serb enclaves. Kosovo's tie to the euro has helped keep core inflation low. Kosovo
has one of the most open economies in the region, and continues to work with the
international community on measures to improve the business environment and attract
foreign investment. Kosovo has maintained a budget surplus as a result of efficient value
added tax (VAT) collection at the borders and inefficient budget execution. In order to help
integrate Kosovo into regional economic structures, UNMIK signed (on behalf of Kosovo)
its accession to the Central Europe Free Trade Area (CEFTA) in 2006. However, Serbia
and Bosnia have refused to recognize Kosovo's customs stamp or extend reduced tariff
privileges for Kosovo products under CEFTA. In July 2008, Kosovo received pledges of
$1.9 billion from 37 countries in support of its reform priorities. In June 2009, Kosovo
joined the World Bank and International Monetary Fund, and Kosovo began servicing its
share of the former Yugoslavia's debt.
GDP (purchasing power parity):
$11.97 billion (2010 est.)
country comparison to the world: 144
$11.51 billion (2009 est.)
$11.19 billion (2008 est.)
GDP (official exchange rate):
$5.601 billion (2010 est.)
GDP - real growth rate:
4% (2010 est.)
country comparison to the world: 98
2.9% (2009 est.)
6.9% (2008 est.)
GDP - per capita (PPP):
$6,600 (2010 est.)
country comparison to the world: 135
$6,400 (2009 est.)
$5,300 (2008 est.)
GDP - composition by sector:
agriculture: 12.9%
industry: 22.6%
services: 64.5% (2009 est.)
Exports - commodities:
mining and processed metal products, scrap metals, leather products, machinery,
appliances
Imports - commodities:
foodstuffs, wood, petroleum, chemicals, machinery and electrical equipment
Summary extracted from IMF Report - Republic of Kosovo: 2011 Article IV
Consultation and the Initiation of a Staff-Monitored Program (August 2011)
The global financial crisis had only a modest impact on Kosovo, owing in part to
limited integration into international financial and goods markets.
Real GDP growth slowed from close to 7 percent in 2008 to about 3 percent in 2009,
before recovering to 4 percent in 2010 . This contrasts with many countries in the region
where activity contracted. The solid growth performance owed much to robust domestic
demand, which was buttressed by higher government spending as well as remittances and
non-debt creating capital inflows from the diaspora (Table 3). Many Kosovars live in
Germany and Switzerland, countries in which growth and employment held up relatively
well. By contrast, in many neighboring countries sharp capital flow reversals forced
disruptive current account adjustments through a compression of domestic demand. At the
same time, Kosovo’s small export base limited the impact of weak demand in trading
partner countries.
Inflation fell into negative territory in 2009, reflecting lower import prices for food
and gasoline, but has since recovered. Core inflation remained well behaved
throughout the crisis.
Growth in credit to the private sector slowed from more than 30 percent in 2007–08
to about 13 percent in 2009–10. The quality of bank assets deteriorated only modestly.
Nonperforming loans (NPLs) increased to 5.9 percent in March 2011 from 3.3 percent at
end-2008 (Table 5). High coverage of NPLs through provisions and an aggregate capital
adequacy ratio of 18 percent suggest that banks continue to have large shock-absorbing
capacity. They have also remained liquid and profitable.
Since 2008, growth in government expenditures accelerated, with the resulting deficits
financed from accumulated savings, the sale of assets, and donor support . As a result,
the general government balance shifted from a surplus of more than 7 percent of GDP in
2007 to a deficit of 2.6 percent in 2010. Capital spending has been the main driver of this
expansion. Last year, construction started on a highway connecting Pristina with Albania’s
border, with total costs estimated at more than 20 percent of annual GDP spread over a
period of 4 years. The central government would be subject to large penalties in case of
rephasing if, for example, the necessary land expropriations proceed less rapidly than
planned, which adds considerable risks to the fiscal outlook. In 2011, the government
increased public sector wages and benefits for war invalids and their families between 30
and 50 percent; additional, potentially costly spending initiatives are in preparation
An 18-month Stand-By Arrangement (SBA) was approved by the IMF Executive
Board on July 21, 2010, but went off track in 2011. The program supported by the SBA
was built around (i) restraint on current spending, higher revenues and privatization
receipts to contain the impact on the investment program on the overall deficit, and (ii)
bolstering the government’s deposits with the Central Bank to build buffers for fiscal and
financial contingencies . The 2011 budget adopted by the newly constituted Assembly
deviated from the budget agreed in the context of the SBA, notably the large public sector
wage increases. Unfunded social spending initiatives with unclear budgetary impacts
posed additional risks to fiscal sustainability. As a result, no review under the program
could be completed.
Click here to view full report
Banking
Kosovo’s financial sector has developed rapidly during the last six years, particularly in
banking. The Central Banking Authority of Kosovo (CBAK), the successor of the Banking
and Payments Authority of Kosovo, is a distinct public entity with the authority to
license, supervise and regulate financial institutions in the territory of Kosovo. The CBAK
has adopted banking rules and regulations that are in line with the Basel Accords and EU
directives.
Kosovo uses the euro as its national currency, although the country is not a member of the
European Central Bank.
Eight private commercial banks dominate Kosovo’s financial sector, many of them
foreign-owned, comprising around 80% of total financial assets. Insurance companies,
pension funds and other financial intermediaries make up about 20% of the
financial sector. At the end of 2009, financial sector assets amounted to EUR 2.1
billion, a 20% increase compared to the previous year.
Neither the banking sector nor local commercial enterprises are ready to finance
large investment projects in the private sector. In the past three years, there has been
little private investment in Kosovo, outside of housing reconstruction. About 80 percent of
bank credits are short-term credits, which do not support long-term investments. Most of
deposits are demand deposits.
Over the past few years Kosovo's economy has shown significant progress in transitioning
to a market-based system and maintaining macroeconomic stability, but it is still highly
dependent on the international community and the diaspora for financial and technical
assistance. Remittances from the diaspora - located mainly in Germany, Switzerland, and
the Nordic countries - are estimated to account for about 13-15% of GDP, and donor-
financed activities and aid for another 7.5%. Kosovo's citizens are the poorest in Europe
with an average annual per capita income of only $2,800. Unemployment, around 40% of
the population, is a significant problem that encourages outward migration and black
market activity. 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 lack of technical expertise. With international assistance, Kosovo has
been able to privatize 50% of its state-owned enterprises (SOEs) by number, and over
90% of SOEs by value. Minerals and metals - including lignite, lead, zinc, nickel, chrome,
aluminum, magnesium, and a wide variety of construction materials - once formed the
backbone of industry, but output has declined because of ageing equipment and
insufficient investment. A limited and unreliable electricity supply due to technical and
financial problems is a major impediment to economic development, but Kosovo has
received technical assistance to help improve accounting and controls. The US
Government is cooperating with the Ministry for Energy and Mines and the World Bank to
prepare a commercial tender for a project to include construction of a new power plant and
the development of a coal mine to supply the new power plant as well as two existing
plants. Privatization of the distribution and supply divisions of Kosovo Energy Corporation
is also planned. The official currency of Kosovo is the euro, but the Serbian dinar is also
used in Serb enclaves. Kosovo's tie to the euro has helped keep core inflation low. Kosovo
has one of the most open economies in the region, and continues to work with the
international community on measures to improve the business environment and attract
foreign investment. Kosovo has maintained a budget surplus as a result of efficient value
added tax (VAT) collection at the borders and inefficient budget execution. In order to help
integrate Kosovo into regional economic structures, UNMIK signed (on behalf of Kosovo)
its accession to the Central Europe Free Trade Area (CEFTA) in 2006. However, Serbia
and Bosnia have refused to recognize Kosovo's customs stamp or extend reduced tariff
privileges for Kosovo products under CEFTA. In July 2008, Kosovo received pledges of
$1.9 billion from 37 countries in support of its reform priorities. In June 2009, Kosovo
joined the World Bank and International Monetary Fund, and Kosovo began servicing its
share of the former Yugoslavia's debt.
GDP (purchasing power parity):
$11.97 billion (2010 est.)
country comparison to the world: 144
$11.51 billion (2009 est.)
$11.19 billion (2008 est.)
GDP (official exchange rate):
$5.601 billion (2010 est.)
GDP - real growth rate:
4% (2010 est.)
country comparison to the world: 98
2.9% (2009 est.)
6.9% (2008 est.)
GDP - per capita (PPP):
$6,600 (2010 est.)
country comparison to the world: 135
$6,400 (2009 est.)
$5,300 (2008 est.)
GDP - composition by sector:
agriculture: 12.9%
industry: 22.6%
services: 64.5% (2009 est.)
Exports - commodities:
mining and processed metal products, scrap metals, leather products, machinery,
appliances
Imports - commodities:
foodstuffs, wood, petroleum, chemicals, machinery and electrical equipment
Summary extracted from IMF Report - Republic of Kosovo: 2011 Article IV
Consultation and the Initiation of a Staff-Monitored Program (August 2011)
The global financial crisis had only a modest impact on Kosovo, owing in part to
limited integration into international financial and goods markets.
Real GDP growth slowed from close to 7 percent in 2008 to about 3 percent in 2009,
before recovering to 4 percent in 2010 . This contrasts with many countries in the region
where activity contracted. The solid growth performance owed much to robust domestic
demand, which was buttressed by higher government spending as well as remittances and
non-debt creating capital inflows from the diaspora (Table 3). Many Kosovars live in
Germany and Switzerland, countries in which growth and employment held up relatively
well. By contrast, in many neighboring countries sharp capital flow reversals forced
disruptive current account adjustments through a compression of domestic demand. At the
same time, Kosovo’s small export base limited the impact of weak demand in trading
partner countries.
Inflation fell into negative territory in 2009, reflecting lower import prices for food
and gasoline, but has since recovered. Core inflation remained well behaved
throughout the crisis.
Growth in credit to the private sector slowed from more than 30 percent in 2007–08
to about 13 percent in 2009–10. The quality of bank assets deteriorated only modestly.
Nonperforming loans (NPLs) increased to 5.9 percent in March 2011 from 3.3 percent at
end-2008 (Table 5). High coverage of NPLs through provisions and an aggregate capital
adequacy ratio of 18 percent suggest that banks continue to have large shock-absorbing
capacity. They have also remained liquid and profitable.
Since 2008, growth in government expenditures accelerated, with the resulting deficits
financed from accumulated savings, the sale of assets, and donor support . As a result,
the general government balance shifted from a surplus of more than 7 percent of GDP in
2007 to a deficit of 2.6 percent in 2010. Capital spending has been the main driver of this
expansion. Last year, construction started on a highway connecting Pristina with Albania’s
border, with total costs estimated at more than 20 percent of annual GDP spread over a
period of 4 years. The central government would be subject to large penalties in case of
rephasing if, for example, the necessary land expropriations proceed less rapidly than
planned, which adds considerable risks to the fiscal outlook. In 2011, the government
increased public sector wages and benefits for war invalids and their families between 30
and 50 percent; additional, potentially costly spending initiatives are in preparation
An 18-month Stand-By Arrangement (SBA) was approved by the IMF Executive
Board on July 21, 2010, but went off track in 2011. The program supported by the SBA
was built around (i) restraint on current spending, higher revenues and privatization
receipts to contain the impact on the investment program on the overall deficit, and (ii)
bolstering the government’s deposits with the Central Bank to build buffers for fiscal and
financial contingencies . The 2011 budget adopted by the newly constituted Assembly
deviated from the budget agreed in the context of the SBA, notably the large public sector
wage increases. Unfunded social spending initiatives with unclear budgetary impacts
posed additional risks to fiscal sustainability. As a result, no review under the program
could be completed.
Click here to view full report
Banking
Kosovo’s financial sector has developed rapidly during the last six years, particularly in
banking. The Central Banking Authority of Kosovo (CBAK), the successor of the Banking
and Payments Authority of Kosovo, is a distinct public entity with the authority to
license, supervise and regulate financial institutions in the territory of Kosovo. The CBAK
has adopted banking rules and regulations that are in line with the Basel Accords and EU
directives.
Kosovo uses the euro as its national currency, although the country is not a member of the
European Central Bank.
Eight private commercial banks dominate Kosovo’s financial sector, many of them
foreign-owned, comprising around 80% of total financial assets. Insurance companies,
pension funds and other financial intermediaries make up about 20% of the
financial sector. At the end of 2009, financial sector assets amounted to EUR 2.1
billion, a 20% increase compared to the previous year.
Neither the banking sector nor local commercial enterprises are ready to finance
large investment projects in the private sector. In the past three years, there has been
little private investment in Kosovo, outside of housing reconstruction. About 80 percent of
bank credits are short-term credits, which do not support long-term investments. Most of
deposits are demand deposits.
Background:
The central Balkans were part of the Roman
and Byzantine Empires before ethnic Serbs
migrated to the territories of modern Kosovo in
the 7th century. During the medieval period,
Kosovo became the center of a Serbian Empire
and saw the construction of many important
Serb religious sites, including many
architecturally significant Serbian Orthodox
monasteries. The defeat of Serbian forces at
the Battle of Kosovo in 1389 led to five
centuries of Ottoman rule during which large
numbers of Turks and Albanians moved to
Kosovo. By the end of the 19th century,
Albanians replaced the Serbs as the dominant
ethnic group in Kosovo. Serbia reacquired
control over Kosovo from the Ottoman Empire
during the First Balkan War of 1912. After
World War II, Kosovo became an autonomous
province of Serbia in the Socialist Federal
Republic of Yugoslavia (S.F.R.Y.) with status
almost equivalent to that of a republic under
the 1974 S.F.R.Y. constitution. Despite
legislative concessions, Albanian nationalism
increased in the 1980s, which led to riots and
calls for Kosovo's independence. At the same
time, Serb nationalist leaders, such as
Slobodan MILOSEVIC, exploited Kosovo Serb
claims of maltreatment to secure votes from
supporters, many of whom viewed Kosovo as
their cultural heartland. Under MILOSEVIC's
leadership, Serbia instituted a new constitution
in 1989 that revoked Kosovo's status as an
autonomous province of Serbia. Kosovo
Albanian leaders responded in 1991 by
organizing a referendum that declared Kosovo
independent. Under MILOSEVIC, Serbia carried
out repressive measures against the Albanians
in the early 1990s as the unofficial Kosovo
government, led by Ibrahim RUGOVA, used
passive resistance in an attempt to try to gain
international assistance and recognition of an
independent Kosovo. Albanians dissatisfied
with RUGOVA's passive strategy in the 1990s
created the Kosovo Liberation Army and
launched an insurgency. Starting in 1998,
Serbian military, police, and paramilitary forces
under MILOSEVIC conducted a brutal
counterinsurgency campaign that resulted in
massacres and massive expulsions of ethnic
Albanians. Approximately 800,000 Albanians
were forced from their homes in Kosovo during
this time. International attempts to mediate the
conflict failed, and MILOSEVIC's rejection of a
proposed settlement led to a three-month
NATO military operation against Serbia
beginning in March 1999 that forced Serbia to
agree to withdraw its military and police forces
from Kosovo. UN Security Council Resolution
1244 (1999) placed Kosovo under a
transitional administration, the UN Interim
Administration Mission in Kosovo (UNMIK),
pending a determination of Kosovo's future
status. A UN-led process began in late 2005 to
determine Kosovo's final status. The
negotiations ran in stages between 2006 and
2007, but ended without agreement between
Belgrade and Pristina. On 17 February 2008,
the Kosovo Assembly declared Kosovo
independent. Since then, over 70 countries
have recognized Kosovo, and it has joined the
International Monetary Fund and World Bank.
Serbia continues to reject Kosovo's
independence and in October 2008, it sought
an advisory opinion from the International Court
of Justice (ICJ) on the legality under
international law of Kosovo's declaration of
independence. The 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. The opinion was
closely tailored to Kosovo's unique history and
circumstances.Government type:
republic
Capital:
name: Pristina (Prishtine, Prishtina)
time difference: UTC+1 (6 hours ahead of
Washington, DC during Standard Time)
daylight saving time: +1hr, begins last Sunday
in March; ends last Sunday in October
Independence:
17 February 2008 (from Serbia)
National holiday:
Independence Day, 17 February (2008)
Constitution:
adopted by the Kosovo Assembly on 9 April
2008; effective 15 June 2008
Legal system:
evolving legal system based on terms of former
UN Special Envoy Martti AHTISAARI's Plan for
Kosovo's supervised independence
Suffrage:
18 years of age; universal
Government:
Chief of state: President Behgjet PACOLLI
(since 22 February 2011)
head of government: Prime Minister Hashim
THACI (since 9 January 2008)
cabinet: ministers; elected by the Kosovo
Assembly
elections: the president is elected for a
five-year term by the Kosovo Assembly;
election last held on 22 February 2011; note -
the prime minister elected by the Kosovo
Assembly
election results: Behgjet PACOLLI elected
president after three rounds; Hashim THACI
elected prime minister by the Assembly
For names of current Ministers, click here.
Disputes - international:
Serbia with several other states protest the US
and other states' recognition of Kosovo's
declaring itself as a sovereign and independent
state in February 2008; ethnic Serbian
municipalities along Kosovo's northern border
challenge final status of Kosovo-Serbia
boundary; several thousand NATO-led KFOR
peacekeepers under UNMIK authority continue
to keep the peace within Kosovo between the
ethnic Albanian majority and the Serb minority
in Kosovo; Kosovo and Macedonia completed
demarcation of their boundary in September
2008
All the information on this page sourced from
the CIA World Factbook, the US Commercial
Service and relevant FATF M.E.R.
The central Balkans were part of the Roman
and Byzantine Empires before ethnic Serbs
migrated to the territories of modern Kosovo in
the 7th century. During the medieval period,
Kosovo became the center of a Serbian Empire
and saw the construction of many important
Serb religious sites, including many
architecturally significant Serbian Orthodox
monasteries. The defeat of Serbian forces at
the Battle of Kosovo in 1389 led to five
centuries of Ottoman rule during which large
numbers of Turks and Albanians moved to
Kosovo. By the end of the 19th century,
Albanians replaced the Serbs as the dominant
ethnic group in Kosovo. Serbia reacquired
control over Kosovo from the Ottoman Empire
during the First Balkan War of 1912. After
World War II, Kosovo became an autonomous
province of Serbia in the Socialist Federal
Republic of Yugoslavia (S.F.R.Y.) with status
almost equivalent to that of a republic under
the 1974 S.F.R.Y. constitution. Despite
legislative concessions, Albanian nationalism
increased in the 1980s, which led to riots and
calls for Kosovo's independence. At the same
time, Serb nationalist leaders, such as
Slobodan MILOSEVIC, exploited Kosovo Serb
claims of maltreatment to secure votes from
supporters, many of whom viewed Kosovo as
their cultural heartland. Under MILOSEVIC's
leadership, Serbia instituted a new constitution
in 1989 that revoked Kosovo's status as an
autonomous province of Serbia. Kosovo
Albanian leaders responded in 1991 by
organizing a referendum that declared Kosovo
independent. Under MILOSEVIC, Serbia carried
out repressive measures against the Albanians
in the early 1990s as the unofficial Kosovo
government, led by Ibrahim RUGOVA, used
passive resistance in an attempt to try to gain
international assistance and recognition of an
independent Kosovo. Albanians dissatisfied
with RUGOVA's passive strategy in the 1990s
created the Kosovo Liberation Army and
launched an insurgency. Starting in 1998,
Serbian military, police, and paramilitary forces
under MILOSEVIC conducted a brutal
counterinsurgency campaign that resulted in
massacres and massive expulsions of ethnic
Albanians. Approximately 800,000 Albanians
were forced from their homes in Kosovo during
this time. International attempts to mediate the
conflict failed, and MILOSEVIC's rejection of a
proposed settlement led to a three-month
NATO military operation against Serbia
beginning in March 1999 that forced Serbia to
agree to withdraw its military and police forces
from Kosovo. UN Security Council Resolution
1244 (1999) placed Kosovo under a
transitional administration, the UN Interim
Administration Mission in Kosovo (UNMIK),
pending a determination of Kosovo's future
status. A UN-led process began in late 2005 to
determine Kosovo's final status. The
negotiations ran in stages between 2006 and
2007, but ended without agreement between
Belgrade and Pristina. On 17 February 2008,
the Kosovo Assembly declared Kosovo
independent. Since then, over 70 countries
have recognized Kosovo, and it has joined the
International Monetary Fund and World Bank.
Serbia continues to reject Kosovo's
independence and in October 2008, it sought
an advisory opinion from the International Court
of Justice (ICJ) on the legality under
international law of Kosovo's declaration of
independence. The 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. The opinion was
closely tailored to Kosovo's unique history and
circumstances.Government type:
republic
Capital:
name: Pristina (Prishtine, Prishtina)
time difference: UTC+1 (6 hours ahead of
Washington, DC during Standard Time)
daylight saving time: +1hr, begins last Sunday
in March; ends last Sunday in October
Independence:
17 February 2008 (from Serbia)
National holiday:
Independence Day, 17 February (2008)
Constitution:
adopted by the Kosovo Assembly on 9 April
2008; effective 15 June 2008
Legal system:
evolving legal system based on terms of former
UN Special Envoy Martti AHTISAARI's Plan for
Kosovo's supervised independence
Suffrage:
18 years of age; universal
Government:
Chief of state: President Behgjet PACOLLI
(since 22 February 2011)
head of government: Prime Minister Hashim
THACI (since 9 January 2008)
cabinet: ministers; elected by the Kosovo
Assembly
elections: the president is elected for a
five-year term by the Kosovo Assembly;
election last held on 22 February 2011; note -
the prime minister elected by the Kosovo
Assembly
election results: Behgjet PACOLLI elected
president after three rounds; Hashim THACI
elected prime minister by the Assembly
For names of current Ministers, click here.
Disputes - international:
Serbia with several other states protest the US
and other states' recognition of Kosovo's
declaring itself as a sovereign and independent
state in February 2008; ethnic Serbian
municipalities along Kosovo's northern border
challenge final status of Kosovo-Serbia
boundary; several thousand NATO-led KFOR
peacekeepers under UNMIK authority continue
to keep the peace within Kosovo between the
ethnic Albanian majority and the Serb minority
in Kosovo; Kosovo and Macedonia completed
demarcation of their boundary in September
2008
All the information on this page sourced from
the CIA World Factbook, the US Commercial
Service and relevant FATF M.E.R.
| KnowYourCountry |
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| Last Updated: 3 September 2011 |