Kosovo: Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to adress the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Since the end of the war in 1999, Kosovo has experienced solid economic growth. It is also one of the only four European countries that recorded steady positive growth rates in the aftermath of the economic crisis (2008-2012). The country was able to withstand the recession that impacted the rest of Europe due to its limited international integration into the global economy, a steady flow of remittances from its diaspora and donor aid, as well as a generally pro-growth budget, so that GDP grew on average by 3.5% per year in the period 2009-2019. Unfortunately, the country's economy has been severely hit by the COVID-19 pandemic (-5.3% in 2020). Nevertheless, growth rebounded by an estimated 6% in 2021, and GDP is expected to increase by 4.5% this year and 4.2% in 2023, according to the IMF.

In 2008, Kosovo declared independence from Serbia and has since taken steps to integrate into the international community. Kosovo joined the IMF and the World Bank in 2009, the European Bank for Reconstruction and Development (EBRD) in 2012 and the European Investment Bank in 2013. The country also seeks to join the European Union and has accelerated its integration process with the signature of the Stabilisation Association Agreement, which entered into force in 2016. Kosovo's economic performance has outpaced most of its neighbours because of prudent fiscal and financial policies, with the country having the lowest public debt-to-GDP ratio in the region (estimated at 25.8% of GDP in 2021 - IMF). Nevertheless, debt is expected to follow an upward trend this year (28.3%) and the next (29.7% - IMF). The general government balance was negative by 4% of GDP in 2021. As the country’s economic performance improves, the IMF projects the deficit to decrease to 3.1% and 2.9% in 2022 and 2023, respectively. Higher global energy prices prompted a rise in inflation (3.1% last year, from 0.2% in 2020). After peaking at 3.6% in 2022, it should ease to 2.4% the following year. Kosovo imports virtually all consumer goods, which results in a structural trade deficit and has failed to increase the competitiveness of its export sector in recent years. Consequently, its foreign exchange reserves are lower compared to the rest of the region, but remain at comfortable levels, according to the IMF. Kosovo has a euroized economy, like Montenegro, and has a sound financial sector, dominated by banking activities. Banks are well capitalised and profitable, and financial deepening continues. Despite its impressive economic performance in recent years, the country faces many challenges. The economy depends heavily on remittances from its diaspora and imports. The Kosovar government is seeking to invest in upgrading energy infrastructure and improving industrial productivity, which could result in an increase in both current account deficit and public debt in the coming years.

While Kosovo’s economy continued to make progress, further reforms and investments are essential if the country wants to enable the level of growth required to reduce unemployment and significantly raise living standards. In fact, the unemployment rate was estimated at 25.8% as of Q1/2021 (one of the highest rates in Southeast Europe – national statistics office), and Kosovo is the third poorest country in Europe, with nearly one-third of the population living below the poverty line. Per capita GDP (PPP) was estimated at USD 11,949 in 2021 by the IMF. Unemployment levels for first-time job seekers and women are significantly higher than the official rate. Furthermore, the country also suffers from high levels of organised crime and corruption, as well as a lack of transparency.

Monetary Indicators	2016	2017	2018	2019	2020
Euro (EUR) - Average Annual Exchange Rate For 1 GHS	0.24	0.20	0.18	0.17	0.16

Source: World Bank - Latest available data.

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Latest Update: February 2023