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 global 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), but it rebounded in 2021 (+9.5% - IMF). As the increase in energy and food prices after Russia’s invasion of Ukraine weighed on private demand, activity, and inflation, GDP growth was estimated to have decelerated to 2.7% in 2022. Assuming an easing of commodity prices, economic activity is forecasted to grow at 3.5% in 2023 and 3.9% in 2024.

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 21.1% of GDP in 2022 - IMF). Nevertheless, debt is expected to follow an upward trend this year (22%) and in 2024 (22.9% - IMF). The primary fiscal position is estimated to be balanced in 2022, compared with a deficit of about 1% of GDP in 2021, as solid fiscal revenue growth and low implementation of the public investment program (PIP) offset the increase in support measures to limit the effects of higher food and energy prices. While credit to the private sector is estimated to have expanded by about 15% in nominal terms in 2022, real credit growth decelerated compared to one year earlier (IMF). Average inflation reached around 12% in 2022 and is expected to gradually ease over the forecast horizon (to 5% in 2023 and 2.6% 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 and 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 the 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 31.3% as of 2021 (one of the highest rates in Europe – national statistics office), and Kosovo is among the poorest countries in Europe, with nearly one-third of the population living below the poverty line. Per capita GDP (PPP) was estimated at USD 14,352 in 2022 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.

© eexpand, All Rights Reserved.
Latest Update: September 2023