A Country Economic Memorandum
Resource information
Kosovo's economic growth in the
past decade has been solid, yet, with a gross domestic
product (GDP) per capita of 1,760, the country remains one
of the poorest in Europe. The end of the conflict, output
was growing at double-digit rates, driven by the
donor-funded reconstruction efforts. Since 2005, annual
growth has decelerated to below 5 percent. However, the
other countries in Southeast Europe have been growing
faster, so the income gap has widened. Kosovo's economy
would need to more than double its growth rate to 10 percent
per annum over the next decade to reach Albania's
income level (assuming Albania's economy continues to
grow at 5.5 percent annually over this period). To reach
Montenegro's current GDP per capita level of about
5,700, the economy would have to grow at 12 percent per
annum for an entire decade. At the same time, Kosovo has the
weakest employment track record in Europe: the unemployment
rate has reached 48 percent and the employment rate is
extremely low (26 percent). Consequently, poverty remains
persistent and widespread (though shallow) with 45 percent
of the population estimated to consume less than the
national poverty line, while 17 percent are extremely poor.
Much of the economic progress in the recent period has been
based on donor aid and remittances, which cannot be the
foundation of a sustainable economic strategy. Kosovo has
the potential to shift toward faster, private sector led
growth. Kosovo's products have free market access to
the European Union (EU) and Central European Free Trade
Agreement (CEFTA) countries, so exports could become an
important pillar of growth. Unleashing that potential will
involve bringing on line three production factors that are
now sitting partially idle: labor, land, and energy and
minerals. The encouraging news is that unleashing this
potential is within the country's own grasp, because
most of the current obstacles are of a policy nature.
However, simultaneous action will be required on several
policy fronts.
