Kosovo - Unlocking Growth Potential : Strategies, Policies, Actions - A Country Economic Memorandum

Abstract

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.