- Basic data
- Public finances and the state budget
- Banking system
- Tax system
From an economic point of view, Kosovo is one of the weakest countries not only in Europe, but also in the Western Balkans region. It is characterized by a lack of processing sector and industrial production. As a result, it cannot meet domestic demand, which it covers through imports. Due to underdeveloped industry, the country has very high unemployment, reaching 29% in 2021. In 2020, the pandemic hit Kosovo’s economy, causing the economy to decline by 5.3%. In 2021, Kosovo’s economy saw a significant resumption of growth, reaching 7.5%. According to economic predictions, economic growth should continue in 2022-2023. In 2022, growth could reach 4.9%, for 2023, GDP growth is estimated at 3.8%. As a result of a number of economic measures to support the population, industry, agriculture and exports in general, there is an increase in the national debt deficit, which increased by 3.2% in 2021 and reached the level of 28.0% of GDP. It is expected to further increase to 28.5% of GDP in 2022. Inflation in 2021, mainly due to the rise in oil prices, reached 3.1%. A further increase of 3.6% is expected for 2022. The main risks for the development of the Kosovo economy in 2022 include the development of the pandemic in Kosovo and throughout Europe, as well as political instability, corruption, a weak rule of law, and an unreliable energy sector, whose underdevelopment hinders the inflow of foreign investment into the country. Check ebizdir for economical facts of Kosovo.
Kosovo imports most consumer goods, resulting in a deep foreign trade deficit. Kosovo’s exports are currently times lower than Kosovo’s imports. In 2021, Kosovo exporters performed better than in previous years. Kosovo’s export of goods and services reached EUR 749.7 million, which is approximately times more than in 2020, when Kosovo’s exports reached EUR 47 million. In 2021, Kosovo’s imports also grew significantly, reaching EUR 4,65 million, which is approximately times more than in 2020, when Kosovo’s imports reached EUR 3,29 million. The negative trade balance also increased significantly. The trade deficit in 2021 increased to – EUR 3,90 million, while in 2020 the trade deficit was “only” – EUR 2,82 million. Among the least significant export countries were: USA (share of Kosovo exports 15%), Albania (15%), North Macedonia (11%), Italy (8%), Germany (8%), Switzerland (8%) and Serbia (6%). The most important importing countries were: Germany (share of Kosovo imports 13%), Turkey (13%), China (10%), Serbia (7%), Albania (6%), Italy (6%) and North Macedonia (5 %). Among Kosovo’s most important export items were: iron and steel and their products (26%), furniture, mattresses and bedding (20%), plastics and their products (10%), non-alcoholic and alcoholic beverages (5%), ores ( 4%) and aluminum and its products (2%). Among the most important Kosovo import items were: oil and mineral raw materials (11%), means of transport (10%), iron and steel and products thereof (9%), plastics and products thereof (7%), electrical appliances and electrical materials for industrial production (5%), pharmaceutical products (3%) and non-alcoholic and alcoholic beverages (2%).
|GDP growth (%)||4.9||– 5.3||7.5||4.9||3.8|
|Export of goods (billion EUR)||383.5||474.9||749.7||ON||24.0|
|Import of goods (billion EUR)||3,497.0||3,296.6||4,652.8||ON||ON|
|Trade balance (billion EUR)||– 3,113.5||2,821.7||– 3,903.1||ON||ON|
|Industrial production (% change)||8,9||0.5||7.7||ON||1.82|
|OECD export risk||06.VII||06.VII||06.VII||06.VII||ON|
Source: EIU, OECD, IMD, KAS
Public finance and state budget
|State budget balance (% of GDP)||– 4.7|
|Public debt (% of GDP)||28.0|
|Current account balance (billion USD)||– 0.6|
Last year, Kosovo’s economy recovered from the deepest recession in ten years caused by the 2020 pandemic. Economic growth in 2021 reached 7.5%, but it was significantly affected by the low base of the previous year, when GDP showed -5, 3%. The current development of the Kosovo economy indicates that the Kosovo economy will also grow in 2022. The economy of the Republic of Kosovo represents an extremely complex economic area, the main problem of which is corruption and a poorly functioning business environment, which discourages investors despite the positive growth of the economy in recent years. For this reason, the Kosovo economy suffers from a lack of finance. The country’s dependence on foreign aid is thus considerable. The International Monetary Fund therefore recommends making structural changes, which should increase the country’s credibility for business and foreign investment and reduce social tensions. In particular, this is an increase in investment not only in industry, energy and road and railway infrastructure, but also in education, healthcare and ecology. Social programs should be aimed at reducing poverty and unemployment. At the same time, measures should be taken to increase the efficiency of public and state administration. Other recommendations relate to taxes and customs duties that are not in line with WTO principles.
The Kosovo state budget for 2022 calculates with revenues of EUR 2,468 million and expenditures of EUR 2,980 million, the planned deficit is EUR 512 million. As a result of a number of economic measures to support the population, industry, agriculture and exports in general, the national debt deficit is increasing, reaching the level of 28.0% of GDP in 2021. It is expected to further increase to 29.0% of GDP in 2022.
Source: KAS, CBK, IMF
The Kosovo banking sector is stable and highly profitable, however, the very fast growing consumer and real estate loans require thorough supervision by the Ministry of Finance of the Republic of Kosovo. The annual growth of loans is around 12%. Banks play a dominant role in Kosovo’s financial sector (holding 67.5% of assets), followed by pension funds (26.63%), insurance companies (3.1%) and micro-financial institutions (2.7%). The banking sector in Kosovo has sufficient liquidity. In 2021, the equity capital of Kosovo banks was EUR 557 million, which is 4.0% more than the previous year. In 2021, bank loan rates averaged 6.4% and deposit interest rates averaged 0.90%. There are 10 commercial banks operating in Kosovo, with approximately 65% of all assets managed by the three largest of them, ProCredit, Raiffeisen and Nova Ljubljanska Banka. Foreign banking institutions hold 90% of the capital. The following banks have a smaller market share: TEB Sh. A. (Türk Ekonomi Bankası), Banka Ekonomike, Banka Kombetare Tregtare, Banka për Biznes, Komercijalna Banka ad Beograd, Is-bank and Ziraat Bank, and insurance companies: Dardania, Illyria, Kosova e Re, Siguria, Insig, Sigal, Sigma, Croatia Sigurimi, Sigkos and Elsig, Eurosig, Prisig, Scardian, Grawe Kosova.
Source: CBK, KAS
Kosovo’s tax system is clear and in principle contains most of the principles of EU tax directives. Approximately two-thirds of fiscal revenues are obtained by the state from customs fees. The fiscal burden is relatively low. The basic components of the Kosovo tax system are value added tax, personal income tax, corporate income tax, withholding tax (from interest, rent, royalties), customs duties, consumption tax, municipal taxes (property tax and business fees license). From 2015, the basic VAT rate is 18%. At the same time, a reduced VAT rate of 8% was introduced with the aim of reducing the financial burden on low-income groups of the population. Business entities whose annual turnover exceeds EUR 50,000 are required to register as tax payers. The corporate income tax rate, which is a maximum of 10%, depends on the annual turnover. Property tax amounts to 0.05-1% per year of the market value of the property, depending on the type of property. Personal income tax is applied to income from wages, business, rent, interest and property rental. The tax rate depends on the amount of the payer’s annual income and ranges from 0-10%. Goods and products intended for export, as well as goods that are used for further processing in Kosovo, are exempt from the tax. Given that important changes to support the population and the business sector have gradually taken place in recent years, the tax system is basically in place and no major changes are expected.
Source: Kosovo Tax Administration