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- GDP (PPP):
- $13.4 billion
- 2.1% growth
- 4.1% 5-year compound annual growth
- $3,453 per capita
- Inflation (CPI):
- FDI Inflow:
Kosovo’s economy is not graded in the 2014 Index due to insufficient data. Those facets of economic freedom for which data are available have been individually scored. Kosovo will receive an overall economic freedom score and ranking in future editions as more information becomes available.
Kosovo has been transitioning from a centrally planned economy to a more market-based economy. Privatizing many of its state-owned assets, the young nation has opened its borders to global trade and investment, with services and manufacturing accounting for a large majority of economic activity. Other bold reforms have included implementation of competitively low tax rates, which has contributed to the gradual emergence of entrepreneurial dynamism.
Despite this progress, institutional capacity remains weak, and greater political commitment is needed to implement the significant reforms necessary to jump-start the economy. Weak protection of property rights and widespread corruption discourage vibrant entrepreneurial activity, undermining the rule of law. The judiciary is subject to political interference and lacks the resources to prosecute complex crimes. Intrusive bureaucracy and costly registration procedures reflect a history of central planning.
In the late 1990s, a NATO intervention stopped a Serb-initiated campaign of ethnic cleansing against Kosovo Albanians. After Serbian forces left, Kosovo was administered by the United Nations until declaring full independence in 2008. Today, approximately 5,000 international soldiers are based in Kosovo as part of a NATO-led peacekeeping mission. In early 2013, Kosovo signed an agreement aimed at normalization of relations with Serbia. Kosovo has been transitioning slowly to a market-based economy, but huge economic challenges remain. The formal-sector unemployment rate is around 45 percent. Kosovo is a member of the World Bank, the International Monetary Fund, and the Central Europe Free Trade Area and has long-term ambitions of joining NATO and the European Union.
A steadily expanding bureaucracy increases opportunities for corruption, which is widespread in many areas of government including the judiciary and law enforcement. Despite reforms in 2012 that improved judicial independence, the courts are understaffed, case backlogs remain high, and enforcement of judgments is weak.
The top individual income and corporate tax rates are 10 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden is 23.1 percent of gross domestic income. Government spending is 30 percent of GDP. The budget is still dependent on IMF support, aid, and diaspora remittances. Public debt remains below 10 percent of the domestic economy.
Incorporating a business takes 30 days on average, and no minimum capital is required. Despite some progress, completing licensing requirements still costs almost five times the level of average annual income and takes over three months. Agricultural and energy-related subsidies by the government and international donors amount to more than one-third of GDP.
Most goods originating from outside the Central European Free Trade Agreement region are subject to a 10 percent tariff. There are few official barriers to foreign investment, but the legal and regulatory systems are complex. The financial system continues to evolve, with the level of financial intermediation gradually increasing. The banking sector remains relatively stable and well capitalized.