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- GDP (PPP):
- $16.9 billion
- 2.7% growth
- 3.3% 5-year compound annual growth
- $9,037 per capita
- Inflation (CPI):
- FDI Inflow:
Kosovo’s economic freedom is being graded for the first time in the 2016 Index. The country is engaged in a gradual transition from a centrally planned economy to a market-based economy. Opening its borders to trade and investment, Kosovo has undertaken a number of structural reforms, including divestment of inefficient state-owned assets and modernization of the regulatory regime.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 61.4
- Economic Freedom Status: Moderately Free
- Global Ranking: 84th
- Regional Ranking: 35th in Europe
- Notable Successes: Monetary Freedom and Control of Government Spending
- Concerns: Property Rights, Corruption, and Financial Freedom
- Overall Score Change since 2012: N/A
Since declaring its independence from Serbia in 2008, Kosovo has gained recognition from over 100 countries. The Brussels Agreement of 2013 helped stabilize relations between Kosovo and Serbia, but NATO still maintains a peacekeeping force in the country. Parliamentary elections in June 2014 produced political deadlock. In December 2014, Prime Minister Hashim Thaçi of the center-right Democratic Party was replaced by Isa Mustafa of the center-right Democratic League of Kosovo. Half of Kosovo’s population is under 25, unemployment is high, and informal networks and transactions are a large portion of the economy. Despite progress since breaking away from Serbia, institutional capacity is weak, and the judiciary is not independent. Remittances account for around 15 percent of GDP.
Corruption remains a serious problem. A legislative framework to combat corruption is in place, but its implementation has been insufficient, and graft and misconduct remain widespread in many state institutions. Resolution of residential, agricultural, and commercial property claims remains a serious and contentious issue in Kosovo, and the current institutional framework is not designed to resolve them.
The top personal income tax and corporate tax rates are 10 percent. Other taxes include a value-added tax and a property tax. The overall tax burden equals 21 percent of GDP. Government spending amounts to 27.8 percent of GDP. International assistance and remittances bolster government finances. Fiscal policy has been anchored to a deficit ceiling of 2 percent of GDP and a debt cap of 40 percent of GDP.
Despite notable progress, the overall regulatory framework remains time-consuming. Starting a business does not require minimum capital, but completing requirements for necessary permits takes more than five months. The formal labor market is poorly developed, and informal labor activity is substantial. Agricultural and energy-related subsidies provided by the government and international donors amount to more than one-third of GDP.
Kosovo’s average tariff rate is 7.1 percent. In most cases, foreign and domestic investors are treated equally under the law. The complexity of regulatory systems may deter foreign investment. State-owned enterprises are active in many sectors. The financial system continues to evolve, and the level of financial intermediation is increasing. The banking sector, dominated by foreign banks, remains stable. Non-performing loans are a serious problem.