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- GDP (PPP):
- $14.0 billion
- 2.5% growth
- 3.2% 5-year compound annual growth
- Inflation (CPI):
- FDI Inflow:
Kosovo’s economy is not graded in the 2015 Index due to insufficient data. Facets of economic freedom for which data are available have been scored individually. Kosovo will receive an overall economic freedom score and ranking in future editions as more reliable information becomes available.
Kosovo’s continued transition to a market-based economy has yielded dividends over the past five years. Its move from a centrally planned to a market-based economy has proceeded steadily, and the government has engaged in a series of high-profile privatizations. Limited by political and geographic constraints, the young nation has opened its borders to trade and investment and now relies heavily on remittances and foreign direct investment.
Continued progress is hindered by weak institutional capacity, and the government has yet to show a sustained commitment to economic freedom. Corruption is still prevalent and undermines the already restricted business environment. Political interference in the judiciary is troubling. Remnants of the centrally planned economy still linger in a government bureaucracy that makes business formation costly and onerous.
Transitioning from a centrally planned economy to a more market-based economy, Kosovo has been privatizing many of its state-owned assets. The nation has opened its borders to trade and investment, with services and manufacturing accounting for a large majority of economic activity. Parliamentary elections in May 2014 produced political deadlock, further hampering progress on economic reform. Half of Kosovo’s population is under 25, unemployment remains high at 35 percent, and informal networks and transactions remain a large portion of the economy. Despite progress since independence, institutional capacity remains weak, and remittances account for around 15 percent of GDP. A truly independent judiciary is not yet a reality. Intrusive bureaucracy and costly registration procedures reflect a history of central planning. Greater political commitment is needed to implement the significant reforms necessary to jump-start the economy and stamp out corruption.
Political corruption is one of Kosovo’s greatest challenges. Several reforms were implemented in 2013 to improve the transparency of campaign financing, but high-level senior officials involved in corruption are not routinely punished. In general, the current institutional framework is not designed to resolve claims and challenges to property rights in an efficient and effective manner.
Kosovo’s top individual and corporate income tax rates are 10 percent. Other taxes include a value-added tax and a property tax. Government revenue is largely dependent on the VAT, excise and trade taxes, and transfers from abroad. Taxation is poorly enforced. Public expenditures equal 29.5 percent of domestic output, and public debt equals approximately 9 percent of GDP.
With no minimum capital required, it takes five procedures and less than a week to start a company, but completing licensing requirements takes about five months on average. The labor market is underdeveloped, and informal labor activity is substantial. Agricultural and energy-related subsidies from the government and international donors amount to more than one-third of GDP.
Kosovo is a member of the Central European Free Trade Agreement (CEFTA) region. Most sectors of the economy are open to foreign investment. Kosovo has several state-owned enterprises. The financial system, dominated by a small number of banks, remains limited in scope and depth. A lack of readily available financing hinders the development of a dynamic private sector.