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- GDP (PPP):
- $12.0 billion
- 5.2% growth
- $7,052 per capita
- Inflation (CPI):
- FDI Inflow:
Kosovo’s economy is not graded in the 2013 Index due to insufficient data. Those facets of economic freedom for which data are available have been individually scored. The country will receive an overall economic freedom score and ranking in future editions as more information becomes available.
Since the breakup of Communist Yugoslavia in the early 1990s, Kosovo has slowly transitioned from a centrally planned economy to a market-based economy. It has privatized many of its state-owned assets and opened its borders to trade and investment. In 2006, under U.N. administration, Kosovo joined the Central European Free Trade Area, an association that has lost many of its Central European members and now consists mainly of Balkan states. The economy remains diversified, with services and manufacturing accounting for a large majority of economic activity.
Despite this progress, the foundations of economic freedom are weakly supported. Corruption and organized crime are pervasive, with graft extending throughout the government. Political instability continues, and border clashes with Serbia have hampered regional cooperation. The business environment remains burdensome, and regulations on starting a business and registering property are onerous. Institutional capacity is weak, and greater political commitment is needed to implement the significant reforms needed to jump-start the economy.
In the late 1990s, a NATO intervention stopped an ethnic cleansing campaign against Kosovo Albanians initiated by Serbian authorities. After Serbian forces left, Kosovo was administered by the United Nations. It declared full independence in 2008, but only about half of the U.N.’s members recognize its independence. Hashim Thaçi of the center-left Democratic Party of Kosovo became prime minister in 2008. More than 5,500 soldiers are based in Kosovo as part of a NATO-led peacekeeping mission. Progress in developing a market-based economy has been slow. The formal-sector unemployment rate is around 45 percent, and almost one-third of Kosovars live below the poverty line.
Kosovo was ranked 110th out of 178 countries in Transparency International’s 2011 Corruption Perceptions Index. The complicated legal system includes laws of the former Yugoslavia, UNMIK Regulations, and the Kosovo Assembly. There often are multiple ownership claims on properties. Perceptions of official and informal corruption as well as a steadily expanding state bureaucracy have been obstacles to foreign direct investment.
The top income tax and corporate tax rates are 10 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden in the most recent year was equivalent to 21.3 percent of GDP. Government spending equals 30 percent of GDP. Government finances are bolstered by international assistance and remittances. Divestitures from government-owned enterprises continue, aiding the economy’s ongoing transition.
The overall regulatory framework remains burdensome and time-consuming. Starting a business does not require minimum capital but takes more than 50 days. Completing licensing requirements costs almost 30 times the level of average annual income. Inflation is the second highest in Western Europe (after Serbia) and has been rising. The state influences prices through extensive subsidies and numerous state-owned enterprises.
There are few significant non-tariff barriers. The country is relatively open to foreign investment, but the legal system could be strengthened. There are few restrictions on capital transactions, and property may not be expropriated without compensation at market value. The financial system continues to evolve, with the level of financial intermediation increasing. The banking sector remains relatively stable and well-capitalized.