- GDP (PPP):
- $22.1 billion
- 4.0% growth
- 4.0% 5-year compound annual growth
- $11,839 per capita
- Inflation (CPI):
- FDI Inflow:
Kosovo’s economic freedom score is 66.5, making its economy the 58th freest in the 2021 Index. Its overall score has decreased by 0.9 point, primarily because of a decline in property rights. Kosovo is ranked 32nd among 45 countries in the Europe region, and its overall score is below the regional average but above the world average.
Kosovo’s economy has been in the ranks of the moderately free since the beginning of its Index grading in 2016. Economic freedom is stymied by political instability, corruption, an unreliable energy supply, a large informal economy, unresolved property disputes, and a tenuous rule of law that is reflected in low Index scores for property rights, judicial effectiveness, and government integrity.
IMPACT OF COVID-19: As of December 1, 2020, 1,026 deaths had been attributed to the pandemic in Kosovo, and the economy was forecast to contract by 7.5 percent for the year.
Kosovo gained independence from Serbia in 2008, and most members of the European Union have recognized its sovereignty. Nevertheless, NATO still maintains a peacekeeping force in the country. In June 2020, President Hashim Thaci was indicted for war crimes; he maintains that he is innocent of the charges. Avdullah Hoti of the center-right Democratic League of Kosovo (LDK) became prime minister in June, ending months of political uncertainty following the collapse of former Prime Minister Albin Kurtis’s government in March. Dialogue on normalizing relations with Serbia has restarted. Despite having made some progress in transitioning to a market-based economy with macroeconomic stability, Kosovo is still highly dependent on remittances and financial and technical assistance from Western donors and the diaspora.
Property rights are enforced, but there are numerous land title disputes between Kosovar Albanians and the Serb minority. The judiciary is influenced by the executive, the court system is backlogged with property-related cases, and some judges lack sufficient subject-matter expertise to handle complex economic issues effectively. The consequent weak rule of law fails to constrain endemic corruption at all levels of government.
The top personal income and corporate tax rates are 10 percent. Other taxes include value-added and property taxes. The overall tax burden equals 23.3 percent of total domestic income. Government spending has amounted to 28.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.4 percent of GDP. Public debt is equivalent to 17.5 percent of GDP.
The costs involved in starting a business and obtaining electricity have risen, and processes related to construction permits are now more complicated, take longer, and cost more. The majority of agriculture, construction, and retail businesses operate informally. Large agricultural and energy-related subsidies continue, and the government supports money-losing state-owned enterprises.
Kosovo has one preferential trade agreement in force. The trade-weighted average tariff rate is 3.9 percent. Efforts to dismantle lingering nontariff barriers continue. In general, foreign and domestic investors are treated equally under the law. State-owned enterprises distort the economy. The financial system is dominated by banking and continues to evolve. In 2020, several temporary measures were taken to ease the immediate financial impact of the pandemic.