Economy of Kosovo

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The economy of Kosovo is one of the poorest in Europe, with Kosovo having a per capita income estimated at 3,500 Euro (2006).^[1] Despite substantial development subsidies from all Yugoslav republics, Kosovo was the poorest province of Yugoslavia.^[2] Additionally, over the course of the 1990s, poor economic policies, international sanctions, weak access to external trade and finance, and ethnic conflict severely damaged the economy.^[3]

Kosovo's economy remains weak. After a jump in 2000 and 2001 GDP growth was negative in 2002 and 2003 and is expected to be around 3 percent 2004-2005, with domestic sources of growth unable to compensate for the declining foreign assistance. Inflation is low, while the budget posted a deficit for the first time in 2004. Kosovo has high external deficits. In 2004, the deficit of the balance of goods and services was close to 70 percent of GDP. Remittances from Kosovars living abroad accounts for an estimated 13 percent of GDP, and foreign assistance for around 34 percent of GDP.^[4]

Most economic development since 1999 has taken place in the trade, retail and the construction sectors. The private sector that has emerged since 1999 is mainly small-scale. The industrial sector remains weak and the electric power supply remains unreliable, acting as a key constraint. Unemployment remains pervasive, at around 40-50% of the labor force.^[5]^[6]

UNMIK introduced de-facto an external trade regime and customs administration on September 3, 1999 when it set customs border controls in Kosovo. All goods imported in Kosovo face a flat 10% customs duty fee.^[7] These taxes are collected from all Tax Collection Points installed at the borders of Kosovo, including those between Kosovo and Serbia.^[8] UNMIK and Kosovo institutions have signed Free Trade Agreements with Croatia,^[9] Bosnia and Hercegovina,^[10] Albania^[11] and Macedonia.^[12]

FYR Macedonia is Kosovo's largest import and export market (averaging €220 million and €9 million respectively), followed by Serbia (€111 million and €5 million), Germany and Turkey.[1]

The Euro is the official currency of Kosovo and used by UNMIK and the government bodies.^[13] The Serbian Dinar is used in the Serbian populated parts.

The economy has been seriously weakened by Kosovo's still-unresolved international status, which has made it difficult to attract investment and loans.^[14] The province's economic weakness has produced a thriving black economy in which smuggled petrol, cigarettes and cement are major commodities. The prevalence of official corruption and the pervasive influence of organised crime gangs has caused serious concern internationally. The United Nations has made the fight against corruption and organised crime a high priority, pledging a "zero tolerance" approach.^[15]