Kosovo - Unlocking Growth Potential : Strategies, Policies, Actions - A Country Economic Memorandum
2010
World Bank
Kosovo's economic growth in the past decade has been solid, yet, with a gross domestic product (GDP) per capita of 1,760, the country remains one of the poorest in Europe. The end of the conflict, output was growing at double-digit rates, driven by the donor-funded reconstruction efforts. Since 2005, annual growth has decelerated to below 5 percent. However, the other countries in Southeast Europe have been growing faster, so the income gap has widened. Kosovo's economy would need to more than double its growth rate to 10 percent per annum over the next decade to reach Albania's income level (assuming Albania's economy continues to grow at 5.5 percent annually over this period). To reach Montenegro's current GDP per capita level of about 5,700, the economy would have to grow at 12 percent per annum for an entire decade. At the same time, Kosovo has the weakest employment track record in Europe: the unemployment rate has reached 48 percent and the employment rate is extremely low (26 percent). Consequently, poverty remains persistent and widespread (though shallow) with 45 percent of the population estimated to consume less than the national poverty line, while 17 percent are extremely poor. Much of the economic progress in the recent period has been based on donor aid and remittances, which cannot be the foundation of a sustainable economic strategy. Kosovo has the potential to shift toward faster, private sector led growth. Kosovo's products have free market access to the European Union (EU) and Central European Free Trade Agreement (CEFTA) countries, so exports could become an important pillar of growth. Unleashing that potential will involve bringing on line three production factors that are now sitting partially idle: labor, land, and energy and minerals. The encouraging news is that unleashing this potential is within the country's own grasp, because most of the current obstacles are of a policy nature. However, simultaneous action will be required on several policy fronts.
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