Economy of Kosovo

The economy of Kosovo is a transition economy. Kosovo was the poorest province of the former Yugoslavia with a modern economy established only after a series of federal development subsidies. Since the declaration of independence, Kosovo's economy has grown steadily. There are strengths and weaknesses in its potential future, including its internationally disputed status. The actual number of Albanians living in Kosovo is significant, and there is a notable diaspora. But there are also potential strengths, including its very low level of government debt, future liabilities, and the strength of its banking system.

Top Sectors in Kosovo

Banking in Kosovo

The banking system in Kosovo seems very sound. For the banking system as a whole, the Tier One Capital Ratio was 17.5%, double the ratio required in the EU; the proportion of non-performing loans was 5.9%, well below the regional average; and the credit to deposit ratio was only just above 80%. The assets of the banking system have increased significantly. Since the housing stock in Kosovo is generally good by South-East European standards, this suggests that credit to Kosovars could be safely expanded.

Transportation in Kosovo

Road Network -The road network consists of 2,378.7 km of roads, of which 137.2 km are motorways, 755.2 km national roads and 1,486.3 km are regional roads. Kosovo is connected to Albania through the R7 motorway, which connects Prishtina to VÃ«rmica and then continues to DurrÃ«s as the A1 motorway. Kosovo is additionally connected to North Macedonia through the R 6 motorway, which connects Prishtina with Hani i Elezit and was opened in 2019.<br>Railways - Kosovo's railroads cover a length of 333 km. There are only two active railway lines within Kosovo, one that connects Prishtina to Peja and another that connects Prishtina to Skopje, North Macedonia. Kosovo is additionally connected to Serbia, but the railways are currently inoperative since Kosovo's declaration of independence. There are currently plans to build a railway to connect Prishtina to DurrÃ«s in Albania.<br>Air Transportation - Pristina International Airport "Adem Jashari" Pristina International Airport Adem Jashari is, with over two million passengers per year, one of the most frequented airports of the region. There are plans to functionalize the Gjakova Airport in the south-western part of Kosovo, which used to be a military airport and is currently out of use. After the Kosovo War, Kosovo's airspace was controlled by NATO. Today, Kosovo controls its lower airspace (up to 10,000 feet), but the upper airspace is controlled by HungaroControl since 2014. There are currently two active air corridors in Kosovo's lower air space, with North Macedonia and Albania, but the corridors with Montenegro and Serbia remain closed.

Energy in Kosovo

Kosovo Energy Corporation is currently the sole power corporation in the Republic of Kosovo. It is vertically integrated and was legally incorporated. It relies on extensive lignite deposits - 14.7 billion tonnes, the fifth largest in the world, with a relatively high calorific value for lignite. Demand is met by coal-power plants, imports, and hydro and solar energy. Bajgora Wind Farm in Mitrovica, Kosovo In Yugoslav times, Kosovo was a net exporter of electricity. But its current generating capacity has been affected by many factors. The generation units were designed for a life of 30 years but have all operated for longer than 28 years, and in some cases for 50 years. They were part of a much wider integrated energy system in which they could be shut down for maintenance without local economic consequences. Major investments are being made in the sector of renewable sources of energy. There are currently two completed wind farms (Bajgora Wind Farm and Kitka Wind Farm) with a combined installed capacity of 135 MW. Also, other projects for wind farms and solar parks are waiting for approval. Currently, there are good transmission lines between Kosovo's neighboring countries and they include a 400kV transmission line with Albania, North Macedonia, Montenegro and Serbia. There are also 220kV transmission lines between Kosovo and Albania and between Kosovo and Serbia.

Telecommunications in Kosovo

Kosovo has two Global System for Mobile Communications 900 MHz networks, Vala and IPKO. The prefix of those operators is +383. Telenor and Telekom Srbija (Serbian operators) used to have coverage in Pristina and some other little areas of Kosovo, but their towers have been dismantled in the independent territory, so that GSM coverage is now offered only by the two local operators. In 2009 the first mobile virtual network operator appeared in Kosovo. It's called D3 and uses IPKO's Slovenian network. The second MVNO, Z Mobile, uses Vala's network and Monaco prefix.

Kosovo - Key Economic Indicators

Exports and Imports

Kosovo's economy relies on comprehensive data regarding its exports and imports, providing insights into trade volumes, destinations, and products. This information guides strategic decisions, trade policies, and market assessments.

Infrastructure

Kosovo boasts an infrastructure network comprising 2,378.7 km of roads, including 137.2 km of motorways, 755.2 km of national roads, and 1,486.3 km of regional roads. Investment in infrastructure is critical for economic development and connectivity.

Balance of Trade

The balance of trade measures the difference between exports and imports. In Kosovo, positive balances indicate that the country is exporting more than it imports, contributing to economic growth and stability. Conversely, negative balances may signify trade deficits and potential challenges.

Fiscal Policy

Fiscal policy in Kosovo encompasses government spending and taxation strategies aimed at managing public finances, stimulating economic growth, and ensuring fiscal sustainability. In recent years, government spending has accounted for approximately 30% of GDP, with tax revenue contributing significantly to national income.

Monetary Policy

The central bank plays a crucial role in Kosovo's monetary policy, regulating the supply of money, interest rates, and inflation levels. These actions influence borrowing costs, investment decisions, and overall economic activity. Notably, Kosovo's central bank has maintained a relatively low inflation rate of around 1-2% in recent years.

Trade Agreements

Participation in trade agreements such as NAFTA (North American Free Trade Agreement) and others can significantly impact Kosovo's trade dynamics, market access, and regulatory frameworks. While Kosovo is not a member of NAFTA, it has engaged in bilateral agreements with neighboring countries and is actively pursuing trade partnerships to enhance its global economic integration.

Environmental Regulations

Environmental regulations in Kosovo are increasingly important for balancing economic development with environmental sustainability. As the country strives to achieve its environmental goals, it has implemented various regulations and initiatives to address pollution, promote renewable energy sources, and preserve natural resources.

Tax System in Kosovo

Capital Gains Tax: Kosovo imposes a capital gains tax on profits derived from investments, including the sale of assets such as stocks, bonds, and real estate. The tax rate for capital gains can range from 5% to 15%, depending on factors such as the type of asset and the duration of ownership.
Corporate Tax Rate: The corporate tax rate in Kosovo applies to business profits earned by companies operating within its jurisdiction. As of 2022, the standard corporate tax rate is 10%, making Kosovo one of the countries with the lowest corporate tax rates in Europe.
Sales Tax: Kosovo levies a value-added tax (VAT) on goods and services sold within its borders. The standard VAT rate is 18%, with reduced rates of 5% and 0% applying to certain categories of goods and services. VAT is the primary indirect tax in Kosovo and contributes significantly to government revenue.
Property Tax: Property tax in Kosovo is imposed on real estate holdings, including land, buildings, and other immovable assets. The tax rate varies depending on the assessed value of the property and its location. Municipalities are responsible for setting property tax rates within their jurisdictions.
Payroll Tax: Payroll tax, also known as wage or salary tax, is imposed on the earnings of individuals and businesses for the purpose of funding social security programs and other government initiatives. In Kosovo, social security contributions are deducted from employees' salaries at rates ranging from 6.5% to 18.5%, depending on income levels.
Tax Deductions and Credits: Kosovo's tax system includes provisions for tax deductions and credits aimed at reducing taxpayers' overall tax liability. These may include deductions for expenses such as healthcare, education, and mortgage interest, as well as tax credits for specific investments or activities that contribute to economic development.
Tax Compliance: Tax compliance in Kosovo is facilitated by the Kosovo Tax Administration (KTA), which is responsible for administering and enforcing tax laws. Efforts to enhance tax compliance include taxpayer education and outreach programs, electronic filing systems, and risk-based audit strategies.
Tax Burden: The tax burden in Kosovo represents the overall amount of taxes paid by individuals and businesses relative to their income or profits. While Kosovo has a relatively low tax burden compared to other European countries, efforts are ongoing to ensure that taxation is fair, transparent, and conducive to economic growth.

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Kosovo

18 Jan 2025

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