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Country Reports

Kosovo Country Report

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Risk Level

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Moderate
Elevated
High
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Severe
Extreme

Overview

Executive Summary

Real GDP growth is expected to be 3.9% in 2019, supported by consumption and investment. There are downside risks stemming from a weaker external environment, but also deteriorating bilateral relations in the region, including a decision by Kosovo to impose 100% tariffs on all imports from Serbia and Bosnia and Herzegovina. As a result of outstanding agreements and the recent trade spat, the negotiations between Kosovo and Serbia to normalise bilateral relations have come to a grinding halt. Kosovo's international partners, the US and the EU, are putting pressure on Kosovo's government to lift the tariffs so negotiations can restart. The economy's structural weaknesses are likely to remain. These include weak productive capacities reflected in low exports and persistent large trade deficits, a large grey economy, reliance on remittances to fund consumption, and large unemployment and inactivity rates. The government plans to build a new coal-powered plant to alleviate chronic electricity shortages, consistently cited as the greatest concern among businesses. However, both the World Bank and EBRD have refused to fund the construction, estimated at 20% of GDP, with OPIC, the US government's development finance arm, still to decide. Moreover, the EU has cited concerns that the project is incompatible with EU environmental regulations and state aid rules. If the construction goes ahead, it would boost growth and employment, but may have an adverse impact on public debt and current-account deficits.
Last update: March 26, 2019

Operational Outlook

Kosovo's business environment is constrained by widespread corruption and outdated infrastructure. However, local infrastructure has started to improve as a result of domestic and international investments. To date, the international community has invested EUR4 billion into improving Kosovo's road and rail networks. One major concern is the unstable water supply and the lack of an efficient energy infrastructure. Impending investments, such as the planned construction of a 400 kV interconnection line with Albania, will serve to diversify Kosovo's energy sources and increase energy security.

Last update: October 9, 2018

Terrorism

Dissatisfaction among Kosovo Serbs over the attempts by the central government to bring Northern Kosovo under the authority of Pristina increases the risk of attacks against Kosovo police. There is a growing number of radicalised youth adhering to extremist interpretations of Islam, a number of whom have travelled to Syria and Iraq to fight for Islamist military organisations. However, the risk of attacks remains low in the foreseeable future.

Last update: October 9, 2018

War Risks

The main war risk in Kosovo stems from the ongoing dispute with Serbia over Kosovo's statehood. On 26 March 2018 Kosovo police arrested Serbian official Marko Djurić who had entered the country despite an entry ban. Serbian Prime Minister Aleksandar Vučić called the incident a "brutal provocation", promising to "hold to account" everyone involved. Incidents like this are often used to galvanise the nationalist support base in both countries, but run the risk of unintended escalation. Nevertheless, overall war risks are low due to the presence of international peacekeeping troops.

Last update: October 9, 2018

Social Stability

Socio-economic factors, such as high levels of unemployment, widespread poverty, and corruption are ingredients that fuel popular disaffection. The opposition Self-determination Movement (Lëvizja Vetëvendosje: LVV) especially has managed to utilise public discontent to organise anti-government protests. Such protests frequently escalate into violence between the police and protesters, often resulting in damages to government property.

Last update: October 9, 2018