Major challenges but huge investment potential
Overview:
Eight months after Independence the Government is trying to come to terms with the many challenges it faces. Much focus is understandably directed towards improving further Kosovo's international position: lobbying to be recognised by more states, normalising relations with Serbia etc. But the government is also under pressure to loosen fiscal policy in its first budget in a manner inconsistent with the Medium-Term Expenditure Framework (MTEF) with which it won pledges of EUR1.2 billion in funding from the international community1. The need for spending to alleviate high unemployment and poverty rates in Kosovo is certainly huge. But spending needs to be prioritised and disbursed within a sensible budget framework to avoid macroeconomic instability and to ensure that these funds are well spent.
Recommendations:
Kosovo uses the Euro. Deposit rates are low and the Government is unable to issue debt. Potential investment opportunities, then, lie on the FDI side. Privatization has been delayed but is about to restart. Other investment opportunities are also numerous given the under-developed nature of Kosovo’s massive mining deposits, agricultural land and tourism potential. Investors will need, though, to be aware of serious infrastructure problems (e.g. frequent electricity outages and poor road infrastructure) will take years to resolve.