News 01 Dec 11

Kosovo: Fastest Growing Economy in Eurozone

Normally thought of as a Balkan economic basket case, Kosovo is predicted to be the fastest growing economy in the eurozone next year - though expansion will be driven largely by remittance flows and increased public spending.

Lawrence Marzouk, Florina Hajdini

The IMF's recently released predicted growth rates for 2012 show that Kosovo, Europe’s poorest country, will also experience the highest growth rate in the eurozone of which it is an unofficial member.

The IMF has placed Kosovo ahead of 16 of the 17 official eurozone members and on equal position with Estonia. The Baltic state is also expected to see GPD growth of 4 per cent.

Kosovo remains in first equal position despite last week seeing its expected growth for 2012 lowered from 5 to 4 per cent as a result of the darkening world economic outlook.

While the eurozone officially includes just 17 countries, all members of the European Union, two others, Kosovo and Montenegro, also use the single currency as their legal tender.

Following a visit last week by an IMF team, its leader, Johannes Wiegand, said Kosovo’s small size and isolation from the global financial markets had shielded it from the worst of the crisis.

“Kosovo has remained largely unaffected by financial turbulence in the euro area owing to its limited integration into global financial markets,” he said.

“The economy is projected to grow by 5 per cent in real terms this year,” he said, adding that inflation is likely to fall next year.

“The banking system has remained stable, with healthy liquidity and capital buffers [but] going forward, a renewed downturn in the euro area could negatively affect remittances and foreign direct investment," he added.

“As a result, the mission has marked down projected real GDP growth in 2012 to 4 per cent.”

Kosovo’s growth, however, is largely driven by remittances sent home from workers in the diaspora, growth in lending and increased government spending, particularly on a large highway to Albania.

According to the Fund, the country needs to energise the private sector, particularly as the country’s sudden expansion in government spending was unsustainable.

In August, the Fund wrote: “Policies should focus on enhancing competitiveness to foster the emergence of a tradable sector that can drive economic development and self-sustained growth, and help reduce unemployment.

“To this end, it will be critical to upgrade public infrastructure and education, improve the business climate, and maintain competitive wage levels.”

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