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Insufficient growth

If economic growth in the region had been the only criterion for a successful government, then we should have never changed governments to begin with.

In the final few days of the governing coalition of the Democratic League of Kosovo, LDK, and the Democratic Party of Kosovo, PDK, Prime Minister Isa Mustafa and members of his party incessantly used the phrase, “Kosovo has the highest economic growth in the region.” However, supporters of the no-confidence motion that dismissed Mustafa’s government listed its failed attempts at economic development as one of the main reasons it should go. Civilians are yet to see the benefits.  

It is a rare case of both parties being right. Yes, Kosovo has the highest economic growth in the region if we look at the annual increase in Gross Domestic Product, GDP. But at the same time, Kosovo is the least developed country in the region. The high economic growth however is not specific to the Mustafa government.

However, if this was the only measure by which to judge the success of the government, President Hashim Thaci’s government should have never been replaced.

Kosovo has witnessed this high economic growth since 2008, with the exception of a few periods before the international financial crisis, when Montenegro and Turkey experienced much higher levels.

However, this growth has not enabled it to show marked improvements in terms of other economic indicators. In the same international reports which list Kosovo as the country with the highest economic growth, it is also high on the list in terms of unemployment, trade deficit, and the lowest GDP per capita.

With unemployment at 28.7 per cent, Kosovo has the highest unemployment rate in the region, higher than Bosnia (26.4 per cent), Macedonia (25.9 per cent), Serbia (20.9 per cent), Montenegro (17.6 per cent), Albania (15.3 per cent) or Turkey (9.2 per cent). As is the case with all countries in the region, all of which use the same methodology, in Kosovo too there is dissatisfaction with official unemployment statistics. There is a general belief that unemployment is much higher than reported.

In addition to the high unemployment rate, Kosovo finds itself in a difficult position in contrast to its regional neighbors when it comes to the balance of trade. Despite the fact that all regional  countries have a negative trade balance, Kosovo has the highest trade deficit of all. With over 2 billion euros of trade deficit, Kosovo’s balance of trade in terms of GDP is minus 32.9 per cent, visibly more negative than Albania’s ( -20.8 per cent of the GDP), Montenegro’s (-19.2 per cent), or Serbia’s (-7.7 per cent). Moreover, in the past two years, Kosovo exports have visibly decreased in comparison to 2014.

At the same time, Kosovo has the lowest GDP per capita. According to World Bank calculations, the GDP per capita in Kosovo in 2016 was $3,623, visibly lower than that of Bosnia (9,800 euros), Albania (11,517 dollars), Macedonia (13,583 dollars, and Montenegro and Serbia (over 14,000 dollars).

Although Kosovo has the youngest population in the Balkans, with the exception of Bosnia and Herzegovina, youth in Kosovo face the most hardships in finding a job in comparison to other countries in the region. Moreover, economic dependence on the family forces young people to continue living with their parents other relatives, making it impossible for them to become independent. On average, a Kosovo household has 5.9 members, way more than in Albania (3.9), Macedonia (3.7), Bosnia and Herzegovina (3.1), or Serbia (2.9).

Kosovo is fairly stable in terms of public debt in comparison to other regional countries. In 2016, Kosovo’s public debt made up only 14.3 per cent of the GDP. But the public debt has visibly increased in the past two years and this trend is expected to continue. While countries with low development like Kosovo are encouraged to increase public debt, the debt taken from international financial institutions needs to be carefully invested in projects that guarantee financial returns and economic development, instead of being used for salaries or social transfers.

The increase in public debt in the past two years has also been accompanied by an increase in spending in terms of salaries and social transfers, hurting capital investments. While in 2013, public capital investments made up 10.1 per cent of the GDP, in 2017, public investments composed only 7.7 per cent of the GDP. At the same time, while in 2013 spending on salaries made up 7.9 per cent of the GDP and social subsidies 4.2 per cent of the GDP, in 2017 these spendings have increased to 9.2 per cent and 7.4 per cent respectively.

Thus, the chorus that “Kosovo has the highest economic growth” is only a desperate attempt to grab on to a positive indicator, which at the end of the day has not brought any improvements to the life of citizens in any way. Countries with the highest economic growth are usually also the poorest countries. For countries with a GDP per capita below 4,470 euros per year, any economic growth below 5 per cent is a regression, or in the best case – a stagnation.

25 May 2017 - 09:43

Agron Demi

25/05/2017 - 09:43

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Prishtina Insight is a digital and print magazine published by BIRN Kosovo, an independent, non-governmental organisation. To find out more about the organization please visit the official website. Copyright © 2016 BIRN Kosovo.