COVID-19

Economic Impact of COVID-19 on Kosovo and its Policy Response

Ambarish Kumar Verma Jun 8, 2020

Economic Impact of COVID-19 on Kosovo and its Policy Response

After declaring independence on 17^th February 2008, Kosovo’s economy and GDP have consistently grown till 2019. Per capita GDP has increased, and unemployment levels have come down to historical lows at 25.7% of total labor force in 2019. The economy of Kosovo is expected to be adversely affected by COVID-19 pandemic in 2020. The real gross domestic product (GDP) of Kosovo is expected to shrink, unemployment level to increase and current account balance to continue its negative growth due to COVID-19 this year. As of 08^th June 2020, Kosovo had 1142 confirmed COVID-19 cases out of which 871 people have recovered from the disease while 30 have lost their lives.

In this blog post we will be focusing on economic impact of COVID-19 pandemic on Kosovo. We will also be taking a look at the containment, fiscal and monetary related policy measures taken by Kosovo government under following sections –

Impact of COVID-19 on Kosovo Economy in 2020
Coronavirus (COVID-19) Containment Measures of Kosovo
Coronavirus (COVID-19) Related Fiscal Policy Measures by Kosovo
Coronavirus (COVID-19) Related Monetary Policy Measures by Kosovo

We have covered various macroeconomic factors and PESTLE (political, economic, social, technological, legal, and environmental), SWOT (Strengths, Weaknesses, Opportunities and Threats) and risk analysis for Kosovo in separate market research reports.

Economic Impact of COVID-19 Pandemic on Kosovo

1. Impact of COVID-19 on Kosovo Economy in 2020

Kosovo’s real gross domestic product (GDP) was Euro 6.831 billion in 2019 and due to COVID-19 outbreak it is estimated to shrink by 5.00% to be around Euro 6.49 billion in 2020.

Kosovo’s unemployment rate was 25.7% of total labor force in 2019. Due to slowdown in global economic activity due to COVID-19 pandemic the unemployment is expected to increase by 2.10% and reach 26.25% in 2020.

Kosovo’s current account balance which has been constantly decreasing since 2017. It is expected to decrease its current account balance at -7.401% of GDP in 2020 from -5.499% of GDP in 2019. This means Kosovo will remain net borrower from rest of the world in 2020.

As of 14^th April 2020, the Kosovo government has taken following fiscal, employment and social policy measures to contain coronavirus (COVID-19) pandemic.

2. Coronavirus (COVID-19) Containment Measures of Kosovo

Quarantine/Confinement

March 13, 2020: Kosovo confirmed the first two cases of COVID-19 and the government immediately prohibited all travel in and out of both municipalities
March 17, 2020: The President signed a decree to call a state of emergency, but it has not yet been ratified by the parliament.
March 24, 2020: The circulation is limited between 10h and 16h and 20h and 6h00, except for medical purpose. Gatherings are limited up to 2 persons only.
March 28, 2020: Kosovo's government has tightened the country's curfew from 17h to 6h.
March 31, 2020: The Constitutional Court of Kosovo has ruled that the government's decision to impose a curfew is unconstitutional and violates a number of articles including the fundamental rights and freedoms, freedom of movement, right to privacy and family life, and freedom assembly of association. The Decision will enter into force on April 13, invalidating the government's mandate.
April 15, 2020: The circulation of citizens over the age of 16 is allowed, only for 1 and a half hour per day, according to the set weekly schedule in function of their personal ID number. The same applies for foreign citizens in function of their passport number.

Travel bans/restrictions

March 12, 2020: Mandatory 14 days self-quarantine periods on all travellers entering the country from high and medium-risk regions.
March 16, 2020: The government suspended flights into the country and closed all land borders (however, all Kosovar citizens wishing to return, were allowed to do so.)

Closure of schools/universities

March 12, 2020: The government suspended all the educational institutions.

Cancellation of public events / Closure of public places

March 13, 2020: Suspension of all public transportation services.

Obligatory shut down of economic activities

March 13, 2020: Closure of all cafés, bars, restaurants, sporting/cultural venues and non-essential stores. Obligation for all private sector employees to work from home.

3. Coronavirus (COVID-19) Related Fiscal Policy Measures by Kosovo

Overall fiscal measures

March 11, 2020: The government allocated 10 million EUR to fund efforts to contain the spread of the virus.
March 20: The government announced that the deadline to file and pay tax liabilities and pension contributions would be extended until 30 April.
Removal of VAT on imports of wheat and flour.
Deferred payment: public utilities payments until end of April.
April 3, 2020: Increasing the budget for grants and subsidies for the Ministry of Agriculture, Forestry and Rural Development to increase agricultural production, amounting to EUR 5 million.
April 3, 2020: Providing extra financial support to the Municipalities of the Republic of Kosovo that have been affected, amounting to EUR 10 million.
April 3, 2020: Increasing the budget for grants and subsidies to the Ministry of Culture, Youth and Sports due to the impact on sports and cultural activities, amounting to EUR 5 million.

Health system measures

March 11, 2020: The government introduced measures prohibiting the export of medicine and medical equipment that may be used to treat COVID-19
The government has prohibited pharmacies from increasing prices during the crisis, and is investigating instances of increased prices reported by the public.
Allocation of 6 million EUR to the Health Ministry.

Income support measures for individuals and households excluding tax and contribution changes

Advancing payments for social assistance schemes by additional one month's amount (from one month to two months) to support families in need.
March 27, 2020: The government will cover pension contributions for the next two months for those who will benefit from the minimum wage of 170 EUR.
April 3, 2020: Double payment of the social scheme value for all beneficiaries of social schemes for April and May, amounting to EUR 7.65 million, including the realized payment for March.
April 3, 2020: Extra payment in the amount of EU 30 per month to all beneficiaries of social and pension schemes receiving monthly payments lower than EUR 100 for April, May and June, provided that they are beneficiaries of only one scheme; as well as for the beneficiaries whose benefit rights have not been renewed in the period January- March 2020. This measure is worth up to EUR 13 million.
April 3, 2020: Extra payment of EUR 100 for employees of grocery stores, bakeries and pharmacies for April and May, amounting to EUR 3 million.
April 3, 2020: Payment of monthly assistance up to EUR 130 for citizens who have lost their jobs April, May and June, amounting to EUR 4 million.
April 3, 2020: Support initiatives and projects aiming at improving lives of small communities, amounting to EUR 2 million.
April 3, 2020: Payment of monthly assistance of EUR 130 for citizens with severe social conditions, declared as unemployed at the competent institution, who are not beneficiaries of any monthly revenue from the budget of Kosovo for April, May and June, amounting to EUR 3 million.
April 3, 2020: Wage allowance of up to EUR 300 for the field workers and who are directly exposed to the risk of infection in their work (not the entire personnel of the institution): Medical personnel (doctors and nurses), police officers of Kosovo Police, Correctional Service officers (Guards), officers (firefighters) of the Emergency Management Agency, KSF personnel (soldiers), workers working in the quarantine
Student Center of Pristina, officials (inspectors) of the Inspectorate of Labor, officials (inspectors) of the Tax Administration of Kosovo, Officials (custom officers) of Kosovo Customs, officials (inspectors) of the Market Inspectorate, officials (inspectors) of the relevant municipal inspectorates, officials of the Inspectorate of Labor Medicine, for the month of April and May. This measures amount to EUR 15 million.

Tax and contribution policy changes

Removal of VAT on imports of wheat and flour.

Public sector subsidies to businesses

April 3, 2020: Financial support for companies that are in financial difficulties as a result of decrease of their activities:
- Cover monthly wage expenses of employees in the amount of EUR 170, for April and May, amounting to EUR 41 million;
- Subsidise lease up to 50% of the value of the lease for small and medium enterprises for April and May, amounting up to EUR 12 million;
- Cover the value of pension contributions for wages related to the measures foreseen by this decision for April and May, up to EUR 8 million.
April 3, 2020: Interest free loans for public enterprises that have financial difficulties due to the public health emergency situation, in order to ensure their temporary liquidity, amounting to EUR 20,000,000.
April 3, 2020: Provide support to exporters amounting to EUR 10 million.
April 3, 2020: Financial support for commercial companies that hire employees with an employment contract of at least one year during the period of public health emergency situation, covering EUR 130 of their salary for the next two months after the employment registration, up to EUR 6 million.

Deferral of taxes and social security contributions and bringing forward expenditures within current fiscal year

March 20: The government announced that the deadline to file and pay tax liabilities and pension contributions would be extended until 30 April.
Deferred payment: public utilities payments until end of April.

Loan guarantees by the state benefiting private borrowers

April 3, 2020: Ensuring financial liquidity for: (i) Micro-enterprises and self-employed through programs stipulated by Kosovo Credit Guarantee Fund up to EUR 10,000 for period of 24 months, amounting to EUR 15 million; (ii) Commercial/Authorized Companies that provides basic services (similar to those of public enterprises).

4. Coronavirus (COVID-19) Related Monetary Policy Measures by Kosovo

Monetary policy

The Kosovo Central Bank permitted loan repayments for both individuals and businesses to be suspended until at least 30 April, 2020. This measure could be extended.

Source – With inputs from Organisation for Economic Co-operation and Development (OECD), International Monetary Fund, World Bank, International Labour Organization (ILO) and Government of Kosovo.