Page 41 - SE Outlook Regions 2022

2.5.2 External environment

Kosovo’s current account deficit is projected by the IMF to slow down to
6.7% of GDP in 2022 from 7.9% of GDP in 2021.

The draft budget for 2022 aims to consolidate the economic revival,
ensure the sustainability of public finances, reorient the economy
towards production and exports, as well as to support employment and
sustainable economic development.

Kosovo's imports dwarf its exports, with the country reporting a trade
deficit of €2.82bn in 2020, 9.3% down from a year earlier. Kosovo’s
trade gap widened by 39.7% y/y to €3.15bn in the first ten months of
2021. The trade gap started to increase rapidly from February 2021.

According to the World Bank, in 2021 exports of merchandise continued
their expansion and gradual diversification from 2020. However,
significant inflationary pressures, primarily from higher import prices,
may undermine a stronger recovery in private investment.

Kosovo’s Import Price Index (IMPI) grew by 6.9% y/y in the third quarter
of 2021, decelerating from a 7.7% y/y increase in the previous quarter.

Kurti has cited World Bank statistics showing that about 78.5% of
manufacturing companies in Kosovo use materials, inputs or other
supplies that are of foreign origin and on average 47.4% of total inputs
are imported.

"This is a clear message of the need to reorient the economy towards
production and exports and towards sustainable development," Kurti
said.

According to the World Bank, imports are expected to increase by over
30% in 2021 to meet the rebound in consumption, exports, and
investment, with exports of merchandise increasing by 35%. Though
growth in exports is expected to outpace the rebound in imports, as
imports grow from a higher base, the current account deficit is projected
to reach 8.5% of GDP, up from 7% in 2020. At the same time, foreign

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