Back Matter

Back Matter

Rakia Moalla-Fetini, Shehadah Hussein, Heikki Hatanpaa, and Natasha Koliadina
Published Date:
July 2005
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    Appendix I. National Income Accounts and Balance of Payments Estimates

    The purpose of this appendix is twofold. First it explains the main gaps in the data and the difficulty they create in assessing macroeconomic developments since the end of the conflict. Second, it explains the data sources used to compile national accounts and balance of payments estimates for 2003. The margin of error in the estimates for 2003, compared with estimates for previous years, is much narrower, reflecting the improvement in the quality and range of the data, most significantly of the data on commercial imports.

    Main Gaps in the Data and Difficulty in Assessing Macroeconomic Developments

    The following is a list of the main types of data and sources that could be used to construct estimates of the national income accounts (and of the main expenditure components of GDP) and the balance of payments:

    • Fairly accurate and consistent data are available from the Ministry of Finance and Economy (MFE) regarding the fiscal sector’s activities during the past 3 years.

    • Less accurate data, but nonetheless broadly comparable and consistent, on donor assistance during the past 3 years have been assembled recently. They cover the following:

      • — The budget of UNMIK—mainly wages of expatriates and local employees and purchases of goods and services (source: UNMIK).

      • — The so-called public investment program (PIP) and donor-designated grants (DDGs). PIPs and DDGs are donor-financed projects such as housing and rehabilitation, training and technical assistance, equipment supply, and capital participation in the local banking system. PIPs and DDGs can also be decomposed into wages of expatriates and local employees and into purchases of goods and services (source: MFE).

      • — Budget support grants (source: MFE).

      • — Humanitarian assistance to the households (sources: donors and MFE).

        • Although the margin of error in estimating foreign aid is manageable, the margin of error in estimating its impact on GDP and gross national disposable income (GNDI) is much larger. Data are weak on the share of this spending that falls into domestic goods, be it the local consumption of locally produced goods by expatriates and soldiers, or the local content of spending on goods and services, or the hiring of local labor.

    • Consistent monetary statistics have also been compiled by the Banking and Payments Authority of Kosovo (BPK) since end-1999 and provide reliable estimates on the changes in the net foreign asset position of the banking system. Given that Kosovo does not have its own currency and instead uses the euro, changes in euros in circulation (if the changes had been known) would have provided information on another item of Kosovo’s balance of payments. The changeover to the euro in early 2002, provided a unique opportunity to establish a point estimate of the stock of currency in circulation just prior to the time of the changeover (late 2001). The large buildup of bank deposits in the run-up to the changeover, plus official data on the net exports of cash by the banking system during 2002, suggest that the changeover resulted in a sharp decline in currency in circulation and a corresponding structural shift toward bank deposits. Much of this changeover-driven decline in currency in circulation took place in the last few weeks of 2001, whereas there was a modest increase in currency in circulation when the euro notes and coins were put into circulation in early 2002.

      In the balance of payments estimates, these abrupt swings are smoothed out, and the bulk of the reduction in currency in circulation is shown to take place during 2002. The persistence of large net exports of cash by the banking system seems to primarily reflect the offsetting net inflows through informal channels rather than a continued shift from cash to bank deposits. Subsequently, the data on the cash exports and imports that go through the banking system cannot be used alone to derive a reasonable estimate for the currency in circulation. Instead, estimates of the balance of payments assume that the growth of broad money was equal to the growth rate of GNDI, and that the amount of currency in circulation was derived as a residual. Given the robust growth in bank deposits during 2003, this implied a moderate decline in the amount of euro cash in circulation.

    • Data regarding private sector activities are scant, and no data sources have tracked any one of the main aggregates through time. The estimates of private consumption in 2002 and 2003 are based on the Household Budget Survey (HBS) 2002/03, which covered the period between June 2002 and May 2003. This was the first HBS run by the Statistical Office of Kosovo (SOK). A Living Standards Measurement Survey, run by the World Bank in 2000, is not comparable to the HBS in terms of design, timing of the survey, survey tools, sampling methodology, and data aggregation. Making the results from both surveys comparable would require reaggregation of components, sample adjustments, extrapolation of household archetypes using labor categories, data aggregation into income groups, and seasonality and inflation adjustments. This exercise has not been performed; hence, it is impossible for the moment to attempt to produce comparable estimates of national income accounts for 2000. Those for 2001 are already very tentative and based on a weak assumption that private sector consumption in real terms remained flat in 2002 compared with 2001.

    • A major source of uncertainty in the private sector’s macroeconomic aggregates comes from the uncertainty in population data. With the last reliable population census dating back to 1981 and the large population migration before, during, and after the conflict, the size of the population today, as well as its evolution during the past 3 years, is known within a margin of 15 percent, with some researchers quoting figures that would widen the margin to 25 percent. The national accounts are currently based on the consensus estimate of the population of 1.9 million in 2003, with an average size of the household estimated at 6½ people.1

    • No systematic surveys of private investment have been performed, and current estimates are extremely preliminary and subject to sizable future revisions. This is one area that has the greatest uncertainty.

    • Prior to 2002 there were no reliable data on workers’ remittances. Estimates of workers’ remittances in 2002 and 2003 were derived from the 2002/03 HBS. Appendix II provides a detailed discussion of the possible margin of error in such estimates.

    • Finally, estimates on private sector imports are main source of errors in compiling national income accounts and balance of payments. In the initial years after the end of the conflict, the customs administration was still building itself up, and a large share of imports went unrecorded. As the customs authorities increased the numbers of cross-border check points, more and more of the imports started to be recorded. The level of recorded imports in 2003 (€1,042 million) seems to suggest that most imports are now captured in customs import data. Given that commercial imports are equivalent to about 54 percent of GDP, the uncertainty about the level of imports in previous years has a huge impact on GDP growth estimates. Basically, if imports in 2001 were 10 percentage points higher or lower than currently estimated, it would have lowered or increased the growth rate of GDP by 7½ percentage points in 2001 and would have a similar impact on the growth rate in 2002.

    Estimates of GDP and the Balance of Payments in 2003

    The staff teams used several main data sources and assumptions to estimate GDP and the balance of payment in 2003. These are discussed in the following paragraphs.

    Private Sector Consumption and Investment

    Staff teams based estimates of private consumption on SOK’s 2002/03 HBS. We adjusted the 2002/03 HBS estimate on three counts. First, the estimate of imputed rent was adjusted downward by 25 percent because its share in private sector consumption was found to be too high and out of line with the experience in other economies. The adjustment led to a decline in the share of imputed rent of total consumption from 24 percent to 18 percent.2 Second, an estimated monthly expenditure of €20 per household was added to consumption to reflect spending on durable goods, which was not reported in the HBS. Third, households’ spending was also adjusted to account for the unpaid consumption of electricity, using KEK data and assuming that households’ debt amounted to 70 percent of the unpaid balance, to reflect the share of household electricity consumption in total electricity sales (Table AI.1). An assumption also had to be made to derive separate estimates for 2002 and 2003 from the 2002/03 estimate. Real per capita consumption was assumed to be constant between 2002 and 2003. Our estimate of nominal aggregate household consumption for 2002 and 2003 thus reflects the average CPI inflation rate in 2003, SOK’s estimated population growth rate of 1.7, and a constant average size of the household equal to 6½ people.

    Table AI.1Private Sector Consumption(In euros, unless otherwise indicated)
    2002/03 HBS Monthly
    Consumption Per Household
    Total Consumption
    (In millions of euros)
    Purchased goods
    Food purchased176176607623
    Recreation and culture441516
    Education services331011
    Restaurants and hotels3399
    Miscellaneous goods and services18144951
    Consumer durables2207072
    Food produced at home or fetched5353184189
    Imputed rent311587298307
    Memorandum items:
    Population (in thousands)1,900
    Average size of household6.5
    Sources: Statistical Office of Kosovo; and IMF staff estimates.

    Miscellaneous goods and services were adjusted for unpaid consumption of electricity by households using KEK data, and assuming that their debt amounts to 70 percent of the unpaid balance.

    Data from the Household Budget Survey (HBS). Consumer durables were missing from the estimates of household spending of the HBS and had to be added.

    The level of the imputed housing rent estimated by the 2002/03 HBS was adjusted down because hypothetical rents of house owners exceed those paid by housing renters by about one-third.

    Estimates of private investment are extremely tentative because no surveys properly quantify this aggregate. We based our estimate of private investment in 2003 on imports of construction materials and other investment goods adjusted for labor costs and taxes. We assumed the share of local materials in private investment to be below 15 percent, as inferred from anecdotal evidence. Private investment in 2003 amounted to 17 percent of GDP.

    The Government Sector

    In accordance with the budget outturn in 2003, we estimated government consumption at €322 million on a cash basis.3 It is likely that government consumption on an accrual basis was somewhat higher in 2003; however, for the sake of simplicity and because of the lack of detailed data, we did not adjust for the difference between government consumption on a cash basis and an accrual basis. The same budget data provide an estimate for government investment spending amounting to €96 million in 2003.4

    The Donor Sector

    Using data collected from the various pillars of UNMIK, the staff team built an estimate of total spending under the UNMIK umbrella and decomposed it into its main relevant components to build the national income accounts. We estimated UNMIK spending in 2003 at €356 million.5 Of this amount, €258 million was wages of about 6,220 man-year equivalent expatriates, whose local spending was estimated at €40 million (that is, €542 per month).6 Another €50 million was wages paid to about 4,357 full-time-equivalent local employees. The remaining €49 million was spending on goods and services, of which €14 million was estimated to be imported goods.7

    The Donor Coordination Sector at the Ministry of Finance and Economy compiles an estimate of spending by other donors outside UNMIK’s umbrella, the so-called PIP (including donor-designated grants). Total reported spending in 2003 was €275 million, of which €106 million was for reconstruction and rehabilitation, €2 million for the supply of equipment, €113 million for training and technical assistance, €20 million for other expenditures, and €5 million for participation in commercial banks’ capital. DDGs amounted to €29 million. We assumed that spending on equipment, plus 75 percent of spending on reconstruction and rehabilitation and other expenditures (a total of €96 million), was spending on goods and services, of which €28 million was on imported goods.8 We assumed the import content of DDG spending to be equal to 94 percent of the total, as suggested by the information provided by the Ministry of Finance and Economy on the breakdown of spending for projects. The rest of the spending was assumed to be wages. We assumed that wages of expatriates (€97 million) account for two-thirds of the PIP wage bill of €145 million, and that the balance of €48 million was wages paid to local employees. Expatriates were assumed to spend one-quarter of their salaries locally (€24 million), of which two-thirds was spent on domestically produced goods and services (€18 million).

    No official data on KFOR spending were available. The staff teams had to rely on scanty information provided in a press release.9 According to that 2003 press release, KFOR procured €75 million in goods and services locally10 and paid €25 million in wages to local employees (6,000 employees at an hourly wage of €2). Staff estimated that KFOR’s 19,000 soldiers stationed in Kosovo spend about €42 million in local consumption outside their barracks (€6 per day per soldier), of which €24 million goes for locally produced goods (€3.5 per day per soldier). No information was available about the import content of KFOR’s spending on locally procured goods and services, so we assumed that the share of imports declined from 80 percent in 2001 to 40 percent in 2003, because the economy was recovering from the conflict and domestic sourcing opportunities were improving. The value of imported goods and services used by KFOR was estimated at €30 million in 2003. It is assumed to be fully reflected in commercial imports, along with the soldiers’ consumption of imported goods. On the basis of these estimates of UNMIK’s budget, the PIP, and KFOR, we added to public consumption a total wage bill of €478 million— of which €355 million was for expatriates—and €123 million of UNMIK’s and KFOR’s spending on goods and services. The PIP component of spending on goods and services (including DDGs)— €126 million—was treated as investment spending and added to total investment. Wages of expatriates (€355 million) and imports of goods and services by all donors—a total of €99 million, including €55 million for the PIP (including DDGs), €14 million for UNMIK, and €30 million for KFOR—were added to imports as an offsetting item.11

    Net Exports

    The estimates of merchandise exports are based on customs data—€36 million in 2003 (up from €27 million in 2002 and €23 million in 2001). As explained above, we estimated sales to the expatriate nonresident community at €150 million. Tourism receipts, mainly for spending by visitors to the expatriates, were assumed to equal one-quarter of the local consumption of the expatriate community. Given the improvement in the customs data, we assumed no unrecorded exports from 2003 onward.

    The estimates of private imports are based on BRICO data in 2003. The c.i.f. value of imports in 2003 was estimated at €968 million. We assumed no smuggling from 2003 onward, as customs data are believed to capture the vast bulk of all imports. The total value of imports also includes imports of pharmaceuticals and electricity estimated at €20 million and €23 million, respectively.12

    We estimated remittances and pensions receipts from abroad using HBS data (complemented by data on domestic pension payments in 2003). The estimates amounted to €241 million in 2003, which includes remittances reported in the HBS (€174 million), pensions from Serbia (€35 million), and other pensions from abroad (€32 million). The estimate of remittances was based on the HBS monthly transfer of €49 per household. The estimate reflects remittances of €295 per month to 16.6 percent of the households and no remittances for the rest of the households.

    Appendix II. Estimating Workers’ Remittances

    According to the 2002/03 Household Budget Survey (HBS) compiled by the Statistical Office of Kosovo (SOK), remittances from abroad during the 12-month period from June 2002 to May 2003 amounted to €174 million (Table AII.1). This corresponds to a monthly average of €49 per household, which in turn reflects monthly remittances of €295 to 16½ percent of the households and no remittances for the rest of the households. In other words, about 50,000 households received on average slightly over €3,500 during the year, and the rest of the households did not receive any remittances.

    Table AII.12002/03 HBS SOK’s Estimate of Workers’ Remittances
    Not Receiving
    Share of households (in percent)83.416.6100
    Total income (in euros per month per household)300433322
    Of which: Remittances from abroad029549
    Number of households247,92949,348297,277
    Total yearly remittances (in millions of euros)0174174
    Source: Statistical Office of Kosovo (SOK) Household Budget Survey; and Fund staff estimates.

    This estimate is likely to be subject to the usual range of underestimation typical of income survey–based estimates. Remittances, like other sources of income, tend to be underestimated in income surveys. Survey participants tend to underreport their income, in particular its components that are infrequent or irregular—which is often the case with remittances. For instance, the HBS may not fully capture the money received from visiting relatives living abroad. Households may also be hesitant to report the full amount of remittances out of fear of drawing undesired attention to their own finances. Furthermore, respondents may be reluctant to report remittances from their relatives who may be working abroad without appropriate documentation.

    Beyond the usual range of underestimation typical of income surveys, the HBS may also seriously underestimate workers’ remittances. An attempt is made below to assess the possible margin of error by pulling together existing information, for example, on the number of Kosovars residing abroad and their ability and willingness to send money back to their relatives in Kosovo, plus whatever can be gleaned from data on incoming wire transfers.

    Limited data are available on migration from Kosovo, with gaps particularly severe during the periods of high migration. Following the 1965 reforms in the former Socialist Federal Republic of Yugoslavia (SFRY) and the emphasis on efficiency, mounting unemployment was addressed in part by liberalizing exit requirements. That allowed an increasing number of Yugoslavs to leave for work in Western Europe, which was experiencing a labor shortage. The exodus peaked about 1973, when an estimated 1.1 million Yugoslavs were working abroad (12 percent of the labor force). The migration of workers provided a safety valve, and their remittances became a very important source of foreign exchange. Kosovo’s migration patterns during this period broadly resembled those of the rest of Yugoslavia.

    After 1973, recession and increasing unemployment problems in host countries resulted in a substantial return of foreign workers to their home countries. According to the 1981 population census and data from host countries compiled by the Federal Bureau of Employment, only 770 thousand workers remained abroad (8 percent of the former SFRY labor force).13 For Kosovo, the number of migrant workers working abroad continued to increase during the 1970s, from 22,000 in 1973 to 26,600 in 1981, probably reflecting the much higher level of unemployment in Kosovo.

    The returns of migrant Yugoslav workers continued during the 1980s, and it is estimated that the total number of Yugoslav migrant workers stood at 650,000 in 1988. However, the trends for Kosovo continued to diverge from the general Yugoslav patterns as more than 50,000 people emigrated from Kosovo between 1981 and 1987, for economic as well as political reasons.14

    In the 1990s the breakup of the former SFRY resulted in large outward migration, mainly from those areas that were most affected by the conflict. The latest available data for 11 countries in Western Europe point to a total foreign population of 3.3 million from the former SFRY, of which about 60 percent are from Serbia, Montenegro, and Kosovo.15 Unfortunately, none of these foreign data sources identifies Kosovo separately. Using the same 15 percent share as in the 1981 population census would yield an estimate of 291,000 Kosovars. However, it is likely that Kosovo’s share would have increased given the more dire situation there. Starting from the 1981 population census, assuming a natural growth rate of 2 percent for Albanians and 1.2 percent for the rest of the population,16 and using SOK resident population estimates for 2002, one gets an estimate of total Kosovars living abroad of about 470,000, of which about 220,000 are Kosovar Albanians (Table AII.2). This would be consistent with an increase in Kosovo’s share, up to 25 percent, which seems reasonable in light of available data on vital statistics.17

    Table AII.2Estimates of Kosovar Living Abroad(In thousands)
    Total population1,6112,400
    Living abroad20217
    Living abroad6250
    Sources: Kosovo authorities; and Fund staff estimates.

    According to the 1981 population census.

    Staff projection based on the Statistical Office of Kosovo 2002 estimate for the total resident population and an annual growth rate of 1.7 percent.

    Staff estimate of population living abroad based on an assumption of a natural growth rate of 2 percent for ethnic Albanians and 1.2 percent for others.

    This rough estimate of the total number of Kosovars living abroad provides an upper bound for deriving a reasonable estimate of the number who are actually making transfers to their families in Kosovo. It is likely that those who make transfers are mainly among the pool of Kosovar Albanians living abroad. It is also likely that Kosovar women living abroad have a lower probability of being employed than men and an even lower probability of making transfers.

    On the basis of a 2003 survey run by SOK, it was estimated that 170 thousand Kosovars are reported by their families residing in Kosovo as being usually absent from Kosovo. According to the survey, close to 80,000 of these “absentees” were working-age males and 35,000 were working-age females.18 These numbers seem reasonable in light of the rough estimate of the total number of Kosovars living abroad established above.

    Hence, given the above evidence, the likely number of emigrants sending remittances might be on the order of 100,000, which corresponds roughly to the working-age males reported in SOK’s demographic and health survey, plus 50 percent of the working-age females. Obviously, some of the working-age males may be unable (e.g., unemployed or students) or unwilling to send money back to relatives in Kosovo, and some of the assumed 50 percent of females abroad might not be making any transfers. On the other hand, it is likely that some of the other Kosovars living abroad who have not been reported by their families as absent from Kosovo would in practice send money occasionally to their more distant relatives in Kosovo.19

    Regarding the average amount of remittances per worker living abroad, the estimate produced by the HBS seems plausible, but it is likely to suffer from some underreporting bias. The reported average amounts of about €3,500 represent about 13 percent of a worker’s annual salary in Germany.20 For the sake of comparison, evidence about Latino workers in the United States suggests that immigrant workers send home about 15 percent of their income.21 Data reported by Western Union, a dominant player in the market for wire transfers of workers’ remittances in Kosovo, reported that its typical clients transfer an annual amount of about €5,000 on average. Since Western Union’s clients are likely to be among the richer remitters, this average is unlikely to be representative for remittances as a whole. Nevertheless, considering the underreporting bias that usually plagues income surveys, the actual average amount of remittances may well be somewhat higher than the €3,500 figure reported in the HBS.22 In the absence of a reasonable means to quantify the size of underreporting, a conservative estimate of 5 percent could be used for the sake of illustration.

    All in all, the evidence reported above gives support to the conjecture that workers’ remittances as reported in SOK’s HBS are significantly underestimated. Although it is impossible to reliably quantify the likely extent of such underestimation, the above discussion suggests that the real figure might be on the order of €370 million, corresponding to about 100,000 workers abroad remitting an average annual amount of €3,700.

    Appendix III. Kosovo’s Tax System— Evolution and Current Structure

    This appendix first reviews the key steps in the development of Kosovo’s tax system and then describes its current structure. Tables AIII.15 provide a brief summary of the evolution and main features of the key taxes.

    Table AIII.1Customs Duties
    Origin of GoodsCustoms Duties/Fees
    Albania (2003 Free Trade Agreement)Most goods exempt from duties, others subject to 10 percent customs duty
    Macedonia (1996 Free Trade Agreement)1 percent administrative customs fee on goods
    Serbia and Montenegro: Intra-FRY FlowsNot subject to customs duties
    Serbia: Intra-FRY inflowsNot subject to customs duties
    Rest of world10 percent customs duty
    Goods Exempt from Customs Duties
    REG No.
    Effective on
    Cooking oils and fatsXX
    Wheat flourXX
    Pharmaceutical productsXXXXX
    Medical and surgical instruments and apparatus3XXXX
    Stamps and valuable papers13XXXX
    Agricultural fertilizer23XXX
    Goods imported by UNMIK, KFOR, UNHCR, ICRC,
    Red Cross and Red Crescent Societies, and NGOs with
    public benefit status
    Goods imported by foreign diplomatic and consular missions
    for their official use
    Goods funded from the proceeds of grants made to UNMIK
    by governments, government agencies, governmental or
    NGOs, in support of humanitarian and reconstruction
    programs and projects in Kosovo
    Goods with a Zero Rate of Customs Duty
    REG No.
    Effective on
    Selected raw materials and capital goods listed in Parts B and C of the Annex to UNMIK Regulation 2004/13.
    Source: UNMIK regulations and administrative directions.

    Classified in heading 4907 of the Harmonized Customs Tariff.

    Classified in chapter 31 of the Harmonized Customs Tariff.

    Zero rate of customs duty under REG/2004/13.

    Table AIII.2Excise Tax Rates and Exemptions
    REG No.
    Effective on
    UNMIK/REG/2003/23UNMIK/REG/2000/21, 2REG/1999/33
    CoffeeAd valorem 30%DM 3 per kg
    Soft drinksAd valorem 10%Ad valorem 10%
    Beer0.15 euro per literDM 0.3 per literAd valorem 20%Ad valorem 15%
    Wine0.20 euro per literDM 0.4 per literAd valorem 20%Ad valorem 5%
    Other fermented beverages0.15 euro per literDM 0.3 per literAd valorem 20%
    ethyl alcohol (>80%)
    1 euro per liter of alcoholDM 2 per liter of alcoholAd valorem 50%Strong drinks: 50%
    ethyl alcohol (<80%)
    1 euro per liter of alcoholDM 2 per liter of alcoholAd valorem 50%Alcohol/ethanol: 15%
    Cigarettes410 euros per 1000 cigarettes6 euros per 1000 cigarettes2 euros per 1000 cigarettesDM 4 per 1000 cigarettesAd valorem 25%Ad valorem 25%
    Cigars and cigarillos41 euro per conventional unit50 cents per conventional unitAd valorem 50%Ad valorem 25%Ad valorem 10%
    Other tobacco410 euros per conventional unit6 euros per conventional unitAd valorem 50%Ad valorem 25%Ad valorem 10%
    Gasoline30.0 cents per liter27.5 cents per liter5045403530 pfennig per literAd valorem 50%Ad valorem 50%
    Gas oil27.5 cents per liter25.0 cents per liter4540353025 pfennig per liter
    Diesel27.5 cents per liter25.0 cents per liter4540353025 pfennig per literAd valorem 50%Ad valorem 50%
    Kerosene27.5 cents per liter25.0 cents per liter4540353025 pfennig per literAd valorem 50%
    Heating oil527.5 cents per liter25.0 cents per liter4540353025 pfennig per literAd valorem 50%
    Mobile phonesAd valorem 15%Ad valorem 15%
    VCRsAd valorem 15%Ad valorem 15%
    TV setsAd valorem 15%Ad valorem 15%
    Satellite dishesAd valorem 15%Ad valorem 15%
    Motor vehiclesAd valorem 20% + 500 euro eachAd valorem 20% + DM 1000 each
    ExemptionsFollowing goods:
    Raw and auxiliary materials, imported by licensed persons, to be used in the manufacture of goods for export. Goods to be used exclusively for humanitarian purposes and not to be offered for sale for consumption.
    Following persons/entities:
    Foreign diplomatic and consular missions UN, UNMIK, KFOR, international inter-governmental organizations and government agencies (goods for official purposes) Contractors to UNMIK and KFOR (imported goods to be used exclusively in connection with the contracts) Registered NGOs with public benefit status (gasoline, kerosene, diesel, ethanol, mobile phones, satellite dishes, TVs and VCRs)
    Goods imported by UNMIK, KFOR, UNHCR, Red Cross and Red Crescent Societies, registered NGO
    Source: UNMIK regulations and administrative directions.

    Excise taxes are defined as taxes levied on designated goods sold for consumption in Kosovo (REG/2000/2: 1).

    Excisable value of goods consists of customs value plus customs duties payable, or their value calculated from the retail price (REG/2000/2:2.1).

    Listed goods that are imported and destined exclusively for Kosovo are excisable. Excise duties are collected at the border posts (REG/1999/3: 1.2).

    The excise regime for tobacco products was reformed in 2003 by introducing banderols and by phased increase of excise rates.

    Effective on October 1, 2002, imported heating oil used by district heating facilities for heating purposes and by persons/entities for manufacturing purposes is exempt (refundable).

    VATSales TaxService Tax2Sales Tax3
    Regulation No.Amendment by REG/2002/17REG/2001/11REG/2000/3REG/2000/5REG/1999/3
    Effective date1-Aug-0231 May 2001 (Applicable from 1 July 2001)22-Jan-001-Feb-001-Sep-99
    Input tax creditConsumption type VAT (full credit for capital goods)No credit for input tax
    Rate15%15% of c.i.f. value + duty/excise payable [For goods produced in Kosovo, collection of sales tax is suspended]10% of gross receipts of hotel, food, and beverage providers
    Zero ratedExports, including intra-FRV outflows / International transportation of goods and passengers. Applies to certain agricultural products and irrigation of farming land from September 1,2004 (UNMIK REG/2004/35).
    Threshold50,000 euro turnover per calendar year 100,000 euro turnover per calendar year10,000 DM/month (15,000 DM/month before
    TurnoverGross receipts of a person from all supplies, including zero-rated supplies, exclusions, and exempt supplies (added by REG/2002/17) made by such person in Kosovo23 May 2000)
    ExemptionsExempted goods:NoneExempted goods:
    Exclusion—No VAT, can claim credit for input tax.-Following imports, intra-FRV inflows and supplies-Goods sold for export
    • -Exports

    • -Pharmaceutical products

    • -Medical and surgical instruments and apparatus

    • -Milk

    • -Cooking oils and fats

    • -Vegetables

    • -Fruits

    • -Stamps and valuable papers

    • -Goods imported by UNMIK, KFOR, UNHCR, ICRC, Red Cross and Red Crescent Societies, NGOs registered with the United Nations

    -Following categories of goods4:
    ImportsIntra-FRV inflowsSupplies
    funded by grants made in support of humanitarianXXX1. Pharmaceutical products
    and reconstruction programs and projects in Kosovo2. Medical and surgical instruments and Apparatus
    made by/to diplomatic representatives or liaison officesXXX
    made by/to UNMIK, UN agencies, KFOR, the World Bank,XXX3. Milk
    and international intergovernmental organizations4. Cooking oil and fats
    medicines, medical services, pharmaceutical products, orXX5. Vegetables
    medical and surgical instruments and apparatus6. Fruits
    of traveler’s personal effects and tourist duty-free goodsX7. Wheat flour
    -A fine or penalty levied by UNMIK authorities-Goods to be used exclusively for humanitarian purposes and not to be offered for sale in Kosovo
    Exemptions—-medicines, medical services, pharmaceutical products, or medical and surgical instruments
    No VAT, no credit-public education services / financial services-Goods imported by foreign diplomatic and consular missions for their official use
    for input tax.-transfer of title or lease of land or residential property-Goods funded from the proceeds of grants made to UNMIK in support of humanitarian and reconstruction programs/projects
    -a supply made by a person who imports or makes intra-FRY inflows but whose turnover does not exceed the threshold
    (Director-General of the UNMIK Customs Service determines)
    -a supply of permits or licenses for a fee by a municipal or public authority.Exempted entities:
    Rebate—Refund of VAT paid on import or intra-FRY inflow.Import or intra-FRY inflow:-Foreign diplomatic and consular missions
    ByUsed exclusively
    Contractors for UNMIK, UN agencies, KF0R, WB, and international organizationsin connection with the contract-UNMIK, UN agencies, KFOR, etc. on goods used for official purposes
    -UN contractors: same as VAT
    NGO with public benefit statusfor the public benefit purposes (No rebate for: alcohol, alcoholic drinks, soft drinks, tobacco products, petroleum products, and cosmetics)
    Need to be requested within 1 yearNo time limit for requests.-Registered NGO: same as VAT
    VAT liabilityAccrual basis (the earlier of invoice, delivery, or payment)
    Tax periodCalendar month (declaration/payment have to be made by the end of the following month). VAT
    on capital goods import can be deferred/set off against the output tax up to 6 months.
    Source: UNMIK regulations and administrative directions.

    Sales tax and Service tax regulations were repealed effective on 1 July 2001, from which date VAT was applicable.

    Hotel, Food, and Beverage Service Tax. REG/2000/5 was amended by REG/2000/31 of 23 May 2000.

    As a temporary measure, a 15 percent sales tax was levied on the taxable value of all imported goods destined exclusively for Kosovo.

    Exemptions for categories 3 and 4 applied only to October 27, 2000, and exemptions to categories 5, 6, and 7 applied only to June 1, 2001.

    Table AIII.4Profit and Presumptive Taxes
    Profit TaxPresumptive Tax
    Regulation No.UNMIK/2002/3UNMIK/2000/29
    Effective date20 February 2002 (applicable to taxable profit from 1 April 2002)20 May 2000 (applicable from 1 July 2000)
    TaxpayersTaxpayers of profit tax are not liable for presumptive tax.
    -Business organization required to prepare financial statements in accordance with REG/2001/30 1/
    -Business organization that opts to prepare financial statements in accordance with REG/2001/30 1/
    -PE of a nonresident person
    -Registered NGOs
    -All other persons (any entities and natural persons) that engage in any
    economic activity for profit (registered nonprofit organization is exempt)
    Rate20% of taxable profit (9/12 of annual taxable profit for 2002)-Small taxpayers: flat tax
    (gross receipts in all previous calendar quarters < 7,500 euro)
    -Large taxpayers: flat tax + 3% x (quarterly gross receipts – 7,500 euro)
    Flat tax: euro/quarter
    Insurance company: 7% of gross premiums-Insurance company: 10% of gross premiums
    Tax periodCalendar yearCalendar quarter
    DeclarationDue by 1 April of the year following the tax period
    PaymentsQuarterly installments (same due dates as presumptive tax) based on estimated taxable profit or on the taxable
    profit for the preceding year.
    15 days after the end of each calendar quarter
    Exempt incomes-Incomes exclusively used for the public benefit purposes by a registered NGO with public benefit status
    -Dividends received by a resident taxpayer from a resident company that paid Kosovo profit tax
    -Income from a contractor, other than a local contractor, generated from contracts for the supply of goods and services to UNMIK, UN agencies, and IAEA
    -Income of the Banking and Payments Authority of Kosovo
    DepreciationCategory 1 (Buildings and other construction structures)
    Category 2 (Automobiles, computers, office furniture/equipment, etc.)
    Category 3 (Plant and machinery, heavy transport vehicles, etc.)
    Segregated asset account, 5% declining-balance depreciation
    Pooled account, 20% declining-balance depreciation
    Pooled account, 15% declining-balance depreciation
    *Expenditure less than 1,000 euro on asset in category 2 or 3 = current expense
    Amortization of leasehold improvements: straight-line depreciation over the length of the lease
    Amortization of intangible assets: straight-line depreciation for the useful life
    Business lossCarry forward up to 5 years
    International taxation-Transfer pricing: ALP = CUP or resale price/cost-plus method
    -Foreign tax credit (up to the amount of tax that would be paid under Kosovo profit tax)
    -15% withholding tax on dividends, interest, or royalties to nonresidents (subject to pre-1999 Yugoslavia Double Tax Agreements)
    Source: UNMIK regulations and administrative directions.

    “Business organizations” covers companies (joint stock and limited liability), public and socially owned enterprises.

    A = Pristina.

    B = Prizren, Gjilan, Peje, Gjakova, and Ferizaj.

    C = Elsewhere.

    Table AIII.5Personal Income Tax (Wage-Withholding Tax)
    Regulation No.REG/2003/3REG/2002/4
    Effective date1 January 20031 March 2002 (applicable from 1 April 2002)
    RatesTax period 2003, and afterTax period 2002 (9 months: April–December)
    Taxable income < 960 euro0%< 600 euro + 9/120%
    960 euro < taxable income < 3,000 euro5%600 euro + 9/12< < 3,000 euro + 9/125%
    3,000 euro < taxable income < 5,400 euro10%> 3,000 euro + 9/1210%
    > 5,400 euro20%
    Tax periodCalendar yearCalendar year (April 2002–December 2002)
    DeductionMandatory contributions by employees to funded pension schemes approved by the competent government authority.
    Excluded incomeWages received by:
    –foreign diplomatic and consular representatives and foreign personnel of Liaison Offices in Kosovo
    –foreign representatives, foreign officials, and foreign employees of international governmental organizations and international NGOs with public benefit status
    –foreign representatives, foreign officials, and foreign employees of donor agencies or their contractors or grantees carrying out humanitarian aid, reconstruction work, civil administration, or technical assistance within Kosovo
    –foreign and locally recruited officials of UNMIK, UN agencies, IAEA
    –foreign personnel of KFOR
    WithholdingEach employer is responsible for withholding tax from the gross wage income (after pension contribution
    deduction) of its employees during each payroll period.
    DeclarationTaxpayers requiring adjustment (further tax/refund) need to submit a tax declaration, by 1 April of the year
    following the tax period.
    Source: UNMIK regulations and administrative directions.

    Key Steps in Developing Kosovo’s Tax System

    The system was jump-started in August 1999 by the introduction of customs duties, sales tax, and excises on imports. The excise taxation was extended to local production in January 2000; however, collection of domestic excise taxes did not start effectively until in 2003. This was followed by the introduction of a hotel, food, and beverage tax on the gross receipts of hotels and restaurants in February 2000. A presumptive tax on businesses became effective in July of the same year. Moving quickly toward adopting the standard broad-based taxes on personal income and business profits, and on consumption, the sales tax on imported goods was changed into a full-fledged consumption-based value-added tax (VAT) in July 2001. In March 2002, wage-withholding and profit taxes were introduced, completing the basic architecture of the system. Some adjustment to the structure of the wage-withholding tax was introduced in early 2003, representing a pragmatic solution to the political tension that would have resulted from the doubling of the rates under the previous policy (see Box AIII.1). Finally, in June 2004, the 10 percent uniform import tariff was replaced by a two-tier structure, with 0 percent for selected capital goods, raw materials, and intermediate goods. A 10 percent tariff was retained for other goods.

    Kosovo’s Current Tax Structure

    Customs Duties. The duties are 0 percent for selected capital goods and certain raw materials, and a 10 percent flat rate for all other goods except medical supplies, electricity, wheat, goods intended for humanitarian purposes, and goods imported by the United Nations, UN agencies, and nongovernmental organizations (NGOs). Imports of goods originating from Serbia and Montenegro are not subject to customs duties. A 1 percent administrative fee is applied on goods originating from Macedonia that are exempt from duties under a memorandum of understanding implementing the existing Federal Republic of Yugoslavia (FRY)–Macedonia free trade agreement.

    Excises. Specific excises are levied on petroleum, alcohol, and tobacco products. Ad valorem excises are levied on coffee and soft drinks. Motor vehicles are subject to an excise that is a combination of ad valorem and specific excises. Excisable value of goods consists of customs value plus customs duties payable, or their value calculated from the retail price. Both imported and domestically produced goods are subject to excises; however, the reach of domestic excise collections is not yet comprehensive.

    Value-Added Tax. A uniform 15 percent VAT rate is applied on the value of imports (inclusive of excises and customs duties), intra-FRY inflows, and domestic taxable goods and services. Certain organizations (UN, KFOR, diplomatic missions, etc.) are excluded from VAT. Contractors supplying goods or services to the excluded organizations are entitled to a rebate of VAT paid on imports and domestic inputs in relation to contracts with such organizations. For capital goods, a deferment procedure is in place that grants 6 months’ deferment for payment of VAT on imported capital goods. Taxable persons with turnover greater than €50,000 are subject to VAT and can get an input tax credit for the VAT paid on imports or domestic purchases. Taxable persons who are below the threshold can elect to be VAT filers.

    Presumptive Tax. The tax is 3 percent of gross sales over €7,500 per quarter, plus a standard amount for the first €7,500 per quarter. (For eligibility thresholds, see Profit Tax below.) The planned introduction of the comprehensive personal income tax and the corporate income tax (which replaces the earlier profit tax) would eliminate the presumptive tax as a stand-alone tax.

    Profit Tax. Profit tax is 20 percent on taxable profit (gross sales less allowable expenses); for insurance companies it is 7 percent of gross premiums. The tax is applicable to companies (with annual sales of €100,000 or more, or assets over €50,000, or those who otherwise opt to pay profit tax instead of presumptive tax), to all public enterprises and socially owned enterprises, to NGOs (in respect of any non-public benefit income), and to all permanent establishments of nonresidents.

    Wage Tax. The wage tax has four brackets: 0 percent for annual income up to €960, 5 percent for annual incomes of €960 to €3,000, 10 percent for annual incomes of €3,000 to €5,400, and 20 percent for annual incomes over €5,400. The wage-withholding tax is levied on a monthly basis and reassessed on an annual basis. After the planned introduction of the comprehensive personal income tax, wages would be taxed together with all other sources of personal income (e.g. interest, pensions, rental income, royalties, business income, lottery winnings, capital gains, and dividends will be considered as taxable income. Rental income of individuals is already taxable under the presumptive tax but compliance with this tax is low. The application of the new comprehensive income tax to capital gains will be deferred until 2010).

    Box AIII.1.Wage Tax

    The wage tax regulation issued in March 2002 introduced a simple tax structure: 0 percent for monthly wages below €50, a marginal rate of 10 percent for wages between €50 and €250, and a marginal rate of 20 percent for wages above €250. To phase in the new tax, the regulation prescribed that the rates be halved during the first 9 months, that is, until end-2002.

    Instead of doubling the rates after the phasing-in period, the regulation modified the tax structure to accommodate a number of considerations. In early 2003, the doubling of the rates that was called for by the regulation was felt to be politically too difficult to implement. Consequently, the authorities proposed, and a visiting IMF mission agreed, that the tax structure be adjusted as follows: 0 percent rate for monthly wages below €80, 5 percent for wages between €80 and €250, 10 percent for wages between €250 and €450, and 20 percent for wages above €450. This change was deemed appropriate for the following reasons:

    • First, the new rate structure, with a maximum rate of 20 percent was commensurate to the profit tax rate and preserved horizontal equity among taxpayers, minimizing the scope for tax avoidance.

    • Second, although very few wage earners were initially subject to the 20 percent rate, having higher rates in the structure sent the right signal to the public that they will be contributing more as their financial positions strengthen.

    • Third, the change introduced greater progressivity, which is likely to increase the perception of its fairness, thus enhancing tax compliance and nurturing the general public’s trust in the tax system, an important consideration at this nascent stage.

    • Fourth, the revenue loss was estimated to be manageable.

    Table 1Main Indicators, 2001–05
    Real growth rates (in percent)
    Contribution of foreign assistance to GDP growth–3.9–3.3–1.7–1.2
    Price changes (in percent)
    Real effective exchange rate (CPI based)8.60.9–1.0–0.50.0
    General government budget (in percent of GDP)
    Of which: Capital1.
    Current balance5.
    Overall balance4.75.62.5–2.4–3.8
    Overall balance (after grants)–2.4–3.8
    Savings/investment balances (in percent of GDP)1
    Domestic savings–63.1–51.5–47.5–40.7–32.2
    Current account balance (before foreign assistance & remittances)–103.7–86.0–76.8–68.5–61.0
    Workers’ remittances and donor local employees’ wages224.822.520.218.517.1
    Foreign assistance370.452.040.732.925.9
    Current account balance–8.6–11.6–15.8–17.1–18.0
    Savings/investment balances (in percent of GDP)4
    Domestic savings–34.6–29.6–28.2–24.5–20.7
    Current account balance (before foreign assistance & remittances)–60.1–53.7–50.4–47.3–45.2
    Workers’ remittances213.413.913.412.912.2
    Donors’ contribution to GNDI38.
    Current account balance–8.6–11.6–15.8–17.1–18.0
    Savings/investment balance of the private sector–15.8–18.2–18.3–14.7–14.2
    Savings/investment balance of the government7.26.72.5–2.4–3.8
    Donors’ contribution to GDP (in percent of GDP)
    Main aggregates (in millions of euros)
    GDP per capita (in euros)8709139309641,000
    GNDI per capita (in euros)1,0861,1191,1181,1431,171
    Workers’ remittances2217241241244244
    Foreign assistance31,144902732624518
    Direct contribution of foreign assistance to GDP376314254221203
    Direct contribution of foreign assistance to GNDI620490381327300
    Population (in thousands)1,8681,9001,9321,9651,999
    Source: Fund staff estimates.

    Savings/Investment balances of the entire economy, i.e., the domestics sector and the donor sector.

    Including pensions from abroad.

    Total foreign assistance excluding capital transfers.

    Savings/Investment balances of the domestic sector.

    Table 2GDP, Real Changes and Contribution to Growth, 2002–05
    (Real changes; in percent)
    General government35.324.58.7–5.6
    Donor sector–19.0–15.0–13.8–19.6
    Donor investment–28.6–31.0–24.6–12.6
    Investment expenditure in the KGB196.5127.617.627.9
    Private investment (including POEs and SOEs)–8.0–19.30.8–1.0
    Net exports of GNFS
    Local consumption of expatriates–25.3–22.1–8.7–19.3
    Other exports13.432.738.037.3
    Donor related imports–23.4–19.6–17.0–22.4
    Imports related to donor financed spending–22.8–19.3–16.3–22.4
    Imports related to humanitarian assistance–51.5–
    Other imports–6.4–3.7–0.80.0
    Of which: Private consumer goods–3.7–0.4–2.7–0.5
    Private investment goods–12.8–
    (Contribution to GDP growth)
    Private consumption–
    Government consumption3.83.61.5–1.0
    Private investment–1.9–
    Government investment1.
    Net exports excluding foreign assistance4.
    Foreign assistance–3.9–3.3–1.7–1.2
    Memorandum item:
    Real growth of private sector disposable income–7.0–
    Private consumption in percent of disposable income96.5101.497.997.1
    Source: Fund staff estimates.

    Including POE and SOE investment financed directly from the budget.

    Table 3GDP at Current Prices, 2001–05(In millions of euros, unless otherwise indicated)
    General government165253322367373
    Goods and services55121176197178
    Donor sector1839695601528433
    Local employees18514912210697
    Goods and services163119123121107
    Donor sector12451801269686
    General government214296115150
    Private investment395376304317340
    Net exports of GNFS–1,686–1,493–1,379–1,299–1,220
    Local consumption of expatriates (incl. soldiers)246190150139114
    Of which: re-exports6751464940
    Other exports2327365171
    Imports related to donor financed spending888700577493390
    Wages of expatriates490427355301229
    Wages of local employees18514912210697
    Other goods and services213124998664
    Imports related to the humanitarian assistance189500
    Other imports1,0491,0019849961,015
    Of which: private sector consumer goods663652662657667
    private investment goods228203159163168
    Workers’ remittances217241241244244
    Wages of donor sector’s local employees18514912210697
    Memorandum items:
    Total foreign assistance1,175912737628523
    Of which: Direct contribution to GNDI620490381327300
    Private sector disposable income1,7851,7421,7031,8081,893
    Private sector consump. in percent of disposable income92971019897
    GNDI per capita (in euros)1,0861,1191,1181,1431,171
    Source: Fund staff estimates.

    Donor sector includes UNMIK, KFOR, and other donor spending under the umbrella of the so called “public investment program,” and spending financed by designated donor grants (DDGs). This presentation excludes wages of KFOR personnel as well as consumption of goods imported directly by KFOR.

    Table 4Savings/Investment Balances, 2001–05(In percent of GDP)
    Donor sector51.640.033.527.921.7
    Domestic savings–63.1–51.5–47.5–40.7–32.2
    Donor sector–51.6–40.0–33.5–27.9–21.7
    Factor income and current transfers28.424.020.518.517.1
    Remittances, local employees’ wages, and other private transfers24.822.520.218.517.1
    Budgetary support2.
    Humanitarian assistance1.
    National savings–34.7–27.5–27.0–22.2–15.1
    Donor sector–51.6–40.0–33.5–27.9–21.7
    Total investment40.734.529.327.828.8
    Donor sector15.
    Current account balance (before foreign assistance)–75.3–62.0–56.2–50.0–43.9
    Donor sector–66.7–50.4–40.4–32.9–25.9
    Foreign assistance168.751.040.733.126.2
    Current account balance (after foreign assistance)–6.7–11.0–15.5–16.9–17.8
    Private sector savings/investment balance–14.7–17.7–18.0–14.7–14.2
    Government savings/investment balance9.77.72.5–2.4–3.8
    Source: Fund staff estimates.

    Excludes budgetary support and humanitarian assistance.

    Table 5Balance of Payments, 2001–05(In millions of euros, unless otherwise indicated)
    Goods and services balance–1,686–1,493–1,379–1,299–1,220
    (in percent of GDP)–103.7–86.0–76.8–68.5–61.0
    Trade balance–962–871–856–845–847
    Regular exports2327365171
    Local consumption by expatriates1246190150139114
    Donor imports213124998664
    Imported directly190902500
    Included in commercial imports22334738664
    Imports related to humanitarian assistance189500
    Other imports1,000955938949968
    Commercial imports992953969990986
    Donor imports included in commercial imports2–23–34–73–86–64
    Electricity (funded by general budget)2222232324
    Nonfactor services–725–622–523–453–373
    Donor related676576478407326
    Wages of expatriates490427355301229
    Wages of local employees18514912210697
    Factor income402390364351341
    Workers’ remittances217241241244244
    Wages of local employees of UNMIK & donors18514912210697
    Current account balance (before foreign assistance)–1,284–1,103–1,015–948–878
    (in percent of GDP)–79.0–63.6–56.5–50.0–43.9
    Foreign assistance1,144902732624518
    (in percent of GDP)70.452.040.732.925.9
    Of which UNMIK449387356317203
    Current account (after foreign assistance)–140–201–284–324–360
    (in percent of GDP)–8.6–11.6–15.8–17.1–18.0
    Capital Account–223–222–571158
    Donor capital participation3110545
    Changes in government deposits abroad (-increase)–12–49–400
    Change in currency in circulation (-increase)3–311322400
    Change in banking system’s NFA3–212–315–483985
    Changes in BPK’s NFA (-increase)–99–194–1084475
    Changes in banks’ NFA (-increase)–113–12161–510
    Change in KPST’s4 foreign assets00–35–32–32
    Errors and Omissions363423341313302
    Memorandum items:
    Net external asset position398664742735682
    (in percent of GDP)2538413934
    Government deposits abroad (excl. DDG)6315111111
    Foreign assets of KPST400356799
    NFA of banking system335649697658572
    Source: Fund staff estimates.

    Includes local personal consumption of expatriates employed by UNMIK, PIP, and KFOR, plus their visiting relatives.

    Includes import content of locally procured goods and donor imports through commercial channels.

    Based on adjusted end-2001 data to remove the one-off spike in banks’ deposits and net foreign assets at the time of the euro cash changeover.

    Kosovo Pension Savings Trust (KPST).

    Table 6Foreign Assistance, 2000–05(In millions of euros, unless otherwise indicated)
    Total foreign assistance1,2711,175912737628523
    (in percent of GDP)72.352.641.033.126.2
    Foreign assistance excluding capital participation1,2291,144902732624518
    UNMIK’s budget, PIP (incl. DDGs), and KFOR1,1151,116885732628523
    Expatriates (excluding soldiers’ salaries)416490427355301229
    Number of expatriates58,15554,74541,31926,77322,06917,577
    Local employees18518514912210697
    Number of employees19,94620,13617,02214,54012,99812,197
    Goods and services472409299249217193
    Of which: Imports380213124998664
    Capital participation423110545
    UNMIK budget413449387356317203
    Number of expatriates6,9837,6287,0876,2205,8744,197
    Local employees636455504429
    Number of employees5,4615,6874,9004,3573,8282,542
    Average salary11,49011,34011,20711,40811,58211,603
    Goods and services1328844484632
    Of which: Imports52241414139
    Other donors (PIP and DDG)602567398275211219
    Number of expatriates3,1723,1182,2331,5531,1951,380
    Local employees979669483742
    Number of employees8,4858,4496,1224,1833,1703,655
    Goods and services2642451801269686
    Of which: Imports26112969554225
    Capital participation423110545
    Number of soldiers48,00044,00032,00019,00015,00012,000
    Local employees252525252525
    Number of employees6,0006,0006,0006,0006,0006,000
    Goods and services2757575757575
    Of which: Imports686041303030
    Budgetary support1214118000
    Humanitarian assistance to households36189500
    Of which: Imports36189500
    Source: Fund staff estimates.

    Excludes additional salaries paid by respective governments for employees that are seconded by their government, and soldiers’ wages.

    Excludes additional spending on direct imports for which no data are available.

    Table 7National Income Accounts and the Balance of Payments at Current Prices, 2001–05(In millions of euros, unless otherwise indicated)
    National accounts
    General government165253322367373
    Donor sector839695601528433
    Private investment395376304317340
    General government214296115150
    Donor sector2451801269686
    Net exports of GNFS–1,686–1,493–1,379–1,299–1,220
    Regular exports2327365171
    Local consumption by expatriates (incl. soldiers)246190150139114
    Domestic sectors1,000959943946975
    Imports related to donor-financed spending955751623542430
    Workers’ remittances246190150139114
    Wages of donors’ local employees6751464940
    Donor budget support and humanitarian assistance5927500
    Balance of payments
    Current account balance (before foreign assistance and remittances)1–1,686–1,493–1,379–1,299–1,220
    (in percent of GDP)–103.7–86.0–76.8–68.5–61.0
    Factor income402390364351341
    Workers’ remittances217241241244244
    Wages of donors’ local employees18514912210697
    Foreign assistance1,144902732624518
    (in percent of GDP)70.452.040.732.925.9
    Current account balance (after for. assist. & remittances)–140–201–284–324–360
    (in percent of GDP)–8.6–11.6–15.8–17.1–18.0
    Net change in foreign assets–223–222–571158
    Unidentified private capital inflows363423341313302
    Source: Fund staff estimates.

    Foreign assistance, including wages of donor’s local employees.

    Table 8Analytical Presentation of the National Income Accounts and the Balance of Payments, 2001–05(In millions of euros, unless otherwise indicated)
    National accounts
    Private sector consumption1,6461,6821,7281,7711,837
    Government consumption165253322367373
    Private sector investment395376304317340
    Government investment214296115150
    Net exports of GNFS–977–932–907–896–904
    Donors’ contribution to GDP376314254221203
    (in percent of GDP)
    Workers’ remittances217241241244244
    Wages of donors’ local employees18514912210697
    Donor budget support and humanitarian assistance5927500
    Balance of payments
    Current account balance (before for. assist. & remittances)–977–932–907–896–904
    (in percent of GDP)–60.1–53.7–50.4–47.3–45.2
    Workers’ remittances217241241244244
    Donors’ contribution to GNDI1620490381327300
    (in percent of GDP)
    Current account balance (after for. assist. & remittances)–140–201–284–324–360
    (in percent of GDP)–8.6–11.6–15.8–17.1–18.0
    Net change in foreign assets–223–222–571158
    Unidentified private capital inflows363423341313302
    Source: Fund staff estimates.

    Equals contribution to GDP plus wages of donors’ local employees plus budget support plus humanitarian assistance.

    Table 9Foreign Assistance and its Direct Contribution to Aggregate Demand, 2000–05(In millions of euros)
    Total foreign assistance1,2711,175912737628523
    Local employees18518514912210697
    Goods and services472409299249217193
    Imported goods380213124998664
    Direct imports380190902525
    Reflected in commercial imports202334738664
    Locally produced goods91196175150132129
    Current transfers
    Humanitarian assistance36189500
    Budgetary support1214118000
    Capital participation423110545
    Memorandum items:
    Local consumption by expatriates3251246190150139114
    Imported goods686751464940
    Local goods1831791391049074
    Direct contribution to GDP4274376314254221203
    Direct contribution to GNDI5615620490381327300
    Of which:
    Source: Fund staff estimates.

    Excludes additional salaries paid by respective governments for employees that are seconded by their governments.

    Procurement of imported goods through local suppliers. It is estimated as the difference between the estimated import content of donors’ spending on goods and services, and donor imports as reported by the BRICO system.

    Including local consumption by soldiers and visiting relatives of expatriates.

    Equals spending on local goods and services plus expatriates’ local consumption of local goods.

    Equals contribution to GDP plus wages of donors’ local employees plus budget support plus humanitarian assistance.

    Table 10Illustrative Estimation of Total Employment1
    Scenario 1Scenario 2Scenario 3
    Total labor remuneration (in millions of euros)1894894894
    Number of full-time employee equivalents464,758436,325415,309
    Average wage (in euros/month)160171179
    In subsistence agriculture187187187
    Number of full-time employee equivalents125,078125,078125,078
    Average wage (in euros/month)124124124
    In other sectors (official and informal)707707707
    Number of employees339,680311,247290,231
    Average wage (in euros/month)174189203
    Civil service114114114
    Number of employees64,78064,78064,780
    Average wage (in euros/month)146146146
    POE employees595959
    Number of employees17,28617,28617,286
    Average wage (in euros/month)285285285
    SOE employees343434
    Number of employees16,18316,18316,183
    Average wage (in euros/month)174174174
    Employees of private enterprises494949
    Number of employees13,47713,47713,477
    Average wage (in euros/month)305305305
    Sole proprietors555555
    Number of employees26,73626,73626,736
    Average wage (in euros/month)171171171
    NGO employees181818
    Number of employees3,2483,2483,248
    Average wage (in euros/month)456456456
    Local employees of donor sector969696
    Number of employees8,4168,4168,416
    Average wage (in euros/month)951951951
    Informal sector283283283
    Number of full-time employee equivalents189,554161,121140,105
    Average wage (in euros/month)124146168
    Wages, in percent of civil service wages85100115
    Informal sector, in percent of total employment2565248
    Sources: SOK 2002/03 Household Budget Survey (HBS); Ministry of Finance, Monthly Macroeconomic Monitor (MMM) January 2004; and Fund staff estimates.

    Aggregate wages for the subsistence agriculture and other sectors based on 2002/03 HBS data, wage and employment data for official sectors based on MMM data for the latter half of 2002 and the first half of 2003, adjusted for estimated taxes.

    Excluding subsistence agriculture.

    Table 11GDP Factor Remuneration Decomposition, 2003(In millions of euros, unless otherwise indicated)
    GDP at market prices1,797
    Indirect taxes462
    GDP at factor costs1,335
    Labor remuneration771
    In subsistence agriculture1161
    In other sectors610
    Wages (net of tax)2595
    Wage taxes15
    Return on stock of housing307
    Return on other capital257
    Enterprises’ operating surpluses115
    Profit-making enterprises3142
    Loss-making public enterprises4–27
    Memorandum items:
    Assumed capital output ratio3
    Capital stock4,003.8
    Assumed rate of depreciation (in percent)5.0
    Net return on capital363.2
    Implied net rate of return (in percent)9.1
    Labor share of output (in percent)57.8
    Capital share of output (in percent)42.2
    Net capital share in net output (in percent)32.0
    Source: Fund staff estimates.

    It is assumed that 85 percent of the value of home-produced or fetched food is attributable to labor inputs.

    Excluding UNMIK and donor wages of local employees.

    Derived from profit tax data, assuming effective profit tax rate of 20 percent.

    Approximated by current transfers from the budget to public enterprises. It is assumed that direct transfers from donors to these enterprises are all capital transfers.

    Table 12Medium-Term Employment Projections, 2003–13
    Total population (in thousands)1,9321,9651,9992,0332,0672,1022,1382,1742,2112,2492,287
    Growth rate1.
    Total population 16–64 (in thousands)1,2271,2471,2681,2901,3121,3341,3571,3801,4031,4271,451
    Growth rate of employment3.
    Not in the labor force633640648656664672680688696705713
    Percentage in working age population 16–64
    Not in the labor force52.051.451.150.950.650.450.149.949.649.449.1
    Dependency ratio (working age pop. in total pop.)63.563.563.563.563.563.563.563.563.563.563.5
    Participation rate48.448.648.949.149.449.649.950.150.450.650.9
    Increase in participation rate0.
    Unemployment rate30.129.528.928.427.827.326.726.125.625.024.4
    Source: Fund staff projections.
    Table 13Cross-Country Evidence on Labor Growth and Capital Accumulation1(Average, 1960–94)
    Contribution to Growth
    East Asia0.284.501.270.446.49
    South Asia0.552.870.990.254.66
    Sub-Saharan Africa–0.561.791.390.222.83
    Middle East and North Africa–0.033.990.840.255.05
    Latin America–0.392.311.220.283.42
    Industrial countries0.062.870.270.193.39
    Annual Growth Rates in Percent
    labor ratio
    East Asia9.382.446.934.05
    South Asia5.132.252.882.41
    Sub-Saharan Africa4.162.441.720.39
    Middle East and North Africa6.332.274.062.78
    Latin America4.442.541.900.88
    Industrial countries4.480.753.732.64
    Source: IMF Staff Paper, Sources of Economic Growth: An Extensive Growth Accounting Exercise. Vol. 47, No. 1.

    The top part of the table reports the results derived in the IMF staff paper on the growth contribution of total factor productivity, capital accumulation, labor force, and human capital. The bottom part calculates the corresponding annual growth rates of capital, labor, capital labor ratio, and labor productivity.

    Table 14Baseline Medium-Term Growth Scenario, 2003–13(In millions of euros, at constant 2003 prices, unless otherwise indicated)
    GDP at market prices1,7971,8992,0042,1142,2292,3502,4742,6062,7422,8853,033
    GDP at factor costs1,3351,4101,4881,5701,6561,7451,8381,9352,0362,1422,253
    Labor remuneration7717948188438688949219489771,0061,036
    Number of employees, in thousands415428441454467481496511526542558
    Growth of employment, in percent3.
    Average wage per month, in euros1155155155155155155155155155155155
    Gross return on capital563589615643672702734767801837875
    Capital stock4,0044,1844,3724,5694,7754,9895,2145,4495,6945,9506,218
    Growth in the stock of capital, in percent4.
    Gross rate of return, in percent114.
    Total factor productivity275585116149183220258299341
    Memorandum items:
    Contribution to growth5.
    Capital labor ratio9.69.89.910.110.210.410.510.710.811.011.1
    Percent increase1.
    Gross Investment380397415434454474495518541565
    Investment in percent of GDP20.019.819.619.519.319.219.018.918.818.6
    Change in the stock of capital180188197206215225235245256268
    Depreciation rate, in percent5.
    Memorandum items:
    Public investment, in percent of GDP5.
    Total investment, in percent of GDP25.024.824.624.524.324.224.023.923.823.6
    Implied ICOR4.
    Source: Fund staff estimates and projections.

    Total factor productivity gains will of course be distributed either to workers in the form of an increase in real wages or to owners of capital in the form of higher rate of return on capital.

    Table 15Financing Strategy for the Baseline Growth Scenario, 2003–13
    (In percent of GDP)
    Current account balance–50.4–48.6–46.9–45.1–43.3–41.5–39.7–37.9–36.1–34.3–32.5
    Regular exports2.
    Underlying domestic savings–28.2–23.6–22.0–20.4–18.8–17.1–15.5–13.8–12.2–10.5–8.8
    Current account financing50.448.646.945.143.341.539.737.936.134.332.5
    Donor net20.915.014.413.713.112.511.811.
    Private inflows29.528.427.226.124.923.822.621.520.319.218.0
    Drawdown on net foreign assets2.
    (In millions of euros at constant 2003 prices)
    Current account balance–907–924–939–953–964–974–981–986–989–988–985
    (excl. aid and private transfers)
    Regular exports3672112157205259317381450525607
    Underlying domestic savings–506–448–441–432–419–403–384–361–334–303–268
    Current account financing907924939953964974981986989988985
    Donor net376286289291292293292291288284279
    Private inflows530538545551555558559559557552546
    Drawdown on net foreign assets47505356596265697276
    Memorandum items:
    Net foreign assets742695645592536478416351282210134
    Stock of external debt52110174244320404496596706824
    In percent of GDP2.
    Source: Fund staff projections.
    Table 16Consolidated Government Budget (GDP), 2000–04(Excluding donor designated grants; in percent of GDP)
    as of June
    Indicative staff
    proj. & recom.
    Total revenues12.119.828.832.832.732.731.9
    Border taxes10.815.021.023.622.922.922.0
    Domestic direct taxes0.
    Domestic indirect taxes0.
    Tax refunds–0.9–0.7–0.7–0.9
    Nontax revenues0.
    Total expenditure19.
    Current expenditure17.613.820.825.026.533.528.2
    Wages and salaries8.
    Goods and services4.
    Subsidies and transfers4.
    Of which: Pension and social assistance3.
    Capital expenditure1.
    Current balance––0.83.7
    Overall balance––0.7–15.2–2.4
    Budgetary support grants11.
    Overall balance after budgetary support4.–0.7–15.2–2.4
    Changes in bank balances–4.3–7.2–6.2–2.50.715.22.4
    Memorandum items:
    Government’s bank balances3.79.615.
    GDP (in millions of euros)1,0631,6251,7351,7971,8951,8951,895
    Sources: Kosovo authorities; and Fund staff estimates.
    Table 17Consolidated Government Budget (Euros), 2000–04(Excluding donor designated grants; in millions of euros)
    Budget as
    of June
    Indicative staff
    proj. & recom.
    Total revenues128.5321.3499.6589.6619.3619.3604.6
    Border taxes115.2243.4364.5424.9434.5434.5417.7
    Domestic direct taxes6.428.848.363.568.468.472.2
    Domestic indirect taxes0.012.527.840.144.344.350.4
    Tax refunds–15.7–14.0–14.0–16.5
    Nontax revenues6.936.555.268.986.186.181.0
    Total expenditure203.8245.7402.3545.1632.3907.9649.2
    Current expenditure186.8225.1360.4448.7501.8634.0534.2
    Wages and salaries92.3109.5131.4145.7187.6190.4170.1
    Goods and services43.355.4121.3173.7144.3227.8181.9
    Subsidies and transfers50.460.2107.7127.0134.7192.0167.2
    Of which: Pension and social assistance56.381.894.299.6103.0
    Capital expenditure17.020.641.996.4130.6273.9115.0
    Current balance–58.396.2139.3141.0117.5–14.770.4
    Overall balance–75.375.697.344.6–13.0–288.6–44.6
    Budgetary support grants120.641.
    Overall balance after budgetary support45.2116.7106.944.6–13.0–288.6–44.6
    Changes in bank balances–45.2–116.7–106.9–44.613.0288.644.6
    Memorandum items:
    Government’s bank balances39.1155.8262.7307.4294.318.7262.8
    Sources: Kosovo authorities; and Fund staff estimates.
    Table 18Kosovo: Share of Reserved Power Budget Organizations in the Kosovo General Budget, 2000–04
    General government203242402542916
    Central government203229313403692
    PISG budget organizations168196383
    Reserved power budget organizations203225145207310
    Police, prison, and justice1522355488
    Memorandum items (in percent):
    Share of central govt. in general govt. budget10094787576
    Share of reserved power in central govt. budget10010046045
    Share of KTA in reserved power budget1171481848
    Share of police, prison, and justice in reserved power budget710242628
    Source: Kosovo authorities.

    Before the establishment of KTA, i.e., for 2000 and 2001, expenditures of entities subsequently placed under the KTA’s control.

    Table 19Kosovo: Functional Classification of Budgetary Expenditures, 2002–03
    2002 Actual2003 Actual
    In millions of eurosIn percentIn millions of eurosIn percent
    Social protection60.315.087.016.0
    Economic affairs67.616.8115.821.3
    Public order and safety42.810.676.614.1
    General services190.722.598.418.1
    Environmental protection0.
    Housing and community amenities10.12.515.22.8
    Recreation, culture, and religion7.
    Memorandum items:
    Total public spending including donor sector1,3041,275
    Share of education in total public expenditure6.06.6
    Source: Kosovo authorities.

    Including expenditures not classified in any other category.

    Table 20Kosovo and Selected Economies: General Government Revenues, 20021(In percent of GDP)
    or VAT
    Bosnia & Herz.43.04.838.30.08.513.316.4
    Czech Republic39.32.636.
    Macedonia, FYR34.71.633.
    Serbia and Mont.
    Slovak Republic37.
    Sources: Kosovo authorities; IMF, country desk data; and Fund staff estimates.

    Data for Kosovo refer to 2003, for EU 2001 and for Poland 2000.

    Table 21Tax Rates in Selected Transition Economies(In percent)
    Bosnia & Herz.7.80–15
    Czech Republic22.–12528.015–32
    Macedonia, FYR18.05.014.60–607.5015.018.001.6–21.2
    Serbia and Mont.17.010.00–4020–3020.0
    Slovak Republic23.–12519.019.0038.012.0
    Sources: Kosovo authorities; IMF, Fiscal Affairs Department (FAD) database; CEEBIC; and government tax websites.Note: n.a. = no taxes; — = taxes are levied but not available.

    Data for customs duties refer to 2002.

    Data for each country refer to the latest period available: Romania, 1999; Serbia and Montenegro, 2000; Macedonia, 2001; Bosnia and Herzegovina, Croatia, Hungary, and the Slovak Republic, 2002; Bulgaria, the Czech Republic, Poland, and Slovenia, 2003; and Albania, 2004.

    In many cases, specific excise rates are used in addition to ad valorem rates. For example, in Kosovo, mostly specific rates are used.

    Data for Kosovo refer to 2003. Effective June 7, 2004, a zero rate of customs duty was introduced for selected raw materials and capital goods.

    Table 22Estimated Contribution of Foreign Assistance to Tax Revenues: An Illustrative Calculation Based on 2003 Data(In millions of euros, unless otherwise indicated)
    Total taxes related to foreign assistance54.9
    Wage taxes paid by local employees1.4
    UNMIK’s local employeesTax exempt
    Other donors’ and NGOs’ local employees1.4
    Expenditure-based taxes on personal consumption146.0
    Local employees of donors22.0
    Local consumption by expatriates15.0
    Local consumption by KFOR soldiers9.1
    Other donor-related tax revenues7.4
    Donor spending on goods and services24.9
    Donor-financed investment22.5
    Memorandum items:
    Total tax revenues521
    Share of tax revenues related to foreign assistance (in percent)10.5
    Sources: Kosovo authorities; and Fund staff estimates.

    VAT, excises, and customs.

    In principle, donors’ spending on goods and services and on investment is tax exempt. However, it is likely that these expenditures have some tax component, partly because subcontractors that supply taxable goods and services to the main contractors supplying donors are not eligible for a VAT rebate. In addition, goods sourced locally by donors may contain some customs and excise taxes. In the above calculation, it is assumed that donors’ spending on goods and services contains 4 percent taxes and 2 percent investment spending.

    Table 23Declining Domestic Absorption and Tax Revenues: An Illustrative Calculation Based on 2003 Data(In millions of euros, unless otherwise indicated)
    Estimate 2003Illustration: Decline in Domestic
    Domestic absorption12,4502,156
    Domestic absorption = tax base (percent of GDP)136120
    Effective expenditure-based tax rate on domestic absorption (percent)1616
    Total tax revenues521417
    Less taxes derived from foreign assistance550
    Less direct taxes26262
    Equals: Expenditure-based taxes from domestic absorption3404355
    Total revenue impact–103
    Foreign assistance–55
    Lower domestic absorption–48
    Total revenue impact (percent of GDP)–6
    Foreign assistance–3
    Lower domestic absorption–3
    Memorandum item:
    Taxes without foreign assistance and assuming domestic absorption of 120 percent of GDP (percent of GDP)23
    Sources: Kosovo authorities; and Fund staff estimates.

    Total domestic absorption, i.e., consumption and investment, excluding the donor sector.

    Excluding direct taxes related to foreign assistance.

    Border taxes and domestic indirect taxes derived from domestic absorption.

    Table 24Financial System Structure, 2000–03
    Dec. 2000Dec. 2001Dec. 2002Dec. 2003
    NumberAssets (EUR m)Percent
    NumberAssets (EUR m)Percent
    NumberAssets (EUR m)Percent
    NumberAssets (EUR m)Percent
    Commercial banks110395735789748687756882
    Other nonbank financial institutions
    Insurance companies000320573668477
    Pension funds0000001006406
    Microfinance institutions755142361636617355
    Total financial system8108100244001003155810039694100
    Source: Banking and Payments Authority of Kosovo.
    Table 25Financial Soundness Indicators for the Banking Sector, 2000–03(In percent, unless otherwise indicated)
    Dec. 2000Dec. 2001Dec. 2002Dec. 2003
    Capital adequacy
    Regulatory capital to risk-weighted assets23.
    Capital (net worth) to assets6.
    Asset composition and quality
    Nonperforming Loans (NPLs) to gross loans0.
    Provisions to NPLs0.0493.2118.2199.1
    Loans to the largest borrower (of total loans)
    FX loans to total loans0.
    Earnings and profitability
    Return on assets1.
    Return on equity28.722.39.718.7
    Liquid assets to total assets194.
    Liquid assets to short-term liabilities2103.1156.999.779.4
    Deposits to total (non-interbank) loans2,835.51,007.1447.3225.4
    Loans (non-interbank) to total deposits3.510.022.444.4
    FX liabilities to total liabilities0.
    Deposits of the largest customer (of total deposits)
    Source: Banking and Payments Authority of Kosovo.

    Liquid assets include cash, balances with BPK, and placements with other banks.

    Short-term liabilities are those maturing in 90 days or less.

    Table 26Monetary Survey, 2000–04(In millions of euros)
    Net foreign assets122.6583.3649.5697.0687.1
    Liabilities (incl. UNMIK’s deposits)
    Commercial banks70.5289.7304.1243.3250.5
    Liabilities (incl. expatriates’ deposits)12.618.924.229.134.8
    Net domestic assets–16.4–96.6–235.9–195.8–87.6
    Net claims on the central government–5.7–69.8–258.6–317.5–298.4
    Net claims on nonbank financial institutions0.0–21.6–32.0–31.9–29.5
    Loans to the private sector3.125.986.5232.8327.9
    Other items net–10.9–30.1–23.2–49.2–67.7
    Commercial banks–6.1–11.1–27.1–41.6–58.0
    Bank deposits1106.2486.8413.6501.2599.5
    Demand deposits of nonfinancial enterprises77.4144.1163.4160.4155.8
    Demand deposits of individuals21.2217.9121.9143.3152.9
    Savings deposits of nonfinancial enterprises4.631.323.974.8129.2
    Savings deposits of individuals3.093.5104.4122.7160.1
    Memorandum items:
    Bank deposits 12-month percent change358.4–
    Loans to private sector 12-month percent change723.3233.8169.191.7
    Staff estimate of cash in circulation2637.2668.0536.3512.1512.1
    Staff estimate of broad money (M2)3743.4906.3949.91,013.31,111.6
    Sources: Banking and Payments Authority of Kosovo; and Fund staff estimates.

    Unadjusted data on deposits based on the BPK’s monthly monetary statistics.

    Staff estimate of cash in circulation. End-2001 estimate adjusted for the one-off effects related to the euro cash changeover.

    Deposits plus currency in circulation.

    According to civil register data, the Economic Policy Department of the Ministry of Finance and Economy (MFE) estimated that the population above the age of 16 is 1,234,500. Using an average of the proportion of the population age 17 and above from the 2000 Living Standards Measurement Survey (62.8 percent), the December 2001 SOK labor market survey (64.1 percent), and the MFE estimates yields a population estimate of 1,948,000.

    A world average, including all developed countries where the cost of housing is much higher than in developing countries, is only 15 percent. A world minimum of 1.1 percent is recorded in Peru, and Italy and Greece show shares of about 15 percent. Moreover, in the 2002/03 HBS, the estimate reflects not an extrapolation of actual rents paid but the subjective assessment of the rental value for each survey respondent.

    That is, government consumption reflects current expenditures, excluding subsidies and transfers. This concept of government spending excludes spending financed from donor-designated grants.

    These figures include the part of public enterprise investment expenditure that was financed directly from the budget.

    This excludes part of the salaries of the expatriates working in Kosovo for Pillar III who are seconded by their governments. It includes only that part of their salaries that is paid to them from the Pillar III budget.

    About three-fourths of the expatriates employed in Kosovo are in the police force. We estimated their average local consumption at about €450 per month. Other expatriates’ local consumption is estimated at €1,300 per month.

    Only Pillars III and IV provide information about the import content of their consumption of goods and services. We assumed that the share of imports in goods and services consumed by Pillars I and II was equal to the weighted average of the import content of consumption reported by Pillars III and IV.

    The import content of spending on goods and services by both UNMIK and the PIP is assumed to be equal to 30 percent, which is the share reported by Pillars III and IV.

    KFOR Press Release (February 9, 2003).

    No information on KFOR’s direct import of goods and services was available. These were implicitly set at zero, along with soldiers’ wages. This, of course, underestimates the amount of overall donor spending, but it has a neutral impact of the contribution of the donor sector to the local economy.

    Given that donors’ imports reported in BRICO donor imports were declining much more rapidly than their activities in Kosovo, the staff team’s working assumption was that the difference between donors’ imports (€99 million) and those reported in BRICO commercial imports (€25 million) (that is, €74 million) were imports through commercial channels, and, hence, the difference was reflected in commercial imports.

    BRICO estimates of commercial imports in 2003 are consistent with the value that can be derived from border taxes.

    World Bank, “Yugoslavia: Adjustment Policies and Development Perspectives, World Bank Study,” Report No. 3954-YU, 1983.

    Dijana Plestina, “Regional Development in Communist Yugoslavia—Success, Failure and Consequences,” Westview Press, 1992.

    John Salt, “European International Migration: Evaluation of the Current Situation,” European Population Papers Series, No. 5, March 2002.

    In the early 1980s, the population growth rate for Albanian Kosovars was estimated at 2.6. However, this rate has been on a declining trend and, according to SOK’s estimate, now stands at about 1.6 percent.

    This method of combining data from the presumably reliable 1981 census with vital statistics data to derive an estimate of the total population was used in a joint report by the SOK, United Nations Population Fund (UNFPA), and International Organization for Migration (IOM). The report, “Demographic, Social, Economic Situation and Reproductive Health in Kosovo Following the 1999 Conflict,” was prepared on the basis of a survey conducted between November 1999 and February 2000. The report estimated that, in the absence of departures since 1981, Kosovo’s total population would at the time have been 2.3 million.

    Statistical Office of Kosovo, “Kosovo Demographic and Health Survey 2003. Preliminary Results.” Draft chapters, April 2004.

    A recent study about remittances originating from the United States found that over 60 percent of adult foreign-born Latino people living in the United States send remittances regularly and another 10 percent send them occasionally. Although the flow of money declines among those with longer tenure, a substantial proportion of Latino immigrants send money back to their relatives even after having been away from home for 20 to 30 years, and over 50 percent of all remittance senders have lived in the United States for more than 10 years (Multilateral Investment Fund of the Inter-American Development Bank, “Sending Money Home: Remittance to Latin America and the Caribbean,” May 2004).

    Since Germany is thought have the largest population of Kosovars, it is used in this example. Average annual earnings of all employees in Germany in 2003 amounted to €26,700 (Data from the Federal Statistical Office Germany).

    According to the recent Inter-American Development Bank survey, Latino adult immigrants making remittances from the United States transfer on average about US$3,000 annually, which corresponds to about 15 percent of their median annual income of about US$20,000.

    Considering the motives for less than full disclosure of remittances in the HBS discussed above, it would seem logical that nonreporting rather than underreporting would be the primary source of downward bias.

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