financial stability report - Banka Qendrore e RepublikÃ«s sÃ« KosovÃ«s

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Number 3 Financial Stability Report below 4 percent (4.5 percent in 2011). In nominal terms, the GDP is expected to exceed a total amount of euro 4.9 billion. Continuous expansion of lending by the banking system in Kosovo represents an important source of finance for domestic economy. By June 2012, loans issued by the banking system recorded an annual growth of 9.3 percent, reaching a value of euro 1.8 billion. Loans issued to enterprises recorded an annual growth of 6.3 percent, while loans to households recorded an annual growth of 13.0 percent. The main source of finance for banks in Kosovo remain deposits collected in the country, which also continued to increase and up to June amounted to euro 2.1 billion (annual increase of 7.7 percent). Kosovo’s banking system has continued to maintain a high level of stability, characterized by high degree of capitalization, good quality of loan portfolio and satisfactory liquidity position. Positive developments during this period have been recorded also in the fiscal sector. The total value of budget expenditures by the end of June 2012 amounted to euro 625.6 million, which represents an annual increase of 18.5 percent. Despite the increased budget expenditures, Kosovo’s budget until June 2012 recorded a surplus of euro 24.2 million. This is also due to the growth of revenues by 12.2 percent which reached the amount of euro 649.8 million. Public investments in the referred period had a very important contribution to economic growth when considering the capital investment projects which are continuously increasing. Government expenditures on capital investments up to June 2012 recorded an annual growth rate of Figure 12. Current account balance, in milions of 32.4 percent. Capital outlays euro represent the main category within 600 budget expenditures, with a share 400 of 35.9 percent of total 200 expenditures (euro 224.8 million). 0 -200 Also, until June, government -400 expenditures on goods and services -600 and expenditures on wages and -800 salaries recorded an annual -1,000 Current account Goods and services Income Current transfers increase of 33.5 and 13.7 percent, reaching 78.5 and 169.1 million June 2009 June 2010 June 2011 June 2012 euro, respectively. Source: CBK (2012) The GDP of Kosovo continues to be negatively affected by the trade balance, which is continuously characterized by high rate of deficit (Figure 12). In the first half of 2012, the trade deficit in Kosovo amounted to euro 988.5 million, representing an annual growth of 6.4 percent. Trade deficit increase is attributed to the imports growth of 2.6 percent and to the exports decline of 18.4 percent. This has made the level of coverage of imports by exports to decrease from 15.0 percent, as it was in the first half of 2011, to 11.9 percent in the first half of 2012. The high level of trade deficit makes Kosovo’s economy to be characterized by a high rate of current account deficit. In June 2012, the current account deficit deepened for 5.4 percent compared with the same period of the previous year amounting to euro 216.5 million. The component with the largest share in the current account continues to be the goods account, which is consistently characterized by fairly large discrepancy between the value of imports and exports. Meanwhile, another category with a very large weight on the current account is the account of current transfers, which is dominated by remittances. 28 |

Financial Stability Report Number 3 This category is continuously characterized by a positive balance Figure 13. Remittances, in millions of euro and has significantly contributed 300 to the narrowing of the current 250 account deficit. However, by June 2012 remittances amounted to euro 200 261.5 million, which is 0.7 percent 150 less than the same period of the previous year (Figure 13). 100 Remittances decline of 4.8 percent 50 in the first quarter of 2012 recovered in the second quarter of 0 2012 with an increase of 3.1 percent thus having increased the Source: CBK (2012) possibility of a steady flow of remittances despite the difficulties that developed economies are facing with. The capital and financial account of the balance of payments continues to be characterized by a positive balance, which derives mainly from FDI and other investments (Figure 14). Financial account balance, despite being positive, is reduced by 56.7 percent in the first half of 2012 compared with the same period of the previous year. This reduction was mainly driven by FDI and other investments. The balance of FDI (FDI in Kosovo minus FDI of Kosovar residents abroad) during the first half of 2012 amounted to euro 78.5 million, which represents a quite sharp decline compared with the same period of the previous year when this balance had recorded a value of euro 180.3 million. FDIs received in Kosovo, which represent an important component in the context of private sector investments, recorded an annual decrease of 53.3 percent, reaching a value of euro 86.6 million. The balance of other investment is reduced by half 264.1 265.7 263.3 261.5 June 2009 June 2010 June 2011 June 2012 Figure 14. Capital and financial account and the components of financial account, in millions of euro 250 200 150 100 50 0 -50 -100 -150 Cpital and financial account Foreign direct investments Portfolio investments Other investments Reserve assets June 2009 June 2010 June 2011 June 2012 Source: CBK (2012) compared with the same period of the previous year, from euro 161.7 million has declined to euro 79.8 million. During the first half of 2012 there were 5,279 new enterprises registered, which represents an increase of 24.4 percent compared with the same period of the previous year, while 483 companies were closed or 5.7 percent more than in the same period of the previous year. Preferred economic activities for the registration of new enterprises were trade (31.8 percent of total enterprises), followed by the processing industry (10.7 percent), hotels and restaurants (10.3 percent), construction (9.9 percent), real estate (9.6 percent), etc. | 29

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