Financial Stability Report No1 20 December 2010 - Banka Qendrore ...

Financial Stability ReportNumber 1developments in the SEE countries is played by the price of their imported good. Mostcountries are importing food, final products and machinery which sectors were greatly hitby the recent financial crisis. The structure of imports in SEE countries also corresponds tothe general level of their development as these economies are still mainly specialized in lowvalue added sectors of their economies, while they are importing everything else. Lookingat the exports in these economies, one can observe that mostly base materials and mineralproducts are exported with exception of Serbia where manufactured goods dominate, andAlbania which has specialized in export of textiles. Relatively low value-added exports andimports of high-value products also contribute substantially to chronic current accountdeficits in these countries. Although recent price development of imports contributed tobring down inflation rates in these economies, developments in the balance of payments areless favourable in the medium and long run.To further strengthen an argument that SEE countries exhibit similar developments in realand financial sectors short presentation of each individual country is presented as itfollows.11.3.1 KosovoKosovo does not issue a currency of its own, since it has unilaterally adopted EURO as itslegal tender in 2002. Consequently, CBK is not a member of the European System of theFigure 49. Inflation, average consumerprices10.08.06.04.02.00.0-2.0-4.02006 2007 2008 2009 2010 projChange in CPI, KosovoChange in CPI, CEFTASource: WEO April 2010, IMFChange in CPI, EurozoneFigure 50. Real growth and budget8.0%5.4%6.0%4.6%4.5%6.0%7.1%5.0%3.8%4.0%4.0%2.0%3.4%3.0%0.0%2.5%2.0%-0.2%-2.2%-2.0%-3.4% 1.0%-4.0%0.0%2006 2007 2008 2009 2010 projBudget balance (% of GDP)∆ in real GDPSource:Central Banks or EURO zone and does not conduct its own monetary policy and is not alender of last resort.The economic growth was mainly generated by the increase of private consumption andpublic investment, largely financed by banking sector loans, remittances, foreignassistance, and considerable increase of budget expenditures. In course of the adoption ofthe EURO, foreign trade became easier and Kosovo has achieved great progress in terms ofmaintaining the inflation close to EURO area levels being mainly an import base economy,inflation closely reflects the imports price developments. On the other side, the export baseis low but with positive trends. Around 74 % of the trade of Kosovo is realized with EU andCEFTA countries From EU countries, Kosovo mostly exports in Italy (around 30 %) and| 63