Enlargement Strategy and Main Challenges 2006 - 2007

As regards economic criteria, Kosovo has made limited progress towards being a functioning
market economy. Considerable additional efforts are also needed in order to be able to cope
with competitive pressure and market forces within the Union.
Consensus on the essentials of economic policy in Kosovo has been broadly maintained.
Monetary stability continued to be underpinned by the use of the euro as sole legal tender.
Fiscal policy has been tightened, reflecting a rapid decline in donors' support and foreseeable
exhaustion of the reserve of accumulated cash deposits. In line with a key European
partnership recommendations, a medium-term economic policy framework for Kosovo has
been established, which aims at ensuring a sustainable fiscal stance. The first Medium-Term
Expenditure Framework was adopted, providing a consolidated overview of budget and offbudget
financing needs, including public investment projects. Privatisation of socially-owned
enterprises progressed markedly. Considerable progress has been achieved in the
incorporation of publicly-owned enterprises which is a key European Partnership priority.
However, macroeconomic stability has not yet been satisfactorily achieved so far, mainly due
to the fragile fiscal and unsustainable external position. Unemployment remains high, also
due to excessive labour costs. These costs also dampen private sector development and export
competitiveness. Serious challenges remain in implementing the policy commitments taken
by the authorities, in particular as regards a sustainable fiscal policy stance over the medium
term. An inefficient judiciary and legal uncertainty with respect to enforcement of property
rights continue to hamper economic activity. Access of small and medium-sized enterprises to
external finance is limited. Infrastructure remains insufficient and often of poor quality. The
power supply remained unreliable, hindering economic development. Restructuring of
publicly-owned enterprises, in particular of the Kosovo Energy Corporation, need to be
further accelerated.
Kosovo has made good progress to approximate its legislation and policies with European
standards. However, limited progress has been made on the effective implementation and
enforcement of legislation passed. More efforts are needed to create an administrative
environment that will ensure further approximation to European standards.
In the area of the internal market, some progress has been made on the establishment of a
system for standardisation, certification, metrology, accreditation and conformity assessment.
Little progress can be reported in a number of important areas such as public procurement,
competition, and the protection of intellectual property rights. Little progress has been made
in the areas of employment, social policy and education. Limited progress has been made on
the free movement of capital.
Customs legislation is broadly in line with the acquis and good progress has been achieved in
response to European Partnership priorities in several areas related to administrative capacity
in the customs area (e.g. computerisation, risk analysis, fight against corruption). A revised
Integrated Tariff for Kosovo entered into force. A comprehensive reorganisation of UNMIK
customs took place and the intelligence unit and the investigation unit were strengthened.
Some progress has been made in the area of taxation, although domestic tax collection
remains weak.
As regards the development of sectoral policies, good progress has been achieved in the
transport sector as prioritised in the European Partnership. The government adopted a multimodal
transport policy paper. Kosovo signed the agreement on the establishment of a
European Common Aviation Area.
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