Acta Universitatis Danubius. Œconomica, Vol 10, No 1 (2014)

Abstract

The trade deficit and specifically the current account deficit are the main challenges that Kosovo’s economy is facing. According to the Balance of Payments Statistics (BOP), the trade balance of goods is the largest component, expressed in absolute and relative terms and consequently it determines the behavior of the current account balance. Trade deficit to GDP ratio is very high - more than 50 percent. Regarding this, financing the constant deficit of the current account is becoming a real problem, because in the long run it is impossible for a country to spend more than its income without becoming a debtor to the rest of the world. Given the unchanged structure of the current account of the Balance of Payments, we conclude that, an improvement of the trade balance is a precondition to the improvement of the current account balance. This can be done through long-term and sustainable substitution of imports with domestic production and also with effective export promotion. Increasing foreign direct investment and export promotion can be considered, in the longer term, the main way to improve Kosovo's Trade Balance.