Kosovo’s No-Credit Crunch

In Europe’s sovereign debt crisis, their problem is too much borrowing. In Kosovo, you’re lucky if you can borrow at all. Needless to say, Kosovo doesn’t have a debt crisis. But I’d reckon that your average Kosovar would happily trade places with an underwater homeowner in Nevada or a civil servant in Athens with a newly lightened paycheck.

Kosovo 2.0, the magazine I work for in Pristina, published a piece in December showing that the impoverished Balkan state has a debt problem. Getting it is too hard.

Let’s say you’re a Kosovar and want to buy a car. Assuming you don’t have the 20,000 euros in cash, you’ll probably need a loan. Luckily there are plenty of banks; plus you’re not worried. You have a steady job and good credit. No problem, right? Well, as long as you have collateral — collateral to the tune of 230 percent. Meaning that you’ll need to put up 46,000 euros worth of something like a home or a few other cars just to get that loan. It brings a whole new meaning to the world repo. And then once you get that loan, you’re looking at an interest rate in the double digits. They average around 14 to 16 percent.

The situation doesn’t exactly lend itself to fluid credit in Kosovo’s economy. Apply the same thing to mortgages and business loans, and it’s pretty easy to see how economic activity could be moving much more vigorously under different circumstances. True, Kosovo’s projected 4 percent GDP growth this year is high enough to make your average EU finance minister swoon. But when you’re coming from the bottom of Europe’s economic totem pole, just a notch above Moldova, 4 percent doesn’t seem as impressive.

Kosovo’s credit situation stems from the perceived risk. While the rate of bad loans, 4 percent, is the lowest in region, the creditors see the country as a risky place economically and politically. News like last year’s unrest in the predominately Serb north of the country creates the impression that Kosovo isn’t the safest place to be lending money, even if Pristina’s crime rate is often compared to those of Scandinavian capitals. It also doesn’t help that fewer than 100 states recognize Kosovo as an independent state, even if the US and most of the EU do.

The government, at least, has started selling bonds for the first time. It reportedly sold about 74 million euro worth of them in January.

Still, 60 percent of Pristina’s budget comes from duties levied on goods coming into Kosovo. In essence, the state largely funds its operations through the enormous trade deficit: Kosovo produces and exports very little, and imports a lot.

Tax revenues on personal incomes and businesses are picking up but still make up a relatively small piece of the pie.

While much of Kosovo’s economic future is tied to the fate of massive privatizations of the state telecom company and power grid, some homegrown businesses are moving forward in innovative ways.

The large community of techy-savvy young people has given rise to some successful IT outsourcing outfits. And the past year has seen the rise of organic homegrown artisan jams and juices that, according to my tastebuds, could compete in an international market. I just wonder how much more Kosovo could see with a more robust and accessible credit market.