The economic sustainability of post-conflict Kosovo

Kosovo is currently operating as an independent economic state, having severed the majority of economic links with the former Yugoslavia. This article explains why the Yugoslav dinar was replaced by the DM (in turn replaced by the Euro) as the new national currency of post-conflict Kosovo. Use of the DM, coupled with a relatively open trade policy, has resulted in a severe visible trade deficit. The stock of DM is continuously being replenished by the inflow of money both from the various international agencies operating in Kosovo and from remittances from Kosovars working abroad. The article argues that, even with the current low level of export earnings, the economy of Kosovo is economically sustainable, since the international presence in Kosovo is partly responsible for the high demand for imports. However, in the absence of a competitive export sector, the economy is still highly reliant upon the inflow of remittances, without which Kosovo would be unable to meet the costs of vital imports.