Kosovo
Over the past few years Kosovo's economy has shown
significant progress in transitioning to a market-based system and
maintaining macroeconomic stability, but it is still highly
dependent on the international community and the diaspora for
financial and technical assistance. Remittances from the diaspora -
located mainly in Germany and Switzerland - are estimated to account
for about 14% of GDP, and donor-financed activities and aid for
another 7.5%. Kosovo's citizens are the poorest in Europe with an
average annual per capita income of only $2,500. Unemployment,
around 40% of the population, is a significant problem that
encourages outward migration and black market activity. Most of
Kosovo's population lives in rural towns outside of the capital,
Pristina. Inefficient, near-subsistence farming is common - the
result of small plots, limited mechanization, and lack of technical
expertise. With international assistance, Kosovo has been able to
privatize 50% of its state-owned enterprises (SOEs) by number, and
over 90% of SOEs by value. Minerals and metals - including lignite,
lead, zinc, nickel, chrome, aluminum, magnesium, and a wide variety
of construction materials - once formed the backbone of industry,
but output has declined because of ageing equipment and insufficient
investment. A limited and unreliable electricity supply due to
technical and financial problems is a major impediment to economic
development. Kosovo's Ministry of Energy and Mining has solicited
expressions of interest from private investors to develop a new
power plant in order to address Kosovo and the region's unmet and
growing demands for power. The official currency of Kosovo is the
euro, but the Serbian dinar is also used in Serb enclaves. Kosovo's
tie to the euro has helped keep core inflation low. Kosovo has one
of the most open economies in the region, and continues to work with
the international community on measures to improve the business
environment and attract foreign investment. Kosovo has kept the
government budget in balance as a result of efficient value added
tax (VAT) collection at the borders and inefficient budget
execution. In order to help integrate Kosovo into regional economic
structures, UNMIK signed (on behalf of Kosovo) its accession to the
Central Europe Free Trade Area (CEFTA) in 2006. However, Serbia and
Bosnia have refused to recognize Kosovo's customs stamp or extend
reduced tariff privileges for Kosovo products under CEFTA. In July
2008, Kosovo received pledges of $1.9 billion from 37 countries in
support of its reform priorities. In June 2009, Kosovo joined the
World Bank and International Monetary Fund, and Kosovo began
servicing its share of the former Yugoslavia's debt.
Kuwait
Kuwait has a geographically small, but wealthy, relatively
open economy with self-reported crude oil reserves of about 102
billion barrels - about 9% of world reserves. Petroleum accounts for
nearly half of GDP, 95% of export revenues, and 95% of government
income. Kuwaiti officials have committed to increasing oil
production to 4 million barrels per day by 2020. The rise in global
oil prices throughout 2010 is reviving government consumption and
economic growth as Kuwait experiences a 20% increase in government
budget revenue. Kuwait has done little to diversify its economy, in
part, because of this positive fiscal situation, and, in part, due
to the poor business climate and the acrimonious relationship
between the National Assembly and the executive branch, which has
stymied most movement on economic reforms. Nonetheless, the
government in May 2010 passed a privatization bill that allows the
government to sell assets to private investors, and in January
passed an economic development plan that pledges to spend up to $130
billion in five years to diversify the economy away from oil,
attract more investment, and boost private sector participation in
the economy. Increasing government expenditures by so large an
amount during the planned time frame may be difficult to accomplish.
Kyrgyzstan
Kyrgyzstan is a poor, mountainous country with a dominant
agricultural sector. Cotton, tobacco, wool, and meat are the main
agricultural products, although only tobacco and cotton are exported
in any quantity. Industrial exports include gold, mercury, uranium,
natural gas, and electricity. The economy depends heavily on gold
exports - mainly from output at the Kumtor gold mine. Following
independence, Kyrgyzstan was progressive in carrying out market
reforms, such as an improved regulatory system and land reform.
Kyrgyzstan was the first Commonwealth of Independent States (CIS)
country to be accepted into the World Trade Organization. Much of
the government's stock in enterprises has been sold. Drops in
production had been severe after the breakup of the Soviet Union in
December 1991, but by mid-1995, production began to recover and
exports began to increase. In 2005, the BAKIEV government and
international financial institutions initiated a comprehensive
medium-term poverty reduction and economic growth strategy. Bishkek
agreed to pursue much needed tax reform and, in 2006, became
eligible for the heavily indebted poor countries (HIPC) initiative.
The government made steady strides in controlling its substantial
fiscal deficit, nearly closing the gap between revenues and
expenditures in 2006, before boosting expenditures more than 20% in
2007-08. GDP grew about 8% annually in 2007-08, partly due to higher
gold prices internationally, but slowed to 2.3% in 2009. The
overthrow of President BAKIEV in April, 2010 and subsequent ethnic
clashes left hundreds dead and damaged infrastructure. Shrinking
trade and agricultural production, as well as political instability,
caused GDP to contract about 3.5% in 2010. The fiscal deficit
widened to 12% of GDP, reflecting significant increases in
crisis-related spending, including both rehabilitation of damaged
infrastructure and bank recapitalization. Progress in
reconstruction, fighting corruption, restructuring domestic
industry, and attracting foreign aid and investment are key to
future growth.
Laos
The government of Laos, one of the few remaining one-party
Communist states, began decentralizing control and encouraging
private enterprise in 1986. The results, starting from an extremely
low base, were striking - growth averaged 6% per year from 1988-2008
except during the short-lived drop caused by the Asian financial
crisis that began in 1997. Despite this high growth rate, Laos
remains a country with an underdeveloped infrastructure,
particularly in rural areas. It has a rudimentary, but improving,
road system, and limited external and internal telecommunications.
Electricity is available in urban areas and in many rural districts.
Subsistence agriculture, dominated by rice cultivation in lowland
areas, accounts for about 30% of GDP and provides 80% of total
employment. The government in FY08/09 received $560 million from
international donors. Economic growth has reduced official poverty
rates from 46% in 1992 to 26% in 2009. The economy has benefited
from high foreign investment in hydropower, mining, and
construction. Laos gained Normal Trade Relations status with the US
in 2004, and is taking steps required to join the World Trade
Organization, such as reforming import licensing. Related trade
policy reforms will improve the business environment. On the fiscal
side, Laos launched an effort to ensure the collection of taxes in
2009 as the global economic slowdown reduced revenues from mining
projects. Simplified investment procedures and expanded bank credits
for small farmers and small entrepreneurs will improve Lao's
economic prospects. The government appears committed to raising the
country's profile among investors. The World Bank has declared that
Laos's goal of graduating from the UN Development Program's list of
least-developed countries by 2020 is achievable. According Laotian
officials, the 7th Socio-Economic Development Plan for 2011-15 will
outline efforts to achieve Millennium Development Goals.
Latvia
Latvia's economy experienced GDP growth of more than 10% per
year during 2006-07 but entered a severe recession in 2008 as a
result of an unsustainable current account deficit and large debt
exposure amid the softening world economy. GDP plunged 18% in 2009 -
the three former Soviet Baltic republics had the world's worst
declines that year - and another 1.8% in 2010. The IMF, EU, and
other donors provided assistance to Latvia as part of an agreement
to defend the currency's peg to the euro and reduce the fiscal
deficit to about 5% of GDP over time. DOMBROVSKIS' government
enacted major speding cuts to reduce the fiscal deficit to 7.8% of
GDP in 2010, and plans to cut the deficit further in 2011. The
majority of companies, banks, and real estate have been privatized,
although the state still holds sizable stakes in a few large
enterprises. Latvia officially joined the World Trade Organization
in February 1999. EU membership, a top foreign policy goal, came in
May 2004.
Lebanon
Lebanon has a free-market economy and a strong laissez-faire
commercial tradition. The government does not restrict foreign
investment; however, the investment climate suffers from red tape,
corruption, arbitrary licensing decisions, high taxes, tariffs, and
fees, archaic legislation, and weak intellectual property rights.
The Lebanese economy is service-oriented; main growth sectors
include banking and tourism. The 1975-90 civil war seriously damaged
Lebanon's economic infrastructure, cut national output by half, and
all but ended Lebanon's position as a Middle Eastern entrepot and
banking hub. In the years since, Lebanon has rebuilt much of its
war-torn physical and financial infrastructure by borrowing heavily
- mostly from domestic banks. In an attempt to reduce the ballooning
national debt, the Rafiq HARIRI government in 2000 began an
austerity program, reining in government expenditures, increasing
revenue collection, and passing legislation to privatize state
enterprises, but economic and financial reform initiatives stalled
and public debt continued to grow despite receipt of more than $2
billion in bilateral assistance at the 2002 Paris II Donors
Conference. The Israeli-Hizballah conflict in July-August 2006
caused an estimated $3.6 billion in infrastructure damage, and
prompted international donors to pledge nearly $1 billion in
recovery and reconstruction assistance. Donors met again in January
2007 at the Paris III Donor Conference and pledged more than $7.5
billion to Lebanon for development projects and budget support,
conditioned on progress on Beirut's fiscal reform and privatization
program. An 18-month political stalemate and sporadic sectarian and
political violence hampered economic activity, particularly tourism,
retail sales, and investment, until the new government was formed in
July 2008. Political stability following the Doha Accord of May 2008
helped boost tourism and, together with a strong banking sector,
enabled real GDP growth of 7% per year in 2009-10 despite a slowdown
in the region.
Lesotho
Small, landlocked, and mountainous, Lesotho relies on
remittances from miners employed in South Africa, customs duties
from the Southern Africa Customs Union (SACU), and export revenue
for the majority of government revenue. However, the government has
recently strengthened its tax system to reduce dependency on customs
duties. Completion of a major hydropower facility in January 1998
permitted the sale of water to South Africa and generated royalties
for Lesotho. Lesotho produces about 90% of its own electrical power
needs. As the number of mineworkers has declined steadily over the
past several years, a small manufacturing base has developed based
on farm products that support the milling, canning, leather, and
jute industries, as well as an apparel-assembly sector. Despite
Lesotho's market-based economy being heavily tied to its neighbor
South Africa, the US is an important trade partner because of the
export sector's heavy dependence on apparel exports. Exports have
grown significantly because of the trade benefits contained in the
Africa Growth and Opportunity Act. The economy is still primarily
based on subsistence agriculture, especially livestock, although
drought has decreased agricultural activity. The extreme inequality
in the distribution of income remains a major drawback. Lesotho has
signed an Interim Poverty Reduction and Growth Facility with the
IMF. In July 2007, Lesotho signed a Millennium Challenge Account
Compact with the US worth $362.5 million. Economic growth dropped in
2009, due mainly to the effects of the global economic crisis as
demand for the country's exports declined and SACU revenue fell
precipitously when South Africa - the primary contributor to the
SACU revenue pool - went into recession, but growth returned to 3.5%
in 2010.
Liberia
Liberia is a low income country heavily reliant on foreign
assistance for revenue. Civil war and government mismanagement
destroyed much of Liberia's economy, especially the infrastructure
in and around the capital, Monrovia. Many businesses fled the
country, taking capital and expertise with them, but with the
conclusion of fighting and the installation of a
democratically-elected government in 2006, several have returned.
Liberia has the distinction of having the highest ratio of direct
foreign investment to GDP in the world. Richly endowed with water,
mineral resources, forests, and a climate favorable to agriculture,
Liberia had been a producer and exporter of basic products,
primarily raw timber and rubber and is reviving those sectors. Local
manufacturing, mainly foreign owned, had been small in scope.
President JOHNSON SIRLEAF, a Harvard-trained banker and
administrator, has taken steps to reduce corruption, build support
from international donors, and encourage private investment.
Embargos on timber and diamond exports have been lifted, opening new
sources of revenue for the government and Liberia shipped its first
major timber exports to Europe in 2010. The country reached its
Heavily Indebted Poor Countries initiative completion point in 2010
and nearly $5 billion of international debt was permanently
eliminated. This new status will enable Liberia to estabilish a
sovereign credit rating and issue bonds. Liberia's Paris Club
creditors agreed to cancel Liberia's debt as well. Rebuilding
infrastructure and raising incomes will depend on generous financial
and technical assistance from donor countries and foreign investment
in key sectors, such as infrastructure and power generation.
Libya
The Libyan economy depends primarily upon revenues from the
oil sector, which contribute about 95% of export earnings, 25% of
GDP, and 80% of government revenue. The weakness in world
hydrocarbon prices in 2009 reduced Libyan government tax income and
constrained economic growth. Substantial revenues from the energy
sector coupled with a small population give Libya one of the highest
per capita GDPs in Africa, but little of this income flows down to
the lower orders of society. Libyan officials in the past five years
have made progress on economic reforms as part of a broader campaign
to reintegrate the country into the international fold. This effort
picked up steam after UN sanctions were lifted in September 2003 and
as Libya announced in December 2003 that it would abandon programs
to build weapons of mass destruction. The process of lifting US
unilateral sanctions began in the spring of 2004; all sanctions were
removed by June 2006, helping Libya attract greater foreign direct
investment, especially in the energy sector. Libyan oil and gas
licensing rounds continue to draw high international interest; the
National Oil Corporation (NOC) set a goal of nearly doubling oil
production to 3 million bbl/day by 2012. In November 2009, the NOC
announced that that target may slip to as late as 2017. Libya faces
a long road ahead in liberalizing the socialist-oriented economy,
but initial steps - including applying for WTO membership, reducing
some subsidies, and announcing plans for privatization - are laying
the groundwork for a transition to a more market-based economy. The
non-oil manufacturing and construction sectors, which account for
more than 20% of GDP, have expanded from processing mostly
agricultural products to include the production of petrochemicals,
iron, steel, and aluminum. Climatic conditions and poor soils
severely limit agricultural output, and Libya imports about 75% of
its food. Libya's primary agricultural water source remains the
Great Manmade River Project, but significant resources are being
invested in desalinization research to meet growing water demands.
Liechtenstein
Despite its small size and limited natural resources,
Liechtenstein has developed into a prosperous, highly
industrialized, free-enterprise economy with a vital financial
service sector and the highest per capita income in the world. The
Liechtenstein economy is widely diversified with a large number of
small businesses. Low business taxes - the maximum tax rate is 20% -
and easy incorporation rules have induced many holding companies to
establish nominal offices in Liechtenstein providing 30% of state
revenues. The country participates in a customs union with
Switzerland and uses the Swiss franc as its national currency. It
imports more than 90% of its energy requirements. Liechtenstein has
been a member of the European Economic Area (an organization serving
as a bridge between the European Free Trade Association (EFTA) and
the EU) since May 1995. The government is working to harmonize its
economic policies with those of an integrated Europe. In 2008,
Liechtenstein came under renewed international pressure -
particularly from Germany - to improve transparency in its banking
and tax systems. In December 2008, Liechtenstein signed a Tax
Information Exchange Agreement with the US. Upon Liechtenstein's
conclusion of 12 bilateral information-sharing agreements, the OECD
in October 2009 removed the principality from its "grey list" of
countries that had yet to implement the organization's Model Tax
Convention.