April 20, 2023
- IMF staff and the Kosovo authorities have reached a staff-level agreement on Kosovo’s economic policies to be supported by a 24-month Stand-By Arrangement (SBA) of around €100 million, and an arrangement under the Resilience and Sustainability Facility (RSF) of about €78 million. The IMF’s Executive Board will consider these requests in the coming weeks.
- The SBA is expected to be precautionary and will provide liquidity in case downside risks materialize, including those arising from Russia’s ongoing war in Ukraine.
- The RSF will provide affordable financing to support Kosovo’s climate change mitigation and adaptation efforts, greener electricity production, and long-run growth prospects and is expected to catalyze other climate financing. Kosovo’s RSF is the first in Europe.
Washington, DC: An IMF mission led by Mr. Gabriel Di Bella visited Pristina during March 8-24; and held follow-up virtual and in-person meetings during March 27-April 14, to discuss macroeconomic policies, the energy sector, the reform agenda, climate change mitigation and adaptation policies, and possible IMF support. At the end of the discussions, Mr. Di Bella issued the following statement:
“I am pleased to announce that the Kosovo authorities and IMF staff have reached a staff-level agreement to support the authorities’ economic policies with a 24-month precautionary SBA with access of around SDR 80 million (around €100 million, 97 percent of quota) and a concurrent RSF arrangement of SDR 62 million (around €78 million, 75 percent of quota). The staff-level agreement is subject to approval by IMF Management and the Executive Board. Executive Board discussions on these arrangements are expected late May.
“The new arrangements will mitigate downside risks and support Kosovo’s efforts to strengthen capacity to preserve macroeconomic stability, close policy gaps, and deliver greener growth.
“After recovering strongly from the pandemic, growth moderated in 2022 following higher international commodity prices. Preliminary data suggests that real GDP grew by 3.5 percent in 2022 while inflation reached more than 11 percent. As commodity prices soften and fiscal policy becomes more supportive, growth is projected to pick up to 4–5 percent in 2023. Decreases in commodity prices will provide much-needed relief to households and firms. In addition, stronger absorption of the public investment program will provide an additional push in demand. The moderate increase in growth is projected to close Kosovo’s relatively small output gap. Softer commodity prices will also bring inflation down to 5 – 6 percent in 2023.
“Against the backdrop of high uncertainty, risks continue to be predominantly on the downside. An uptick in commodity prices could lead to lower growth and higher inflation, as Kosovo is a net importer of food and energy. Tighter financial conditions, including due to recent bank failures in the U.S. and Europe, may weigh on banks’ asset quality and liquidity. The IMF-supported program will mitigate adverse impacts in the event these or other risks materialize. On the upside, stronger public investment implementation may push growth higher. Exports of goods and services have proved very resilient, and may again surprise on the upside.”
“As Kosovo addresses immediate challenges, tackling structural issues and advancing the green transition remains critical to unleash higher and greener growth, enhance productivity, and attract private investment. Key elements of the arrangements include:
- Fiscal Governance. The program will support efforts to strengthen tax administration, reduce informality, enhance fiscal risk analysis, improve public financial management, and further strengthen fiscal transparency.
- Financial Stability. The program will support efforts to strengthen the CBK’s policy toolkit and governance guided by the 2019 Financial Sector Stability Review (FSSR) recommendations.
- Structural Challenges . The program will support efforts to close infrastructure and governance gaps, including through an update of the Public Investment Management Assessment (PIMA) and strengthening the operations of publicly-owned enterprises.
- Energy and Climate Strategy . The RSF will support climate change mitigation and adaptation efforts, including those articulated by the recently approved energy strategy for 2023-32. Concretely, the program will support efforts to increase the share of renewables in energy generation, decrease pollution, strengthen regional energy integration, increase energy efficiency, and protect vulnerable energy consumers.
“The new arrangements are also expected to catalyze additional bilateral and multilateral financial support and private investment in green energy. The authorities indicated the intention to request an RSF augmentation once additional reform measures are identified, including from the upcoming Climate-PIMA (C-PIMA).”
“During its visit to Pristina, the IMF team held meetings with senior government officials, representatives from the private sector, civil society, and development partners. The team is grateful to the Kosovo authorities for the candid and constructive dialogue and warm hospitality and is looking forward to continued engagement in support of Kosovo and its people.”
Source – IMF