Washington DC, April 4, 2024
- The International Monetary Fund (IMF) staff and the Kosovo authorities have reached staff-level agreement on the second reviews of the Stand-by Agreement (SBA) and Resilience and Sustainability Facility (RSF) Arrangement. The agreement is subject to approval by the IMF Executive Board, expected to be considered in the second half of May.
- Kosovo’s economy continued to perform well, despite a challenging external environment. Growth is expected to accelerate to 3.8 percent this year, driven by strong private consumption and faster investment growth.
- The authorities have maintained prudent macroeconomic policies, while continuing to advance the structural reform and green agendas supported by the SBA and RSF.
An International Monetary Fund (IMF) mission, led by Mr. Sebastian Sosa, visited Pristina during March 18–27, 2024 to hold discussions on the second reviews of Kosovo’s Stand-By Arrangement (SBA) and Resilience and Sustainability Facility (RSF) Arrangement. Following additional virtual discussions by the mission with the authorities, Mr. Sosa issued the following statement:
“The IMF team and the Kosovo authorities have reached staff-level agreement on the completion of the second reviews of the SBA and the RSF arrangements. Program implementation remains on track, with all end-December 2023 quantitative targets met and good progress in advancing the agreed structural reform agenda. Subject to approval by the IMF Executive Board—expected in the second half of May, the completion of the second reviews will make available an additional SDR 13.35 million (€16.34 million) under the SBA and SDR 7.74 million (€9.47 million) under the RSF. The authorities have expressed their intention to continue treating the SBA as precautionary.
“Kosovo’s economy has continued to perform well, despite a challenging external environment. Real GDP growth slowed to 3.3 percent in 2023, amid subdued growth in key trading partners and countries where the diaspora resides. Inflation has declined markedly on the back of lower commodity prices, reaching 2.2 percent year-on-year in February. The external current account narrowed to 7.7 percent of GDP in 2023, due to lower energy and food prices. Growth is expected to pick up to 3.8 percent in 2024 driven by strong private consumption and faster investment growth. The banking system remains sound.
“Risks to Kosovo’s economic outlook include commodity price spikes due to geopolitical tensions, weaker activity in advanced European economies, and an escalation of tensions in northern Kosovo. On the upside, substantial progress in the dialogue with Serbia and the EU accession process could boost confidence, FDI, tourism, donor financial support, and growth. In addition to a strong track record of prudent policies, Kosovo has sizeable buffers to mitigate adverse shocks, including low public debt, a liquid and well-capitalized banking system, the precautionary SBA, the existence of Emergency Liquidity Assistance, and the temporary Repo Line (€100 million) of the Central Bank of Kosovo (CBK) with the European Central Bank (ECB), recently extended through January 2025.
“The authorities have maintained prudent macroeconomic policies. The overall fiscal deficit stood at 0.2 percent of GDP in 2023, well below the program limit of 2 percent of GDP, reflecting strong tax collection and contained spending—notwithstanding a higher wage bill due to the implementation of the new public sector wage law (½ percent of GDP) and an across-the-board payment to all children and pensioners (¾ percent of GDP). The 2024 fiscal stance is projected to be expansionary, with an overall deficit of 1½ percent of GDP, due to higher investment and lower grants. Policies should continue to aim at containing current spending to create space for increased capital expenditures and well-targeted social assistance programs.
“The authorities continue to advance the structural reform agenda supported by the SBA. All structural benchmarks for the second program review have been implemented: preparation of an annual, standalone fiscal risk analysis as part of the budget bundle; adoption of new “Rules of Procedures” clarifying the roles and responsibilities of the CBK Executive and Supervisory Boards; and preparation of a new banking sector law, which will be submitted to parliament soon. Going forward, continued efforts to strengthen tax policy and administration are needed to further enhance revenue mobilization. Other fiscal structural reform priorities include improving public investment management, enhancing fiscal risk management, and improving the governance and management of publicly-owned enterprises (POEs). The CBK continues to advance an ambitious institutional reform agenda, in line with the newly adopted 5-year Strategic Plan. Ongoing efforts by the CBK to strengthen governance, improve risk management, enhance financial supervision, and address AML/CFT gaps are welcome and should continue.
“We welcome progress in implementation of Kosovo’s green agenda, supported by the RSF. All reform measures for this review have been completed. The Law on Climate Change, which establishes a framework for the promotion, planning and monitoring of climate change policies, was approved in December, and the Law on Renewable Energy is expected to be adopted in the next few months. Steps to increase the share of green electricity generation are being taken. Building on the first competitive auction for 100 MW of solar/PV electricity generation, an auction for 150 MW of wind-based electricity generation (the first in Kosovo) will be launched in the coming months. Day-ahead auctions in market-coupling mode for Albania and Kosovo, which started in February, should help strengthen regional integration and promote competition in electricity markets.
“The IMF team would like to thank the authorities and other counterparts for constructive discussions and cooperation during this mission.”
Source – IMF