An
International Monetary Fund (IMF) mission, led by Jacques Miniane,
visited Pristina during October 12–23 to conduct the first review of Kosovo’s
economic program supported by a Stand By Arrangement. At the conclusion
of the mission, Mr. Miniane made the following statement:
“The
mission reached staff-level agreement with the authorities, subject to
approval by IMF management and the Executive Board, on a set of policies
needed to complete the first review under the SBA. Consideration by the
Executive Board is tentatively scheduled for December 16. Completion of
the review will make SDR28.1 million (€35.1 million) available to
Kosovo.
“Kosovo
is making good progress under...
its economic program. Following an
economic slowdown last year, growth is expected to recover to 3.5
percent in 2015, driven largely by domestic demand spurred by strong
remittance inflows and an acceleration in bank lending. Growth is
expected to accelerate to close to 4 percent in 2016, supported by the
implementation of the Brezovica resort investment. Looking toward the
medium term, higher and more inclusive growth is needed to raise
incomes, develop a productive private sector, and create jobs. We
welcome the authorities’ efforts and policy actions towards fulfilling
this objective.
“In
this regard, we note with some concern that, in recent weeks,
parliamentary activity has been stalled. This is delaying the approval
of important legislation, some of which is critical to the government’s
economic reform agenda and to the viability of Kosovo’s Fund-supported
program. More importantly, the situation in parliament risks damaging
investor confidence, ultimately to the detriment of all citizens.
“Performance
under the program has been good so far. The authorities have
comfortably met August targets under the IMF-supported program for both
the fiscal balance and government cash buffers. They have also made
commendable efforts to contain unproductive current spending, critical
to freeing up space for needed capital expenditures and improving
long-term growth prospects. Tax revenues have performed well, but the
authorities need to ensure that some one-off revenues—from the
privatization agency and the sale of telecommunications
licenses—materialize as expected in the budget.
“The
authorities are moving expeditiously to advance important legislation
that will strengthen fiscal policy and help boost growth: First, an
amendment to the investment clause in the fiscal rule will help bring in
additional capital projects funded by multilateral and bilateral
agencies. Important features built into the amendment aim to make the
process transparent and keep public debt low and sustainable. Second,
adoption of a public sector wage rule will help keep future public wage
bill growth in line with broader trends in the economy and make Kosovo
more competitive.
“Looking
toward 2016, the authorities are committed to adopting a budget that
will deliver a deficit of €98 million (1.7 percent of GDP), excluding
new donor-financed projects. To this end, it is essential that the
authorities continue their efforts to rein in current spending,
including wages and salaries. As part of this budget, we support the
recently-announced increase of social assistance benefits, as this
scheme is well-targeted toward the most vulnerable in society. In
addition, we welcome the government’s commitment to ensure that the
obligations arising from the full implementation of the Law on Pension
Schemes Financed by the State will not exceed €23 million per annum.
“Kosovo’s
banks remain well-capitalized, liquid, and profitable. Lending has
picked up and asset quality has continued to improve this year, with
credit growth of 7.8 percent y/y and an NPL ratio of 7.5 percent as of
August. The authorities have made good progress in strengthening up
financial stability and identifying measures to boost bank
intermediation and access to credit that Kosovo needs to support a more
robust economy. The Central Bank of Kosovo (CBK) has adopted a new,
high-quality framework for how it would extend liquidity to banks in
emergency situations, although we do not expect this tool to be
necessary in the near future given the currently healthy state of banks.
Improvements to the bank supervision framework are also well underway;
the CBK’s new, risk-based approach will allow it to better identify and
address potential risks. The authorities recently introduced a system of
private bailiffs that is already helping to improve the contract
enforcement system and remove structural constraints to bank lending.
Further work is needed on contract enforcement however, and we welcome
the authorities’ commitment to address remaining weaknesses in this
area.
“Reform
of the public procurement process, which will improve public sector
efficiency and, critically, transparency and governance, is well
underway. The authorities have successfully launched centralized public
procurement and should follow through by moving to an e-procurement
process for all centralized procurement tenders. The authorities should
also move quickly to fill the vacant positions in Public Procurement
Review Board with qualified individuals, as this is another critical
step to ensure the integrity of the procurement system.
“The
mission met with Prime Minister Mustafa, Governor of the Central Bank
of Kosovo Hamza, Minister of Finance Hoti, and other public officials,
representatives of the private sector, and international partners. Fund
staff are grateful to the authorities and all other counterparts for
their excellent cooperation and discussions.”
