Economic performance remains solid in Kosovo, but fiscal risks have increased. That is the headline conclusion of an International Monetary Fund (IMF) mission to the Western Balkan country which ended on June 6. The mission has recommended that Kosovo should focus on limiting these fiscal risks in order to preserve a sustainable budget and protect productive spending, including capital investments in priority sectors. Decisive implementation of structural reforms remains essential to achieve stronger and sustainable growth.
“Economic performance continues to be solid, with growth in 2018 expected at about 4 per cent,” said Stephanie Eble, leader of the IMF mission. “Inflation remains subdued and the external current account deficit has narrowed, in part due to statistical revisions. The banking sector remains well capitalised, liquid and profitable. The implementation of the 2018 budget is broadly on track: some revenue shortfalls and overruns in social spending due to non-implementation of benefit scheme reforms are expected to be offset by savings in other areas.”
“While the near-term outlook is positive, fiscal risks have increased,” Ms Eble continued. “In this regard, the mission advised not to move ahead with the current draft law on compensation of teachers, due to its large direct and indirect fiscal costs that will burden the budget for many years and crowd out priority spending; advance with overdue war veteran reforms; not to introduce any new untargeted social benefit programmes; accelerate the restructuring of the public enterprise sector to restore its financial viability and reduce inefficiencies; design the public administration reform within the limits of the wage bill rule; and carefully monitor and control the issuance of government guarantees that could significantly increase public debt.”
“At the same time, structural reforms to support private sector development should be accelerated to achieve stronger and sustainable growth that Kosovo needs to reduce the large income gap with the rest of Europe and address the high unemployment. In this regard, the mission reiterated the need to advance the implementation of education, governance, infrastructure, labour market, health and tax administration reforms,” concluded Ms Eble.