Press Release No. 11/410

Press Release No. 11/410
November 11, 2011

A mission of the International Monetary Fund (IMF), led by Mr. Johannes Wiegand, held discussions with the Kosovar authorities during November 2–11, 2011 as part of the first assessment of Kosovo’s Staff Monitored Program (SMP).¹ The SMP runs until end-year, associated policies target decisive steps towards fiscal sustainability and stronger budget management and execution. Successful implementation would help establish a track-record of sound fiscal management that could pave the way for financial assistance by the IMF in 2012 and facilitate the continuation of donor support. The IMF mission worked in close cooperation with a parallel mission from the World Bank, carried out in the context of its envisaged budget support operation.

At the conclusion of the visit, Mr. Wiegand made the following statement:

“Macroeconomic and financial policies are broadly on track. The end-September quantitative benchmarks on the general government’s bank balance, primary balance, primary expenditures, the non-accumulation of external arrears, and on non-contracting non-concessional debt were all met, as was the structural benchmark on the development of a taxpayer compliance strategy. The quantitative benchmark on the non-accumulation of domestic payment arrears was missed by a small amount, however, reforms are underway to strengthen the government’s capacity to monitor overdue bills and prevent the accumulation of arrears. Expenditure cuts of €60 million have been implemented in response to the delay in privatizing the telecommunications company PTK, with a view to safeguarding a minimum of government bank balances by end-2011. Revisions are needed to the law regulating benefits for war related categories prior to its submission to the Assembly for the second reading, to ensure its consistency with medium-term fiscal sustainability and bring the law in line with the authorities’ corresponding commitments under the SMP’s Letter of Intent.

“Financial sector reforms are advancing. The government and the central bank have signed a memorandum of understanding regulating roles and responsibilities in providing emergency liquidity assistance to banks if needed, and the 2012 budget will contain a provision to deposit funds in a Central Bank account earmarked for emergency liquidity assistance. Good progress has been made in revising the banking and microfinance law.

“Kosovo has remained largely unaffected by financial turbulence in the euro area, owing to limited integration into global financial markets. The economy is projected to grow by
5 percent in real terms this year. Inflation is moderating rapidly in line with developments in global commodities markets. The banking system has remained stable, with healthy liquidity and capital buffers. Going forward, a renewed downturn in the euro area could negatively affect remittances and foreign direct investment (FDI). As a result, the mission has marked down projected real GDP growth in 2012 to 4 percent.

”Staff and the authorities reached understandings on a budget for 2012 that targets a general government primary deficit of 3.2 percent of GDP and contains ¾ of a percent of GDP in structural adjustment, through a mix of wage restraint, reforms in the energy sector that reduce the need for budgetary support, and tax reforms. In case that no clear progress towards PTK privatization can be made in the early months of 2012, additional measures may be needed to warrant that the government has adequate cash buffers throughout the year.”

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¹ The SMP is an informal agreement with IMF staff to monitor the implementation of the authorities’ economic program. It does not entail endorsement by the IMF Executive Board and does not involve financial assistance by the IMF.