Bedri Hamza, former governor of the Central Bank of Kosovo, now the country's minister of finance (photo: Dean Tošovic)

This is the fifth article in a series of interviews with policymakers from Central, Eastern, and Southeastern Europe. Central bank governors and finance ministers discuss how their countries are doing in terms of catching up to Western Europe. What are the main obstacles for reaching the same living standards in the East as in the West? We conducted the interviews during a conference on economic governance within Europe that was held in Dubrovnik, Croatia, in July 2017.

Our previous interviews feature Octavian Armasu, Moldova’s Minister of Finance, Sergiu Cioclea, Governor of the National Bank of Moldova, Boštjan Jazbec, Governor of the Bank of Slovenia, Martina Dalić, Deputy Prime Minister and Minister of Economy of Croatia, and Oleksandr Danyliuk, Minister of Finance of Ukraine. Watch out for the last interview in the series, with Jiří Rusnok, Governor of the Czech National Bank, next week.

Kosovo: Domestic Entrepreneurship and Help From the Diaspora

September 27, 2017

Kosovo’s economy has been growing at an average of 3.4 percent since the landlocked country declared its independence in 2008. Its growth has been supported both by the international community, including the IMF, and also by its own people that work outside the country.

We talked with Bedri Hamza, who was Governor of the Central Bank of Kosovo at the time of the interview, and now is the country's finance minister, about what the country has achieved so far and what are the problems it has to deal with.

Your country has been under an IMF-supported program since 2015. What are the main economic achievements of the program?

We have had several IMF-supported programs, which helped Kosovo create modern legislation of higher standards, pursue structural reforms, and build human capacity. We particularly appreciated the IMF’s role in helping us build capacity.

These reforms that we put in place helped maintain economic and financial stability, but the process has not always been easy.

What do you think is the most urgent task that Kosovo needs to carry out to accelerate growth and bring its incomes nearer to the rest of Europe? Which economic sectors should be developed primarily?

The Kosovar government must continue with structural reforms to handle its main challenges: high trade deficit, current account deficit, and high unemployment. But while the public sector should create suitable legal and physical infrastructure, the driver of growth should be the private sector.

We need to concentrate on strengthening small- and medium-size enterprises, the agricultural sector, energy, and, of course, mining. There is also scope for the development of alpine tourism. However, the key focus should be on small- and medium-size enterprises.

Kosovo's growth relies to a large extent on remittances from its diaspora, numbering roughly a third of the population of the country. Yet these remittances may dampen people’s willingness to invest in education or search for work. What can the country do to ensure that these remittances are put to productive use?

Kosovo is getting a significant amount of remittances, which is a great contribution to its economic development.  These remittances have resulted in increased consumption as well as investment, mostly in real estate.

But the time has come to assess how we can streamline remittances in investments, and gradually substitute remittances with domestic production. That is also necessary because, as usually happens, distant family ties tend to break over the long term, so it is quite possible that remittances will decrease over time.

For the time being, we need to work on convincing our diaspora to invest their capital in Kosovo. Some Kosovars have developed successful enterprises in countries where they live, and they could invest their capital as well as their knowledge in Kosovo. We encourage this by offering a low tax rate. In addition, Kosovo has a sufficient, young and very well-qualified labor force that is cheaper than labor elsewhere.

Some of the areas where Kosovo needs improvement are the strengthening of the rule of law and rooting out corruption. How do you think that this could proceed in Kosovo?

Overall, Kosovo has to invest politically and economically in institutions that guarantee the existence of rule of law. There is scope to expand the role of civil society as well.

One particular area of reform is the public procurement system. Here the IMF assisted us in our efforts to tackle these challenges.

Looking back to the last two years, what was your personal experience working with IMF?

My cooperation with the IMF started 10 years ago. During this time, we negotiated four programs with the IMF that included structural reforms, and also made use of IMF capacity development. The IMF’s priority, rightly so, is to maintain economic and financial stability. But I think that setting up a country’s domestic priorities should be the government's job.