IMF Executive Board Concludes 2020 Article IV Consultation with the Republic of Kosovo

IMF News, February 17, 2021

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The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Kosovo on February 17, 2021.
Kosovo was hit hard by the COVID-19 pandemic, with estimated economic activity falling 6 percent in 2020.
The outlook is subject to large uncertainty and depends on the evolution of the pandemic, the speed of vaccinations, and political developments.

2020: Economic activity estimated to have fallen 6 percent.
2021 forecast: Real GDP growth of 4.5 percent, supported by continued fiscal stimulus and gradual relaxation of containment measures.
Medium-term: Nominal GDP projected to return to pre-crisis levels by 2022 but remain below the pre-crisis trend for a protracted period.
Structural reforms: Stronger implementation could mitigate longer-term scarring.

2020 fiscal deficit increased to 7.7 percent of GDP, reflecting a large fall in tax revenues and implementation of mitigation and recovery measures of 4.2 percent of GDP.
Revenues and grants: 25.1 percent of GDP in 2020; projected 26.6 percent (2021), 26.2 percent (2022), 26.1 percent (2023).
Expenditures: 32.5 percent of GDP in 2020; projected 29.1 percent (2021), 28.6 percent (2022), 28.7 percent (2023).
Overall balance (fiscal rule): -5.8 (2019), -4.9 (2021), -1.7 (2022), -1.6 (2023).
Overall balance (headline): -7.7 percent of GDP in 2020; projected -5.9 (2021), -2.5 (2022), -2.6 (2023).
Stock of government bank balances: 4.7 percent of GDP in 2020.
Total public debt: 24.5 percent of GDP in 2020; projected 30.4 (2021), 31.7 (2022), 32.9 (2023), 34.1 (2024), 34.1 (2025 appears listed only through 2025 row).

Current account deficit estimated at 7.5 percent of GDP in 2020, mainly due to a large decline in diaspora-related inflows, most notably in tourism.
Remittance inflows: 13.7 percent of GDP in 2020; projected 13.9 (2021), 13.6 (2022), 13.3 (2023), 12.9 (2024), 12.5 (2025).
Gross international reserves declined but remain adequate partly due to the purchase under the IMF’s Rapid Financing Instrument (RFI) in April 2020 and the use of other external financing.

Banks have weathered the recession well to date.
High pre-COVID19 liquidity levels and ample capital buffers support system stability.
Non-performing loans: data as of November 2020 (table entry present but numeric value not provided in text body).
Regulatory capital to risk weighted assets: 18.1 (2017), 15.9 (2018), 16.7 (2019).
Bank credit to the private sector (percent change): 11.5 (2017), 10.8 (2018), 10.0 (2019), 6.5 (2020), 9.1 (2021 proj), 10.3 (2022 proj), 7.5 (2023 proj), 7.0 (2024 proj).
Deposits of the private sector (percent change): 5.3 (2017), 9.3 (2018), 15.6 (2019), 11.2 (2020), 7.2 (2021 proj), 6.7 (2022 proj).
Directors recommended close monitoring of bank asset quality, ensuring transparency in reflecting losses once regulatory forbearance is lifted, further strengthening the AML/CFT framework, preserving capital standards, and replenishing capital buffers gradually.
Directors encouraged filling existing central bank board vacancies as soon as possible.

Commended authorities’ swift and comprehensive policy response to mitigate health, social, and economic impacts.
Recommended policies remain broadly supportive and flexible given downside risks and uncertainty.
Immediate priority: Continue supporting the economy until the recovery is well entrenched, while improving design, targeting, and transparency of support measures.
Financing: Authorities encouraged to firm up the financing program for 2021 and consider contingency plans.
Fiscal policy anchor: Revert to the fiscal rule after the recovery has taken hold.
Consolidation focus: Improve targeting of social and economic transfers, revenue mobilization, and tax administration; conduct a comprehensive review of tax expenditures.
Social protection: Welcome commitment to reform the social protection system to ensure equitable access.
Public wage and pensions: Emphasized restraining public wage increases and assessing sustainability of the current pension system before amendments.
Governance and public sector: Welcomed efforts to improve governance and modernize public sector administration; supported a special audit of COVID-related relief measures; encouraged strengthening management and supervision of public sector enterprises and increasing efficiency of public investment and subsidies.
Structural reforms: Emphasized importance of accelerating reforms to address human capital and infrastructure gaps and improve the business environment.

Population: 1.8 million (2018)
Per Capita GDP: €3,947 (2019)
Quota: SDR 82.6 million
Poverty rate: 3.6 percent (2017) 1/
Main exports: metals and mineral products (2019)
Key export markets: Albania, Germany, Italy, Macedonia, Montenegro and Switzerland (2019)
Real GDP growth: 4.2 (2017), 3.8 (2018), 4.9 (2019), -6.0 (2020), 4.5 (2021 proj), 5.5 (2022 proj), 4.0 (2023 proj)
Official unemployment: 30.5 (2017), 29.6 (2018), 25.9 (2019), 24.6 (2020 as of Q3 2020)
CPI, period average: 1.1 (2017), 0.2 (2018), 0.3 (2019)
Real effective exchange rate (average; -=depreciation): 0.6 (2017), -0.1 (2018), 0.0 (2019)
Current account balance, incl. official transfers: -5.4 (2017), -7.6 (2018), -5.5 (2019), -7.5 (2020), -6.4 (2021 proj), -6.1 (2022 proj), -4.8 (2023 proj)
Financial account: -4.3 (2017), -5.0 (2018), -7.8 (2019), -5.6 (2020)

IMF press release: IMF Executive Board Concludes 2020 Article IV Consultation with the Republic of Kosovo, February 17, 2021.