IMF Staff Completes Virtual Staff Visit to Kosovo

IMF News, June 18, 2021

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An International Monetary Fund (IMF) mission, led by Gabriel Di Bella, conducted a virtual staff visit to Kosovo during June 7-17, to discuss recent economic developments and policies.
End-of-Mission statement conveys preliminary findings; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Staff will prepare a report, subject to management approval, for discussion and decision by the IMF's Executive Board.

IMF staff assessment: "Economic activity in 2021 is expected to expand by about 5 – 6 percent on account of an ambitious vaccine rollout program, and the reopening of the borders which hails strong diaspora summer travel."
If realized, economic gains in 2021 should offset last year’s pandemic-induced losses of 4 – 5 percent.
Risk scenarios:
- Upside: Faster-than-expected vaccine rollout both in Kosovo and abroad could boost travel and unlock pent-up demand.
- Downside: New virus variants could lead to higher infection rates and threaten economic gains.
Overall: "The growth outlook remains very uncertain."

Near-term stance: "Fiscal policy in the near term should remain supportive as a hedge against risks."
Use of realized revenue gains: Can be used to support workers and firms most affected by the pandemic and to ensure a swift and efficient vaccine rollout, "without affecting the budgeted fiscal balance."
Cautionary guidance:
- Avoid increasing expenditures on account of unrealized revenues to prevent further depletion of fiscal buffers, increased public debt, and the need for expenditure cuts later on.
- A phased approach and contingency planning are paramount.
Medium-term fiscal framework: New policy initiatives should be framed within a medium-term fiscal path anchored in credible revenue and financing projections that stabilize the public debt ratio and rebuild fiscal and external buffers.
Specific fiscal measures:
- Continue efforts to improve revenue collection.
- Improve targeting of social spending.
- Ensure the wage bill remains within its legal ceiling.
- Increase the growth dividend of public investment.

Current resilience: "The banking sector has weathered the crisis well. Low non-performing loans (NPLs) and adequate capital and funding buffers have allowed credit to keep flowing."
Near-term risks: NPLs will rise as regulatory flexibility and temporary fiscal support are gradually phased out.
Priorities:
- Monitor bank asset quality.
- Ensure that losses are adequately and transparently reflected once regulatory forbearance is lifted.
- Fill existing vacancies at the Central Bank Board "with the shortest possible delay."

Balance policy objectives: New initiatives need to strike the right balance between promoting social cohesion and increasing potential growth.
Structural reform focus areas:
- Strengthen social infrastructure.
- Promote digitalization.
- Gradually reduce pollution and Kosovo’s carbon footprint.
Expected outcomes: These measures "will all contribute to faster increases in human capital and productivity, and prepare the economy for the post-pandemic challenges."

IMF staff: "We would like to thank our counterparts for excellent discussions and engagement."
Continued engagement: IMF staff look forward to continuing the dialogue during the upcoming 2021 Article IV consultations in September this year.

Press Release No. 21/185 — June 18, 2021

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