## IMF Survey: Kosovo Receives €48 Million Installment Under IMF Loan

_IMF News, July 17, 2012_

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## Bibliographic details
- Authors: Arrangement. The
- Published: July 17, 2012

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### Program disbursement and background
- The IMF’s Executive Board approved the second tranche for Kosovo under the country’s €106.6 million Stand-By Arrangement.
- The €48 million tranche follows a first disbursement of €5 million received when the 20-month program was approved in April 2012.
- Kosovo became a member of the IMF in 2009. Before membership the IMF provided extensive technical assistance while Kosovo was under administration of the United Nations (1999–2008).
- The new Stand-By Arrangement was approved by the IMF’s Executive Board in April 2012.

### Economic outlook and recent performance
- The IMF projects the economy to grow by 3.8 percent in 2012, modestly down from 5 percent in 2011.
- Kosovo has remained largely shielded from the euro crisis for several reasons:
  - Kosovo’s exports are small.
  - Financial linkages are limited: largest banks are foreign-owned but funded with domestic retail deposits and do not depend on financing from their parents.
  - Kosovo’s debt is not traded in cross-border financial markets.
  - Economic growth depends importantly on remittances and foreign direct investment from the Kosovar diaspora that lives primarily in Germany and Switzerland.
- Solid remittance inflows and robust lending activity by a well-capitalized and liquid banking system have supported growth.

### Program objectives and policy measures
- First objective: restore a sustainable fiscal position that would keep public debt below 30 percent of GDP in the long-term.
  - During the 2011 Article IV consultations, the IMF assessed that relative to this yardstick, Kosovo’s fiscal stance was too expansionary by about 3 percent of GDP.
  - Significant adjustment has already been achieved in the context of the SMP and the 2012 budget.
  - A fully sustainable position is targeted for 2014.
- Second objective: restore an adequate level of cash buffers.
  - In a unilaterally euroized economy like Kosovo’s, cash buffers insure against possible fiscal and financial risks and have a similar function as international reserves in a country with an own currency.
- Third objective: provide orientation for fiscal policy in the long-run.
  - With no independent monetary policy, fiscal policy is the main tool to stabilize and anchor the economy.
  - A technical assistance mission from the IMF’s Fiscal Affairs Department discussed options for a fiscal rule that could be introduced next year.
- Fourth objective: reinforce the resilience of the financial system.
  - As Kosovo is euroized, the central bank cannot generate liquidity on its own.
  - After the installment tied to this review becomes available, the authorities intend to fund a central bank facility designated for emergency liquidity assistance.
  - In April Kosovo’s assembly passed a revised banking and microfinance law that strengthens the central bank’s capacity to resolve troubled institutions.

### IMF engagement history and program implementation
- Earlier engagement:
  - In July 2010, the Executive Board approved a first Stand-By Arrangement (SBA), which went off-track partly due to outsized public sector wage increases in the context of the 2011 budget.
  - Kosovo requested a staff-monitored program (SMP) through end-2011; implementation of the SMP was broadly satisfactory with significant overperformance especially relative to fiscal targets, paving the way for the new SBA.
- IMF mission chief for Kosovo: Johannes Wiegand.

### Medium-term challenges and policy priorities
- A key medium-term challenge: build a competitive economy and develop a tradable sector to reduce dependence on transfers and create conditions for durable, robust growth.
- Critical actions to address this challenge:
  - Strengthen the institutional framework and business climate.
  - Invest in infrastructure and education.
  - Carefully prioritize, cost, and sequence spending initiatives to avoid risking macroeconomic stability.
  - Secure broad political support for reforms.
- Kosovo is a young country with large capital and social spending needs; policymakers face significant pressure to address these needs rapidly.

*IMF Survey online, July 17, 2012 — IMF*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Press release](http://www.imf.org/external/np/sec/pr/2012/pr12261.htm)
- [Read the report](http://www.imf.org/external/pubs/cat/longres.aspx?sk=26073.0)
- [Kosovo and the IMF](https://www.imf.org/external/country/uvk/index.htm)
- [The IMF and Europe](https://www.imf.org/external/region/eur/index.htm)
- [Blog: Banks in Eastern Europe](http://blog-imfdirect.imf.org/2012/06/13/lost-found-in-eastern-europe-replacing-funding-by-western-europes-banks/)
- [Europe needs action on growth](https://www.imf.org/external/pubs/ft/survey/so/2012/POL061812A.htm)
- [Factsheet: Stand-By Arrangement](https://www.imf.org/external/np/exr/facts/sba.htm)
- [approved](https://www.imf.org/external/np/sec/pr/2012/pr12154.htm)
- [technical assistance](https://www.imf.org/external/np/exr/facts/tech.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar071712b_