## IMF Staff Concludes Visit to Kosovo with Agreement on Second and Third Review of the SBA Program

_IMF News, November 18, 2016_

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**Canonical URL:** [IMF Staff Concludes Visit to Kosovo with Agreement on Second and Third Review of the SBA Program](https://www.imf.org/en/news/articles/2016/11/18/pr16514-imf-staff-concludes-visit-to-kosovo-with-agreement-on)

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## Bibliographic details
- Published: November 18, 2016

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### Agreement on reviews and financing
- IMF mission led by Jacques Miniane visited Pristina during November 9-18, 2016.
- Staff-level agreement reached on policies needed to complete the second and third reviews under Kosovo’s Stand-By Arrangement (SBA).
- Agreement is subject to completion of policy actions on key fiscal and structural measures, and approval by IMF Management and Executive Board.
- Consideration by the Executive Board is tentatively scheduled for early 2017.
- Completion of the review would make available SDR 79.2 million (around €100 million), bringing the total funds disbursed to SDR 135.4 million (around €170 million).

### Economic performance and outlook
- Growth of 4.1 percent last year, with similar momentum to this year and next.
- Key growth contributors:
  - Strong remittances.
  - Accelerating bank credit now growing at more than 9%.
  - Ongoing large infrastructure projects.
- Structural challenges remain, including a persistently high trade deficit.
- Policy priority: develop a more dynamic and export-oriented private sector to reduce high unemployment.

### Fiscal stance and public finances
- Fiscal discipline broadly maintained, but pressures mounting from current spending.
- Tax revenues increasing in line with targets, supported by robust growth.
- Government is highly likely to meet the €98 million deficit target in the budget and in the IMF program.
- Budget submitted to parliament for 2017:
  - Strikes a balance between fiscal prudence and attending to the country’s needs.
  - Expected deficit ex PAK and ex donor-financed capital projects of about €100 million.
- Policy recommendation: continue efforts to keep current spending contained to create space for necessary expansion of the capital budget.

### Social and pension support schemes (war-related schemes)
- Growing recognition that certain social and pension support schemes need reform.
- Risk: Without reform, the larger than expected number of certified war veterans, together with the newly certified war disabled, could raise spending on war-related schemes to more than €100 million per year.
- Fiscal and labor-market concerns:
  - Such spending is significantly more than Kosovo can afford without foregoing other priority spending.
  - These pension schemes discourage people from staying in their jobs, looking for a job, or truthfully declaring income.
- Government plans for reform:
  - Reclassify already certified war veterans according to differing contributions during the war.
  - Adjust benefits accordingly.
  - Reclassification should be based on clear and transparent criteria set in the law and led by a qualified and impartial commission.
- Objectives of reform: budgetary savings, better labor market incentives, and governance improvements.

### Financial sector developments and risks
- Banks remain liquid, profitable, and well capitalized.
- Asset quality improving: NPL ratio at 5.1 percent in September.
- Central Bank approved its first macro-prudential framework to identify and, if needed, handle systemic risks.
- Progress in contract enforcement is encouraging bank lending at lower rates with less collateral.
  - Recommendation: approval of the amended Law on Enforcement Procedures to make it harder for debtors to easily challenge enforcement orders.
- Insurance sector concerns:
  - Insurance is small, unprofitable, and thinly capitalized, not contributing to financial deepening.
  - Introduction of new prudential rules on January 1st will be the first step towards stabilizing the sector.

### Public procurement, wages, and other reforms
- Welcome progress in public procurement to make it more transparent and efficient.
  - Plans to move towards full e-procurement and expand the list of centrally procured goods and services.
- Wages and infrastructure:
  - Efforts over the last two years to slowly realign wages with productivity trends and slow upgrade of infrastructure will slowly contribute to a more dynamic and diversified economy.
- Remaining priorities to raise living standards and create jobs:
  - Strengthen the rule of law.
  - Find ways to channel large Diaspora flows into more productive uses.
  - Address energy security.

### Mission conclusion
- IMF mission held frank and open discussions with Kosovar authorities.
- Views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
- The mission thanks interlocutors for their hospitality and discussions.

*IMF Staff Concludes Visit to Kosovo with Agreement on Second and Third Review of the SBA Program — November 18, 2016.*

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## Content in this bundle

- [Pr16514a (PDF)](/external/lang/albanian/np/sec/pr/2016/pr16514a.pdf){rel="external" type="application/pdf"}

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## References

- [Republic of Kosovo and the IMF](http://www.imf.org/external/country/UVK/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2016/11/18/pr16514-imf-staff-concludes-visit-to-kosovo-with-agreement-on_