IMF Executive Board Concludes Article IV Consultation with Kosovo
IMF News, February 2, 2018
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- Published: February 2, 2018
Main findings: macroeconomic performance and outlook
- Kosovo has made significant progress since the 2015 Article IV consultation in ensuring fiscal discipline and strengthening the financial sector.
- Fiscal deficit has been kept well below the 2 percent of GDP fiscal rule ceiling.
- Government bank balances are now above the minimum level of 4.5 percent of GDP.
- Public debt remains low.
- Banks remain healthy and credit growth has increased.
- Medium-term growth is projected at around 4 percent.
- The trade deficit is expected to remain high, though on a declining path, and largely funded by non-debt creating inflows (remittances and FDI).
- Kosovo notified the IMF on January 11, 2018 that it has accepted the obligations of Article VIII, Sections 2, 3 and 4 of the IMF's Articles of Agreement.
Structural challenges and policy priorities
- Key structural constraints:
- Weak external competitiveness.
- High informality.
- Low labor force participation.
- High unemployment, particularly among young workers.
- Large infrastructure gap.
- Policy priorities recommended by Executive Directors:
- Accelerate structural reforms to boost productivity and private sector development.
- Address high informality and unemployment, especially youth unemployment.
- Reform the education sector and enhance labor market functioning.
- Foster a business‑friendly environment and improve governance.
- Strengthen the anti‑corruption regime and implement procurement reforms.
- Ensure prudent income policies; any increases in the minimum wage should be in line with the current rule‑based minimum-wage‑setting mechanism.
- Reform war veteran benefits.
Fiscal policy and public investment
- Directors commended continued budget discipline and adoption of the 2018 budget aligned with the fiscal rule.
- Recommendations on public finances:
- Continue budget composition that creates fiscal space for growth‑enhancing spending in education, health, and infrastructure without compromising capital spending.
- Avoid large current spending increases.
- Broaden the revenue base by strengthening tax administration.
- Bolster the public investment framework to accelerate absorption of IFI financing for capital projects.
Financial sector and regulatory measures
- Progress noted in strengthening the financial sector and reducing structural impediments to bank lending.
- Directors encouraged:
- Maintain reform momentum and further strengthen the supervisory framework.
- Continue improving access to credit while carefully monitoring developments in the real estate sector.
- Further enhancements to the AML/CFT framework.
- Improve the performance of the insurance sector.
- Kosovo’s acceptance of Article VIII obligations was welcomed as a positive signal to investors.
Key statistics and indicators (2015–2018)
- Population: 1.8 million
- Quota (current): SDR 86.2 million
- Main products and exports: Minerals, base metals, agricultural and food products
- Real GDP growth (percent)
- 2015: 4.1
- 2016: 4.0
- 2017: (Act.) 4.0
- 2018: (Proj.) around 4 percent (text: "around 4 percent")
- Unemployment rate 1/ (Employment)
- 2015: 32.9
- 2016: 28.7
- 2017: 30.5
- Note: 2017 is as of Q2 2017
- Consumer prices (period average)
- 2015: -0.5
- 2016: 0.3
- 2017: 1.5
- 2018: 1.0
- Consumer prices (end of period)
- 2015: -0.1
- 2016: 1.3
- 2017: 0.7
- 2018: 1.8
- Terms of Trade (percent)
- 2015: 96
- 2016: 100
- 2017: 103
- 2018: 104
- Public finance (percent of GDP)
- Revenue:
- 2015: 25.1
- 2016: 26.3
- 2017: 26.2
- 2018: 26.9
- Expenditure:
- 2015: 26.7
- 2016: 27.3
- 2017: 27.1
- 2018: 29.6
- Overall balance ex-PAK and ex-PAK and donor-financed capital projects (Fiscal rule)
- 2015: -1.7
- 2016: -1.1
- 2017: -1.8
- Overall balance ex-PAK
- 2015: -2.9
- Public debt (end of period) 2/
- 2015: 18.9
- 2016: 19.6
- 2017: 21.0
- 2018: 21.8
- Stock of government bank balances
- 2015: 3.5
- 2016: 4.9
- 2017: 4.5
- Money and credit
- Credit to the private sector (eop, percent change)
- 2015: 7.3
- 2016: 10.3
- 2017: 10.5
- 2018: 10.1
- Effective bank lending rate (end of period) 3/
- 2015: 7.7
- 2016: 7.2
- 2017: 6.4
- Note: 2017 is as of July 2017
- Balance of payments (percent of GDP)
- Current account balance:
- 2015: -8.7
- 2016: -8.9
- Foreign direct investment:
- 2015: 4.7
- 2016: 3.0
- 2017: 5.0
- Reserves in months of imports:
- 2015: 2.9
- 2016: 3.1
- 2017: 3.3
- External debt stock (percent of GDP) 2/
- 2015: 24.7
- 2016: 24.5
- 2017: 24.9
Executive Board assessment (summary of Directors' views)
- Directors welcomed strong economic performance and progress under the recent Stand‑By Arrangement to advance macro‑financial stability through fiscal discipline and financial sector reforms.
- Directors stressed that continued commitment to sound policies and reforms is key to achieving durable and inclusive growth and improving prospects for income convergence with regional peers.
- Directors urged prioritization of reforms in education, labor markets, governance, procurement, anti‑corruption, and prudent income policies to improve competitiveness.
- Directors emphasized the need to broaden the revenue base, protect capital spending, and accelerate absorption of IFI-financed investment.
IMF Press Release No. 18/35, February 2, 2018.