{ "title": "IMF Staff Completes 2021 Article IV Mission to Kosovo", "publication": "IMF News, November 5, 2021", "sourceUrl": "https://www.imf.org/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission", "overlayPath": "/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission/index.md", "summary": "Mission led by Mr. Gabriel Di Bella; virtual visit during October 20-Novermber 4 in the context of the 2021 Article IV consultations.", "publishDate": "2021-11-05", "sections": [ { "heading": "Mission summary and context", "content": "- Mission led by Mr. Gabriel Di Bella; virtual visit during October 20-Novermber 4 in the context of the 2021 Article IV consultations.\n- End-of-Mission press release conveys preliminary findings of IMF staff; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.\n- Recovered mobility, policy actions and support from the diaspora identified as the keys behind the strong economic recovery in 2021.\n- Expectation that growth will normalize in 2022 amid still-high pandemic-related risks." }, { "heading": "Growth, drivers, and labor mobility", "content": "- Kosovo real GDP contracted by 5.3 percent in 2020 and is projected to rebound by 7 - 8 percent in 2021.\n- Key drivers of the 2021 rebound:\n - Renewed domestic mobility following a successful vaccination program.\n - Extraordinary support from the diaspora: remittances in the first 8 months of 2021 increased by about 40 percent compared to pre-pandemic levels.\n - Exports of services (including tourism by the diaspora) grew by 15 percent.\n- Kosovo featured the highest vaccination rate of the Western Balkans at end-October: 47 percent.\n- Continuation of the vaccination program in 2022 financed by a budgetary allocation for additional vaccines for booster shots and to expand coverage is commended." }, { "heading": "Fiscal developments and role in recovery", "content": "- Fiscal policy was less supportive in 2021 than in 2020 but provided lifelines to vulnerable households and firms and supported economic formalization.\n- Fiscal position:\n - 2020 deficit: close to 8 percent of GDP.\n - 2021: almost balanced fiscal position expected due to a cyclical rebound in revenues, fiscal restraint, and low implementation of the investment budget (partly due to absence of a functioning board at the Procurement Review Body, PRB).\n- Policy actions highlighted: lifelines to households and firms, support for formalization.\n- Recommendation: fiscal revenue windfall from the diaspora should be used to close social and economic infrastructure gaps and diversify growth engines.\n- Recommendation: fiscal policy should revert to the fiscal rule beginning in 2022, while including an allocation for emergency expenditures should the virus strike back.\n- Opportunity: fully replenished fiscal buffers present a chance to initiate the process to obtain a rating for Kosovo’s public debt securities." }, { "heading": "Inflation and prices", "content": "- Inflation projected to increase to about 5 percent (y/y) by end-2021 on higher energy and food prices.\n- Drivers in 2021:\n - Rebound in oil prices explained about ½ of the increase in 2021:H1.\n - Food price acceleration contributed to inflation in the summer.\n - Households largely insulated from steep increase in electricity prices in Europe, but a few firms affected via exposure to the regional electricity market.\n- Core inflation has begun to creep up; inflation pressures expected to remain persistent through mid-2022 and gradually ease thereafter." }, { "heading": "Financial sector resilience and vulnerabilities", "content": "- Banking sector overall remains resilient: capital and liquidity buffers are strong and NPLs are low.\n- Improvement in many financial soundness indicators is partly linked to the policy response to the pandemic.\n- Pockets of vulnerabilities: fast increase in lending to the construction sector by smaller banks.\n- Credit developments: extension of the window to restructure loans early in 2021 combined with improved expectations led to increased credit growth; projected to expand by more than 10 percent (y/y) in 2021.\n- Recommendation: strengthen credit risk monitoring as pandemic-related support measures were phased out in 2021 to ensure provisioning reflects underlying solvency risks and capital buffers are sufficient." }, { "heading": "Outlook and risks (2022 baseline and scenarios)", "content": "- Baseline: Absent negative pandemic-related surprises, real GDP expected to grow by 3 - 4 percent in 2022, partly driven by 2021 momentum.\n- Supporting factors for 2022 activity:\n - Continued domestic credit expansion.\n - Fiscal policy easing (size dependent on capacity to increase absorption of externally-financed investment projects and appointment by Parliament of directors to the PRB’s Board).\n- Downside risks:\n - New virus mutations remain the main downside risk after a rapid surge of cases in August.\n - Still-low spare capacity of hospitals could necessitate renewed mobility restrictions if cases rise.\n- Upside potential:\n - Implementation of an ambitious government program.\n - Continuation of extraordinary diaspora support, though projected to subside somewhat in the baseline." }, { "heading": "Fiscal policy priorities and recommended spending composition", "content": "- Make the budget more pro-growth by improving composition, effectiveness, and efficiency of spending.\n- Specific priorities and recommendations:\n - Wage bill must remain within its legal ceiling; the new draft law regulating public wages should strengthen transparency and compensation fairness and be based on wage coefficients that do not unsustainably increase the total wage bill.\n - New social transfer programs should be well designed, targeted, and transparent.\n - Budget for 2022 could clarify design and target beneficiaries of envisaged programs to expand child benefits and transfers to unemployed mothers of 0.6 percent of GDP.\n - Clarify intended use of a blanket allocation for subsidies and transfers of 1.6 percent of GDP.\n - Finalize certification of war veterans and insulate the budgetary envelope for war veteran benefits from the expected increase in minimum wages.\n - Augment health system capacity, expand access to computers for schools and households, and assign allocation to increase the number of commercial courts as called by the draft law under discussion.\n - Given security, defense, and road infrastructure comprise a large portion of the investment budget, devote targeted resources to increase share of households and schools with access to computers and to expand hospital infrastructure.\n - Sustain and consolidate gains in formalization through faster and more effective commercial courts, improved tax policy and administration, and increased electronic payments.\n - Reduce pollution and emissions by cleaner electricity generation; installation of filters in Kosovo B, in collaboration with the EU, remains a priority." }, { "heading": "Financial policy priorities: Central Bank independence and liquidity tools", "content": "- Urgent need to fill existing vacancies at the Central Bank (CBK) Board.\n - Essential for the CBK to adopt its budget, oversee its policies, and implement needed reforms, including adequate representation of financial stability and macroprudential policy functions at the CBK’s Executive Board.\n- Use of new SDR allocation:\n - Given comfortable fiscal buffers, the new SDR allocation can be used to strengthen the CBK’s window for Emergency Lending Assistance (ELA).\n - Current size of ELA is considered too low compared with potential financial sector liquidity risks.\n - The SDR allocation should remain available for pandemic-related support should downside risks materialize.\n- Strengthen CBK capacity to analyze banks’ risks in the context of the transition to IFRS9." }, { "heading": "Mission closing", "content": "- The mission thanks the authorities and other stakeholders for the frank, open and constructive dialogue.\n\nIMF Staff Completes 2021 Article IV Mission to Kosovo — November 5, 2021\n\n---\n\n Content in this bundle\n\n- Stafi i FMN-së përfundoi Misionin e Nenit IV për vitin 2021 në Kosovë\n - Stafi i FMN-së përfundoi Misionin e Nenit IV për vitin 2021 në Kosovë (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Stafi i FMN-së përfundoi Misionin e Nenit IV për vitin 2021 në Kosovë (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Republic of Kosovo and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission/bundle-manifest.json)", "Published: November 5, 2021", "Mission led by Mr. Gabriel Di Bella; virtual visit during October 20-Novermber 4 in the context of the 2021 Article IV consultations.", "End-of-Mission press release conveys preliminary findings of IMF staff; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.", "Recovered mobility, policy actions and support from the diaspora identified as the keys behind the strong economic recovery in 2021.", "Expectation that growth will normalize in 2022 amid still-high pandemic-related risks.", "Kosovo real GDP contracted by 5.3 percent in 2020 and is projected to rebound by 7 - 8 percent in 2021.", "Key drivers of the 2021 rebound:", "Kosovo featured the highest vaccination rate of the Western Balkans at end-October: 47 percent.", "Continuation of the vaccination program in 2022 financed by a budgetary allocation for additional vaccines for booster shots and to expand coverage is commended.", "Fiscal policy was less supportive in 2021 than in 2020 but provided lifelines to vulnerable households and firms and supported economic formalization.", "Fiscal position:", "Policy actions highlighted: lifelines to households and firms, support for formalization.", "Recommendation: fiscal revenue windfall from the diaspora should be used to close social and economic infrastructure gaps and diversify growth engines.", "Recommendation: fiscal policy should revert to the fiscal rule beginning in 2022, while including an allocation for emergency expenditures should the virus strike back.", "Opportunity: fully replenished fiscal buffers present a chance to initiate the process to obtain a rating for Kosovo’s public debt securities.", "Inflation projected to increase to about 5 percent (y/y) by end-2021 on higher energy and food prices.", "Drivers in 2021:", "Core inflation has begun to creep up; inflation pressures expected to remain persistent through mid-2022 and gradually ease thereafter.", "Banking sector overall remains resilient: capital and liquidity buffers are strong and NPLs are low.", "Improvement in many financial soundness indicators is partly linked to the policy response to the pandemic.", "Pockets of vulnerabilities: fast increase in lending to the construction sector by smaller banks.", "Credit developments: extension of the window to restructure loans early in 2021 combined with improved expectations led to increased credit growth; projected to expand by more than 10 percent (y/y) in 2021.", "Recommendation: strengthen credit risk monitoring as pandemic-related support measures were phased out in 2021 to ensure provisioning reflects underlying solvency risks and capital buffers are sufficient.", "Baseline: Absent negative pandemic-related surprises, real GDP expected to grow by 3 - 4 percent in 2022, partly driven by 2021 momentum.", "Supporting factors for 2022 activity:", "Downside risks:", "Upside potential:", "Make the budget more pro-growth by improving composition, effectiveness, and efficiency of spending.", "Specific priorities and recommendations:", "Urgent need to fill existing vacancies at the Central Bank (CBK) Board.", "Use of new SDR allocation:", "Strengthen CBK capacity to analyze banks’ risks in the context of the transition to IFRS9.", "The mission thanks the authorities and other stakeholders for the frank, open and constructive dialogue.", "**Stafi i FMN-së përfundoi Misionin e Nenit IV për vitin 2021 në Kosovë**", "[Republic of Kosovo and the IMF](http://www.imf.org/external/country/UVK/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[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)" ], "related": [ { "title": "Stafi i FMN-së përfundoi Misionin e Nenit IV për vitin 2021 në Kosovë", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/news/press-release/2021/pr21321-alb-kosovo-imf-staff-completes-2021-article-iv-mission-to-kosovo.pdf", "summary": { "path": "/-/media/files/news/press-release/2021/pr21321-alb-kosovo-imf-staff-completes-2021-article-iv-mission-to-kosovo.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/news/press-release/2021/pr21321-alb-kosovo-imf-staff-completes-2021-article-iv-mission-to-kosovo.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission/index.md", "json": "/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2021/11/05/pr21321-kosovo-imf-staff-completes-2021-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T00:45:06.461Z" }