## IMF Staff Concludes Visit to Kosovo

_IMF News, May 26, 2022_

## Source details

**Canonical URL:** [IMF Staff Concludes Visit to Kosovo](https://www.imf.org/en/news/articles/2022/05/26/pr22172-imf-staff-concludes-visit-to-kosovo)

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## Bibliographic details
- Published: May 26, 2022

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### Mission summary
- Mission led by Mr. Gabriel Di Bella.
- Staff visit dates: May 10 – 13 and May 20.
- Purpose: discuss recent economic developments, the outlook, and policies.
- Statement reflects views of IMF staff and does not necessarily represent the views of the IMF’s Executive Board.
- This mission will not result in a Board discussion.

### Economic impact of the war in Ukraine
- Key finding: "The war in Ukraine represents a severe shock for Kosovo."
- Trade and financial direct exposure: described as negligible.
- Estimated impact on imports: could be "as high as 5.5 percent of GDP".
- Outlook: momentum from last year’s recovery remains strong, but the shock will "inevitably affect demand and economic activity in 2022."
- Policy implication: maintaining sound macroeconomic policies and financial stability, and advancing reforms, are essential to attract foreign direct investment.

### Inflation, energy prices, and social support
- Inflation projection: "expected to reach more than 10 percent in 2022" driven by increased import prices.
- Recommended approach: targeted and temporary support to help vulnerable households.
- Authorities’ measures noted as appropriate:
  - subsidies for agricultural inputs;
  - wage bonuses;
  - temporary increases in pension benefits and social transfers;
  - increase in electricity tariffs in February to reflect larger electricity import bill;
  - implementation of electricity subsidies for "about 20 percent of households."
- Cautionary finding: reverting the electricity tariff increase would "lead to a larger current account deficit and represent a serious burden for the budget."
- Recommendation: the planned budgetary review for 2022 should:
  - describe how support programs are reaching the most vulnerable; and
  - describe how "the appropriate functioning of the electricity value chain is being preserved in the face of the current electricity subsidies."

### Labor market and pension system
- Minimum wage: staff "concurred with the proposal to raise it by about 50 percent."
- Fiscal design: agreed on the need to decouple the increase in budgetary transfers from the minimum wage.
- Strong caution: IMF staff "cautioned strongly against additional withdrawals from the private pension fund (KPST)."
  - Rationale: withdrawals would "represent a heavy blow to the viability of the pension system and strongly reduce the real value of future pensions."
  - Additional effects: would "translate into a large compression of domestic capital markets, seriously compromising budgetary financing and debt sustainability."

### Banking sector and financial stability
- Assessment: "The banking sector has so far weathered the recent shocks well, helped by a good regulatory framework."
- Observations:
  - Strong credit growth has been supporting economic activity.
  - Domestic deposit and lending rates have remained broadly stable.
- Risks: tighter financial conditions in Europe could translate into higher domestic interest rates, creating vulnerabilities for sectors that have expanded strongly, including construction.
- Recommendation: banking supervision should "continue to vigilantly monitor banks’ asset quality and liquidity, ensuring that banks preserve sufficient capital buffers."

### Central Bank of Kosovo governance
- Importance: "An independent, accountable, and fully functional central bank is critical for the stability of the financial system."
- Positive step: appointment of two new Board members last December restored the quorum of the supervisory board after "1½ years."
- Outstanding issue: "the vacant deputy governor position should be filled urgently to prevent any adverse impact on the CBK’s capacity to act or make executive decisions during these trying times."

### Engagement and next steps
- IMF staff thanked authorities and counterparts for "excellent and very cordial discussions and engagement, including during the presentation of the IMF’s Regional Economic Outlook for Europe in Pristina."
- Next engagement: "We look forward to continue the dialogue during the upcoming 2022 Article IV consultations in October."

*IMF Staff Concludes Visit to Kosovo — Press Release No. 22/172 (May 26, 2022).*

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## Content in this bundle

- **Stafi i FMN-së përmbyll vizitën në Kosovë**
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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/2022/05/26/pr22172-imf-staff-concludes-visit-to-kosovo_