An International Monetary Fund (IMF) mission, led by Stephanie Eble,
visited Pristina during June 12-18, to discuss recent economic developments
and Kosovo’s economic outlook. At the conclusion of the visit, Ms. Eble
made the following statement:
“The key challenge for the Kosovo economy is to achieve higher private
sector and export-led growth. While growth is projected to remain robust at
around 4 percent this year, it is not enough to reduce unemployment and
accelerate income convergence with the rest of Europe. Also, the tariff on
imports from Serbia and Bosnia & Herzegovina has increased consumer
prices, especially of food products, impacting lower income households, and
weakened the external current account. Budget execution is broadly on
track, with lower revenue collection and spending overruns in social
benefit schemes yet again expected to be offset by lower capital spending.
“While Kosovo has maintained macro-fiscal stability, a number of costly
policy initiatives would hamper private sector development. In particular,
the large increase in wages as part of the public administration reform,
combined with an increase in employment, entails a large fiscal cost
that—without measures to contain it—puts the fiscal rule at risk and
undermines competitiveness. Similarly, social benefits under
discussion—such as early retirement for the police or overly generous
parental leave benefits—, as well as a proposed minimum wage hike that
would go well beyond price, productivity, and wage developments carry
significant fiscal costs. They would also hamper private sector development
by impeding efforts to reduce unemployment and informality.
“Instead, the authorities need to move ahead with the restructuring of
public enterprises; enhance the implementation of high-quality and
donor-financed investments; accelerate education reforms; strengthen the
rule of law and business climate; and advance long overdue war veteran
reforms to free up space in the budget for pro-growth spending. Also,
government guarantees should be carefully reviewed not to put fiscal
sustainability at risk.”
