Press Release No. 19/224

IMF Staff Concludes Visit to Kosovo

June 19, 2019

• Growth remains strong but higher private sector and export-led growth is needed to reduce high unemployment and a wide income gap with peers.
• Recent policy initiatives could increase current spending, hamper private sector development and weaken the investment climate.
• Policies should instead focus on advancing structural reforms to close sizable human and physical capital gaps by investing in education, health, and infrastructure, and to strengthen governance and the business climate.

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.”