Press Release No. 23/355

IMF Reaches Staff-Level Agreement with Kosovo on the First Reviews of the Stand-By Agreement and the Resilience and Sustainability Facility Agreement

October 16, 2023

 Washington, DC: An International Monetary Fund (IMF) mission, led by Mr. Gabriel Di Bella, visited Pristina during September 25 – October 6, 2023, to conduct discussions on the first reviews of Kosovo’s precautionary Stand-By Arrangement (SBA) and the Resilience and Sustainability Facility (RSF) Arrangement with the IMF.

Following further discussions from IMF headquarters, Mr. Di Bella issued the following statement:

“The IMF team and the Kosovar authorities have reached staff-level agreement on the completion of the first reviews of the precautionary SBA and the RSF arrangements. Subject to approval by the IMF Executive Board, the completion of the first reviews—expected in November—will make available an additional SDR 20.03 million (€24.6 million) under the SBA and SDR 30.976 million (about €38 million) under the RSF arrangement. The authorities have indicated that they do not intend to draw on the resources made available under the SBA arrangement at this time.

“Activity in 2023 is projected to expand by 3.5–4 percent, driven by stronger investment and external demand, especially for services. With decelerating food and energy prices, average inflation is expected to decline this year to 4–5 percent; the external current account deficit is projected to narrow. Staff expect the growth momentum to continue into 2024, and for inflation to continue easing. Still, global volatility and geopolitical tensions keep uncertainty elevated and pose risks to growth and inflation. Continued tensions in northern Kosovo have prompted some international partners to implement temporary and reversible measures aimed to promote de-escalation. These measures are unlikely to affect the short-term outlook, but they may impact performance if sustained for long.

“The authorities have continued to implement prudent fiscal and financial policies and have made good progress in implementing their policy agenda under the Fund-supported arrangements. The fiscal balance and government deposits at the Central Bank (CBK) have remained so far in 2023 comfortably above program floors and public investment absorption has increased considerably compared to 2022; staff expect end-2023 targets to be met. The quality and liquidity of CBK assets has been preserved in line with program objectives.

The authorities intend to send to the National Assembly a 2024 budget consistent with SBA and RSF objectives, including a significant reduction in contingent budget allocations—below the program ceiling. All SBA structural benchmarks for the review have been implemented, and good progress was observed in completing benchmarks due in the next few months. In this regard, the appointment of a new CBK governor and normalization of CBK governance structures have provided new impetus for reform implementation. Staff expects that new rules of procedure clarifying responsibilities of the CBK supervisory board in relation to the executive board will be soon in place and that a new bank law will be submitted to the National Assembly in early 2024.

“The authorities have made significant progress to advance their climate policy agenda, supported by the RSF and have implemented all reform measures required for this review. The launch of the first 100MW solar electricity generation pilot auction and submission to the National Assembly of a law on renewable energy sources pave the way for increasing clean energy generation via a competitive auctions. Capitalizing on lessons from the first auction, the government has decided to launch by mid-2024 an open, competitive, and transparent tender to attract private investment to build and operate 150 MW of wind-based electricity generation capacity. This would be the first of its type in Kosovo—a significant achievement. Moreover, the authorities have started implementing programs to increase energy efficiency in residential buildings and taken steps to strengthen regional cooperation, market competition, and functioning by implementing actions conducive to the start of the day-ahead electricity market for Kosovo in the context of the Albania-Kosovo Regional Electricity Market (ALPEX). To safeguard vulnerable energy consumers, the authorities have prepared a comprehensive plan, with funding in the 2024 budget. Finally, Kosovo Energy Corporation (KEK) has finalized the technical work required for the installation of filters in Kosova B Thermal power plant. Moreover, KEK budget plan for 2024 includes a contingent allocation of €12.5 million to complement EU funding to install the first of such filters in the B-2 unit, which upon completion would significantly reduce pollution in Pristina and surrounding areas.

“We would like to thank the authorities for candid discussions and warm hospitality during the mission. We look forward to continuing our engagement in support of Kosovo and its people.”