- The International Monetary Fund (IMF) staff and the Kosovo authorities have reached staff-level agreement on policies for completion of the Third Reviews under Kosovo's Stand-by Arrangement (SBA) and Resilience and Sustainability Facility (RSF) Arrangement. The completion of the Third Reviews will make available an additional SDR 13.35 million (€16.5 million) under the SBA and at least SDR 15.5 million (€19.1 million) under the RSF. The agreement is subject to approval by IMF Management and the IMF Executive Board, with Board consideration expected in December.
- Kosovo's economic performance has remained strong. Growth has accelerated and inflation has receded rapidly. Growth is now expected to reach 4¼ percent in 2024, driven by strong private consumption and larger public investment.
- Program performance has also been strong. The authorities met all quantitative performance criteria and indicative targets (ITs) for the Third Reviews. Structural reforms and the green agenda, supported by the SBA and the RSF, are progressing well.
Washington, DC: An International Monetary Fund (IMF) mission, led by Mr. David Amaglobeli, visited Pristina during October 28 – November 11, 2024, to hold discussions on the 2024 Article IV Consultations and the Third Reviews of Kosovo's Stand-By Arrangement (SBA) and Resilience and Sustainability Facility (RSF) Arrangement. At the conclusion of the mission, Mr. Amaglobeli issued the following statement:
"The IMF team and the Kosovo authorities have reached staff-level agreement on policies to complete the Third Reviews under the SBA and the RSF arrangements. The agreement is subject to approval by IMF Management and the Fund's Executive Board, which is scheduled for mid-December. The completion of the Third Reviews will make available an additional SDR 13.35 million (€16.4 million) under the SBA and at least SDR 15.5 million (€19.1 million) under the RSF. The authorities have indicated that they intend to continue treating the SBA as precautionary, not drawing on the resources."
"Kosovo's economy continues to perform well, supported by robust private consumption and higher public investment, offsetting the impact of a widening trade deficit and softening remittances. We project growth to reach 4¼ percent this year and 4 percent next year. Headline inflation has significantly declined, reaching 0.4 percent year-on-year in October 2024, driven by a slowing in the growth of food and transportation prices. The external current account deficit widened to 2¾ percent of GDP in the first eight months of 2024 from 1½ percent of GDP in the same period last year, due to growing imports of goods and services, fueled by higher domestic demand. Private sector credit grew at double digits, deepening the financial sector and providing additional support to the economy. The banking sector remains healthy—profitable and well-capitalized with low levels of non-performing loans."
"The authorities have continued to implement prudent macroeconomic policies. Stronger revenue collection contributed to a budget surplus in the first three quarters of 2024; public spending followed the usual seasonal pattern. With a pick-up in spending in the latter part of the year, a fiscal deficit of about 1¼ percent of GDP is expected for the 2024 as a whole. The spending increase reflects accelerated execution of the authorities' public investment program (PIP) and new spending measures (e.g., reformed child allowances) aimed at addressing challenges."
"The 2025 budget aims for a somewhat expansionary fiscal stance and is aligned with the IMF programs' objectives. Fiscal policy plays an important role in addressing the Kosovo's substantial developmental and social needs, while helping to maintain macroeconomic stability. The 2025 budget reflects several key policy priorities. Thanks to improved revenue collection and in line with the fiscal rule, the budget will facilitate a progressive increase in public sector wages. This addresses the need to preserve real value of wages and ensure that the public sector remains competitive for attracting talent. Additionally, the budget includes a 20-percent increase in all state-funded pension benefits, which reflects accumulated cost of living adjustments."
"Over the medium term, fiscal policy should be anchored in a robust policy framework while prioritizing capital investments and targeted social protection. Continued emphasis on strengthening revenue generation will help provide additional resources for these outlays. A continued build-up of fiscal buffers is important given heightened uncertainty, downside risks, and Kosovo's unilateral euroization. Accelerating EU accession will further support Kosovo's development needs by mobilizing additional financial assistance."
"The authorities have maintained strong performance under both the SBA and RSF. All end-June quantitative and Indicative Targets (ITs) for completion of the Third Reviews have been met. All end-September 2024 ITs were also met. The authorities are also advancing structural reforms, including strengthening transparency of publicly-owned enterprises. The RSF is delivering substantial results in support of the authorities' green agenda. Most reform measures agreed under the RSF have been implemented. The remaining measure—launch of the wind power tender—was delayed due to technical reasons but is expected to be completed soon."
"We welcome the significant progress made by the CBK in strengthening financial sector regulation and enhancing its governance and institutional structure. Laws on banks and on payments, currently under consideration in Parliament, will strengthen the legal foundation for upgrading banking supervision and support Kosovo's integration with the EU. There are ongoing efforts to modernize the banking supervision regulatory framework, including implementation of the Supervisory Review and Evaluation Process (SREP), aligning Kosovo more with EU standards. Adoption of a countercyclical capital buffer and a capital surcharge for systematically important institutions are key steps to bolster financial sector resilience to future shocks."
"Article IV discussions focused on reforms to strengthen labor market outcomes, including increasing female labor force participation, enhancing long-term sustainability and equity of the pension system, strengthening reserve buffers against potential shocks, and bolstering growth potential through improved access to finance, and harnessing benefits from digitalization, and mobilizing investments in the private sector."
"The IMF team would like to thank the authorities and other counterparts for constructive discussions and cooperation during this mission."
