Buzz Update IMF Staff Concludes Visit to Kosovo TOU

Buzz Update IMF Staff Concludes Visit to Kosovo
 TOU

IMF Staff Concludes Visit to Kosovo

IMF Staff Concludes Visit to Kosovo

May 26, 2022

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

<strong>Washington, DC:</strong>
An International Monetary Fund (IMF) mission, led by Mr.  Gabriel Di Bella, conducted a staff visit to Kosovo during May 10 - 13 and May 20, to discuss recent economic developments, the outlook, and policies.  Mr.  Di Bella issued the following statement at the conclusion of the visit:




“The war in Ukraine represents a severe shock for Kosovo.  While direct trade and financial channels with conflict countries are negligible, the impact of the increase in the international prices of food and energy on Kosovo's imports could be as high as 5.5 percent of GDP.  While the momentum from last year's recovery is still strong, the shock will inevitably affect demand and economic activity in 2022. Although the pandemic and the war represent serious challenges, they have also spurred interest from investors to relocate to Europe.  Maintaining sound macroeconomic policies and financial stability, as well as advancing the implementation of reforms will be essential to attract foreign direct investment to Kosovo.  “




“Higher inflation, which on the back of increased import prices is expected to reach more than 10 percent in 2022, calls for targeted and temporary support to help vulnerable households.  The authorities have responded swiftly with subsidies for agricultural inputs, wage bonuses and temporary increases in pension benefits and social transfers.  At the same time, they have appropriately refrained from tax cuts, which disproportionately benefit those who are better off and are costly and difficult to reverse.  The increase in electricity tariffs in February to reflect the larger electricity import bill together with the implementation of electricity subsidies for about 20 percent of households were also appropriate policy moves.  A reversal of the tariff increase would lead to a larger current account deficit and represent a serious burden for the budget.  The planned budgetary review for 2022 should describe how support programs are reaching the most vulnerable, as well as how the appropriate functioning of the electricity value chain is being preserved in the face of the current electricity subsidies. ”




“Given the large reduction in the real value of the minimum wage, staff concurred with the proposal to raise it by about 50 percent;  and agreed with the authorities on the need to decouple the increase in budgetary transfers from the minimum wage.  IMF staff cautioned strongly against additional withdrawals from the private pension fund (KPST), as these would represent a heavy blow to the viability of the pension system and strongly reduce the real value of future pensions.  The withdrawals would also translate into a large compression of domestic capital markets, seriously compromising budgetary financing and debt sustainability. ”




“The banking sector has so far weathered the recent shocks well, helped by a good regulatory framework.  Strong credit growth has been supporting economic activity and domestic deposit and lending rates have remained broadly stable.  However, tighter financial conditions in Europe could translate into higher domestic interest rates, creating vulnerabilities for sectors that have expanded strongly, including construction.  Banking supervision will need to continue to vigilantly monitor banks' asset quality and liquidity, ensuring that banks preserve sufficient capital buffers. ”




“An independent, accountable, and fully functional central bank is critical for the stability of the financial system.  The appointment of two new Board members last December restoring the quorum of the supervisory board after 10 years was a welcome step.  However, 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. ”




“We would like to thank the authorities and other counterparts for excellent and very cordial discussions and engagement, including during the presentation of the IMF's Regional Economic Outlook for Europe in Pristina.  We look forward to continuing the dialogue during the upcoming 2022 Article IV consultations in October. ”



                <div class="imf-com">
                    <h5>IMF Communications Department</h5>
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

Phone: +1 202 623-7100Email: [email protected]

@IMFSpokesperson

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