An International Monetary Fund (IMF) mission, led by Gabriel Di Bella, conducted a virtual staff visit to Kosovo during June 7-17, to discuss recent economic developments and policies. Mr. Di Bella issued the following statement at the conclusion of the visit:
“Economic activity in 2021 is expected to expand by about 5 – 6 percent on account of an ambitious vaccine rollout program, and the reopening of the borders which hails strong diaspora summer travel. If realized, economic gains in 2021 should offset last year’s pandemic-induced losses of 4 – 5 percent.
“Despite the better prospects, the growth outlook remains very uncertain. On the upside, faster-than-expected vaccine rollout both in Kosovo and abroad could boost travel and unlock pent-up demand. On the downside, new virus variants could lead to higher infection rates and threaten economic gains.
“Fiscal policy in the near term should remain supportive as a hedge against risks. Realized revenue gains vis-à-vis those in the budget can be used to support workers and firms most affected by the pandemic and to ensure a swift and efficient vaccine rollout, without affecting the budgeted fiscal balance. However, the still-large economic uncertainty calls for a prudent approach that avoids increasing expenditures on account of unrealized revenues, as this may lead to a further depletion of fiscal buffers, increased public debt, and the need for expenditure cuts later on. A phased approach and contingency planning are paramount right now.
“The banking sector has weathered the crisis well. Low non-performing loans (NPLs) and adequate capital and funding buffers have allowed credit to keep flowing. However, NPLs will rise as regulatory flexibility and temporary fiscal support are gradually phased out. Monitoring bank asset quality and ensuring that losses are adequately and transparently reflected once regulatory forbearance is lifted remains essential. Existing vacancies at the Central Bank Board should be filled with the shortest possible delay.
“In the medium term, new policy initiatives need to strike the right balance between promoting social cohesion and increasing potential growth. These initiatives need to be framed within a medium-term fiscal path, anchored in credible revenue and financing projections that stabilize the public debt ratio and rebuild fiscal and external buffers. Efforts to improve revenue collection should continue and advance in tandem with other structural reforms to improve the targeting of social spending and increase the growth dividend of public investment, while ensuring that the wage bill remains within its legal ceiling. Strengthening social infrastructure, promoting digitalization, and gradually reducing pollution and Kosovo’s carbon footprint will all contribute to faster increases in human capital and productivity, and prepare the economy for the post-pandemic challenges.
“We would like to thank our counterparts for excellent discussions and engagement. We look forward to continue the dialogue during the upcoming 2021 Article IV consultations in September this year.”