20230126-IMF-Republic_of_Kosovo_2022_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Republic_of_Kosovo_68页_1mb

IMF Article IV Consultation: Kosovo - Summary

Context and Key Findings

• The war in Ukraine has led to higher energy and food prices, weighing on private demand, economic activity, and inflation.
• Kosovo's GDP growth slowed to 2-3% in 2022 (vs. 10.7% in 2021), and inflation reached over 11% in 2022.
• The economic outlook remains uncertain due to risks from energy prices, financial conditions, and external factors.

Economic Outlook

• Growth is projected to recover moderately in 2023, supported by fiscal consolidation and improvements in diaspora flows if commodity prices ease.
• Inflation is expected to decline to around 5%, but upside risks persist due to energy costs.
• Uncertainty is high; growth risks are tilted to the downside, while inflation risks are upward.

Policy Recommendations

Fiscal Policy

• Return to the fiscal deficit ceiling of 2% of GDP in 2023 to support a soft landing.
• Improve public spending balance between social transfers and investments, enhance targeting of subsidies, and manage contingency allocations.
• Begin phased implementation of the public wage law to retain talent while controlling wage costs.

Financial Policy

• Strengthen monitoring of bank credit and liquidity, address vulnerabilities, and improve surveillance of the housing market.
• Ensure the Central Bank has autonomy and capacity to provide liquidity support.

Structural Reforms

• Address infrastructure gaps (e.g., energy, transportation) and governance issues to foster new growth engines.
• Accelerate reforms in public investment management, green energy, and anti-corruption measures to improve the business environment.

Authorities' Engagement

• Kosovo authorities agree on risks and policy stance but emphasize commitment to reforms and fiscal prudence.
• They seek a precautionary Stand-By Arrangement and express interest in IMF financial support for resilience.

Key Risks

• Downside for growth: Energy price shocks, weaker diaspora flows, and investment delays.
• Upside for inflation: Persisting high energy prices.
• External risks: Widening current account deficits and reserve adequacy concerns.

Conclusion

Kosovo's economy remains resilient, but risks are elevated. Fiscal prudence, structural reforms, and effective monetary policy are crucial for sustainable growth.