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International Monetary Fund. European Dept.
This paper presents Republic of Kosovo’s Request for Stand-By Arrangement (SBA) and an Arrangement under the Resilience and Sustainability Facility (RSF). The SBA is expected to be precautionary and will provide liquidity in case downside risks materialize, including from Russia’s war in Ukraine. The RSF will provide affordable financing to support Kosovo’s climate change mitigation and adaptation efforts, including through greener electricity production and more efficient energy use, and is expected to catalyze other climate financing. Kosovo is the first European country to access the RSF. The authorities’ prudent fiscal policies and broadly targeted support framework helped rebuild fiscal space while mitigating the impact of the cost-of-living crisis. A strong policy mix is now needed to sustain the recovery and achieve reform objectives. Abiding by the fiscal rule deficit ceiling will provide a moderate impulse to activity in 2023, helping the economy soft land, while contributing to the anchoring of public debt in the medium term. Increasing medium-term growth prospects and reducing the country’s dependence on diaspora flows will require advancing the structural reform agenda and closing infrastructure and governance gaps.
International Monetary Fund. European Dept.
This 2021 Article IV Consultation determines that Kosovo’s people and its economy experienced a return to a certain degree of normality in 2021. Increased vaccination rates allowed a relaxation of stringency measures, supported mobility, and created the conditions for a resumption of diaspora travel. The fiscal response to the pandemic has been broadly adequate. Moreover, fiscal policy needs to return to a supportive stance in 2022. Focus, composition, and transparency of public spending needs strengthening including supporting economic resilience. While the objective to intensify vaccinations is both appropriate and commendable, intended policy actions under the “Economic Revival Program” need to be better defined, new social transfer programs should be more targeted, and the growth of existing transfers needs to be contained. Kosovo’s intentions to reduce carbon emissions are commendable. A credible climate and environment mitigation strategy should be centered around carbon pricing, while allocating its proceeds to investment in green projects and to mitigate the impact of higher energy prices on vulnerable households.