This chapter was prepared by Kamil Dybczak, Carlos Mulas Granados, and Ezgi Ozturk with inputs from Vizhdan Boranova, Karim Foda, Keiko Honjo, Raju Huidrom, Nemanja Jovanovic and Svitlana Maslova, under the supervision of Jörg Decressin and the guidance of Gabriel Di Bella. Jaewoo Lee and Petia Topalova provided useful advice and comments. Nomelie Veluz provided administrative support. This chapter reflects data and developments as of September 28, 2020.
Bertrand Gruss (co-lead), Carlos Mulas-Granados, Manasa Pat-nam (co-lead), and Sebastian Weber prepared this chapter under the supervision of Enrica Detragiache and the guidance of Jeffrey Franks. Zan Jin provided excellent research support.
Christian Ebeke (co-lead), Nemanja Jovanovic, Svitlana Maslova, Francisco Parodi, Laura Valderrama (co-lead), Svetlana Vtyurina, and Jing Zhou prepared this chapter under the supervision of Mahmood Pradhan and the guidance of Laura Papi and Petia Topalova. Jörg Decressin provided useful advice and comments. Jankeesh Sandhu provided outstanding research assistance, and Nomelie Veluz was expertly in charge of administrative support.
This paper discusses Republic of Kosovo’s Request for Purchase Under the Rapid Financing Instrument (RFI). The coronavirus disease 2019 (COVID-19) pandemic and the associated containment measures have severely weakened Kosovo’s economic outlook. The economy is expected to contract by 5 percent in 2020 as tourism receipts, remittances, exports of goods, and foreign direct investments will decrease due to travel restrictions and the effect of COVID-19 in trading partners and remittance-originating countries. The deteriorated economic outlook is expected to result in external and fiscal financing gaps. The RFI provides rapid and low-access financial assistance to member countries facing an urgent balance of payments need, without the need for a full-fledged economic program or reviews. It can provide support to meet a broad range of urgent needs, including those arising from commodity price shocks, natural disasters, conflict and post-conflict situations. Financial assistance under the RFI is provided in the form of outright purchases.
Recent economic developments. Notwithstanding a sizeable policy response, the COVID-19 pandemic is having a significant adverse impact on Serbia’s economic activity, with output in 2020 projected to contract by 3 percent, compared to a
4 percent increase expected prior to the COVID-19 shock. The shock is affecting the economy through lower external demand, weaker foreign direct investment and remittances, disruptions in regional and global supply chains, and domestic supply constraints. The government took strong actions to contain the pandemic at an early stage, but the number of infections accelerated again towards end-June. As a result, some containment measures have been re-introduced.
Recent economic developments. Supported by a large policy package, Serbia’s economy rebounded quickly from the initial COVID-19 shock, recording a 1 percent contraction of real GDP in 2020. Job losses have mostly been contained to the informal sector, thanks to policy measures aimed at preserving formal employment. A supplementary budget for 2021 was adopted in April boosting capital expenditure and extending policy support to households and corporates, against the background of third and fourth waves of infections and related containment measures, as well as a weaker-than-expected economic recovery in key trading partners. Inflation remains low. After rising again in late February, infections tapered, helped by new containment measures and the rapid vaccine rollout.
Kosovo has been hit hard by the COVID-19 pandemic. Despite policy support, economic activity is estimated to have fallen 6 percent in 2020 on account of the combined effect of strict domestic containment measures and international travel restrictions. The fiscal deficit increased to 7.7 percent of GDP, given the large fall in tax revenues and the implementation of mitigation and recovery measures of 4.2 percent of GDP. The current account deficit is estimated to have increased to 7.5 percent of GDP mainly due to a large decline in diaspora-related inflows, most notably in tourism. Gross international reserves declined but remain adequate in part due to the purchase under the IMF’s Rapid Financing Instrument (RFI) in April 2020 and the use of other external financing. Banks have weathered the recession well to date, and the high pre-COVID19 liquidity levels and ample capital buffers bode well for the system’s stability.
Recent economic developments. Economic activity recovered following a severe contraction in 2Q2020 caused by the pandemic. Real output in 2020 has been revised up and is now projected to contract by only 1.5 percent, on the back of positive highfrequency indicators. Inflation remains low. The banking system remains liquid. After the two waves in March and July, the number of new infections has accelerated again since mid-October, reaching record-high levels and a larger-than-expected deterioration presents a clear downside risk.
The COVID-19 pandemic has caused dramatic loss of human life and major damage to the European economy, but thanks to an exceptionally strong policy response, potentially devastating outcomes have been avoided.