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International Monetary Fund. Statistics Dept.
This technical assistance report on the Republic of Kosovo presents details of residential property price index (RPPI) mission. The authorities are strongly committed to developing a publicly available RPPI for Kosovo. Transactions data from real-estate companies should be used for the development of the RPPI. The mission assessed the advantages and disadvantages of each available data source. A large real estate company has agreed to provide a dataset to the Kosovo Agency of Statistics (KAS). Pro Real Estate accounts for approximately 60 percent of the residential property market in Kosovo. The KAS should assess the quality of the data and its suitability for use in the compilation of the RPPI. The mission described the practical aspects of assessing the suitability and quality of the dataset. The KAS should assess whether it needs to supplement the data with information from other real estate companies to increase the geographical coverage. The mission increased capacity and knowledge the KAS staff on the methods for RPPI compilation. The main topics covered in the meetings included data visualization, assessing data quality, stratification, weights, subindex calculation and aggregation to high-level indices.
Michelle Stone, Sage De Clerck, Yasemin Hurcan, Taz Chaponda, Willie Du Preez, and Thomas Ekeli
Kosovo is working to improve its public investment management to support future economic growth and improvements in wellbeing. This assessment applies the IMF Public Investment Management Assessment (PIMA) framework, including the Climate-PIMA module. It finds that there have been improvements in Kosovo’s public investment management institutions since the original 2015 PIMA assessment. Nonetheless, there is room to continue to strengthen public investment management institutions and their climate sensitivity in Kosovo
International Monetary Fund. Fiscal Affairs Dept.
This paper highlights the details of the technical assistance (TA) report on Public Investment Management Assessment (PIMA) Update and Climate PIMA in the Republic of Kosovo. Public investment in Kosovo occurs in a fiscal environment where the general government deficit and debt is generally well contained. The overall strength of Kosovo’s public investment management institutions has increased—though the design of these institutions is stronger than their effectiveness in practice. The failure to undertake robust and consistent feasibility studies prior to project initiation is a key weakness, leading to delays and problems in project execution. In the implementation phase, design is stronger than performance, in part due to implications of weaknesses early in the planning stage. Like most other countries, Kosovo is at an early stage of incorporating climate aspects into public investment management. Dedicated effort and leadership from the Ministry of Finance, Labor and Transfers and the Ministry for Environment, Spatial Planning and Infrastructure will be key to boosting infrastructure outcomes.
International Monetary Fund. European Dept.
This paper presents Republic of Kosovo’s First Reviews Under the Stand-By Arrangement (SBA) and the Arrangement under the Resilience and Sustainability Facility (RSF) and Request for Modification of Reform Measure. The authorities are making very good progress in implementing their policy agenda under the Fund-supported arrangements. The SBA continues to provide a key policy anchor, and the RSF continues to support Kosovo’s climate change mitigation and adaptation efforts including by catalyzing additional climate financing. Program ownership remains strong. All quantitative performance criteria and indicative targets have been met. Structural benchmarks under the SBA and reform measures under the RSF have been implemented. Actions required for subsequent reviews are progressing as expected or have been strengthened. The RSF is laying the foundations for greener and more efficient energy markets and supporting reforms in other areas. The RSF increased the policy space to strengthen the regulatory framework to attract private investment into renewable energy, improve energy market functioning, expand green electricity generation, reduce air pollution and emissions, strengthen energy security, improve the targeting of energy subsidies, and increase preparedness for the implementation of carbon pricing.
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.
Gabriel Di Bella and Selim Thaci
Since the start of the war in Ukraine, electricity prices in Europe have increased and become more volatile. This coupled with unreliable domestic electricity supply has led to significant stress for Kosovo’s energy sector and budget. This paper presents several scenarios characterized by alternative assumptions for European electricity prices and domestic electricity production in 2023 in order to gauge their potential impact on the budget and the economy. It also discusses the medium-term benefits, including in terms of increased energy security and reduced emissions and pollution, of diversifying domestic electricity generation away from lignite.
Amanda Edwards, Ezgi O. Ozturk, and Selim Thaci
Among western Balkan countries, Kosovo had the largest growth in tax revenue in percent of GDP over 2021-22. While part of this strong performance could be explained by increased activity, surging inflation, and buoyance, a sizable part of it is related to increased formalization. This paper analyzes the extent to which tax revenue increases may have grown due to gains in formalization, both of workers and businesses, by applying a simple accounting framework to disentangle the sources of tax collection increases.
Mr. Si Guo
Interest income from foreign reserves is one of the main revenue sources for most emerging market central banks. For central banks in the Western Balkan region, the low global interest rates during 2008–2021 negatively affected their revenues, and the impact was more pronounced for central banks in Kosovo, Montenegro, and Bosnia and Herzegovina because they cannot use seigniorage to finance their operations. This paper explores how these central banks coped with the long period of low-interest rates. The main finding is that the decline in interest income from foreign reserves was partially compensated by higher fees, commissions, and other regulatory revenues.
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.
International Monetary Fund. European Dept.
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.