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Republic of Kosovo: Staff Report for The 2017 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. European Dept.
Published Date:
February 2018
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Fund Relations

(As of December 31, 2017)

Membership Status:

Joined: June 29, 2009; Article VIII (as of January 11, 2018).

General Resources Account:SDR MillionPercent Quota
Quota82.60100.00
Fund holdings of currency197.94239.64
Reserve Tranche Position20.0724.29
SDR Department:SDR MillionPercent Allocation
Net cumulative allocation55.37100.00
Holdings55.84100.86
Outstanding Purchases and Loans:SDR MillionPercent Quota
Stand-By Arrangements135.4163.92

Latest Financial Arrangements:

TypeDate of ArrangementExpiration DateAmount Approved (SDR Million)Amount Drawn (SDR Million)
Stand-ByJuly 29, 2015August 04, 2017147.50135.40
Stand-ByApril 27, 2012December 26, 201390.9778.22
Stand-ByJuly 21, 2010January 20, 201292.6618.76

Projected Payments to Fund1

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20182019202020212022
Principal3.5124.5954.2943.119.90
Charges/Interest2.372.161.600.700.09
Total5.8826.7555.8843.829.99

Implementation of HIPC Initiative: Not Applicable

Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable

Implementation of Catastrophe Containment and Relief (CCR): Not Applicable

Safeguards Assessments

The update safeguards assessment, conducted in connection with the SBA approved in July 2015, found that the Central Bank of Kosovo’s (CBK) governance practices are appropriate. The CBK’s financial reporting system is adequate and the bank has established an effective system of controls in its reserves management and vault operations. The assessment made recommendations to strengthen the internal audit function, amend the CBK Law, and revise the external auditor selection and appointment policy. All the assessment’s recommendations have since been implemented.

Exchange Arrangements

The de jure and de facto exchange rate arrangement is one of no separate legal tender. Since unilateral adoption of the euro, this currency is a legal tender in Kosovo and circulates freely. Kosovo is not part of the euro area and the CBK is not part of the European System of Central Banks. Kosovo is an Article VIII member and does not maintain exchange restrictions or multiple currency practices, except for restrictions maintained solely for reasons of international or national security, which have been notified to the Fund pursuant to Decision No. 144.

Previous Article IV Consultation

Kosovo was on a 24-month cycle during the previous Stand-By Arrangement. The last Article IV consultation was concluded on May 20, 2015. Going forward, it is expected that Kosovo will be on a 12-month cycle.

FSAP and ROSC Participation

An FSAP mission was conducted during September 19–October 2, 2012. The FSSA included the ROSC for compliance with Basel Core Principles. Kosovo has not had a data or a fiscal transparency ROSC.

Technical Assistance

Since 1999, the Fund has provided technical assistance and policy advice to UNMIK and, since September 2008, to Kosovo. Technical assistance has centered on the Fund’s core competencies, notably in the areas of fiscal policy, the banking and payments systems, and macroeconomic statistics. Assistance has also contributed to developing key aspects of the legal and institutional framework needed for a market economy. More recently, TA has been provided on the following issues:

Real Sector

  • Government Finance Statistics (September 2015, April and October 2016; February and April 2017)

  • E-GDDS (April 2017)

Fiscal Sector

  • Tax Administration (June and October 2017)

  • Merger Customs and Tax Administration (November 2015, March and November 2016, June 2016)

  • Public Investment Management (December 2015 and April 2017)

  • Social Security (January 2016)

Monetary and Financial Sectors

  • Risk-Based Supervision (November 2015 and March 2016)

  • Insurance Sector supervision and regulation (October 2016 and September 2017)

  • Macroprudential Policy and Early Warning System (October and November 2017)

Resident Representative

Mr. Vermeulen took up his post on August 1, 2015.

Joint IMF-World Bank Management Action Plan

TitleProductsProvisional Timing of MissionsExpected Delivery Date
1. Fund work programStaff Article IV visitNov 29 – Dec 12, 2017December 20, 2017
TA on tax administrationNov 2017 – July 2018 (multiple missions)
TA on government finance statisticsFeb – Oct 2018 (multiple missions)
TA on public investment managementTBD
TA on insurance supervisionFY2019
TA on central bank governanceFY2019
2. Bank work programEducation System Improvement ProjectDec 04-08, 2017December 2019
Energy Efficiency and Renewable Energy ProjectMarch 2018August 2020
Agriculture and Rural Development ProjectFebruary 2018June 2021
Kosovo Health ProjectJanuary 2018October 2019
Real Estate and Cadaster ProjectNov 28-Dec 08, 2017June 2018
Competitiveness and Export Readiness ProjectJanuary 2018October 2022
Water Security and Canal Protection ProjectNov 29-Dec 02, 2017April 2022
Improving Financial Protection and Quality of Care ProjectJanuary 2018July 2018
Youth Development ProjectNov 29-Dec 09, 2017FY20 Q1
Electricity Tariff Reform ProjectongoingMay 2018
Kosovo Power ProjectDecember 2017[to be determined]
Kosovo Digital Economy ProjectNov 27-Dec 03, 2017June 2018

Statistical Issues

I. Assessment of Data Adequacy for Surveillance
General: Data provision is adequate for surveillance. However, the statistical system still suffers from considerable shortages of financial and human resources.
National Accounts: Improvements have been made to the national accounts, but significant weaknesses remain. Compilation methods used for annual national accounts (ANA) are broadly in line with the international standards. The quality and timeliness of annual nominal and real GDP data has been improved, and data on GDP by economic activity and by expenditure are now published simultaneously in an excel format on the web-site of the Kosovo Statistical Agency with a delay of 10 months. Although quarterly national accounts series provide a first estimate of the annual GDP by April every year, it would be advisable to further reduce the time lag in the dissemination of ANA. Quarterly GDP data can be inconsistent with annual data (upon publication), requiring significant revisions, and improvements in methodology are required. Kosovo needs to improve existing and develop additional high-frequency (monthly) indicators, with priority given to indicators relevant to Kosovo’s economy such as wholesale and retail trade data and services.
Labor Markets: Reliable labor force data is challenging given the large share of the informal economy, although quarterly labor data began to be published in 2016.
Consumer Price Index: A monthly Consumer Price Index (CPI) has been produced since 2002 and is published on a monthly basis (with a lag of 13 days). The index uses a Classification of Individual Consumption according to Purpose (COICOP)-compatible item classification with 352 elementary aggregates. A new index was introduced in December 2014, with new weights largely based on National Accounts data aimed at bringing the CPI in line with the European Harmonized Index of Consumer Prices (HICP). It targets all products and services purchased by all households (resident and non-resident) in Kosovo. HICP is now available from January 2010 onward. The HICP was rebased from 2002 to 2015 in January 2016.
Government Finance Statistics: Monthly reports on budget execution of the general government (central government and municipalities) on a cash basis are provided five weeks after the end of each month. However, Budget classification is not consistent with GFSM 2014 because: (i) data is on cash basis, not accrual; (ii) lending for policy purposes (similar to subsidies) is included after calculating the primary balance ; (iii) capital transfers should be included in current expenditure instead of capital expenditure; (iv) memorandum of understanding (MOU) should be properly classified depending on their final purpose ; (v) annual budget documents should specify both current and capital spending related to individual projects. While data is generally adequate. Strengthening monitoring and disclosure of arrears will be important.
Financial Sector Data: Monetary data are compiled broadly consistent with the IMF’s Monetary and Financial Statistics Manual. The CBK reports monetary data monthly, using Standardized
Report Forms for the central bank, other depository corporations, and other financial corporations, which are published in the International Financial Statistics. Due to difficulties with obtaining adequate source data needed for estimation of Euro currency in circulation, the CBK ceased compiling currency in circulation in 2006, underreporting broad money. The CBK also reports Financial Soundness Indicators (FSIs) monthly according to the Compilation Guide on Financial Soundness Indicators. FSIs including all 12 core indicators and 7 encouraged indicators for deposit takers are available through IMF’s FSI webpage.
External Sector Statistics: CBK provides to STA quarterly balance of payments and international investment position data following the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) staring with 2013: Q1 reference data. Authorities also participate in: a) the Coordinated Direct Investment Survey with inward and outward data starting with 2010; b) the Coordinated Portfolio Investment Survey with annual data starting from December 2010 and semiannual data starting from June 2013, including encouraged items (currency of denomination, sector of the holder, sector of the issuer, and cross-sector classification); and the Quarterly External Debt Statistics. Direction of trade data are available on a monthly basis. Overall, the accuracy, periodicity, and timeliness of external sector statistics have improved due to authorities’ efforts and with technical assistance from STA. The authorities are currently working towards reporting the international reserves and foreign currency liquidity template.
II. Data Standards and Quality
The country participates in the enhanced General Data Dissemination System (e-GDDS) and its metadata were posted on the Fund’s Dissemination Standards Bulletin Board in 2001. A National Summary Data Page is available to regularly disseminate e-GDDS data to the public since May 11, 2017.Kosovo has not had a Data ROSC.
Kosovo—Table of Common Indicators Required for Surveillance(As of January 5, 2018)
Date of Latest ObservationDate ReceivedFrequency of Data7Frequency of Reporting7Frequency of Publication7
Exchange RatesN/AN/ADDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1N/AN/AMMM
Reserve/Base MoneyN/AN/AN/AN/AN/A
Broad Money09/30/201710/27/2017MMM
Central Bank Balance SheetNov/201701/02/2018MMM
Consolidated Balance Sheet of the Banking System09/30/201710/27/2017MMM
Interest Rates2Nov/201701/02/2018MMM
Consumer Price IndexNov/201712/14/2017MMM
Revenue, Expenditure, Balance and Composition of Financing3—General Government4Nov/201712/20/2017MMM
Revenue, Expenditure, Balance and Composition of Financing3—Central GovernmentNov/201712/20/2017MMM
Stocks of Central Government and Central Government-Guaranteed Debt510/30/201729/11/2017QQQ
External Current Account BalanceOct/201712/29/2017QQQ
Exports and Imports of Goods807/31/201709/14/2017MMM
GDP/GNP906/30/201709/28/2017QQQ
Gross External Debt09/30/201711/29/2017QQQ
International Investment Position609/30/201711/29/2017QQQ

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. While data are not reported for lack of capacity, authorities are working to start reporting these data in the near future.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A), irregular (I), and not available (NA).

Services data available on annual basis.

GNDI data not available.

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. While data are not reported for lack of capacity, authorities are working to start reporting these data in the near future.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A), irregular (I), and not available (NA).

Services data available on annual basis.

GNDI data not available.

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

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