A number of conclusions emerge from the analysis.

A number of conclusions emerge from the analysis.

The UN has made a good start in budget implementation, and an important step toward budget self-sustainability appears to be in train for 2001. However, a small tax base and the expectation of rapidly diminishing donor support for recurrent spending imply a very tight constraint on expenditure, especially in light of pressures to expand the scope of the budget and, eventually, shoulder some large off-budget items.

  • Policies to foster economic growth are essential for ensuring that the constraints on expenditure are not unbearable. Because growth will hinge on private sector development picking up the running as the construction boom eases, an appropriate enabling environment is crucial. This means placing immediate priority on finding workable, albeit perhaps temporary, so lutions to property rights problems and putting in place—and enforcing—modern commercial codes and regulations.11 Private sector development will go hand in hand with a deepening of the banking system. Maintenance of law and order and a lessening of ethnic tensions are also essential ingredients.

  • Delays in diversifying the tax system should be avoided. Revenues from new taxes build up over time, and the authorities need to jump-start efforts to solve administrative problems.

  • Caution should be exercised against introducing spending programs that carry long-term commitments. Ensuring there will be a sound base of social security contributions to fund social programs such as public pensions is an ob vious example.

  • Phasing out donor budget support by an early date would be quite stringent.


UNMIK has in this regard drawn up a White Paper on private sector development, and draft commercial regulations are awaiting approval.

Macroeconomic Issues and Fiscal Sustainability