Abstract
This staff report on the Republic of Kosovo’s 2013 Article IV Consultation focuses on economic and financial developments. Kosovo’s economy is excessively dependent on inflows from the diaspora. It is found that while these inflows support incomes, they finance primarily consumption and investments in nontradables, such as real estate or services, and contribute little to the build-up of productive capacity. Goods exports are less than 10 percent of GDP and concentrated in sectors with a low-value added component, notably metals. A coherent strategy is needed to improve competitiveness, foster the development of a tradable sector, and lay the basis for self-sustained growth.
Fund Relations
(As of May 31, 2013)
Membership Status
Joined: June 29, 2009.
General Resources Account:
| SDR Million | Percent Quota | |
|---|---|---|
| Quota | 59.00 | 100.00 |
| Fund holdings of currency | 141.82 | 240.37 |
| Reserve Tranche Position | 14.17 | 24.01 |
| SDR Million | Percent Quota | |
|---|---|---|
| Quota | 59.00 | 100.00 |
| Fund holdings of currency | 141.82 | 240.37 |
| Reserve Tranche Position | 14.17 | 24.01 |
SDR Department:
| SDR Million | Percent Allocation | |
|---|---|---|
| Net cumulative allocation | 55.37 | 100.00 |
| Holdings | 53.86 | 97.28 |
| SDR Million | Percent Allocation | |
|---|---|---|
| Net cumulative allocation | 55.37 | 100.00 |
| Holdings | 53.86 | 97.28 |
Outstanding Purchases and Loans:
| SDR Million | Percent Quota | |
|---|---|---|
| Stand-by Arrangements | 96.98 | 164.37 |
| SDR Million | Percent Quota | |
|---|---|---|
| Stand-by Arrangements | 96.98 | 164.37 |
Latest Financial Arrangements:
| Type | Date of Arrangement | Expiration Date | Amount Approved (SDR Million) | Amount Drawn (SDR Million) |
|---|---|---|---|---|
| Stand-By | April 27, 2012 | Dec 26, 2013 | 90.97 | 78.22 |
| Stand-By | July 21, 2010 | Jan 20, 2012 | 92.66 | 18.76 |
| Type | Date of Arrangement | Expiration Date | Amount Approved (SDR Million) | Amount Drawn (SDR Million) |
|---|---|---|---|---|
| Stand-By | April 27, 2012 | Dec 26, 2013 | 90.97 | 78.22 |
| Stand-By | July 21, 2010 | Jan 20, 2012 | 92.66 | 18.76 |
Projected Payments to Fund 1
(SDR Million; based on existing use of resources and present holdings of SDRs):
| Forthcoming | ||||||
|---|---|---|---|---|---|---|
| 2013 | 2014 | 2015 | 2016 | 2017 | ||
| Principal | 2.35 | 9.38 | 12.99 | 39.11 | 33.16 | |
| Charges/Interest | 0.52 | 0.97 | 0.87 | 0.62 | 0.22 | |
| Total | 2.86 | 10.35 | 13.86 | 39.73 | 33.37 | |
| Forthcoming | ||||||
|---|---|---|---|---|---|---|
| 2013 | 2014 | 2015 | 2016 | 2017 | ||
| Principal | 2.35 | 9.38 | 12.99 | 39.11 | 33.16 | |
| Charges/Interest | 0.52 | 0.97 | 0.87 | 0.62 | 0.22 | |
| Total | 2.86 | 10.35 | 13.86 | 39.73 | 33.37 | |
Implementation of HIPC Initiative: Not Applicable
Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable
Safeguards Assessments
The latest safeguards assessment of the Central Bank of the Republic of Kosovo (CBK) has been completed on June 25, 2012. It found that the majority of previous safeguards recommendations have been implemented. In particular, Audit Committee oversight has been strengthened and the internal audit department has taken important steps towards full compliance with international standards. Going forward, the department should now be subject to an external quality review. To safeguard Fund disbursements used for budget financing, the authorities have committed in the MEFP to continue existing practice of (i) using the CBK as the sole investment manager; and (ii) holding all government accounts at the CBK. Separately, to protect the CBK’s financial autonomy, treatment of any losses incurred as a result of emergency liquidity assistance was clarified in the law.
Exchange Arrangements
Kosovo does not issue a currency of its own, but uses the euro as legal means of payment. Kosovo is not part of the euro area and the Central Bank of the Republic of Kosovo is not part of the European System of Central Banks. Kosovo is an Article XIV member and has not yet accepted the obligations of Article VIII of the Articles of Agreement.
Previous Article IV Consultation:
Kosovo is on a 24-month consultation cycle during the Stand-By Arrangement. The last Article IV consultation—which was the first in Kosovo’s history—was concluded on July 6, 2011.
Fourth Review under the Stand-By Arrangement
Discussions took place in Pristina, May 28-June 10, 2013.
FSAP and ROSC Participation:
An FSAP mission was conducted during September 19–October 2 2012. The FSSA included the ROSC for compliance with Basle 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 under EBD/99/80 and, since September 2008, to Kosovo under EBD/08/95. 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
National Accounts Statistics (August 2011, September 2012, Feb-March 2013)
CPI Statistics (Feb-March 2013)
Fiscal Sector
IT systems and Taxpayer Compliance (HQ Missions: Feb. 2011; expert visits: Feb. 2011)
Tax Policy and Administration (Sep. 2011)
Tax Administration (Mar. 2012, Feb. 2013)
Fiscal Federalism (Sep. 2011)
Public Financial Management (Regional PFM advisor: Feb. 2013)
Fiscal rule and monitoring of accounts payable (Jun. 2012)
Resource regime for mining (Sep. 2012)
Rules-based fiscal framework (Feb. 2013)
Monetary and Financial Sectors
FSAP mission (Sep.-Oct. 2012)
Central Bank asset management (Mar. 2012, May 2013)
Central Bank Law (May 2012)
Bank supervision and regulations (Sep. 2011)
Financial stability analysis, including stress testing (Aug. 2011)
Monetary and forex operations (Jun. 2011)
Payments and settlements (Apr. 2011)
External Sector
Balance of Payments Statistics (Mar. 2012)
Resident Representative: Mr. Sulemane took up his post in October 2010.
Joint Imf-World Bank Management Action Plan
| Title | Products | Provisional Timing of Missions | Expected Delivery Date |
|---|---|---|---|
| 1. Fund work program | TA on CBK asset management | May 22-June 4 2013 | |
| Fourth Review SBA | May 28-June 10 2013 | 15 July 2013 | |
| Staff visit on the 2014 Budget | September 2013 | End-September 2013 | |
| Fifth review SBA | November 2013 | December 2013 | |
| TA on Revenue administration | Up to six short-term expert visits through end-April 2014 | ||
| TA on crisis management TA on macro prudential framework (macro modeling) | July 2013 | ||
| TA on stress testing | August 2013 | ||
| TA on Bank Resolution | August 2013 | ||
| TA on risk-based banking supervision | October 2013 | ||
| TA to the CBK on External sector | November 2013 | ||
| TA on national accounts | Planned for March 2014 | ||
| Four missions by the regional national accounts advisor planned for June, September, 2013 and January and April 2014 | |||
| 2. Bank work program | Public Sector Modernization Project (PSMP) | October 2013 | ongoing |
| PFR | June, August 2013 | Expected end-2013 | |
| TA and partial capitalization of DIFK | Expected to be completed in 2014 | Expected July 2013 | |
| Social Security Note | June 2013 | Expected July 2013 | |
| Poverty Report | July 2013 | Expected July 2013 | |
| LFS Report | July 2013 | September 2013 | |
| Study on Economic Mobility, Labor Markets and Gender in Kosovo | … | September 2013 | |
| Report and note as part of Smart Safety Nets Analytical and Advisory Services | Missions: May, 2013; and Q4 of CY 2013 | Expected June 2013Summary note - June 2014 | |
| Strengthening Capacity of the Health Financing Agency | July-August 2013 | ongoing | |
| New Kosovo Power Station and Environmental Cleanup Project | September 2013 | ongoing |
| Title | Products | Provisional Timing of Missions | Expected Delivery Date |
|---|---|---|---|
| 1. Fund work program | TA on CBK asset management | May 22-June 4 2013 | |
| Fourth Review SBA | May 28-June 10 2013 | 15 July 2013 | |
| Staff visit on the 2014 Budget | September 2013 | End-September 2013 | |
| Fifth review SBA | November 2013 | December 2013 | |
| TA on Revenue administration | Up to six short-term expert visits through end-April 2014 | ||
| TA on crisis management TA on macro prudential framework (macro modeling) | July 2013 | ||
| TA on stress testing | August 2013 | ||
| TA on Bank Resolution | August 2013 | ||
| TA on risk-based banking supervision | October 2013 | ||
| TA to the CBK on External sector | November 2013 | ||
| TA on national accounts | Planned for March 2014 | ||
| Four missions by the regional national accounts advisor planned for June, September, 2013 and January and April 2014 | |||
| 2. Bank work program | Public Sector Modernization Project (PSMP) | October 2013 | ongoing |
| PFR | June, August 2013 | Expected end-2013 | |
| TA and partial capitalization of DIFK | Expected to be completed in 2014 | Expected July 2013 | |
| Social Security Note | June 2013 | Expected July 2013 | |
| Poverty Report | July 2013 | Expected July 2013 | |
| LFS Report | July 2013 | September 2013 | |
| Study on Economic Mobility, Labor Markets and Gender in Kosovo | … | September 2013 | |
| Report and note as part of Smart Safety Nets Analytical and Advisory Services | Missions: May, 2013; and Q4 of CY 2013 | Expected June 2013Summary note - June 2014 | |
| Strengthening Capacity of the Health Financing Agency | July-August 2013 | ongoing | |
| New Kosovo Power Station and Environmental Cleanup Project | September 2013 | ongoing |
Statistical Issues
| I. Assessment of Data Adequacy for Surveillance | |
|---|---|
| General: Data provision is adequate for surveillance and for program monitoring. Performance criteria can be tested with accuracy. 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. The quality and timeliness of nominal and real GDP data based on the expenditure approach has been improved. and data is now published in an excel format on the web-site of the Kosovo Statistical Agency. GDP data based on the production approach are available, but publication lags are long. Kosovo should also start publishing quarterly GDP data and a monthly index of industrial production. | |
| Labor Markets: There is limited and unreliable data on the labor force and wages given the large share of the informal economy. A household survey is currently underway, with preliminary data for the first half of 2012 having been published in May 2013. | |
| 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. The current weights, introduced in January 2012, are based on the data from Household Budget Survey (HBS) and National Accounts (NA) data by expenditure approach for 2010. These weights will be used through December 2013. The Kosovar CPI’s item classification fully conforms to Classification of Individual Consumption According to Purpose (COICOP). | |
| 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 2001 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. Monitoring of domestic arrears should be strengthened. | |
| Financial Sector Data: Depository corporations (commercial banks and central bank) statistics starting as of Dec. 2000 are published on monthly basis (with a lag of 25 days). Other financial corporations statistics starting as of June 2004 are published on quarterly basis (with a lag of 35 days). Data are broadly consistent with the IMF’s Monetary and Financial Statistics Manual (MFSM), 2000. Due to difficulties with obtaining adequate source data needed for estimation of Euro currency in circulation, the CBK ceased compiling monetary aggregates in 2006. Financial soundness indicators are compiled according to the Compilation Guide on Financial Soundness Indicators (FSI), 2007, and available through STA FSI (starting with July 2010 data). Staff and other resources are currently sufficient. | |
| External Sector Statistics: CBK provides quarterly balance of payments data. Recently, CBK has revised its BOP data reflecting improvements in measurement of exports of services, remittances, and currency in circulation among other items. These revisions are now reflected in the data we report. Moreover, CBK has recently discontinued publishing trade data, which is now the responsibility of the Statistical Office of Kosovo (SOK). The latter data is available on a monthly basis. In October 2012, Kosovo started reporting quarterly IIP data to STA. Overall, the accuracy, periodicity, and timeliness of balance of payments statistics have improved due to authorities’ efforts and with technical assistance from STA. | |
| II. Data Standards and Quality | |
| Participant in the General Data Dissemination (GDDS) since April 2011. | Kosovo has not had a Data ROSC. |
| I. Assessment of Data Adequacy for Surveillance | |
|---|---|
| General: Data provision is adequate for surveillance and for program monitoring. Performance criteria can be tested with accuracy. 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. The quality and timeliness of nominal and real GDP data based on the expenditure approach has been improved. and data is now published in an excel format on the web-site of the Kosovo Statistical Agency. GDP data based on the production approach are available, but publication lags are long. Kosovo should also start publishing quarterly GDP data and a monthly index of industrial production. | |
| Labor Markets: There is limited and unreliable data on the labor force and wages given the large share of the informal economy. A household survey is currently underway, with preliminary data for the first half of 2012 having been published in May 2013. | |
| 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. The current weights, introduced in January 2012, are based on the data from Household Budget Survey (HBS) and National Accounts (NA) data by expenditure approach for 2010. These weights will be used through December 2013. The Kosovar CPI’s item classification fully conforms to Classification of Individual Consumption According to Purpose (COICOP). | |
| 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 2001 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. Monitoring of domestic arrears should be strengthened. | |
| Financial Sector Data: Depository corporations (commercial banks and central bank) statistics starting as of Dec. 2000 are published on monthly basis (with a lag of 25 days). Other financial corporations statistics starting as of June 2004 are published on quarterly basis (with a lag of 35 days). Data are broadly consistent with the IMF’s Monetary and Financial Statistics Manual (MFSM), 2000. Due to difficulties with obtaining adequate source data needed for estimation of Euro currency in circulation, the CBK ceased compiling monetary aggregates in 2006. Financial soundness indicators are compiled according to the Compilation Guide on Financial Soundness Indicators (FSI), 2007, and available through STA FSI (starting with July 2010 data). Staff and other resources are currently sufficient. | |
| External Sector Statistics: CBK provides quarterly balance of payments data. Recently, CBK has revised its BOP data reflecting improvements in measurement of exports of services, remittances, and currency in circulation among other items. These revisions are now reflected in the data we report. Moreover, CBK has recently discontinued publishing trade data, which is now the responsibility of the Statistical Office of Kosovo (SOK). The latter data is available on a monthly basis. In October 2012, Kosovo started reporting quarterly IIP data to STA. Overall, the accuracy, periodicity, and timeliness of balance of payments statistics have improved due to authorities’ efforts and with technical assistance from STA. | |
| II. Data Standards and Quality | |
| Participant in the General Data Dissemination (GDDS) since April 2011. | Kosovo has not had a Data ROSC. |
Kosovo—Table of Common Indicators Required for Surveillance
(As of June 28, 2013)
Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
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
Kosovo—Table of Common Indicators Required for Surveillance
(As of June 28, 2013)
| Date of Latest Observation | Date Received | Frequency of Data7 | Frequency of Reporting7 | Frequency of Publication7 | |
|---|---|---|---|---|---|
| Exchange Rates | N/A | N/A | D | D | D |
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities1 | M | M | M | ||
| Reserve/Base Money | N/A | N/A | N/A | N/A | N/A |
| Broad Money | 04/30/2013 | 05/31/2013 | M | M | Q |
| Central Bank Balance Sheet | 04/30/2013 | 05/31/2013 | M | M | Q |
| Consolidated Balance Sheet of the Banking System | 04/30/2013 | 05/31/2013 | M | M | Q |
| Interest Rates2 | 04/30/2013 | 05/31/2013 | M | M | Q |
| Consumer Price Index | 05/31/2013 | 6/15/2013 | M | M | M |
| Revenue, Expenditure, Balance and Composition of Financing3 – General Government4 | 04/31/2013 | 05/24/2013 | M | M | M |
| Revenue, Expenditure, Balance and Composition of Financing3- Central Government | 04/31/2013 | 05/24/2013 | M | M | M |
| Stocks of Central Government and Central Government–Guaranteed Debt5 | 03/31/2013 | 06/18/2013 | Q | Q | Q |
| External Current Account Balance | 12/31/2012 | 4/16/2013 | Q | Q | Q |
| Exports and Imports of Goods8 | 02/28/2013 | 4/17/2013 | M | M | M |
| GDP/GNP9 | 2011 | 12/20/2012 | A | A | A |
| Gross External Debt | 12/31/2012 | 4/16/2013 | Q | Q | Q |
| International Investment Position6 | 12/31/2012 | 4/16/2013 | Q | Q | Q |
Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
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
Kosovo—Table of Common Indicators Required for Surveillance
(As of June 28, 2013)
| Date of Latest Observation | Date Received | Frequency of Data7 | Frequency of Reporting7 | Frequency of Publication7 | |
|---|---|---|---|---|---|
| Exchange Rates | N/A | N/A | D | D | D |
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities1 | M | M | M | ||
| Reserve/Base Money | N/A | N/A | N/A | N/A | N/A |
| Broad Money | 04/30/2013 | 05/31/2013 | M | M | Q |
| Central Bank Balance Sheet | 04/30/2013 | 05/31/2013 | M | M | Q |
| Consolidated Balance Sheet of the Banking System | 04/30/2013 | 05/31/2013 | M | M | Q |
| Interest Rates2 | 04/30/2013 | 05/31/2013 | M | M | Q |
| Consumer Price Index | 05/31/2013 | 6/15/2013 | M | M | M |
| Revenue, Expenditure, Balance and Composition of Financing3 – General Government4 | 04/31/2013 | 05/24/2013 | M | M | M |
| Revenue, Expenditure, Balance and Composition of Financing3- Central Government | 04/31/2013 | 05/24/2013 | M | M | M |
| Stocks of Central Government and Central Government–Guaranteed Debt5 | 03/31/2013 | 06/18/2013 | Q | Q | Q |
| External Current Account Balance | 12/31/2012 | 4/16/2013 | Q | Q | Q |
| Exports and Imports of Goods8 | 02/28/2013 | 4/17/2013 | M | M | M |
| GDP/GNP9 | 2011 | 12/20/2012 | A | A | A |
| Gross External Debt | 12/31/2012 | 4/16/2013 | Q | Q | Q |
| International Investment Position6 | 12/31/2012 | 4/16/2013 | Q | Q | Q |
Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
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.