The International Monetary Fund (IMF) warned on April 5 that despite substantial achievements in fiscal adjustments by the Kosovan authorities, spending related to various schemes, particularly war-related benefits, has rapidly expanded, which is putting increasing pressure on the budget. The spending is also undermining the authorities’ efforts to preserve fiscal sustainability.
The IMF approved a 22-month SBA for Kosovo, for an amount equivalent to SDR147.5mn (about €184mn, or 250% of Kosovo’s quota) in July 2015. The SBA is aimed at maintaining the country's macro-fiscal stability and fostering growth and competitiveness.
The warning was made at the end of the IMF mission, which visited Pristina on March 23–April 5 to conduct the second review of Kosovo’s economic programme supported by a Stand-By Arrangement (SBA).
Recognizing the risk of increased spending, the authorities, in consultation with IMF staff, are preparing a package of measures aimed at better designing and calibrating these schemes, while containing related spending to between 1% and 1.25% of GDP per year, the IMF said in a statement.
The measures are aimed to ensure that the 2016 fiscal programme targets remain within reach and that the 2017 budget, to be drafted later this year, will be in line with the fiscal rule.
On the other hand, the mission chief for Kosovo Jacques Miniane said in a statement that the mission held constructive discussions with the authorities on policies to complete the second review under the SBA and understandings were reached on most issues.
According to the IMF, the Kosovan authorities achieved a substantial fiscal adjustment in 2015, with the fiscal deficit and government bank balances significantly over-performing programme targets, and current spending contained.
Kosovan banks remain in good health and the increase in credit growth in 2015 continues. Progress is being made on measures to reduce structural barriers to bank lending, enhance bank supervision, and establish a macro-prudential policy framework, the IMF said.
The public procurement system has been strengthened, while widespread use of the new system will be important to make procurement more transparent and public spending more efficient, said the statement.
However, as the authorities need additional time to fully flesh out their policy intentions in some areas, discussions will continue in the coming weeks, including during the Spring Meetings in Washington later this month.
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