Drop in diaspora inflows pushed up Kosovo's current account deficit says IMF

By bne IntelliNews February 21, 2021

The International Monetary Fund (IMF) said that Kosovo’s current account deficit is estimated to have increased to 7.5% of GDP mainly due to a large decline in diaspora-related inflows, particularly in tourism.

"Kosovo’s 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," the IMF said in a report published last week.

Kosovo’s economy is estimated to contract 6% last year as a result of the strict domestic containment measures and international travel restrictions, despite local policy support.

In an 2020 Article IV Consultation with Kosovo, the IMF concluded that Kosovo's budget deficit increased to 7.7% of GDP, due to the large drop in tax revenues and the implementation of mitigation and recovery measures of 4.2% of GDP.

Economic activity is projected to rebound by 4.5% in 2021 supported by continued fiscal stimulus, and the projected gradual relaxation of containment measures.

While the nominal GDP is projected to return to pre-crisis levels by 2022, it is expected to remain below the pre-crisis trend for a protracted period. A stronger implementation of structural reforms could mitigate these longer-term effects.

“The outlook remains subject to large uncertainty, and depends on the evolution of the pandemic, the speed of vaccinations, and political developments,” the IMF said.

The Fund encouraged Kosovo authorities to firm up its financing programme for 2021 to support the planned mitigation and recovery measures, as well as considering contingency plans.

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