Kosovo: IMF Executive Board Completes Fourth Review Under Stand-By Arrangement; Approves €4.9 Million Disbursement

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of the Republic of Kosovo’s economic performance under a program supported by a Stand-By Arrangement (SBA). The decision enables the authorities to draw an additional amount equivalent to SDR 4.251 million (about €4.9 million, or US$6.4 million), bringing the total resources available to Kosovo under the arrangement to SDR 86.718 million (about €99.9 million, or US$130 million). The authorities have indicated they will not purchase the amount made available by the completion of this review, in line with their intention to treat the SBA as precautionary in 2013.

The Executive Board approved a 20-month SBA for Kosovo on April 27, 2012 (see Press Release No. 12/154) in an amount equivalent to SDR 90.968 million (about €104.8 million or US$136.3 million). Total disbursements so far amount to SDR 78.216 million (about €90.1 million or US$117.2 million).

Following the Executive Board’s discussion on Kosovo, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, stated:

“Kosovo’s economy has displayed resilience despite headwinds from the global financial crisis, owing to sound policies under the Fund-supported program and robust remittances and foreign direct investment from the Diaspora. Looking ahead, it will be important to reduce the dependence on such flows and develop a tradable sector that will support self-sustained growth.

“Important steps have been taken to build a more competitive economy. Continued decisive efforts to further strengthen the business climate, investments in public infrastructure, and steps to normalize cross-country relations in the region will be essential to enhance competitiveness and support growth. This strategy would also benefit from stronger education and training policies.

“The authorities have restored a sustainable fiscal stance in the past two years. A rules-based fiscal framework will anchor fiscal policy from 2014. The framework needs to be complemented by sound fiscal practices, especially the careful preparation and costing of spending initiatives. Kosovo’s reliance on indirect taxes is appropriate given the transfer-dependent structure of the economy. The revenue structure will need to adjust, however, as trade integration advances and as the growth model shifts from dependence on transfers to domestic production. The government’s bank balance with the central bank is a critical prudential buffer and needs to be guarded carefully.

“The banking system has grown rapidly in the past decade, but further progress will require the strengthening of institutions, in particular faster contract enforcement by the judicial system. At the same time, the banking system has remained stable, with adequate capital buffers, modest non-performing loans, and high liquid reserves. Vulnerabilities could be reduced further by comprehensive risk-based supervision, the development of a macro-prudential policy framework, and a permanent funding mechanism for the special reserve fund for emergency liquidity assistance,” she stated.