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News 10 Jun 15

Kosovo Offered IMF Deal if it Continues Reforms

The IMF has agreed a 185-million-euro aid package to Kosovo if the government there continues its work on an agreed package of reforms.

Una Hajdari

The International Monetary Fund office in Pristina has announced that an agreement has been reached with Kosovo on an economic programme that could be supported by a 22-month Stand-By Arrangement, SBA.

“The proposed access would total... about €185 million... and the agreement is subject to approval by IMF Management and the Executive Board. Consideration by the Executive Board is expected by late July,” the head of the IMF mission, Jacques Miniane, said.

The IMF mission led by Miniane visited Pristina from May 28 - June 9 to discuss an economic reform program that could be supported by a Stand-By Arrangement.

“Growth in Kosovo has remained relatively strong and resilient in recent years, driven in part by strong remittances from the diaspora. However... higher growth is needed to bring income up to the levels of neighbouring countries and provide the high-quality jobs that Kosovo needs," Miniane concluded.

Issues that need addressing, according to the IMF, are infrastructure gaps, lack of skills, high labour costs and the business environment.

The structural adjustments that will be tackled in the Stand-By Agreement include keeping public debt levels sustainable, and managing the impact of last year's pre-electoral promises, which included public-sector wage rises.

“By keeping public wages at current values, by containing spending on goods and services, and introducing revenue-enhancing efforts, space will be created for pro-growth priority expenditures. The combination of lower deficits and Fund disbursements will help return the government’s cash buffers to prudent levels,” the IMF Mission said.

Kosovo's Minister of Finance, Avdullah Hoti, also announced that the 2015 budget and the draft budget for 2016 would be reviewed.

“The revised budget for 2015 and a preliminary budget for 2016 will enable us to continue the projects that we have underway and open new development opportunities. The 22-month IMF program provides Kosovo with opportunities for future development,” Hoti said.

“Kosovo's public debt is very low, around 10 per cent of GDP and this gives us enough space to enter international loans in favourable terms,” Hoti added.

Stand-By Agreements aim to provide financial aid to a member of the IMF that is in need of financial assistance. In return, the recipient country is required to implement reforms designed to restore economic stability.

The Prime Minister, Isa Mustafa, an economist himself, emphasised economic development in the government's platform when he took up his position last December.

To boost the private sector, Mustafa has said he will cut the turnover tax for small and medium businesses and shift the weight of VAT from collecting it on the border to internal VAT revenue.

The previous Prime Minister and current Foreign Minister, Hashim Thaci, had a precarious relationship with the Fund, having had to face the IMF breaking off an agreement in 2011 after he persisted with wage rises after the IMF advised him not to.

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