Kosovo’s Image 'Worsened By Loss of IMF Loan'

Safet Gerxhaliu, the president of Kosovo’s Economic Chamber, says that the country will face difficulties regaining the trust of the IMF because of its initial missteps.

Gerxhaliu told Balkan Insight that the suspension of the stand-by agreement was the last thing that Kosovo needed during this difficult economic period. 

The International Monetary Fund announced this week that it has suspended its loan for Kosovo for 2011, after the government implemented public sector wage increases that were not permitted under its agreement with the lender.

The 18-month standby agreement would have provided Kosovo with 87 million euros in soft loans from the IMF plus another 100 million euros from the European Commission, pledged at a 2008 donors’ conference.

While the government has not expressed public concern over the decision, Gerxhaliu said that the suspension is a troubling development.

“Kosovo does not need a freezing of relations with the IMF and this has happened for naïve reasons,” Gerxhaliu told Balkan Insight. 

He said that the country’s budget should not be sanctioned for the sake of promises made during an election campaign, referring to the campaign of Kosovo’s PM Hashim Thaci.

During the December 2010 election campaign, Thaci promised pay increases to teachers and civil servants despite warnings from the IMF.

From January 1, the government increased salaries by 50 per cent for more than 24,000 teachers and by 30 per cent for around 70,000 civil servants.

The average salary for a teacher in Kosovo rose from €250 to €375. The budget for public sector salaries jumped from 311 million euros in 2010, to 383 million euros for this year. Kosovo’s budget for 2011 is 1,264 million euros.

In order to fill the budget gap it faces after losing the IMF funds, Kosovo’s government will seek to sell the country's telecoms firm, Kosovo Post and Telecommunication, PTK, for between 300 and 600 million euros. 

Gerxhaliu, however, argues that because of the IMF loan suspension, the government in Pristina will not be in a good position to bargain over the price with potential buyers.

“The government doesn't have much time to resolve the PTK issue because it needs this money very fast. Now the potential buyers are in an enormously advantageous position to force down the price of PTK,” Gerxhaliu opined.

Gerxhaliu said he worried that Kosovo’s government would not be able to convince the IMF by the end of the year to renew the agreement.

The head of the Economic Chamber explained that the stand-by agreement with the IMF was a vital tool for the government, arguing that Pristina was not careful to protect the deal due to a lack of vision.

“The 180 million euro should have had absorbing capacities finalised with concrete projects and the government knew what capacities and possibilities were required to do this,” Gerxhaliu said. 

“I think it was difficult to set the projects that would absorb the funds and that’s why it did not pay attention.”

Meanwhile, the government does not appear to be concerned about the development this week, saying that it has reached an agreement with the IMF that allows Kosovo to enter a Staff Monitored Programme, SMP.

According to the IMF website, a Staff Monitored Program does not involve financial assistance by the lender. The agreement allows IMF staff to monitor the implementation of Kosovo's economic programme.

Kosovo's Finance Ministry said that the future discussions with the IMF will have a positive impact and Kosovo will be able to benefit from additional financial assistance from donors. “Kosovo will be able to develop new discussions related to a new programme with IMF,” a press release from the Finance Ministry reads.

The Ministry also said that the successful implementation of the SMP will open the way for Kosovo to receive promised funds fom the IMF and other donors within the next fiscal period.

Another economy expert from Pristina, Musa Limani, claimed that the government was warned by local experts about salary hikes by the IMF. 

“Now there is this deficit of more then 150 million euro in the budget and the government has lost its orientation,” Limani told Balkan Insight.

He added that the government will continue to rely on the tax administration, customs and fighting the informal economy.

“But you cannot rely on uncertain figures because the incomes from those segments are always unpredictable,” he said. 

Kosovo has lost politically, not just economically, Limani maintained, arguing that the country's image has been been damaged vis-a-vis international institutions, other partners and particularly foreign investors. 

“If Kosovo has shown a negative stance towards the IMF, then what will foreign investors think?” Limani told Balkan Insight, adding that he is concerned that Pristina will not be able to reinstate the standby agreement for 2012.