November 18 (SeeNews) - The International Monetary Fund (IMF) called on Kosovo on Friday to reform the pension schemes for war veterans by reclassifying already certified veterans according to their contributions in order to contain spending at affordable levels.
The restructuring was put as condition for Kosovo to gain access to a further tranche of 79.2 million of special drawing rights (100 million euro/$106 million). Consideration by the executive board of the IMF is scheduled for early 2017, the Fund said in a statement after the conclusion of a review of Kosovo performance under a stand-by arrangement agreed last year.
"Without reform, the larger than expected number of certified war veterans, together with the newly certified war disabled, could raise spending on war-related schemes to more than 100 million euro per year, which is significantly more than Kosovo can afford without foregoing much needed spending on other priority areas," IMF said.
According to the Fund, the schemes have a negative impact on some Kosovars, making them reluctant to find a job or to truthfully declare their income.
In order for reclassification to be successful, it should be carried out according to clear and transparent criteria set in the law, IMF recommended.
Kosovo's economy expanded by 4.1% last year driven by strong remittances, accelerating bank credit growth and ongoing large infrastructure projects. The country's GDP is projected to grow at a similar pace in 2017 but the economy continues to face challenges such as persistently high trade gap.
"Tackling these challenges will require additional and sustained efforts to develop a more dynamic and export-oriented private sector," IMF said.
IMF also drew attention to the small and unprofitable insurance sector, saying that "the introduction of new prudential rules on January 1st will be the first step towards stabilizing this sector."
The Fund welcomed the positive developments in the area of public procurement and recommended moving towards full e-procurement and expanding the list of centrally procured goods and services.
In July 2015, Kosovo agreed a 184 million euro two-year stand-by funding arrangement with the IMF. The country has so far drawn 71 million euro under the deal. The programme aims at preserving low public deficits and debt by containing current spending, lifting Kosovo’s economic potential by removing key structural impediments to growth, upgrading Kosovo’s infrastructure, and strengthening bank intermediation.
An IMF mission led by Jacques Miniane visited Pristina during November 9-18 for discussions on the second and third reviews under the stand-by deal.
($=0.9423 euro)