PRISTINA (Kosovo), December 18 (SeeNews) – Kosovo needs to advance structural reforms to decrease unemployment and outward migration, as well as to reduce a still wide income gap with the rest of Europe, the International Monetary Fund (IMF) said.
Structural challenges remain largely undented, and should be at the forefront of the policy agenda, the executive board of the IMF said in a statement emailed to SeeNews on Tuesday, after it concluded the 2018 Article IV consultation with Kosovo.
“An underdeveloped private and export sector, widespread informality, reliance on remittances are mirrored in high unemployment and inactivity rates, and a large trade deficit,” the IMF executive board noted, adding that tackling these deep-rooted challenges through structural fiscal, financial sector, product and labour market reforms remain a priority.
“However, in a complex political environment important structural reforms have stalled and pressures to introduce fiscally costly, populist initiatives have increased,” the IMF added.
On the bright side, the Fund noted that following three years of robust economic growth, Kosovo's economic expansion is expected to continue at 4% in 2018, led by investment, consumption, and services exports. Economic growth is expected to accelerate to 4.2% in 2019 supported by a temporary increase in public investment, and over the medium term to remain at its potential of 4% on the back of robust domestic demand and exports.
The fiscal rule remains an appropriate anchor for fiscal policy and underpins the 2019 budget, though execution risks are significant, the IMF said, adding that revenue administration reforms should be accelerated to strengthen revenue collection and improve the business environment.
“Fiscal risks need to be contained to avoid crowding out pro-growth spending within the limits of the fiscal rule,” the IMF noted. It also said that spending efficiency needs to be significantly enhanced to improve outcomes and support growth, including through strengthening fiscal institutions and governance.
The IMF also noted that Kosovo's financial sector remains sound, but access could be further improved.
"With double-digit credit growth, the authorities need to remain vigilant for possible pockets of risk and differentiate between healthy financial deepening and potentially excessive credit growth," the Fund said.