Speaking to IMF Survey, the IMF Mission Chief for Kosovo, Jacques Miniane, and the Resident Representative in Kosovo, Ruud Vermeulen, said that significant progress has been made, but the economy still faces significant challenges, including on improving its competitiveness. The IMF is supporting the authorities’ economic program through a Stand-By Arrangement.
IMF Survey : Tell us a little bit about Kosovo’s economy, its main features as well as its main challenges.
Miniane: Kosovo is a young nation, having formally declared independence in 2008. Mirroring this, Kosovo has Europe’s youngest population, with half of Kosovars under the age of 25. This is both the economy’s main asset but also its main challenge.
Why a challenge? Well, while the economy has been steadily growing at an average rate of about 3 percent, which is not bad compared with its Western Balkan neighbors, it needs to grow quite faster than this for incomes to converge to Eastern European standards, and to provide jobs to new entrants into the labor force. At present, income per capita is about €3,000, while unemployment is very high at 30 percent. Neither the authorities nor we can be satisfied with such outcomes, and we are all too aware of the significant competitive challenges facing the country.
IMF Survey: In July 2015, the IMF approved a Stand-By Arrangement for Kosovo. What prompted the authorities to request a program, and what principles guided the design of the program?
Vermeulen: In the months leading to the 2014 elections, there was a significant expansion in public spending, with, for instance, large increases in public sector wages and social pensions as well as benefit packages for war veterans. This was not sustainable. The authorities turned to the IMF both to restore credibility, and to lend support for politically difficult reforms.
The philosophy behind the design of this program is simple: do only a few critical things, but try to do them well. What does it mean? For example, on the fiscal side, no consolidation for the sake of consolidation. In fact, deficits may go up under the program, but the key is that the space will be used for critical infrastructure investment, or for well-targeted social spending that truly reaches the most vulnerable. Similarly, the financial and...