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The International Monetary Fund said Wednesday that driven by improved vaccination rates, restored freedom of movement, political action and tremendous support from the diaspora, Kosovo’s economy is recovering from its deepest recession in a decade.
The report on Kosovo states that after shrinking by 5.3 percent in 2020, real Gross Domestic Product (GDP) is projected to increase by 7.5 percent in 2021. The fiscal response to the pandemic provided a lifeline for households and companies and mitigated the impact. of stroke to those most affected by the pandemic.
The fund notes that fiscal policy was put in an almost balanced position in 2021 by a deficit of approximately 8 percent of GDP in 2020.
The report notes that economic hardships were further offset by extraordinary diaspora revenues and sustained credit growth for the private sector. Inflation in 2021 appears to have risen to more than 5 percent due to higher energy and food prices. With capital and liquidity reserves as well as low non-performing loans, the banking sector has been generally stable, the report said.
Economic activity is projected to grow by 3.8 percent in 2022, driven in part by strong economic momentum in 2021, the report said, noting that the pandemic continues to pose a major risk, but its consequences are now expected to be less, as diaspora revenues were higher than expected. Structural policies, including combating informality and creating the conditions for a green economy, can mitigate the long-term effects of the pandemic.
The report calls for strengthening spending transparency and better defining targeted policy actions under the “Economic Recovery Program” and the new law on public wages should contain the wage bill within the legal limit. Other fiscal risks include the ongoing review of wage law and the regulation of the issue of war veterans benefits, which continue to violate the legal limit of 0.7 percent of GDP.
Among other things, the fund emphasizes that among the medium-term fiscal priorities should be the expansion of the tax base and the strengthening of fiscal transparency, while the unplanned revenues provided by the diaspora should be used to close the gaps in social and economic infrastructure.
The report emphasizes that revenues from the diaspora can not be the main engine of economic growth and that increasing the resources of this growth requires improving infrastructure, managing public investment and the education system to adapt to the needs of the economy.
Kosovo’s intentions to reduce carbon emissions are commendable, the report said, noting that the priority is to install filters in lignite-based power plants in co-operation with the EU./VOA/
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