A mission of the International Monetary Fund (IMF), led by Mr. Johannes Wiegand, held discussions with the Kosovar authorities during May 17-30, 2011. The mission conducted the discussion for the 2011 Article IV Consultations and agreed with the authorities on a Staff Monitored Program (SMP) until the end of 2011.1

At the conclusion of the visit, Mr. Wiegand made the following statement:

“Kosovo enjoyed robust growth in the 2000s and has weathered the global financial crisis well. However, the economy depends on transfers and direct investment from the Kosovar diaspora, a growth model that is likely unsustainable. Moreover, social challenges loom large, with unemployment estimated at about 40 percent of the workforce. Strengthening competitiveness—through administrative and legal reforms, better infrastructure, and wage restraint—is needed to foster the emergence of a tradable sector and self-sustained growth. Fiscal policy addresses pressures to increase capital and social spending from a limited revenue base. In the short term disciplined budget execution is pivotal. In the medium term a re-orientation of fiscal priorities is needed, including raising more revenue from direct taxes. The financial system has developed rapidly while maintaining a sound funding structure.”

“The mission reached a staff-level agreement with the authorities on a package of policies to be monitored in the context of a Staff Monitored Program until the end of 2011. The policies target decisive steps towards fiscal sustainability and stronger budget management and execution. Successful implementation would help establish a track-record of sound fiscal management that could pave the way for a renewal of financial assistance by the IMF in 2012 and facilitate the continuation of donor support.”

1 The SMP is an informal agreement with IMF staff to monitor the implementation of the authorities’ economic program. It does not entail endorsement by the IMF Executive Board and does not involve financial assistance by the IMF.