OREANDA-NEWS. On May 20, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Kosovo.

Growth in Kosovo has proven relatively resilient and stronger than in its Western Balkan neighbors, averaging slightly more than 3 percent over the last five years. Steady remittances from the Diaspora living in Advanced Europe continue to be a key driver of growth, supporting as they have private consumption and investment. Nonetheless, medium-term growth prospects of some 3? percent per year, while reasonable, are not strong enough to steadily lift incomes towards regional standards, or to create enough jobs in a country with very high unemployment.

Kosovo continues to enjoy a low public debt, and last year’s deficit complied with the fiscal rule’s limit. However, promises made in the run up to the general elections could push this year’s deficit above the limit. Moreover, the composition of the budget has worsened considerably, with unproductive current spending crowding out spending on infrastructure, education, and health.

Kosovo’s banks remain liquid, well capitalized, and profitable. NPL ratios are slightly elevated at 8.4 percent, but are stable and fully provisioned. The central bank has made commendable progress in strengthening bank supervision as well as the framework for emergency liquidity assistance. However, there are obstacles to the provision of credit, despite high levels of liquidity in the banks. In particular, inefficient court proceedings on bank cases contribute to high interest margins and high collateral requirements. High levels of informality also deter credit provision via the concomitant lack of reliable financial statements.

Kosovo’s productive and export capacity is low at present owing to the country’s significant wage and non-wage competitiveness gap. The former is related to unsustainable wage pressures in the public sector, which make it difficult for the private sector to attract talent. The latter involves a looming energy deficit, limited access to and quality of education and vocational training, and remaining issues in the business environment, including perceptions of corruption.