Tuesday, January 3, 2012

Republic of Kosovo Letter of Intent and Technical Memorandum of Understanding

Economic activity in Kosovo has remained robust, supported by buoyant domestic demand and solid credit growth, while our financial system remains well capitalized and liquid. However, downside risks have increased owing in part to the deteriorating outlook for the euro area. A protracted weakness in activity in Europe could negatively affect remittances  and foreign direct investment from Kosovars living abroad, and therefore constrain an important source of funding for the Kosovar economy. 

Our policy strategy is based on steadfast commitment to disciplined fiscal management—including through safeguarding sufficient government cash buffers—the further strengthening of surveillance and the regulatory framework of Kosovo’s financial system, and progress with structural reforms to boost competitiveness. These policies provide the best safeguard to steer the Kosovar economy successfully through the period ahead and enhance its medium-term growth  prospects. 

Implementation of our Staff-Monitored Program (SMP) that was initiated in June has been largely successful to date.

Quantitative benchmarks for end-September were all met with the exception of the  benchmark on accumulation of domestic arrears, where a minor amount has been  accumulated. Reforms are underway to improve our ability to monitor overdue bills  and reduce the likelihood of arrears built-up.  

The structural benchmark on publication of our tax compliance strategy was also  met, as were the continuous structural benchmarks on monthly meetings of our program monitoring committee and on inclusion of a clause into all laws that create new or modify existing benefits to permit adjustment of the benefits to the amounts available in the budget.  

Moreover, we have submitted a budget for 2012 to the Assembly that is consistent with our commitment to achieve ¾ of a percent of GDP in structural fiscal adjustment, as part of our strategy stretching over a period of 4 years to restore a sustainable fiscal stance. Passage of this budget is a structural benchmark under the SMP for end-December.

International Monetary Fund. December 15, 2011

For more information about Projects in Kosovo see SOUTHERN EUROPE Projects