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Kosovo’s growth remains high, with competitiveness still a challenge, says new Economic Reform Programme

Bruxelles, 20/05/2019 - 13:19, UNIQUE ID: 190520_12
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Kosovo’s growth remains high, with competitiveness still a challenge, says new Economic Reform Programme adopted by Council of EU

Kosovo’s growth rates remained high in 2018 compared to the region, supported by public investment and private consumption, says the latest Kosovo’s Economic Reform Programme (ERP). At the same time, structural obstacles to growth remain a challenge.

The ERP was discussed by representatives of the EU Member States, the Western Balkans and Turkey, the European Commission and the European Central Bank, as well as representatives of the central banks of the Western Balkans and Turkey at their annual economic policy dialogue meeting in Brussels on Friday. 

The meeting reviewed the Kosovo Economic Reform Programme, focusing in particular on competitiveness, which remains a key topic in EU-Kosovo economic dialogue. It is crucial that Kosovo increases its efforts in combatting the informal economy, maintaining fiscal discipline, ensuring healthy credit growth, fully liberalising the energy market, and improving labour market conditions for women and youth in particular. A common theme in the region, Kosovo included, is the need to address corruption and weak rule of law and institutions.

Nataliya Apostolova, Head of EU Office in Kosovo/EU Special Representative, underlined that by participating in the ERP exercise, Kosovo and the Western Balkans mirror the European Semester process.

"The implementation of the reform measures outlined in the ERP will significantly contribute to removing barriers to growth and competitiveness. Kosovo has committed to stepping up efforts in this direction, with EU support. Not only will these efforts bring Kosovo closer to the EU by helping fulfil the Copenhagen economic criteria, but more importantly they will bring tangible benefits for the quality of life of Kosovo people."

The work of the authorities, in particular the Ministry of Finance and Strategic Office of the Prime Minister, in addressing some of these issues was commended, and it was recognized that more work and closer cooperation is need to move ahead with this challenging agenda. This year, six specific targeted reform measures were agreed upon, which should help Kosovo advance to achieve its ambitious growth forecast:

  1. Complete the war veteran certification and reclassification processes in order to decrease the costs of the war veteran pension scheme in line with the current legislation. Ensure, if necessary through secondary legislation to the Law on Public Salaries, that the 2020 budget complies with the existing fiscal rules, in particular with the wage bill rule. Improve the collection of tax revenues so that the ambitious revenue projections for 2019 are fully met.
  2. Improve financial oversight and accountability of publicly owned enterprises. Strengthen institutional capacities at central and local government levels for multiannual investment planning and investment project management in order to improve the execution of capital spending. Prepare a paper on the establishment of an independent body for fiscal oversight for further consultations with stakeholders, including the EU.
  3. Continue improving the central bank’s analytical toolkit, including by establishing an inflation expectations survey. Further address the underlying legal and institutional factors hampering access to finance for SMEs. Closely monitor the emergence of potential financial stability risks related to the consumer loan segment, deploying appropriate micro- and macro-prudential policy tools if needed. Base decisions concerning the central bank’s holdings of government securities on a transparent investment policy, and gradually reduce their level to avoid crowding out private sector activity on the secondary market.
  4. Increase energy efficiency incentives for the private sector and households; adopt a plan that includes a gradual adjustment of energy tariffs reflecting expected increases in costs and mitigation measures for vulnerable consumers; improve support schemes for renewable energy projects with the introduction of competitive bidding/auctions for renewables support.
  5. Ensure the implementation of the new Strategy and Action Plan 2019-2023 to fight the informal economy in accordance with the prescribed timetable, integrating appropriate actions to address undeclared work.
  6. Develop active measures for increasing female labour market participation and employment. Increase the provision of vocational education and training for professions in demand. Increase investments in education with particular focus on expanding early childhood education.

Bedri Hamza, Kosovo's Minister of Finance and Economic Reform Programme Coordinator, said: "The Economic Reform Programme is an excellent tool which helps us improve public resource management in order to overcome structural obstacles, while maintaining fiscal discipline. We want to make sure that the Kosovo budget is utilized in the best way possible, and that we come closer to EU economic governance each year. Above all, we strive to implement these reforms in order to create a more conducive business environment that can bring growth and employment for Kosovo people."

The Economic Reform Programme is a dialogue on economic governance between the EU and the Western Balkans and Turkey. The ERP is meant to prepare the region for future participation in the EU economic policy coordination system known as the European Semester.

Please see below the webnews published: https://ec.europa.eu/neighbourhood-enlargement/news_corner/news/western-balkans-and-turkey-agree-deepen-economic-and-social-reforms_en

The Joint Conclusions can be found here: https://data.consilium.europa.eu/doc/document/ST-9474-2019-INIT/en/pdf

The factsheet on the Economic Reform Programme is available here: https://ec.europa.eu/neighbourhood-enlargement/policy/policy-highlights/economic-governance_en

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