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Republika e Kosovës

Republika Kosova - Republic of Kosovo

Qeveria - Vlada - Government

Ministria e Financave

Ministarstvo Finansija– Ministry of Finance

Department for Macroeconomic Policy and International Financial Cooperation

Quarterly Economic Bulletin

January- March, 2020

The Quarterly Economic Bulletin provides an update on some of the key developments across

sectors. The bulletin is designed to be informative for all readers. Since the effect of COVID 19

pandemic on the economy began relatively late in March, this bulletin includes an analysis based

on a number of available indicators for this period. The next bulletin issue (April-June) will

include a detailed analysis of the impact of the pandemics on the economy.

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Content

Foreign Economic Development ................................................................................................................................. 3

Real sector .......................................................................................................................................................................... 4

Economic Growth ....................................................................................................................................................... 4

External Sector ................................................................................................................................................................. 7

Current Account ......................................................................................................................................................... 7

Financial Account ....................................................................................................................................................... 9

Financial Sector ................................................................................................................................................................ 9

Labour Market ............................................................................................................................................................... 10

Business register, Q1 2020 .......................................................................................................................................... 10

Public Finance ................................................................................................................................................................ 10

Revenues ...................................................................................................................................................................... 10

Expenditure ................................................................................................................................................................ 11

Overall budget balance ........................................................................................................................................... 12

Other information: Reaction of Public Authorities Against Covid-19 Pandemic in Kosovo ............... 13

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International Developments

Economic developments during the first quarter were significantly affected by the spread of the

COVID-19 virus. Earlier this year, global economic activity indicators showed stabilization of

production growth, with some signs of recovery in the manufacturing sector. Moreover, the US-

China trade agreement signed in January and the ratification of the BREXIT agreement reduced

the uncertainty that was present in 2019. However, the rapid spread of COVID-19 in Europe

towards the end of February significantly affected economic activity. The pandemic has led many

governments to take measures that limit people's movement and a significant share of economic

activity. As a result, social distancing measures have significantly affected short-term global

economic growth. Despite this, there is still uncertainty about the impact over the rest of the year.

Many European countries have declared a state of alert and taken measures to restrict movement

and ban certain activities in various service sectors, such as hotels and restaurants, and retail trade.

Manufacturing came to a standstill in some manufacturing sectors, such as the car industry, due to

the demand freeze and supply chain disruptions. The impact assessment and duration of this shock

on the economy is characterized by many uncertainties. Preliminary Eurostat estimates show that

GDP on an annual basis has contracted at 3.3% and 2.7% during the first quarter of 2020 in the

Eurozone and the EU, respectively. This economic downturn has been the biggest drop in the EU

and the Eurozone since 1995. The deteriorating outlook for economic growth has led to a sharp

drop in stock prices and an increase in uncertainty.

At the same time, commodity markets have been hit by the pandemic, which has already caused a

marked slowdown in economic activity. The pandemic has affected both aggregate demand and

the supply of goods through the impact of restrictive measures on economic activity and the supply

chain. As a result, commodity prices in international markets1 have fallen sharply during the first

quarter. The downward trend in some commodities had begun since January, however in February

when the number of countries affected by COVID-19 increased, the fall in prices accelerated.

Meanwhile, the fastest decline in

prices is seen in March, precisely

when the restrictive measures were

increased in many countries. A

significant decline was recorded in

prices related to the transport

industry. Changes in oil prices, in

particular, are largely determined by

supply and demand factors. In this

quarter, the decline in demand for

oil was mainly related to the

economic slowdown caused by the

1 IMF primary commodity prices https://www.imf.org/en/Research/commodity-prices

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar

2019 2020

All Commodity Price Index Food and Beverage Price Index

Industrial Inputs Price Index Agriculture Price Index,

Crude Oil (petroleum), Nickel, melting grade, LME spot price

Graph 1 International Market Prices

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COVID-19 pandemic which has affected the fall in oil prices. The price of crude oil in March

reached an average of $ 32 / billion per barrel, marking an annual decline of nearly 50%.

Real sector

Economic Growth

Macroeconomic outturn 2019

In the absence of official data from KAS on GDP in the first quarter of 2020, this Bulletin analyzes

the latest available data, which belong to the fourth quarter of 2019 and provides a qualitative

assessment of economic activity expectations for the first quarter of 2020.

In the fourth quarter of 2019, according to the Kosovo Agency of Statistics (KAS), Kosovo's

economy grew by 3.9% (y-o-y) in real terms and by 4.3% (y-o-y) in nominal terms.

The real growth rate in the fourth quarter of 2019 is mainly attributed to private and government

consumption (with a contribution of 2.4 pp and 1.0 pp, respectively) and total investment (1.3 pp).

The contribution of net exports was negative (0.4 pp), mainly as a result of the declining

contribution of total exports (2.3 pp).

According to preliminary GDP data, Kosovo's economy grew by an average of about 4.2%

throughout 2019, which is comparable to the economic growth of the last three years.

Graph 2 Contributions to GDP Graph 3 Real GDP by activities, y-o-y, and %

In the fourth quarter of 2019, based on the breakdown of GDP by economic activities, the

"services"2 sector continues to have the highest contribution to real GDP growth (about 1.9 pp),

followed from the “industry” sector (about 0.4 pp) and from the “construction” sector (about 0.2

2 The services sector includes the categories: "wholesale and retail trade, repair of vehicles and motorcycles", "transport and

storage"; "Hotels and restaurants"; “Information and communication”, “financial and insurance activities”; "Real estate ", "public

administration" and "other services".

4.2%

3.8%

4.2%

4.1%

4.4%

3.9%

3.5%

3.6%

3.7%

3.8%

3.9%

4.0%

4.1%

4.2%

4.3%

4.4%

4.5%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2017 2018 2019Q1 2019Q2 2019Q3 2019Q4

Private Consumption Public ConsumptionTotal Investment Export (G&S)Import (G&S) GDP, y-o-y, %

Agriculture,Forestry and

Fishing

Industry

Construction

Services

2017Q4 2018Q4 2019Q4

5

pp).3 Meanwhile, the "Agriculture, Forestry and Fisheries" sector has made a very close

contribution to zero.

Expectations for macroeconomic progress for Q1 2020

In the absence of official KAS GDP data in the first quarter of 2020, indirect aggregate demand

indicators give signals for slower economic growth than in the preceding year.

o Signals for the outturn of private consumption during 2020Q1 show slower growth than in the

same quarter of last year, supported by a smaller increase in VAT collection (4.7%, y-o-y); a

slower growth of remittances and compensation of employees (6.9% and 1.3%, respectively),

although the outturn of imports of consumer goods and new consumer credit has been

satisfactory during this quarter.

o Public consumption4 increased by about 1.1% in the first quarter of 2020 (y-o-y). This rate is

significantly lower than the increase in the previous year.

o Signals for private investment are positive and suggest an acceleration of growth in 2020 Q1,

as a result of: i) increase in imports of capital goods by 7.41% (y-o-y), acceleration of new

credit for investment purposes by 66.7%; and ii) increase of foreign direct investment by about

60.5%;

o The dynamics of public investment in the fourth quarter of 2019, as expected, has been weak,

marking an annual decline of 34.9% (y-o-y).

o The trade deficit of goods and services in the first quarter of 2020 increased by about 4.6%

compared to the same period last year, mainly as a result of the decline in the balance of

services surplus.

Inflation

In Q1 2020, the Consumer Price Index (CPI) grew by an average of about 1.1% in annual terms.

This rate is lower than the inflation rate recorded in the same period last year (about 3.2%). The

monthly dynamics of inflation show a slow down, marking an annual rate of 1.5%, 0.9% and 0.8%

in January, February and March 2020, respectively. This declining trend is attributed mostly to

declining commodity prices in international markets, as a result of the earlier onset of the Covid-

19 pandemic situation in other countries (USA, China, EU countries, etc.).

CPI subcategories’ that showed the highest growth were:

- The food category with an annual growth of 1.4% and a contribution to total inflation of 0.5

pp (mainly as a result of rising prices for "bread and cereals", "meat" and "fruits");

- Non-alcoholic beverages category (with an annual increase of 3% and a contribution of 0.16

pp);

3 The industry sector includes the categories: "extractive industry", "processing industry", "electricity and gas supply", and "water

supply". 4 Public consumption includes two categories of expenditures: "wages and salaries" and "goods and services" and "public

expenditures".

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- The “Furniture, home appliances and home maintenance” category continued to contribute

similarly to the previous two quarters, at around 0.16 pp (annual growth of 2%);

- The contribution of the category "various goods and services" increased to 0.18 pp, marking

an annual increase of 3.7%;

Table 1 Main category contributions to annual inflation

Main CPI subcategories 2017 2018 2019 2020

avg. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Food and non-alcoholic beverages 0.60 0.24 0.25 0.87 1.12 2.54 2.54 1.97 1.27 0.64

Of which: Food 0.46 0.19 0.27 0.89 1.15 2.51 2.53 1.85 1.09 0.49

Bread and cereals 0.06 0.22 0.14 0.13 0.38 1.08 1.28 1.36 0.79 0.24

Fruits 0.12 0.18 -0.02 -0.05 -0.19 -0.20 -0.15 -0.05 0.11 -0.01

Vegetables 0.05 -0.10 0.12 0.43 0.46 0.93 0.66 -0.03 -0.20 0.02

Alcoholic beverages and tobacco 0.18 0.09 0.13 0.13 0.16 0.13 0.15 0.15 0.11 0.13

Of which: Tobacco 0.19 0.10 0.09 0.09 0.08 0.11 0.12 0.09 0.08 0.02

Furniture, home appliances and home

maintenance

-0.01 -0.05 -0.03 -0.01 0.00 0.01 0.11 0.15 0.16 0.14

Use of personal transport equipment 0.36 0.04 0.37 0.75 0.83 0.40 0.25 -0.01 -0.14 -0.10

CPI (y-o-y, %) 1.47 -0.03 0.72 1.38 2.16 3.20 3.26 2.56 1.67 1.07

Graph 4 Headline inflation to core inflation Graph 5 Inflation contribution towards tradable and non-tradable.

The core inflation5 in the first quarter of 2020, measured by excluding the categories "food and

non-alcoholic beverages" and "transport", marked an annual increase of 0.8%, which is lower than

headline inflation (1.7%) for this period. As seen in Graph 5, the tradable6 inflation component in

Q1 of 2020 continues to determine the behaviour of headline inflation and is estimated to have a

contribution of about 0.92 percentage points, while the contribution of the non-tradable inflation

component continues to be negligible.

5 Core inflation measures the change in the prices of consumer basket products, excluding temporary and transitory volatility,

which mainly characterizes the category of food or energy. 6 Tradable inflation measures the change in the prices of those products that are exposed to trade in international markets and

consequently their prices are not affected by developments in the local market. Meanwhile, non-tradable inflation measures the

change in the prices of those products that are not tradable in international markets and consequently are influenced by the internal

local market.

-1

0

1

2

3

4p.p

Non-tradeable Tradeable Inflation

-1

0

1

2

3

4y-o-y, %

Headline Inflation Inflation w/o food & transport

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External Sector

Current Account

The trade deficit of goods in the first quarter of 2020 reached a value of Eur 580.5 million.

o Imports of goods during the first quarter of 2020 marked a slower annual growth of about

3.4%. The most significant contribution came from imports of food items category (1.9 pp);

vegetable products (1.2 pp); and transport equipment (1.1 pp). While the highest negative

contribution of 1.6 pp it came from mineral products.

o Exports of goods during the first quarter of 2020 marked an annual increase of 25.7%. This

increase is mainly due to the acceleration in exports of base metals in early 2020, which had a

positive contribution of 22.5 pp. Exports of plastic and its articles and exports of products of

the chemical industry also had a positive contribution with (2.2 pp) and (1.9 pp), respectively.

Whereas, the negative contribution of mineral products was 5.5 pp.

The trade surplus of services for the first quarter of 2020 is Eur 137.8 million and is about 11.5%

lower than the balance in the same period of 2019.

o Exports of services for the first quarter of 2020 were 3.1% lower than in the same period last

year. Despite a positive contribution of exports of computer services (0.8 pp), there was a

decline in exports of construction services which had a negative contribution of (2.1 pp) and

those of travel with a negative contribution of (2.0 pp).

o Imports of services had an annual increase of 7.2%, mainly as a result of increased imports of

transport and travel which contributed to (4.2 pp) and (4.1 pp), respectively. While the import

of construction and computer services had a negative contribution of (3.3 pp) and (1.5 pp),

respectively.

o It is worth noting that in March, when measures to prevent the spread of the Covid-19 virus

began, the dynamics of imports and exports changed. March was characterized by a decline in

imports of goods in both value and quantity. At the same time, imports of services declined

sharply in March. Meanwhile, exports of goods in March in terms of quantity decreased, while

in value there was an increase of 8.7%, which is slower than the increase in the previous two

months of 2020.

Table 2 Monthly Indicators

Indicator, y-o-y % Jan ‘20 Feb ‘20 Mar ‘20

Import of Goods 16.2% 13.2% -12.8%

Import of Services 10.1% 24.1%% -10.2%

Export of Goods 23.1% 49.1% 8.7%

Export of Services 13.7% 19.7% -44.6%

As a result of developments in total imports and exports, the trade deficit of goods and services in

the first quarter is about 4.6% higher compared to the same period last year.

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Graph 6 Current account

The primary income balance for the

first quarter of 2020 has decreased by

12.3%, reaching a value of Eur 46

million, mainly as a result of higher

outflows from the investment

category. The balance of secondary

income for this quarter reached the

value of Eur 312 million, which is

8.3% higher than the balance in the

same period a year ago. This increase

is mainly attributed to the improvement of the balance of financial, non-financial corporate

transfers, and households (6.2%, y-o-y) and official government transfers (28.0%, y-o-y).

Since the secondary income balance is dominated by remittance inflows, it is worth noting that

they recorded an annual growth of 1.4% which was much slower than the historical growth. During

the first two months of the year, remittances had a positive growth, but in March, their trend shifted

(-13.9%, y-o-y). In addition, during March there was a marked change in remittance delivery

channels. In March 2020, the share of remittances sent through money transfer operators increased

by about 16% compared to the same period of 2019. This is mainly due to the closure of the borders

of Kosovo and European countries from where remittances are sent, which affected with the

decline in the delivery of remittances through other channels that are mainly in the form of cash.

Graph 7 Remittances by channels

Despite a deterioration in the trade balance of services and the balance of primary income, the

balance of secondary income increased while the trade balance of goods remained unchanged. As

a result, the current account balance for the first quarter of 2019 was Eur -84.6 million, which is

similar to the deficit recorded in the same period of the previous year when the current account

balance was Eur -82.4 million.

-1000

-500

0

500

1000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2017 2018 2019 2020

mil

Eur

Goods (net) Services (net)Primary Income (net) Secondary Income (net)Balance from Current Account

11.8%

66.8%

21.4%

March 2020

Banking Channel Money Transfer Operators Other Channels

12.7%

51.1%

36.2%

March 2019

Banking Channel Money Transfer Operators Other Channels

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Financial Account

o The balance of the financial account

for the first quarter of 2020 has decreased

by about Eur 62.4 million. This is mainly

due to an increase in foreign direct

investment inflows.

o During this period, total FDI inflows

increased by 60.5% or Eur 42.2 million,

compared to the same period of 2019.

This development came mainly from FDI

inflows into the energy sector which had

a contribution of 33.4 pp in this increase. However, the monthly trend shows that in March

there was a decrease in FDI inflows of 6.3%, mainly due to a decrease in the real estate sector.

Financial Sector

o The first quarter of 2020 was characterized by a significant annual growth of new loans of

28.4%. This is attributed to the 41.6% increase in non-financial corporate loans and a 10%

increase in household loans.

o New deposits in the first quarter marked an annual increase of 5.6%. This increase was mainly

driven by the increase in household deposits by 17%, despite a decrease in non-financial

corporate deposits of 17.8%. Nonetheless, the monthly trend shows that March was

characterized by a decline in new deposits of 38.1%.

o The effective interest rate on new loans for the first quarter of 2020 averaged 6.4%, while that

on new deposits averaged 1.5%.

o Non-performing loans during the first quarter were 2.4% of total loans, showing an

improvement from the first quarter of last year (2.6%).

Table 3 Financial sector indicators

2018 2019 2020

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

New deposits % Δ 20.6 19.0 17.9 36.1 0.8 22.6 -0.1 -5.9 5.6

New loans % Δ 14.6 12.3 -3.7 0.7 -5.0 1.8 26.1 1.5 28.4

Effective interest rate on new

loans 6.9 6.7 6.7 6.3 6.7 6.4 6.4 6.4 6.4

Effective interest rate on new

deposits 1.1 1.2 1.5 1.4 1.5 1.4 1.4 1.5 1.5

Non-performing loans 3.0 2.9 2.8 2.7 2.6 2.6 2.3 2.2 2.4

Graph 8 Financial Account

-400

-300

-200

-100

0

100

200

300

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2017 2018 2019 2020

mil

Eur

Foreign Direct Investnment (net) Portfolio Investment(net)Other Investment (net) Change in Reserve AssetsBalance from Financial Account

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Labour Market

o The results of the Labour Force Survey for Q1 of 2020 have been postponed due to the

situation created by the COVID-19 pandemic. As a result, data from the Kosovo Agency of

Statistics on the labour market will not be available until July.

o However, formal employment data from the Kosovo Tax Administration show that in the first

quarter of 2020 there was an increase in the number of employees by 7.7%.

o The highest contributions to this growth were in the sector of the processing industry and

wholesale and retail trade (1.6 percentage points each).

o Another positive contribution was the accommodation and food service with 1.2 pp and

information with 1.1 pp.

o Whereas, the transport sector had a negative contribution of 0.7 pp.

Business register, Q1 2020

o The number of new businesses during the first quarter of 2020 was 2,311 (93 businesses less

recorded than the same period last year) or 3.9% lower.

590 new businesses in the trade category (6 less than Q1 2019)

363 new businesses in the production category (86 more than Q1 2019)

270 new businesses in accommodation and food services (30 more than Q1 2019)

225 new businesses in professional and scientific activities (28 less than Q1 2019)

o The structure of new businesses is dominated by micro enterprises (2,273 enterprises) and

small enterprises (34 enterprises). While only 1 medium and 3 large enterprises were registered

in this quarter.

o The number of businesses closed during Q1 2020 reached 430. The termination of businesses

has been more pronounced in the wholesale and retail trade sector (about 1/3 of them).

o According to the origin of the capital, the vast majority were with local capital (2,301

enterprises) and only 10 of them were with foreign capital.

Public Finance

Revenues

o Total revenues amounted to Eur 397.3 million during the first quarter of 2020, marking an

annual increase of 2.2% compared to the first quarter of the previous year. However, in March,

the upward trend shifted and overall budget revenues fell by 13.7% year-on-year.

o Tax revenues for this period also increased by 2.8% compared to Q1 2019, but March was

characterized by a significant decrease of 26.2%. This is mainly attributed to the negative

effects of COVID 19 measures, which affected the decline in economic activity and

consequently the decline in imports, and the deferal of tax payments.

o Direct revenues amounted to Eur 65.9 million and accounted for 18.7% of total tax revenues

for this period and are 3.4% lower compared to the same period last year.

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Corporate Income Tax revenues reached Eur 20.8 million and marked an annual decline of

about 6.0%, which came mainly from the significant decline in March (-67.7% v-m-v).

Revenues from Personal Income Tax decreased by 0.5% compared to the same period of

the previous year. Despite an increase in the first two months of 2020, the downward trend

began in March with a 10.1% decline.

Revenues from Property Tax marked an increase of 3.9% compared to the same period last

year but had a decrease in March (-29.9%) which was mainly caused by the decision to

defer payments.

o Indirect revenues increased by about 3.3%, which is much slower than the previous year.

Despite a good performance in January and February, there was 9.0% drop in March.

Revenues from Value Added Tax (domestic and border) had a significantly slower growth

than the previous period. The increase of only 3.2% in domesticVAT and 5.4% in border

VAT was mainly due to a significant decrease in March (-40.5% and -7.8%, respectively).

The main reason for the decline in border VAT in March was the lower level of imports.

While for domestic VAT, in addition to a decrease in consumption, the decision to defer

payments had a significant effect.

After an increase in revenues from customs duties in January and February, the downward

trend began in March (-18.8% v-m-v). Thus, in Q1 2020, revenues from customs duties are

about 6.7% lower than the previous year.

Meanwhile, excise revenues increased by 3.4% in annual terms, which was slower than

last year.

o Non-tax revenues also decreased by 2.1%, mainly influenced by the 38.7% decline in March.

Expenditure

o Overall expenditures for the first quarter of 2020 reached the value of Eur 398.2 million and

were about 0.5% lower than in the same period last year.

Recurring expenditures in the first quarter of 2020, reached the value of Eur 345.4

million or an annual increase of 1.9%. The increase came mainly from the increase in the

salary category and the category of subsidies and transfers. Meanwhile, there was a 5.9%

drop in spending on goods and expenses as a result of the start of restrictive measures in

mid-March.

Capital expenditure marked an annual decline of 34.9% in Q1 2020. The lower

spending during February and March was mainly due to a stall in government formation,

lack of an approved budget, and the initiation of restrictive measures related to

COVID19.

Meanwhile, interest expenses reached the value of Eur 9.1 million in Q1 2020 and

marked an annual increase of 19.0%.

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Overall budget balance

o The overall cumulative budget balance reached Eur 190.8 million or according to the fiscal

rule, a deficit of € 34.2 million or 0.5% of GDP.

o The overall bank balance at the end of the first quarter amounted to Eur 369.7 million or

5.3% of GDP (respecting the fiscal rule of at least 4.5%).

Graph 9 Contributions to Budget Revenues Graph 10 Contributions to Budget Expenditures

0%

2%

4%

6%

8%

10%

12%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2017 2018 2019 2020

y-o-y %pp

Direct taxes Indirect taxesReimbursement Non-tax revenuesBudget revenues, y-o-y %

-10%

-5%

0%

5%

10%

15%

20%

-10%

-5%

0%

5%

10%

15%

20%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2017 2018 2019 2020

y-o-y %pp

Interest payment Capital Expenditure

Recuring Expenditure Expenditure and interest y-o-y %

13

Other information: Public Authorities Response to Covid-19 Pandemic in Kosovo

The Covid-19 pandemic situation, which began to spread significantly in late February 2020, has

caused (and continues to cause) high human costs worldwide. The necessary measures to isolate

or restrict the movement of people, which have been taken to prevent the further spread of this

pandemic that has significantly affected economic activity. According to the latest projections of

the World Bank and the International Monetary Fund, the global economy is expected to record

the largest decline since the Great Depression, with estimates fluctuating around -5.2% and -3.0%,

respectively. In response to this situation, almost all affected countries have intervened using the

means at their disposal in order to mitigate the impact of the pandemic effect. These interventions

were mainly of a fiscal, monetary and macroprudential nature.

Many central banks have secured additional liquidity in the financial system by lowering the base

interest rate if they have had space or through quantitative alleviation programs by purchasing

government bonds or assets from commercial banks or corporations. Some other instruments used

by central banks consist of reducing the required reserve; postponing loan instalment payments or

restructuring and lengthening loan terms to individuals and businesses that have been most affected

by the pandemic; and in the relief from the obligation to retain anti-cyclical depreciation capital.

It is difficult to judge on the effect that these monetary policy instruments have had on mitigating

the consequences of the pandemic situation due to the time delay of the monetary policy response.

However, many developed economies have not had much room for further reduction of the base

interest rate since they have long operated under the terms of interest rates at levels very close to

zero. While in some other countries, the lack of monetary policy has severely limited the influence

of central banks in combating the negative consequences of restrictive measures taken during

pandemics.

In combination with monetary and macroprudential measures, countries have pursued a

stimulating fiscal policy as one of the fastest and most efficient ways to address economic

contraction. Measures taken by fiscal policy have promised fiscal support to all individuals or

firms that have had a loss of income in order to avoid mass layoffs and facilitate rapid recovery

after lifting restrictions. The size and type of fiscal measures taken have been highly dependent on

the fiscal space and access to finance that each country has had.

On March 30, 2020, the Government of the Republic of Kosovo approved the Decision on the

Emergency Fiscal Package aimed at addressing socio-economic problems caused by the COVID-

19 pandemic. This package consists of a total of 15 measures aimed at providing an immediate

assistance to citizens or businesses that have been most affected by the restrictions imposed by the

government regarding the restriction of economic activity for some sectors and the movement of

citizens. The value of this package amounts to Eur 180 million, and accounts for about 2.4% of

the Gross Domestic Product. The aim of these measures is not to compensate for all the negative

effects but is rather focused on minimizing the damage caused by this emergency public health

situation.

This incentive came mainly in the form of subsidies and transfers for both individuals and

companies. Such an incentive, keeping everything constant, has a near-negligible positive

14

contribution to real GDP growth of about 0.2 pp or about 15-20 million in added value.7 This is

largely in line with economic theory as fiscal incentives given in the form of transfers have a fairly

low or zero multiplier as transfers are mainly money transferred from one agent to another without

any added value. However, there are also opinions that if such transfers are well-targeted and given

to individuals with a higher tendency to consume, then this may have a positive impact on

aggregate demand. However, this analysis should be further analysed after the surveillance of

Kosovo market after the distribution of these transfers as such increases in consumption may have

an import propensity that can then reduce the positive impact of transfers. However, transferring

resources households with higher marginal propensity to consume can help a country increase

aggregate demand and thus increase production. From this point of view, fiscal spending on

transfers can stimulate economic activity in recession, but only if they are well-targeted.

More specifically, the constituent measures of this Emergency Fiscal Package approved by the

Government are as following:

i) Double payment of the social scheme (around Eur 7.7 million budgeted);

ii) Additional payment to the beneficiaries of social and pension schemes with a monthly

payment of less than Eur 100 (around Eur 13 million budgeted)

iii) Financial support for companies that are in financial difficulties:

a) coverage of employees' monthly salary expenses (Eur 41 million s budgeted); b)

subsidizing the rent for SMEs (Eur 12 million budgeted); c) coverage of the value of

personal contributions for salaries in point a (Eur 8 million budgeted).

iv) Ensuring interest-free lending to public enterprises, with a return until the end of the year

(around Eur 20 million budgeted)

v) Providing financial support for municipalities affected by the pandemic (Eur 10 million)

vi) Additional monthly payment of Eur 100 for two months for employees of grocery stores,

bakeries and pharmacies (around Eur 3 million);

vii) Payment of monthly assistance of Eur 130 for two months for workers who lose their jobs

due to the situation (around Eur 4 million budgeted);

viii) Supporting initiatives and projects aimed at improving the lives of non-majority

communities, which have been hit hardest by the situation (around Eur 5 million

budgeted);

ix) Increasing the budget for grants and subsidies for the Ministry of Culture, Youth and Sports

(around Eur 5 million budgeted)

x) Increasing the budget for grants and subsidies for the Ministry of Agriculture for increasing

agricultural production (around Eur 5 million budgeted)

xi) Ensuring financial liquidity for micro-enterprises, self-employed or companies/companies

that provide basic services through certain KSF programs (around Eur 15 million

budgeted).

xii) Support for exporters after the end of the emergency situation;

7 This assessment was obtained from the Macro-Fiscal Model, used by the Ministry of Finance to obtain medium-term macro-fiscal projections.

15

xiii) Financial support with Eur 130 /a month for two months for companies that register

employees with a contract of employment of at least (1) year during the period of

emergency situation (around Eur 6 million budgeted).

xiv) Payment of monthly assistance of Eur

xv) 130 for two months for citizens with severe social conditions, declared unemployed in the

competent institution and who are not beneficiaries of any monthly income from the

Kosovo budget (budgeted about Eur 3 million).

xvi) Financial support for public enterprises (around Eur 20 million budgeted)

Moreover, there were additional costs of Eur 10 million, which were allocated to the Ministry of

Health to cover the costs related to the fight against the Covid-19 situation. Meanwhile, the Tax

Administration of Kosovo, in order to create as many facilities for citizens and businesses, has

decided to extend the deadline for submission of statements and reports until May 15th 2020 for

monthly declarations (VAT, contributions, rent, etc.) and until June 30 for payment of quarterly

statements.

In the absence of a monetary policy, the Central Bank of Kosovo (CBK) has been more limited in

using funds to stimulate economic activity. More concretely:

- The payment of loan instalments based on the case-by-case analysis has been temporarily

suspended in order for these benefits to go only to those who have been affected by the

current crisis. In case of approval of such a request by the bank, no measure of deterioration

of the credit rating or penal interest will be applied and no additional provision will be

required from the banks.

- The regular functioning of the payment system throughout Kosovo has been ensured,

including the affected areas, which have been isolated for a certain period of time.

The Fiscal Emergency Package has not yet been fully implemented, due to the impossibility of

reviewing the Budget, conditioned by the political situation until June. With the approval of the

Budget reviewed by Parliament, the remainder of the Package will continue to be implemented

and followed by the Economic Recovery Program, which is expected to be around Eur 1.2

billion, distributed in the second half of this year (2020) and the following year (2021). This

Recovery Program is expected to affect the medium-term outlook of the economy by reviving the

economy, production and employment after the end of pandemic and the removal of restrictive

measures.