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Medium Term Expenditure Framework

2021-2023

September 2020

Republika e Kosovës

Republika Kosova- Republic of Kosovo

Qeveria- Vlada- Government

Ministria e Financave

Ministarstvo za Finansije

Ministry of Finance

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List of Abreviations

VET Vocational Education and Training

KPCVA Kosovo Property Comparison and Verification Agency

PAK Privatisation Agency of Kosovo

KPA Kosovo Property Agency

EARK Employment Agency of the Republic of Kosovo

KAS Kosovo Agency of Statistics

TAK Tax Administration of Kosovo

GNIA Gross National Income Available

WB World Bank EU European Union

EBRD European Bank for Reconstruction and Development

GDP Gross Domestic Product

CBK Central Bank of Kosovo

ERS Energy Renewable Sources

ERA European Reform Agenda

EUROPOL European Union Agency for Law Enforcement Cooperation

KAF Kosovo Armed Forces

IMF International Monetary Fund

KSF Kosovo Security Force

HEIs Higher Education Institutions

CPI Consumer Price Index

IFACCA International Federation of Arts Councils and Culture Agencies

IFIs International Financial Institutions

FDIs Foreign Direct Investments

INTERPOL International Police Organization

IPA Instrument for Pre-Accession Assistance

NBIHS Non-beneficiary Institutions for Household Services

MTEF Medium Term Expenditures Framework

KfW Kreditanstalt für Wiederaufbau

ODC Other Depositing Corporations

LLGF Law on Local Governance Finance

LPFMA Law on Public Financial Management and Accountability

MEST Ministry of Education, Science and Technology

MoF Ministry of Finance

MKSF Ministry of Kosovo Security Force

MLSW Ministry of Labour and Social Welfare

SAA Stabilisation and Association Agreement

MoH Ministry of Health

NATO North Atlantic Treaty Organization

PE Public Enterprises

SMEs Small and Medium-Sized Enterprises

NERP National Economic Reform Programme

NPISAA National Program for Implementation of Stabilisation and Association Agreement

ERP Economic Reform Programme

SSSR Strategic Security Sector Review

RTK Radio Television of Kosovo

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HIS Health Information System

NDS National Development Strategy

EMIS Education Management Information System

CMIS Case Management Information System

HUCSK Hospital and University Clinic Services of Kosovo

IT Information Technology

ICT Information and Communication Technology

VAT Value Added Tax

UNESCO United Nations Educational, Scientific and Cultural Organisation

USAID United States Agency for International Development

WEO World Economic Outlook

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Table of Contents 1. DECLARATION OF MEDIUM-TERM PRIORITIES OF THE GOVERNMENT ............................. 7

LABOUR MARKET AND EMPLOYMENT ........................................................................................................ 16

SECOND PART .................................................................................................................................................. 21

1. MACRO-FISCAL FRAMEWORK .................................................................................................... 21

2.1. MACRO-ECONOMIC FRAMEWORK......................................................................................................... 21

2.1.1 EXTERNAL ECONOMIC ENVIRONMENT ................................................................................... 21

2.1.2. LATEST DEVELOPMENTS IN THE KOSOVO ECONOMY .......................................................... 24

Information Box 1. Comparing macroeconomic forecasts used for previous MTEFs with actuals .................. 27 2.1.3. MACROECONOMIC PERSPECTIVE 2021-2023 ............................................................................ 29

Information Box 2 . Comparison of macroeconomic forecast for MTEF 2021-2023 with other institutions... 31 2.2. FISCAL FRAMEWORK 2021-2023 .................................................................................................. 32

2.2.1. GOVERNMENT REVENUES AND EXPENDITURE ..................................................................... 32

2.2.1.1. REVENUES AND EXPENDITURE IN 2020 ................................................................................... 32

2.2.1.2. REVENUE PROJECTIONS 2021-2023 ............................................................................................ 33

Information Box 3. Comparison of projections and actuals for year 2019........................................................ 34 2.2.1.3. EXPENDITURE PROJECTIONS 2021-2023 ................................................................................... 35

2.2.2. BUDGET DEFICIT AND THE FISCAL RULE ............................................................................... 37

Information Box 4. Main deviations between MTEFs 2021-2023 and 2020-2022 for 2021 and 2022 ............... 37 2.2.2.1. THE LEVEL OF STATE DEBT, DEVELOPMENTS AND PERSPECTIVES FOR THE

UPCOMING YEARS ........................................................................................................................................... 38

2.3. MEDIUM-TERM RISKS 2021-2023 ................................................................................................. 42

THIRD PART ...................................................................................................................................................... 48

3. SECTORIAL EXPENDITURES FRAMEWORK 2021-2023 – CENTRAL GOVERNMENT ........... 48

PART FOUR ....................................................................................................................................................... 67

4. MUNICIPAL LEVEL ....................................................................................................................... 67

4.1. General Grant .............................................................................................................................................. 67

4.2. Additional grant for the financing of the Capital City ......................................................................... 71

4.3. Specific grant for pre-university education .......................................................................................... 71

4.4. Primary health specific grant ............................................................................................................... 74

4.5. Secondary health financing .................................................................................................................. 75

4.6. Residential services financing ............................................................................................................... 75

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4.7. Funding for the Historic Center of Prizren, the Cultural Center of the village of Zym and the Council

of the Hoçë e Madhe ........................................................................................................................................... 75

4.8. Financing for the endangered environmental area of Obiliq ............................................................... 76

4.9. Financing for Theatre ........................................................................................................................... 76

4.10. Projections of Municipal Own Source Revenues for 2021 and forecasts 2022-2023............................ 76

4.11. Investment clause .................................................................................................................................. 78

4.12. Sumamry of municipal funding for 2021-2023 ..................................................................................... 78

ANNEX 1 ............................................................................................................................................................ 79

ANNEX 2 ............................................................................................................................................................ 88

Table 1 Prices in international markets ...................................................................................... 23

Table 2 General Debt ................................................................................................................ 38 Table 3 International Debt including undisbursed debt as of sipas 31.07.2020 ........................... 39

Table 4 Sensitivity analysis of the budget to fluctuations of macroeconomic variables for the

three-year period 2021-2023 ..................................................................................................... 44

Table 5 Outstanding liabilities ................................................................................................... 46 Table 6 Payments based on court decisions (mln Eur) ............................................................... 47

Table 7 Determining the value of the General Grant for municipalities 2021-2023 (mil. Euro) .. 68 Table 8 General Grant Structure for 2021-2023 according to LFPL (mil. Euro) ......................... 69

Table 9 Distribution of General Grant at municipalities 2021-2023 .......... Error! Bookmark not

defined. Table 10 Distribution of additional Grant for financing the Capital 2021-2023 .......................... 71 Table 11 Distribution of Specific Grant for Education for the year 2021-2023 .......................... 73

Table 12 Primary health specific grant, for 2021-2023 .............................................................. 74 Table 13 Financing for residential services for 2021-2023 ......................................................... 75

Table 14 Financing for theatres for 2021 ................................................................................... 76 Table 15 Projections of municipal own source revenues for 2021-2023 ..................................... 76

Table 16 Summary of municipal funding for 2021-2023 (mil. euro) .......................................... 78

Graph 1 Economic growth in other countries ............................................................................. 24

Graph 2 Current account balance ............................................................................................... 26 Graph 3 Labour market ............................................................................................................. 26

Graph 4 Loans, deposits and non-performing loanse ................................................................. 27 Graph 5 Real GDP and key contributors .................................................................................... 31

Graph 6 Revenue structure in overall revenues .......................................................................... 33 Graph 7 Structure of budget expenditures .................................................................................. 35

Grafiku 8 Trend of General Debt and as percentof GDP ............................................................ 41 Graph 9 Real economic growth, y-o-y, % .................................................................................. 43

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Foreword

Revision of the Medium-Term Expenditure Framework has been drafted in order to reflect the

significant changes to the main economic indicators as a consequence of situation with COVID-

19 pandemic. MTEF document was drafted in April 2020 based on an serious socio-economic

situation, characterised with high uncertainty for the rest of the year due to the pandemic. Main

economic indicators, mainly fiscal ones, during the last months signal that the expectations for the

end of the year 2020 will be significantly different compared to the period during which the initial

MTEF was prepared. Considering the importance of MTEF in orienting the preparation of Budget

for 2021, a process which is expected to be initiated soon, Ministry of Finance decided to revise

the MTEF for the first time.

The main purpose of the MTEF revision is to provide an analysis that reflects the macro-economic

environment in the country, thus laying the basis for budget planning for the coming years, in

compliance with the strategic priorities of the Government.

Economic reform priorities for the medium-term period stem from the National Development

Strategy and Economic Reform Programme 2020-2022, which derives from the dialogue process

for economic governance between Kosovo and EU. At the same time, due to the situation caused

by the COVID-19 pandemic, the Government priorities are oriented towards the overcoming of

crisis and economic recovery.

MTEF 2021-2023 revision summarises these key priorities of the Government in the Medium-

Term Priorities Statement and then in the relevant chapters, which cover all budget sectors,

describing the approach how the funds for their implementation will be ensured from the Kosovo

budget and financial assistances or loans from development partners.

MTEF 2021-2023 has been structured into four main parts. The first part contains the “Declaration

of Medium-Term Priorities”, which provides a broad summary of the Government priorities in

compliance with the Government Program, National Development Strategy and Economic Reform

Programme. Second part consists of the macro-fiscal framework based on the overall economic

development parameters. The third and fourth part contain the fiscal projections, which determine

the overall expenditure limits based on which the Central and Municipal Budget is later prepared.

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PART ONE

1. DECLARATION OF MEDIUM-TERM PRIORITIES OF THE GOVERNMENT

General objectives and fiscal framework

As the document Medium-Term Expenditure Framework 2021-2023 represents the main

document based on which the annual budget for the coming year 2021 will be drafted, the Ministry

of Finance considered the MTEF revision as necessary. The main purpose of Medium-Term

Expenditure Framework revision is to adapt the overall Government priorities as a result of the

pandemic. This is also aimed at linking based on the comprehensive analyses of the macro-

economic environment and budget planning for the coming years, with a 3 (three) year perspective

in compliance with the Government strategic objectives.

Strategic objectives of the Government of Kosovo have been set through the Government Program,

strategic documents, such as National Development Strategy and sectorial strategies, as well as

documents deriving from the European Integration process, such as Economic Reform Programme

and National Program for the Implementation of SAA. Kosovo is facing a serious situation as a

result of the COVID-19 pandemic both in public health and economy. Therefore, the basic

objectives set in the Government Program are: i) the battle to defeat the pandemic, and ii) post-

pandemic economic recovery.

Considering the current economic structure of Kosovo and numerous obstacles to economic

growth, in particular situation created as a result of the global pandemic COVID-19, it is necessary

to orient the structural reforms aimed at recovering the economy in general. To this end, the

Government, considering also the support by the development partners, will undertake the

necessary assessments of the impact of the pandemic crisis on the economy and will undertake

ongoing measures for economic recovery. To this end, the Government also planned undertaking

measures to ensure sustainable economic growth by channelling funds in economy where needed

and where the effect is maximal, thus creating e new momentum for economic development,

placing the economy of Kosovo on a higher trajectory of growth and long-term development, with

higher and better employment.

The process of Kosovo accession to European Union is important not only for economic

development, but also to improve the governance and institutions of the country, as well as for

international political and economic integration and security of the country. Stabilisation and

Association Agreement (MSA) between the Republic of Kosovo and European Union (EU) is a

binding contractual framework of the process of Kosovo accession to EU. In this regard, the

National Program for Implementation of Stabilisation and Association Agreement sets the

medium-term planning framework for fulfilling the SAA obligations.

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Medium-Term Expenditure Framework 2021-2023 summarises these key priorities of the

Government of Kosovo in the Declaration of Medium-Term Priorities and then relevant chapters,

covering all budget sectors, describing the approach on how to ensure funds to implement them

from the budget of Kosovo and financial assistance or loans from development partners. First

chapter of the Declaration of Medium-Term Priorities presents the general macro-fiscal framework

for the next three years and its basic principles. Other chapters summarise the Government

priorities based on the main planning documents, such as: Government Program, National

Development Strategy and sectorial strategies, Economic Reform Programme and National

Program for Implementation of SAA. Chapter three has been structured in a manner so as to be

aligned with MTEF sectors structure.

The main priorities will guide all budget organizations in preparing their budget proposals for

2021. According to these priorities, the budget organizations may include proposals for finalizing

or rationalizing the existing programs in order to ensure funds for programs with high priority for

socio-economic recovery, including the proposals for new policies. In special cases, proposals may

include requests for additional funding if such requests demonstrate a high impact on potential

achievement of Government objectives and priorities.

1.1.General fiscal framework for prioritization

Government Programme 2021-2023, National Development Strategy 2016-2021, Economic

Reform Program 2020-2022, and Stabilisation and Association Agreement between Kosovo and

EU represents the main documents that determine the orientation and development of Government

policies and ensure the basis for setting the policy priorities in the Medium-Term Expenditure

Framework 2021-2023.

In order to address the Government priority policies, and to enable sustainable economic growth

for the next three-year period, the short-term objectives of the fiscal strategy include:

Economic recovery: the main objective to ensure the post-pandemic economic recovery

include the implementation of recovery measures, but at the same time integration of

medium-term reforms in order to ensure a stable recovery. Thus, the Government will

ensure the protection of jobs, supporting small and medium-sized enterprises and

employees in the informal sector through the economic response and recovery programs.

Social protection, with a special emphasis on healthcare: COVID-19 pandemic

highlighted the importance of health in particular and its possible impact on socio-

economic development. Therefore, it is necessary to continue investments in health, ensure

efficient policies for social protection, reduce poverty and various forms of discrimination

in incomes.

In order to ensure a stable recovery, the Government will integrate the medium-term priorities,

which include as follows:

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1.1.1 Public finance management: In order to ensure stability and economic growth, the

Government of Kosovo will undertake several steps in this regard, such as: (i) increase of non-

taxable personal incomes threshold by reviewing the fiscal policies and amending the relevant

legislation; (ii) reviewing the legal and institutional framework in view of collecting revenues

within the territory of the state: (iii) decreasing the threshold of cash transactions in order to

intensify the fight against the fiscal evasion, which would result in a fair treatment for economic

entities, increase of tax revenues and formalization of employment; (iv) ensuring accountability

for more effective use of public funds; (v) increasing efficiency and effectiveness of public

procurement, strengthening the electronic procurement and increasing transparency of public

tendering.

1.1.2 Business environment and entrepreneurship development: This objective aims at

ensuring the institutional support for enterprises, as one of the main engines for economic growth

in Kosovo, ensuring an equal environment, eliminating monopolies, eliminating the fiscal evasion,

ensuring the supply of electricity with affordable prices and, in particular, making on time

payments for enterprises performing works contracted by the public authority. Also, this objective

is focused on the public enterprises, aiming the improvement of their management and

performance.

1.1.3. Labour market and employment – The priority of this objective is to improve the

employment services, increasing the effectiveness of active labour market measures, improving

the employees’ rights and guaranteeing the minimum standards for occupational safety and health.

This will take place in compliance with the international standards by improving the legal

framework, namely labour and labour inspectorate law and by developing the information system

for labour market.

1.1.4. Advancing policies in the agricultural sector: The Government aims the definition of clear

criteria and full transparency, focusing on yield rather on surface – in compliance with the existing

circumstances for increasing the productivity and quality, resulting in the increase of

competitiveness. Increase of transparency in application, assessment, monitoring/inspecting and

payment of subsidies and grants will be prioritized. Also, the development of agro-processing

entrepreneurship, along with the need for skills development in the sector of food industry, will be

treated with priority. As a result of increase of demand for occupations in the field of food

processing industry, it should be considered the treatment of the possible gap between skills and

need for developing professional standards in this sector.

1.1.5. Prioritization of wide-scale investments for modern infrastructure and energy

infrastructure – Prioritization will be based on the level of impact on transforming the economic

structure in the country. Energy infrastructure, road, rail and air transport, water and irrigation

networks and waste water treatment will be prioritized in budgeting. Investments in energy are

planned to be made by including the private sector by reducing the energy costs that will support

businesses and further promote private investments.

A special importance will be paid to the need to address horizontal priorities for ensuring

economic, environmental and digital transformation, as competitiveness vectors. Transition to

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green policies and digital transformation should be presented as horizontal priorities in main post-

recovery reforms.

1.2. Basic principles

Process for preparing the expenses projection for 2021-2023 is guided by the following principles:

o Greater matching with the Government priority policies contained in the National

Development Strategy (NDS) 2016-2021, Economic Reform Programme (ERP) 2010-

2022, National Program for Implementation of Stabilisation and Association Agreement,

as well as Government Programme 2020-2024.

o Allocation of budget for purposes that are more effective in achieving the objectives of

Government policies;

o Achieving greater value for funds spent achieving specific priority objectives by

reorienting the funds to high-level priorities;

o Linking to external funding provided through IPA and other channels;

1.3. Priority fields

The Government of Kosovo presents the following declaration of priorities in relation to MTEF

2021-2023, reviewed in August 2020. Priorities have been specifically presented by considering

the need to reorient priority policies in order to implement measures under the economic recovery

program, but also considering the integration of medium-term priorities for a stable recovery.

When preparing and submitting their budget requests for 2021 along with the projections for

medium-term period (2021-2023), budget organizations are expected to show how their budget

plans respond to the Government priorities presented below. Priorities have been presented for all

sectors of the Government, addressing thus the most important issues in which the Government

should focus during the next three-year period. With regards to the priorities given, the budget

organizations are encouraged to improve the spending effectiveness by ensuring reallocation

within the existing limits.

1.3.1. Governance and public administration

The Government will continue to highly prioritize the implementation of public administration

reform and local governance. By furthering the implementation of reforms so far, the Government

will treat with priority the modernization of administration through digitalization, thus providing

better services.

o Planning, policy-making, accountability and transparency – The main focus is on

improving the strategic planning, increasing quality of sectorial planning with performance

indicators, thus advancing the policy monitoring and assessment policies. Data-based policy

development will be supported by applying the methodology to assess the impact of the

policies undertaken. A special attention should be paid to the building of institutional capacities

to develop reliable statistics, in compliance with the European practices and standards. These

will also be supported by increasing transparency and involving citizens, media, civil society

and private sector in policy development. The Government will support the process of

administrative burden reduction by eliminating the excessive bureaucracies according to the

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relevant Concept1 Document. In this regard, the Government will initiate the program for

administrative burden reduction with current legislation measurement through the Standard

Cost Model. In addition, the Government will further the process initiated to simplify,

eliminate or merge permits and licences.

o Public finance management – In compliance with the strategic framework and obligations

within the European integration agenda, the implementation of priorities within a

comprehensive macro-fiscal policy, which ensures stability and economic growth, will be

ensured. Fiscal policies will be oriented in that way as to ensure support for economic sectors

affected by the pandemic crisis during 2020.

o Modernization of public administration – A priority is to build an optimal administration

with regards to the size, including the functional review of institutions, agencies and other

independent bodies. Another objective is the advancement of public administration reform, in

view of bringing the government closer to the citizens, fully functionalizing the e-governance

to facilitate the access to services in all government departments, as well as conditions for

adequate and optimal functioning of the local government.

o Local government – In order to address the existing challenges, local self-government system

will be functionally reviewed and the legal framework concerning the local self-government

will be further supplemented. Amendments to the legislation, which affect the interests of non-

majority communities, will take place in close consultation with and involvement of

community representatives.

1.3.2. Foreign policy and Euro-Atlantic integration

o Foreign policy and diplomacy – Priorities will be focused on strengthening the diplomatic

relations with USA, EU and strategic partners, determining the specific fields of cooperation

with countries that have recognized the Republic of Kosovo, as well as priorities for

membership in international institutions and organizations. A special attention will be paid to

the five EU countries that have not recognized Kosovo yet and it will be worked to open the

ways of communication with states with influence, such as Brazil, Indonesia, Nigeria, Mexico,

Kenia, Chile, etc. The public diplomacy, strengthening of mechanisms for promoting the

history, tradition and culture of our country will also be supported. Economic diplomacy will

be functionalized as well.

o Euro-Atlantic integration – The Government will intensify the work in cooperation with

strategic partners. Involvement in the Partnership for Peace, as an instrument relevant for

strengthening the cooperation with NATO and direct contribution for peace and safety is a

medium-term priority of the Republic of Kosovo. The membership to NATO is the strategic

purpose of Kosovo. The Government will engage to actively participate, with its specialized

military and civilian capacities, in supporting the peace, stability and safety anywhere in the

world.

1 Concept Document on Reduction of Administrative Burden, adopted by the Government with the Decision No.

03/05, dated 06.03.2020.

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European integration agenda will be integral part of the Government agenda. European

integration will be fully synchronous with comprehensive development agenda for the country;

efforts to apply reforms for fulfilling obligations deriving from the SAA, including the visa

liberalization process as one of the highest priorities of the Government, as well as obligations

deriving from the ongoing dialogue for coordinating policies with EU, will be intensified.

o Good neighbourhood and regional cooperation – The Government aims to build good

relations with all neighbour and regional countries. Kosovo is committed to further deepen the

strategic partnership with Albania, ensuring mutual cooperation in the field of economy and

energy, education, art, culture, foreign policy and safety, sport and tourism. Dialogue with

Serbia will be developed as a process where Serbia and Kosovo will be treated as equal parties,

based on the full reciprocity and fully adhering to the international law. In the framework of

its regional policy, the Government will commit to participate in SEECP, RCC, RACVIAC,

MARRI, A5 and other regional organizations.

o Diaspora – The Government will commit to increase the role of Diaspora in developing and

promoting the country by directly engaging them in the development agenda; strengthening

the schools in Albanian language throughout the world; promoting the national language,

history and culture. The Government will increase the role of Diaspora by enabling its political

representation in decision-making processes in Kosovo. In particular, the Government will

work in engaging experts and researchers from Diaspora, thus enabling the transfer of their

skills and strengthening their connections to the homeland, i.e. immigration of “brain”.

1.3.3. Protection and security

The Government will treat with priority the protection and safety and will increase the budget for

these fields. In this regard, the building of capacities of country’s institutions for protection and

safety will be supported, the legal framework will be improved, and safety and protection policies

will be developed by determining the main principles and orientations of the Government in this

field.

o The Government of the Republic of Kosovo is committed to build capacities for protection and

safety in order that, at the time of peace and crisis, the military and civilian authorities

cooperate to protect the interests of Kosovo.

o The Government will engage to ensure that the armed forces participate in joint military

trainings with NATO member states. It will continue the support to ensure the professionalism

and provision of military equipment according to NATO standards, based on Comprehensive

Transition Plan.

o Also, one priority of the Government is to increase professionalism and capacities for

protection against eventual hybrid and cyber attacks coming from inside and outside the

country.

1.3.4. Order, law and public safety

In order to ensure the functioning of the rule of law, protection of freedom, economic development

and equality before the law, the Government will treat with priority the further improvement of

the legal and institutional framework, necessary infrastructure and strengthening of capacities.

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o Public order and safety – A priority of the Government is to strengthen the capacities to fight

all forms of crime, increasing the integrated financial investigations and modernization of

police equipment. In particular, it will support the strengthening of capacities to prevent and

fight against terrorism, human trafficking, narcotics and engagement in implementing the

concept for integrated border management. Another priority of the Government is the full

revision of the strategic framework for the public order and safety.

o Human rights, gender equality and communities – A priority of the Government is to

establish equal and non-discriminating opportunities, respecting human rights, strengthening

the mechanisms for gender equality, protection from domestic violence, free legal aid,

compensation of war crimes victims, integration of marginalized groups and freedom of

expression. Also, a special focus will be paid to the establishment of mechanisms for

identification of war crimes in Kosovo.

o Revision of justice system – Another priority in the sector of justice is the revision of justice

system, namely the drafting of sectorial strategy for justice. Also, the establishment of

Commercial Court, strengthening of free professions, adoption of the Civil Code, regulation

of ownership issues, strengthening of state advocacy, review of the criminal legislation and

establishment of the criminal records centre represent another priority of the Government. Law

on Control and Confiscation of Inexplicable Wealth.

o Fight against organized crime and corruption – Another main priority of the Government,

which will be supported by increasing capacities of institutions, is the strengthening of the

existing mechanisms. With regards to the institutional accountability, the priority of the

Government is to complete the legislation for protection whistle-blowers and building

capacities for handling cases of whistleblowing.

1.3.5. Economic issues

Economic development will rely on the private sector, which represents the basis for stable

economic development by promoting the free competition as facilitator and regulator of economic

development, based on national development priorities, paying a special care to the environment

and digital transformation. Also, work will be done in creating the conditions for sustainable and

dignified employment. In this regard, Kosovo will prepare a clear long-term strategic orientation

for development, setting the development priorities and economic, fiscal and budget policies

frameworks and public debt that exceed a governing mandate.

Transport and telecommunication

o Infrastructure – In order to integrate short-term and medium-term measures for sustainable

recovery, the Government will continue investments in infrastructure, namely important

projects of road and rail transport by also integrating in regional and international infrastructure

networks. The Government will work in building the nationally important infrastructure that

connects Kosovo regions and those ensuring economic growth. The Government will also

work for developing a long-term strategic plan, whereby setting the main infrastructure

priorities and considering the budget opportunities for the coming years, in particular due to

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the situation created from the economic downturn due to the COVID-19 pandemic. In order to

ensure a sustainable infrastructure, the Government will work for increasing the safety level in

road traffic and will also improve the planning and programming of works for road

maintenance through the Intelligent Transport System (ITS).

o Information and Communication Technology (ICT) – Investments in ICT infrastructure

represent an important precondition for digital transformation of the country. In addition to the

investments in infrastructure, it is important to prioritize the digitalization in the education

system both in terms of infrastructure and skills, according to the trends and demands of

technology market. In order to implement the recovery measures, technology institutions and

new and existing companies dealing with technology will be supported. For a comprehensive

transformation, the Government aims at creating incentives for individuals and companies

dealing with innovation and new technologies.

Energy and mines

o Securing sustainable electricity supply remains a priority of the Government and this will be

addressed initially by rehabilitating the existing capacities and looking for opportunities for

new generating capacities, including renewable energy sources. Full electricity market

liberalization is a priority of the Government in order to enable a competitive, transparent and

consumer-oriented market. Also, it will be worked for integration in the regional market, thus

enabling the optimization of Kosovo-Albania systems, as the first step towards the integration

of Kosovo in the regional electricity market and access of Kosovo to gas pipelines.

o Reduction of energy consumption through efficiency measures - The Government will

continue to provide support for investments in energy efficiency, as an essential component of

strategic planning and orientation for economic development of Kosovo and implementation

of district heating networks in the cities of Kosovo; completion of legal framework for energy

efficiency; functionalization of Fund and increase of incentives in the private sector and

households.

o Use of mineral resources – It is important to establish a strategic approach for development

of mines based on market mechanisms and partnerships. It will be worked in the new lignite

mine in order to ensure secure lignite supply of existing and new generating capacities. The

analyses necessary to complete the feasibility study, including the assessment of assets and

responsibilities/obligations of Trepça, as well as valorisation of mineral reserves employing

local and international expertise, will be completed. Business activities/industrial production

of Trepça will be furthered by relying on the most economically, technologically, socially and

environmentally reasonable alternative.

Balanced regional development

o Work will be done towards the concept of balanced regional development, focusing on

capacity building of municipalities that have economic potential to ensure economic and social

convergence. It is necessary to take measures to increase competition between different

development regions / areas of Kosovo, in order to achieve higher levels of productivity,

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employment, welfare and equity. The main priorities will focus on developing instruments to

foster greater competition between regions and addressing regional inequality in terms of

socio-economic development.

Support to industry and business

o Agriculture and rural development - Government policies in the agriculture and rural

development sector will focus on supporting the agricultural sector, starting with primary

production, storage, processing and marketing as final products. The focus of the government

will be to ensure alignment of the agricultural development policies with the EU Common

Agricultural Policies.

o The government will provide farmers and agribusinesses with investment opportunities

through grant and subsidy schemes by boosting the fund for subsidies and grants for crops with

export potential. Measures will be taken to make agricultural insurance operational as soon as

possible in order to avoid unexpected losses of farmers. The preservation of agricultural land

will be followed by strict implementation of the legal infrastructure and incentive measures for

producers so that they see an interest in preserving arable land.

o Agricultural infrastructure - intensive investments will be made in irrigation systems of

agricultural lands. Using the agricultural land registration data, it will be possible to accurately

plan the layout of the irrigation network and use it in the most efficient way. In this regard,

work will be done on making operational (rehabilitation) the existing irrigation canals and the

expansion of two main irrigation systems: Iber-Lepenc that would cover fields in the Kosovo

Plain with irrigation system and Radoniq that would cover fields in the Dukagjini Plain with

irrigation system.

o Food safety - A functional system of food safety and consumer protection in line with EU

standards will be strengthened with high priority. To this end, appropriate measures based on

the concept "From farm to fork" will be implemented, thereby ensuring an effective and safe

operation of the production and marketing chain.

o Industrial policies and private sector development - The government will facilitate doing

business and empower the private sector as an employment generator; The advancement of

industrial policies in general and the provision of quality infrastructure, the upgrading of

production standards as well as the strengthening of industrial property rights will be

supported.

o Tourism development - priority will be given to infrastructure improvement projects (road

infrastructure, rehabilitation of river beds and tourist paths) that would enable the development

of tourism, and revalorization of tourism potential through public-private partnership, based

on international standards.

o Fostering, promotion and support of foreign investments - will be addressed by

eliminating barriers to foreign investment; improving the legal framework; developing

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capacities to promote and support strategic and foreign investors, especially those with an

export orientation. A special package to promote diaspora investment will be developed.

o Trade policies - in the context of these policies, the priorities is to commit for the

implementation of obligations in the framework of regional cooperation, improvement of

legislation, improvement of product quality, consumer protection, and intellectual property, as

well as relevant areas that result in increasing production, improving the trade balance,

innovation and economic development of Kosovo in general. Priority will also be given to the

development of procedures for membership in regional and international organizations, the

negotiation of trade agreements with regional countries and other countries.

Research, development and innovation

o The Government of Kosovo aims to increase support in the field of research, development and

innovation. This is intended to be achieved through: completing and aligning the legislative,

institutional and policy framework for research, innovation and information technology with

that of the EU, as well as completing the smart specialization process; drafting incentive

policies to support information and communication technology; Reorganization of the

Innovation Fund to provide investment grants for SMEs that innovate and Strengthening of the

"Voucher Scheme" instrument for Innovation, providing funding for professional advancement

for innovative firms.

Labour market and employment

o The government aims to address the effects in the field of the labour market and employment,

caused by the COVID-19 pandemic through an Operational Plan for the implementation of the

Economic Recovery Program. In this regard, this plan envisages the increase of employment,

in particular of specific groups of workers with lower probability of employment through the

following measures: wage subsidies for new workers hired by businesses; professional support

for businesses operating in pandemic conditions, such as work from home, online work, digital

transformation; supporting manufacturing and service businesses with equipment and

machinery to automate processes and increase their productivity. The Government will also

focus on improving workers' rights and guaranteeing minimum standards for safety and health

at work; continuous training in vocational schools for occupations required in the labour

market; promoting internships in the private sector as a form of professional and practical

training of interns; grant support for start-up businesses for young entrepreneurs;

modernization of the infrastructure of vocational training centres.

1.3.6. Environment

Kosovo needs remediation and improvement of the state of the environment. The government will

focus its policies on advancing the preservation and protection of the environment, advancing

water management and improving infrastructure, and developing policies to advance spatial

planning, improve waste and water management, and sustainable use of natural resources,

biodiversity protection and natural landscapes.

17

o In order to ensure advancing the preservation and protection of the environment, the

Government of Kosovo will review and implement policies to improve air quality; biodiversity

conservation; protection and sustainable development of the environment. All these policies

should be addressed horizontally in other sectors to ensure the green transition, according to

the Green Deal of the European Union.

o Advancing water management and building infrastructure - key challenges in water

management will be addressed, including the state approach to water accumulation, new hydro

systems, and protective infrastructure along rivers. Drinking water will be a priority and the

objective will be to cover the entire population in the supply of drinking water. In terms of

wastewater, plants will be built in certain municipalities of the country and the accumulation

lakes used for drinking water will be protected. Agricultural land irrigation systems will be

expanded to two main systems, Iber-Lepenc and Radoniq, as well as the design and

construction of new irrigation systems using a large part of rivers.

o Protection and valorisation of forest resources - For environmental, productive and other

purposes, priority will be given to protection of forest resources from degradation and

afforestation of new areas; interventions will be made with afforestation programs of new

areas, as an urgent need. Existing legislation that will enable rational use of forests will be

reviewed, in addition to the continuous afforestation of new areas.

o Development of policies for the advancement of spatial planning - in terms of development

and advancement of spatial planning, the Government plans to complete and approve of the

Zoning Map of Kosovo; review of the Spatial Plan of the "Sharri" National Park; Spatial Plan

of the National Park "Bjeshkët e Nemuna"; as well as the functioning and advancement of the

SPAK system for the needs of MESP.

1.3.7. Health

The focus of the Government will be on COVID-19 pandemic management but in addition the

health system will be developed to provide quality services to citizens. The priority is to build an

effective health system, based on sustainable human resources and with a sustainable funding,

which ensures equal access to quality and cost effective health services for all citizens.

The reform of the health system will focus on increasing the efficiency of health institutions at all

levels, improving the infrastructure and tools, functionalization of health insurance, optimal use of

professional resources, better integration of health services at all three levels of health care, as well

as the development of managerial capacities in terms of increasing accountability and

transparency.

In order to address the shortcomings of the health system, the Government's priorities for the next

three years will focus on the following:

o Reorganization of the health sector and provision of quality health services - by advancing

basic policies and legislation in the health sector, the Government will prioritize the integration

of three levels of health care. This will be accompanied by investments in infrastructure,

equipment and the provision of adequate human capacity for the health system.

18

o Ensuring sustainable health financing - this priority aims to reform the financing of the health

sector through the establishment of a mixed funding model, from the Kosovo Budget and the

Public Compulsory Health Insurance Fund, supplementing and amending health insurance

legislation; the adoption of secondary legislation to determine the criteria for exemption from

the payment of health insurance contributions.

1.3.8. Youth, culture and sports

As part of its medium-term policies, the Government will continue to support the development and

promotion of culture, youth and sports. Also, due to the pandemic, based on the Plan for the

implementation of the Economic Recovery Program, the Government has foreseen the measure

for financial support for youth employment, support of civil society organizations, other informal

groups, stimulation of cultural and artistic activities, sports and their revitalization through the

preparation of criteria which define the sectors / institutions and conditions for benefiting from

this measure. Thus, the Government will support the following priorities:

o Improvement and further modernization of cultural infrastructure - in order to promote

the development of works of art and culture, the improvement of cultural infrastructure will be

supported.

Financial support for arts and culture - The government will transform the planning and

distribution system of funding for arts and culture, increase subsidies for independent artists

and artistic and cultural events, support cultural institutions of performing arts and provide

artists with appropriate working conditions.

o Protection and promotion of cultural heritage – this is intended to be achieved by completing

the legal framework for cultural heritage and museums, implementation of the Strategy for

Preservation and Promotion of Cultural Heritage 2017-2027; the functionalization of all state

institutions dealing with Cultural Heritage, including the establishment of new institutions.

o In the field of youth the government will support capacity building and financial support for

youth organizations and youth representation mechanisms through the establishment of an

adequate regulatory framework, as well as marginalized youth groups; schemes will be

developed to support youth employment, subsidize young entrepreneurs, facilitate the

transition from school to employment, internship opportunities and support for innovative

projects; recognition of volunteer work, support for cooperation with international youth

organizations, including support to youth from non-majority communities.

The government will continue to support sports by focusing on modernizing sports infrastructure,

developing sports talents and internationalizing sports. These will be the priorities for the next

medium term:

o Modernization of sports infrastructure - investment in modernization and rehabilitation of

sports infrastructure, construction of athletics trails in major centres of Kosovo, construction

of a national stadium with UEFA / FIFA standards and football auxiliary fields, construction

of sports grounds in schools and neighbourhoods and will promote investments in sports

through public-private partnerships.

19

o Support for sports education - will work on the functioning and advancement of school sports;

sport for all will be promoted, sports medicine strengthened, by strengthening the anti-doping

agency and the sector for anthropological and scientific research in sports. The licensing

database of the sports system in Kosovo will be created; in particular, work will be done on

advancing the sports legal framework in cooperation with sports federations, on the regulation

of rewards for special achievements, the regulation on scholarships.

1.3.9. Education and science

In the next three years, in addition to the measures envisaged to address the effects caused by the

COVID-19 Pandemic, the government will focus on enhancing the quality of education at all levels

as well as linking the skills acquired in the education system with labour market needs. A greater

role will be given to science by strengthening the relevant mechanisms and policy framework.

Whereas, in terms of addressing the effects caused by the COVID-19 Pandemic financial support

is foreseen for the education sector under the operational plan for the implementation of the

Economic Recovery Program to enable the successful start and smooth running of education

during the academic year 2020/2021, as well as the way of mode of organizing learning by

enabling on-line learning. The Government's priorities for education for the next three years will

focus on as follows:

o Early childhood education - increase the involvement of children aged 0-5 years in pre-school

education by: expanding the network of institutions in pre-primary and pre-school education

across the country by assisting municipalities in their planning and construction; arranging the

way of financing; licensing and relicensing of public and private preschool institutions;

Completion of the legislative framework as well as the curriculum for early childhood

education, in cooperation with the municipalities capacities for the psycho-social development

of children will be created and the inclusion of children from the Roma, Ashkali and Egyptian

communities will be increased.

o Increasing the quality of teaching in primary and secondary education - aims to be achieved

through integrated school management by returning the school to the community and its full

integration into the community: improving the infrastructure and making the educational

infrastructure available to the benefit of the community; reviewing the legislative framework

at this level of education as well as the payroll system to increase the importance of

performance and commitment; evaluation of educational curricula; strengthening school-based

decision-making with greater community involvement and strengthening the parent-teacher-

student relationship; filling cabinets with the latest technological equipment and digitalization

of educational content; capacity building of pedagogical evaluation teams in municipalities;

the first steps will be taken towards full-day education in all Kosovar schools; professional

development of teachers and early retirement of the elderly staff;

o Increasing the quality of vocational education and training - this priority is intended to

be met by increasing cooperation between vocational schools and the business community;

appropriate curricula and textbooks based on a review of occupational standards and the

20

network and profile of these schools will be reviewed, based on a development strategy

that takes into account the demands of the labour market in Kosovo and beyond;

development of internship programs in cooperation with companies in the framework of

dual education at school and at work; strengthening the centres of competence with

adequate laboratories, equipped with the necessary materials; start-up centres will be

developed within the school and the establishment of digital schools will be considered;

cooperation with regional chambers of commerce and crafts, as well as with professional

associations that provide profiles and skills exclusively for the needs of companies in the

respective regions, as well as programs with flexible approaches will be developed in

response to the requests of companies; the career guidance system will be made

operational.

o Better quality and management in higher education - this is intended to be achieved this is

intended to be achieved by making legal and institutional changes; legal mechanisms will be

established for the departmentalization of the management of higher education institutions; the

fund of excellence will be created; participation in various international programs; new public

universities will be profiled; the ranking of higher education institutions as well as the

integrated information system will be done; strengthening the Kosovo Accreditation Agency

through the issuance of a special law on the Agency and building its professional capacity; a

clear legal basis and competitive criteria for higher education funding will be established;

strengthening participation in regional and international academic mobility programs,

including teachers, students and researchers at home and abroad.

o Science -. support will be increased for all higher education institutions to undertake scientific

activities as part of the promotion and quality assurance of teaching; institutions and teaching

staff will be encouraged to engage in scientific activities by supporting publications, various

applied research, promoting international collaborations

1.3.10. Social protection

The Government considers that the state of general social welfare and inter-social solidarity, built

on the principles of social dialogue between the main participants and on the basis of the free

market, will be the basic principle of the development and implementation of the Government's

social policies. Through the implementation of adequate policies in the field of social protection,

the Government aims to achieve full coverage for all citizens with social schemes, maintain the

standard of living of certain groups of society and ensure a financially stable social and pension

system.

The COVID-19 pandemic has highlighted the importance of health in particular and the impact it

can have on socio-economic development. Therefore, it is necessary to continue investing in

health, to ensure effective policies for social protection, poverty reduction and various forms of

income discrimination.

21

SECOND PART

1. MACRO-FISCAL FRAMEWORK Medium-Term Expenditure Framework 2021-2023 is based on a macro-economic scenario that

projects a rebound of economic growth in the country in 2021, from the COVID-19 pandemic,

followed by a trend of normalization towards historical levels in the next two years.

Economic growth is supported by a combination of increased internal and external demand.

However, there are a lot of uncertainties and downward risks over the medium term, which are

mostly related to the duration and magnitude of the current pandemic situation and the measures

or policies taken by the relevant authorities to fight this pandemic.

Government of the Republic of Kosovo is constantly oriented towards the macro-fiscal stability

and the deficit level is projected to comply with the fiscal rules towards the end of the medium-

term. However, it is worth mentioning that the crisis due to the COVID-19 resulted in temporary

change of the fiscal rules in order to overcome this crisis. The Government Decision No. 03/02,

dated 05.06.2020, has approved the request for temporary overcoming the budget deficit ceiling

up to 6.5percentof GDP and lowering the useful banking balance ceiling up to 3percentof GDP

due to the deterioration of macro-fiscal parameters from the global situation with COVID-19

pandemic.

In this context, the medium-term fiscal objectives of the Government aim at facing with the crisis

caused by the COVID-19 pandemic. Post-pandemic economic recovery represents one of the main

objectives aimed to be achieved through the Economic Recovery Programme.

2.1. MACRO-ECONOMIC FRAMEWORK

2.1.1 External economic environment

Recent problems due to the COVID-19 pandemic overshadowed the trade problems between USA

and China of 2019 (which resulted in world-wide decline in the production sector). Given that this

global crisis, unlike the financial global crisis in 2008, has an impact on our economy, the external

economic environment requires more detailed analysis given that there are several channels

through which crisis effects may be transferred to our country, such as: trade, remittances, foreign

direct investments and eventually the financial sector.

Uncertanties resulting from this crisis are evident and can be seen among ongoing (downward)

revisions of macroeconomic projections. In the WEO publication in June (IMF)2, global economy

in 2020 is projected to mark a decline for 4.9 percent in actual terms, a downward revision of 1.9

percentage points compared to the publication of April 2020. With regards to the developed and

2 World Economic Outlook, June 2020: https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020

22

developing economies, it has been projected a decline of GDP of 8.0 and 3.0 percent, respectively.

These two have been revised downward from -6.1 percent and -1.0 percent, respectively. The main

reason for these revisions is more significant negative impact in the first half of the year (compared

to the initial expectation) and more gradual or slower recovery in the second half of the year.

The IMF projects that the most negative impact of this crisis will be felt by the lower income strata.

This projection is in line with most of literature on the economic crisis effects on lower income

strata. Some of the reasons include that the poorer strata in many states have shorter employment

contracts or work in the informal market and consequently make it difficult to be assisted by the

state. Another characteristic of this crisis is the shock to demand as a result of the initial shock to

supply. In most of the countries affected by this crisis the consumers started using their savings or

assistances from families to cover consumption costs. Specifically, the service consumption

decreased because numerous service industries, activity of which requires closer physical contact,

have suffered from closure restrictions and fear of consumer that they can be infected therein.

However, consumption is not considered to have experienced a significant decline compared to

investments. Decline in sales, disturbance of supply chains and market uncertainty have had and

will have an impact on investment reduction. This development can have an adverse impact on the

long-term because the lack of investments may reduce the potential GDP.

Finally, a characteristic of this crisis is the impact on the labour market. Based on the data of the

International Labour Organization, the global decline of working hours during the first quarter of

2020, compared to the fourth quarter of 2019, was equivalent to the loss of 130 million full-time

jobs3. In the second quarter of 2020, this digit is estimated to be more than 300 million full-time

jobs. As mentioned above, it is impossible for low income strata, which often perform low-skilled

works, to work from home. Consequently, these workers are mostly affected by this crisis in the

labour market. In order to better illustrate the level of this crisis, it is worth comparing some figures

of the public and fiscal debt with the same variables from the 2008 financial crisis. Global increase

in the public debt (as percentage to GDP) during 2020 is expected to be nearly 18.7 percentage

points, whereas the total global balance (as percentage to GDP) is expected to fall for 10.05

percentage points. Both these digits have doubled compared to the peak of financial crisis in 2009.

Regarding inflation, according to the projections published on the WEO of April 2020, in

developed economies it is expected to be 0.5 percent during 2020 (during 2019 it was 1.4 percent),

and 1.5 percent during 2021. On the other hand, in developing economies, from 5.0 percent in

2019, it is expected to drop to 4.6 and 4.5 during 2020 and 2021, respectively. However, by April

2020, inflation in developed and developing economies was 0.4 percent and 4.2 percent,

respectively. The main reasons for the downward trend in prices are weakened aggregate demand

and dropping of oil prices.

During 2020, prices generally have a downward trend. The commodities index price fell by 8.9

percent and 23.4 percent (y-o-y) during the first and second quarters of 2020, respectively. While

3 Ibid.

23

the price of oil has an even more pronounced downward trend during the same periods - 20.1

percent and 54 percent (y-o-y) during the first and second quarter of 2020, respectively. Whereas,

only the month of July 2020, compared to the month of December 2019, decreased by 35 percent.

Finally, in terms of nickel4, its average price in international markets did not change much during

the first and second quarters of 2020, compared to the same period of last year.

Table 1 Prices in international markets

In terms of developments in Europe, according to summer publication of European Commission

(EC) forecast7, the crisis the EU economy was going through during the first half of 2020 was the

worst crisis since World War II. As in all other economies, as in this case, the main reason for this

shrinking in economic activity and consequently in GDP was the need to lockdown the economy

for certain periods (varying from economy to economy). The EC forecast also shows a downward

trend - the Euro Area economy in the spring publication of EC projections was expected to shrink

by 7.7 percent, while in the latest publication this figure reaches -8.7 percent. Further, economies

like Germany and Switzerland, the two countries from where over 60 percent of remittances in

Kosovo originate, are expected to decline in 2020 by 6.3 and 5 percent, respectively. It is worth

noting that these figures in previous publications were 7 percent and 6 percent, respectively.

Nevertheless, all medium-term projections depend on one key development - the development of

a vaccine for the COVID-19 virus. Also, projections for this period face two uncertainties: how to

operate within an economy facing a pandemic, and pandemic developments (such as: vaccine

development, the need for additional lockdown, virus behaviours in the environment and changing

weather, and the lack of definitive information on many other topics related to the COVID-19

virus.

4 More than 35 percent of Kosovo’s goods exports are within the category of ‘Base metals and articles of base metals’ – a category which is

dominated by the export of nickel. 5IMF Portal on Primary Commodity Prices: https://www.imf.org/en/Research/commodity-prices 6WB Portal on Primary Commodity Prices: https://www.worldbank.org/en/research/commodity-markets 7European Economic Forecast, summer publication 2020: https://ec.europa.eu/info/sites/info/files/economy-finance/ip132_en.pdf

2018 2019 2020

Avg. Q1 Q2 Q3 Q4 Q1 Q2

Commodities Index price (IMF Primary Commodity Prices)5

128.2 118.9 120.2

115.4

116.6 108.2 91.8

Consumer Index Price (IMF Primary Commodity Prices)

101.3 98.9 99.8

97.9

99.1 100.5 95.6

Crude oil price, Brent (BB Pink Sheet)6 71.1 63.3 68.3 61.9 62.7 50.5 31.4

Nickel, $ per metric ton (BB Pink Sheet)

13,114 12,412 12,244

15,651

15,349 12,690 12,237

24

Graph 1 Economic growth in other countries

2.1.2. Latest Developments in the Kosovo Economy

According to preliminary quarterly data from the Kosovo Agency of Statistics (KAS), real GDP

during 2019 increased by 4.2 percent compared to the previous year.

However, economic indirect indicators show that 2019 was a year of a slower economic activity

compared to the preliminary data from KAS. Consequently, MF has estimated that the real growth

in 2019 was 4 percent, in line with the developments in these indicators. Further, it is expected that

the data revision from KAS in its annual publication of GDP to reflect these expectations.

According to the latest KAS publication regarding national accounts, the Gross Domestic

Product for the first quarter of 2020 has marked a real increase of 1.29 percent, compared

to the same quarter of the previous year. This increase is significantly lower than the historical

average (in the last five years) of 4.0 percent, which is attributed to several main reasons:

1) the political stalemate that characterized Kosovo's economy at the beginning of the year, the

most obvious effect of which was reflected in the slow dynamics of capital investments, and is

estimated to have contributed to the increase of uncertainty in the country;

2) the beginning of implementation of restrictive measures in the country, in the second half of

March; and

3) the negative effect that the external economic environment has had on Kosovo's economy

through trade channels, remittances or foreign direct investment. It is worth mentioning that

pandemic and restrictive measures undertaken in this regard, in many European countries and in

neighboring countries of Kosovo appeared earlier than in Kosovo, worsening the external

economic environment since early 2020 (January-February).

-9.0

-7.0

-5.0

-3.0

-1.0

1.0

3.0

5.0

2016 2017 2018 2019 2020 2021

World Economy Advanced Economies European Union Euro Area Emerging and Developing Europe

25

Based on the preliminary data for the first quarter of 2020, consumption is considered to have

been almost at the same level as in the previous year (increase by 0.04 percent in real terms, as a

result of a slower increase in private consumption by 0.21 percent and decrease of the public

consumption by 0.17 percent. The slower growth in private consumption also reflects the slower

increase in workers' compensation receipts (primary income) by 6.9 percent (from 13.1 percent in

Q1 2019) and in secondary income by 5.7 percent (from 8.4 percentin Q1 2019). Investments

during Q1 2020 have decreased by 9.3 percent in real terms. This decrease supports the decrease

in public investment due to the political stalemate that characterized Kosovo’s economy at the

beginning of the year, which is reflected in the slow dynamics of capital investment, and is

estimated to have contributed to increased uncertainty in the country. This uncertainty was also

reflected in the decrease in private investment. Net exports during Q1 2020 had a positive

contribution to the real term increase of 3.7%, as a result of a more pronounced increase in total

exports and a slowdown in imports of goods.

Inflation of Consumer Prices has increased in average by 0.5 percent during the period January-

July 2020, with a declining monthly trend (from a positive rate of 1.5 percent in January, to a

negative rate of -0.7 percent in July). The main positive contribution during this period came from

the category of “Food and non-alcoholic beverages”, especially from the category of “Bread and

cereals”, “Meat” and “Fruits”, while the category of “Vegetables” has made a negative

contribution. The category of “Transport” (especially transport services) has marked a significant

negative contribution to price increase, being in line with oil price developments in international

markets during this period and the decline in economic activity. Deflationary pressures are also

attributed to the lifting of the 100 percent tariff on products imported from Serbia and Bosnia &

Herzegovina.

Current account balance during the period January – May marked an amount of -155.7 million

Euros, and represents a narrowing of the current account deficit by about 32 percent compared to

the same period last year.

Export of goods marked an increase of around 13.4 percent, while export of services marked a

significant annual decrease of 32.7 percent. Exports of goods is one of the only economic

indicators that has had a positive performance during the pandemic (except in April). Kosovo's

export structure currently remains focused on the export of base metals, which constitute about

44.7 percent of all exports of goods, which compared to the same period of last year increased by

43.0 percent. Other important sectors continue to be the category of plastic products with a share

of 12.1 percent in total exports, the prepared food stuff constituting about 8.1 percent of all exports,

and mineral products with a share of 5.8 percent in total exports. Also, the analysis of the

composition of exports according to the 20 largest exporters shows that export increase came

mainly from a major exporter, Newco Ferronikeli.

On the other hand, export of services marked a significant decrease of 32.7 percent, caused mainly

from the significant drop, especially during the second quarter of 2020, in export of Travel and

Transport services.

26

Import of goods and services market an annual increase of 12.2 percent during the period January-

May 2020. Import of goods marked a decrease of 11.9 percent, caused mainly by the downfall of

29.1 percent in import of mineral products, decrease of 24.1 percent in import of base metals, and

a decrease of 8.8 percent in import of machinery and equipments. The import of services has

marked a decrease of 13.5 percent, caused mainly from the significant downfall during the second

quarter of 2020 in import of Travel services as a result of situation created by COVID-19

pandemic.

The balance of goods

during the period January-

May 2020 has marked an

annual increase of 15.4

percent, while the balance

of services during this

period marked a decrease

of 49.9 percent. This

decrease in the balance of

services is mainly

reflected in the category of

Travel and Transport services.

Although current account data are available until May, the trade data are available until July. In

June, the performance of imports of goods has improved (increase of 5.6 percent, y-o-y), mainly

as a result of the relatively rapid opening of the economy after a total lockdown. However, in July,

imports of goods decreased again (by about 9.2 percent). Meanwhile, exports of goods continued

to increase as in previous months.

Primary income balance, during the period January-May 2020, remained at levels similar to the

same period of last year. Secondary income balance marked an annual increase by 6.7 percent.

An important role in this increase

have played the net remittances,

which marked an increase of 5.9

percent. The increase was more

pronounced during the second

quarter, and remittances during this

period were mainly through formal

channels.

The latest labour market data

show that the employment rate in

the first quarter of 2020 was 29.1

percent, which shows and

improvement of 0.9 p.p. compared to Q1 2019. The labour force share rate has remained almost at

the levels similar to the period of previous year (38.8 percent in Q1 2020, 38.7 percent in Q1 2019).

Graph 3 Labour market

-350.0

-300.0

-250.0

-200.0

-150.0

-100.0

-50.0

0.0

-1,500.0

-1,000.0

-500.0

0.0

500.0

1,000.0

2017 jan-may 2018 jan-may 2019 jan-may 2020 jan-may

Goods Services

Primary Income Secondary Income

Current Account Balance (right axis)

36%

37%

38%

39%

40%

41%

42%

43%

0%

5%

10%

15%

20%

25%

30%

35%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2018 2019 2020Unemployment Rate (%)Employment Rate (%)Labour Force Participation Rate (%) right axis

Graph 2 Current account balance

27

Whereas, the unemployment rate has decreased by 1.9 p.p. in annual terms, reaching to 25.0

percent.

The banking sector

continues to experience an

accelerated growth in credit.

At the end of July, the stock of

loans amounted to 3.15 billion

Euros, marking an increase of

6.7 percent compared to the

previous year. The stock of

corporate loans increased by

6.7 percent, while the stock of

household loans increased by

6.8 percent.

At the end of July 2020, the

stock of total deposits

amounted to about 4 billion Euros, marking an annual increase of 13.6 percent. The stock of

corporate deposits has increased by 14.5 percent, while the stock of household deposits increased

by 8.2 percent. However, the level of non-performing loans reached 2.6 percent at the end of June

2020, and reflects deterioration in loan quality, from 2.4 percent in Q1 2020 to 2.6 percent in Q2

2020.

The average interest rate on loans during the first half of 2020 was 6.3 percent, about 0.2 p.p. lower

than last year. Whereas, the average interest rate on deposits was 1.5 percent, or at levels similar

to last year.

8 There is no comparison for 2019 since the quarterly data are preliminary until the annual publications of KAS

(September 2020).

Information Box 1. Comparing macroeconomic forecasts used for previous MTEFs with

actuals

Figure 1 shows the comparison between forecasts of main macroeconomic indicators provided

in previous MTEFs and their actual performance over the period 2014-20188 and helps in

identifying whether there is a systematic bias (either upwards or downwards) in the projections.

As shown in Figure 1, the projected nominal GDP growth rate for the first two years (2014 and

2015) is higher than the actual data mainly due to higher growth in consumption, exports and

lower growth in imports; while in 2016 this gap narrows considerably with GDP forecasted

being very close to the actual values. In 2017, the forecasts for GDP were more conservative by

being lower than the actual performance. While in 2018, the projected nominal GDP is higher

than the current one, although the gap between the two is narrower than in the past. This gap in

2018 is attributed mainly to expectations of total imports than the current value (about 5

percentage points lower), while expectations for other components of GDP have been lower than

Graph 4 Loans, deposits and non-performing loanse

2.2%

2.3%

2.4%

2.5%

2.6%

2.7%

2.8%

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

Jan-17 Jan-18 Jan-19 Jan-20

Credit Deposits NPL

28

9 In the context of Kosovo, the benefits of fulfilling direct tax liabilities and domestic VAT can overlap (coincide)

with the effects of macroeconomic variables affecting tax revenues.

current ones. It is worth noting that the gap between total export projections and inflation is at

levels close to zero during 2018.

Figure 1. Main Macroeconomic Variables 2014-2018: MTEF projections vs. Actuals

The figures above present some important issues for the budget forecasting process. Because

nominal GDP is used as a key macroeconomic variable that affects budget revenues, lower

current GDP values than those predicted usually9 have a negative impact on revenue collection

for those years compared to forecasts, especially for personal and corporate income tax

categories. Although the gap between projected consumption and current consumption has

narrowed significantly, it still leads to higher expectations for revenues collected from domestic

VAT. Imports, with the exception of 2015, have been underestimated, leading to lower forecasts

for revenues collected from VAT at the border and from customs duties. However, this is

partially offset by the positive effect that such an undervaluation of imports has on the projected

GDP and consequently on projections for other budget revenues (excise).

29

2.1.3. Macroeconomic Perspective 2021-2023

At the end of May 2020, the Ministry of Finance updated the macro-fiscal projections in the

framework of the Budget review for 2020. According to these projections, Kosovo's economy was

estimated to decline by about -3.0 percent with the largest shock reflected in the second quarter of

2020. This estimate constituted a downward revision compared to the estimates made in the initial

budget of 2020. As it has been stated several times in the document of the Law on Budget for 2020

(initial and revised), these projections are surrounded by high uncertainty.

Updating the projections with the latest available data suggests a deterioration in the short-term

economic outlook and an extension of the recovery time of economic activity. According to MoF

estimates, Kosovo's economy during the current year is expected to shrink by about 6.4

percent in real terms. The negative effect of the pandemic is expected to peak in the second

quarter of 2020, as a result of the closure of economic activities and other measures of social

distancing. Although during the third quarter of 2020, there has been a easing of measures to limit

the spread of the pandemic, economic growth will continue to remain in negative territory, as a

result of uncertainty about the future, the continuation of some of the restrictions (especially travel)

and the global nature of this situation, which is expected to further deepen the negative impact on

the domestic economy. However, the downward trajectory of our projections will be smoother

after the second quarter.

The decline in real GDP of 6.4 percent during 2020 is mainly attributed to the decline in private

investment (with a negative contribution of about 4.8 percentage points) and the decline in exports

of goods and services (with a negative contribution of about 5.5 percentage points). The latter

comes mainly as a result of the significant decline in exports of services (especially travel) by

about 27 percent in real terms, while exports of goods are expected to close the year with positive

growth, but with a growth rate lower than that occurred during January-July 2020. Private

consumption is also expected to have a negative contribution to real economic growth, by about

1.8 percentage points, as a result of declining disposable income and increased consumer

uncertainty about the future but also nature of restrictive measures to prevent the spread of

COVID-19. Public investment is expected to slow down compared to last year (with a negative

contribution to economic growth of about 1.1 percentage points) as a result of the situation created

by COVID-19 and as a result of an early year characterized by political stalemate, which led to

delays in the approval of the Law on Budget for 2020. Public consumption is expected to be

10 Limit of 4.5 percent of GDP of the Bank Balance applies only in those years when funds from privatization of

SOEs are used.

These divergences between projections and current figures of economic variables may have

contributed to lower revenues than projected. However, the budget balance and the bank

balance sheet continued to remain within the fiscal rules, where the budget deficit was less

than 2 percent of GDP and the bank balance was not less than 4.5%10 of GDP.

30

positive as a result of the increase in current expenditures (category of "goods and services" and

the category of "wages and salaries") within the accommodation of a number of emergency

measures undertaken by the government in order to mitigate the negative impact of the pandemic.

The contribution of imports of goods and services has been positive (6.1 percentage points), as a

result of the decline of two sub-components: i) the decline in goods being in line with the estimated

decline in consumption and investment; and ii) decline in services (especially travel) due to travel

restriction measures.

During 2021, Kosovo's economy is expected to grow at a real rate above its historical trend,

by about 5.4%, returning to the similar level recorded before the COVID-19 crisis (year 2019)

with the main contribution coming from private consumption (by about 3.2 percentage points);

private investment (by about 2.9 percentage points); to be followed by total exports, especially

services (with a total contribution of about 2.04 percentage points). During 2021, a faster dynamics

of public investment execution is also expected, while the contribution of public consumption will

be similar to 2020. However, the longer the period of social distancing or isolation lasts, the less

likely the economy is to recover according to a trajectory shown in Chart 6. Whereas, in the other

two years (2022 and 2023 ), real economic growth will fluctuate around its historical level of

4%. It is important to note that the assessment for the medium-term outlook of the economy

depends significantly on how 2020 will end and whether the recovery in 2021 will be slow and

partial or vice versa.

The Consumer Price Index is expected to fluctuate around the level of 0.5 percent during

2020, staying significantly below the level recorded in 2019 (2.7%). Inflationary pressures in the

category of "food and alcoholic beverages" that may come from distortions in the food chain are

expected to be dominated by disinflationary pressures that may come from the removal of the 100

percent tariff on products of Serbia and Bosnia & Herzegovina and the drastic fall in prices of

primary commodities (petroleum, base metals, etc.) in international markets. Starting from the

end of 2020 and the following year, inflation is expected to follow an upward trend in line

with the revival of the economy and the return of prices in foreign markets to their historical

levels, fluctuating around 1.3 percent in the medium term.

31

Graph 5 Real GDP and key contributors

11 The projections of other institutions have been taken from their recent updates and not all of them cover the same forecast

horizon. The parentheses in the tables represent the date of the last update for each institution.

-8%

-6%

-4%

-2%

0%

2%

4%

6%

(16)

(14)

(12)

(10)

(8)

(6)

(4)

(2)

-

2

4

6

8

10

12

2017 2018 2019 2020 2021 2022 2023

y-o-y, %p.p

Private Consumption Public Consumption Private InvestmentPublic Investment Import of G&S Export of G&SReal GDP growth Rate

Information Box 2 . Comparison of macroeconomic forecast for MTEF 2021-2023 with

other institutions

The following tables present the projections of the real GDP growth rate (if available) among

the various institutions11 for the medium term. Such a comparison enables the judgment whether

the macroeconomic projections of the MoF are in line with those of other institutions (domestic

and international).

As Table 1 shows, all institutions for 2020 expect a decline in economic activity as a result of

measures taken to prevent COVID-19, to be followed by a rapid recovery in 2021. All

institutions emphasize that their base scenario is surrounded by a high degree of uncertainty and

a balance of risks significantly shifted downwards. The MoF projections are more pessimistic

than the average of the evaluations of other institutions, mainly as a result of the time of

preparation of these projections. The Ministry of Finance updated its macro-fiscal projections

during August, consequently having available data on the performance of most economic

indicators for the second quarter of 2020, when it is estimated that the pandemic has had the

greatest negative impact. While the projections of other institutions have been prepared earlier,

in conditions of even greater uncertainty and in the absence of key data for the second quarter.

Also, the MoF expects a lower inflation rate than other institutions.

In terms of nominal GDP, the projections of the Ministry of Finance are lower than those of the

International Monetary Fund for the four years (2020-2023), mainly as a result of the above

reason.

Table 1: Real GDP growth projections among institutions

Year 2019 2020 2021 2022 2023

32

2.2. FISCAL FRAMEWORK 2021-2023

2.2.1. GOVERNMENT REVENUES AND EXPENDITURE

2.2.1.1. Revenues and expenditure in 2020

In 2020, the economic situation and perspective in Kosovo has changed due to the COVID-19

pandemic. The impact on the economy of the pandemic and the measures taken by the government

have caused the fiscal forecasts for this year to change compared to the 2020 budget projections.

Estimates of total revenues by the Ministry of Finance for 2020 show that revenues will have an

annual decrease of about 5.3 percent, driven by a slowdown in economic activity. In addition to

the slowdown in economic activity, several other economic developments have been taken to reach

this figure, as follows: it is assumed that the tax debt stock will be further reduced by 20 million

and 15 million during 2020 and 2021, respectively; fiscal impacts related to the Free Trade

Agreement with Turkey, decisions on excise duty on cigarettes, liquids and cars, and the

Government's decision to reduce VAT from 18 percent to 8 percent for some categories (as part

of the Recovery Law) were taken into account. It should be noted that some of these developments

are related to 2021 as well, in addition to the current year 2020.

On the other hand, the budget expenditures for 2020 are expected to increase by about 25.2 percent

compared to last year. This is due to accommodation for expenditures derived from the Emergency

12 Central Bank projections are available in the publication ‘Quarterly Assessment of Macroeconomic Developments’ in June 2020

(https://bqk-kos.org/repository/docs/2018/BQK_TM1_2020_ZhM.pdf). 13EBRD projections are available in the report entitled ‘Regional Economic Prospects Covid-19: From Shock To Recovery’

published in May 2020 (https://www.ebrd.com/what-we-do/economic-research-and-data/rep.html).

MoF (August ’20) 4.0% -6.4% 5.4% 4.0% 4.0%

Central Bank of Kosovo (June ‘20)12 3.9% -5.9% n/a n/a n/a

World Bank (April ’20)13 4.2% -4.5% 5.2% n/a n/a

IMF (April ’20) 4.0% -5.0% 7.5% 3.7% 3.8%

EBRD (May ’20) 4.2% -5.0% 7.5% n/a n/a

Average of others 4.1% -5.1% 6.7% 3.7% 3.8%

Table 2. Nominal GDP projections (in EUR mil.) among institutions

Year 2019 2020 2021 2022 2023

MoF (August ’20) 7,114 6,713 7, 149 7,507 7,942

IMF (April ’20) 7,125 6,877 7,476 7,870 8,305

Table 3. Projections of inflation rate among institutions

Year 2019 2020 2021 2022 2023

MoF (August ’20) 1.7% 0.5% 1.5% 1.2% 1.2%

World Bank (April’ 20) 2.7% 1.6% 1.8% n/a n/a

IMF (April ’20) 2.7% 1.3% 1.6% 1.8% 1.8%

Average of others 2.7% 1.5% 1.7% 1.8% 1.8%

33

Fiscal Package and the Economic Recovery Program (with a total value of 365 million euros). As

a result, the structure of expenditures has undergone some changes (see Graph 6 for more details).

2.2.1.2. Revenue projections 2021-2023

Budget revenues for the medium term are expected to stabilize, based on macroeconomic

projections, reduction of the tax debt stock and fiscal policy effects. However, we should note the

general uncertainties arising from the situation created by COVID-19, which may affect the change

(revision) of revenues in the medium term.

Based on current projections, total budget revenues are expected to increase by an average of 5.8

percent over the medium term. The projected growth is most pronounced in 2021 mainly due to

the underlying effect from 2020 and the recovery of the economy after the pandemic.

Graph 6 Revenue structure in overall revenues

Revenues from indirect taxes continue to have the highest share of total revenues and are

expected to increase by about 5.8 percent in the medium term. VAT is expected to increase by an

average of 6.7 percent, driven by increased imports of goods and general consumption. It is also

worth mentioning that the export of travel services, which mainly represent the consumption of

immigrants during their stay in Kosovo, has a positive effect on the increase of revenues from local

VAT. As mentioned above, the Government's decision to reduce VAT on certain product

categories (as part of the Recovery Law) is foreseen during the VAT projection. Excise revenues

are expected to increase by an average of 2.9 percent in the medium term, while revenues from

customs duties are expected to increase by an average of 10.9 percent in the same period based on

the increased imports and reduced negative effect of the SAA.

On the other hand, direct tax revenues are expected to increase by an average of about 6.0 percent

in the medium term. The most significant increase is in 2021 as a result of the underlying effect

and a potential recovery of the economy after the contraction in 2020 caused by measures taken to

15% 16% 16% 16% 16%

75% 74% 75% 74% 74%

11% 11% 12% 12% 12%7%

-5%

7%

5%5%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-20%

0%

20%

40%

60%

80%

100%

120%

2019 2020 R.B 2021 2022 2023

Direct Taxes Indirect Taxes Non-tax revenues Other Refunds Budget revenues y-o-y % right axis

34

combat the COVID-19 pandemic and by the slowdown in economic activity. In addition, this

increase is driven by the reduction of tax debt within corporate income tax and personal income

tax.

Non-tax revenues are projected to increase by 10.4 percent in the medium term and are expected

to increase as a share of GDP from 2.7 percent in 2020 to an average of 3.2 percent over the

medium term. The forecast reflects a more dynamic implementation of the process of legalizing

illegal construction and improving vehicle registration fulfilment. However, another important

factor in this increase is the postponement of the concession tax payments for 2020. More

precisely, the approval of the request of Prishtina International Airport "Adem Jashari" for the

postponement of the payment of quarterly instalments of the Annual Concession Fee until

beginning of 2021.

Information Box 3. Comparison of projections and actuals for year 2019

Table 1 in Annex 2 enables the comparison of the performance of the main budget items

according to their execution, in the budget and MTEF (the initial and the last one) for 2019.

In terms of expenditures, the main conclusion is that current expenditures in MTEF (2019-2021)

have been underestimated due to the increase in the number of beneficiaries in pension schemes,

as a result of non-reform of the scheme for war veterans which would have enabled the reduction

of the number of beneficiaries in this category and due to the decision to increase the basic and

contributory pensions by 20percentand 15percentduring 2019.

While current figures for current expenditures compared to the 2019 budget were lower due to

an under-spending on wages and salaries and on goods and services, despite that the category of

subsidies and transfers had an over-spending. This under-spending in the category of "salaries

and wages" and "goods and services" was mainly due to non-fulfillment of the number of

vacancies, late approval of the budget (February 2019), early elections (October 2019) and a

contingency planned in the ‘goods and services’ category, which at the end of 2019 was partly

reallocated to cover expenditures in the ‘subsidies and transfers’ category.

Capital expenditures are below their projections in both the MTEF and the Annual Budget for

two main reasons :

1) non-execution of the investment clause due to difficulties in the efficient functioning of

the implementing units and project delays ;

2) non-execution of capital projects financed from the regular budget due to difficulties in

decision-making since 2019 was an election year and the budget was approved late in February

2020.

In 2019 there was a difference between actual revenues and projections of revenues both in the

last MTEF (2019-2021) and in the annual budget. The lowest revenue performance in 2019 was

largely determined by VAT and excise revenues. This was partly influenced by the Law on the

35

2.2.1.3.Expenditure projections 2021-2023

Budgetary expenditures in the medium term are expected to stabilize after the COVID-19

pandemic and gradually return to levels of historical growth. The year 2021 is expected to be

characterized by a decline in some of the expenditure categories, mainly due to the underlying

effect of 2020, where there has been a pronounced increase in some categories due to government's

fiscal stimulus measures. Also, expenditures are planned in accordance with the Public Finance

Management Law and compensate the excessive deficit on fiscal rule in 2020.

Along the medium - term 2021-2023, expenditures are projected to hold a share of about 32.2

percent of GDP on average. Of them, current expenditure is expected to be around 22.7 percent of

GDP, while capital expenditure around 8.8 percent. Part of capital expenditure is planned to be

financed by foreign borrowing through the investment clause, which allows the Government to

finance projects of public interest and influence the country's reduction of development

(infrastructure) barriers.

Although during this period, there have been difficulties to accommodate expenditure as a result

of legal restrictions to offset the excessive deficit in 2020 due to measures taken for preventing the

pandemic, public expenditure in the medium term is expected to remain almost unchanged. A

decline in expenditures is foreseen in 2021 and 2022, to continue with an increase in 2023. This

decline in 2021, especially in current expenditure, is largely due to the 2020 underlying effect,

where current expenditure has increased to accommodate fiscal stimulus measures. Graph 7 shows

the structure of general government expenditures over the medium term which is planned as

follows:

Graph 7 Structure of budget expenditures

Prohibition of Gambling and the slower performance of import of goods. On the other hand, the

projections had overestimated the negative effect of the Stabilization and Association

Agreement on customs duties. Meanwhile, revenues from CIT and PIT and non-tax revenues

had a slight over-performance.

36

Current expenditures in the medium term are planned to have a decrease of 2.7 percent which

comes mainly from a decrease in 2021 (-5.5%) and 2022 (-4.7%). The category of expenditures

for wages and salaries is planned to increase by an average of about 1.3 percent over the medium

term.

The category of goods and services is expected to increase on average by 3.2 percent in the

medium term mainly due to significant increase in 2021 (6.2%), as a result of a low base in 2020

and additional expenditure on municipal elections (approx. 5 million euros) and the population

census (about 7 million euros) in 2021. However, despite these changes, expenditures on goods

and services are expected to be on average 4.6 percent of GDP.

Subsidies and transfers are expected to decline by 1.1 percent mainly as a result of high spending

in 2020 to accommodate transfers and subsidies within government measures during the pandemic.

Expenditures in this category are expected to be 8.7 percent of the GDP during the medium term.

Capital expenditures - account for a considerable amount of total expenditure and are expected

to be around 27.8 percent of total expenditure during the medium term. During this period is

expected the implementation of capital projects based on a list of priorities which entails projects

with influence on upgrading the transportation network, upgrading the electricity network, and

upgrading education, social system, and healthcare. This category of expenditure is expected to

decline at a rate of 1.1 percent during the medium term. This decline is attributed to the high capital

expenditures budgeted for 2020, and then to the decline in the following year due to the underlying

effect. Most capital investments over the next medium term are expected to come from regular

budget financing, but a large number of projects in various sectors are planned to be financed by

external lending through the investment clause (Box 1 in the annex).

74% 71% 72% 70% 69%

25% 28% 26% 28% 29%

1% 1% 2% 2% 2%

7%

25%

-6% -5%

2%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0%

20%

40%

60%

80%

100%

120%

2019 2020 R.B 2021 2022 2023

Recurrent Expenditure Capital Expenditure

Interest Payments Budget Expenditure y-o-y % right axis

37

2.2.2. Budget deficit and the fiscal rule

According to the Government Decision14 No. 03/02, dated 05.06.2020, the request for temporary

exceeding of the budget deficit limit up to 6.5 percent of GDP and reduction of the usable bank

balance limit up to 3 percent of GDP was approved, due to deterioration of macrofiscal parameters

as a result of the COVID-19 global pandemic situation. Consequently, in 2020, as a result of the

decline in budget revenues due to the economic downturn and as a result of the increase in budget

expenditures due to the (not yet complete) implementation of the Emergency Fiscal Package and

a series of other measures under Economic Recovery Program, approved by the Government in

March 2020, fiscal deficit, according to the fiscal rule, in 2020 is expected to reach the level of -

6.5 percent of GDP, while the usable bank balance will be about 3.1 percent of GDP.

In the following years (2021, 2022 and 2023), the budget deficit is expected to gradually decrease

to -4.8 percent, -2.1 percent and -1.5 percent, respectively. Whereas, the usable bank balance is

expected to be 3.1 percent of GDP in 2021, 3.0 percent of GDP in 2022 and 3.2 percent of GDP

in 2023. Within six (6) months from the lifting of pandemic response measures, the Ministry of

Finance will draft a medium-term plan in order to adjust the limits of temporary exceedances

authorized and bring them in line with Article 22A of the Law on Public Financial Management

and Accountability. Our preliminary estimates suggest a gradual return to the baseline deficit limit

over the medium term. This for two reasons; 1) to fully reflect the impact of measures related to

COVID-19 in the coming years, and 2) a gradual return will avoid the negative effects that a rapid

return from 6.5 percent to 2 percent would have on the country's economy. As part of the Ministry

of Finance's approach to full transparency and accountability, regular six (6) monthly reports will

be prepared to monitor the implementation of the fiscal rule/deficit, including exceptions approved

by the Assembly.

14 https://kryeministri-ks.net/wp-content/uploads/2020/06/Vendimet-e-Mbledhjes-s%C3%AB-2-t%C3%AB-

t%C3%AB-Qeveris%C3%AB-s%C3%AB-Republik%C3%ABs-s%C3%AB-Kosov%C3%ABs-2020.pdf

Information Box 4. Main deviations between MTEFs 2021-2023 and 2020-2022 for 2021

and 2022

Tables 2 and 3 in Annex 2 identify and explain the differences in revenues and expenditures

between MTEF 2020-2022 and MTEF 2021-2023. Table 2 presents the deviations in the

forecasts for 2021, while Table 3 presents the deviations for 2022.

In terms of budget revenues, we have similar deviations in both years and this mainly stems

from indirect tax revenues such as excise, VAT and customs duties. These deviations come

mainly from the underlying effect or the effect carried over from 2020. In 2020, as a result of

the pandemic and the preventive measures of the government, there was a significant decline in

the economic activity and consequently a decreae in revenues, especially indirect ones.

Therefore, the significant differences in revenues compared to the previous MTEF come from

the lower levels of revenues, despite their increase compared to 2020. Budget expenditures are

also lower in both 2021 and 2022 than those planned in the previous MTEF. These deviations

38

2.2.2.1.The level of State debt, developments and perspectives for the upcoming years

The total general debt by the end of 2020 was 1,330.44 million Euros, of which 909.51 million

Euros represents domestic debt, while 420.93 million Euros represents international debt, as

presented in the table below. The General Debt portfolio by the end of 2019 consisted of Domestic

Debt and International Debt, and there was no Municipal Debt or Municipal Guarantee issued. It

also included three state guarantees, amounting to 41.65 million15 Euros.

Table 2 General Debt

2015 2016 2017 2018 2019 July 2020

International Debt 371.17 373.77 422.15 416.43 409.10 420.93

Domestic Debt 377.78 478.97 574.27 676.62 791.94 909.51

Total Public Debt 748.95 852.74 996.42 1,093.05 1,201.05 1,330.44

State Guarantee 10.00 20.00 44.00 43.70 42.68 41.65

Total Public Debt as percentof

GDP 13.07 14.38 16.62 16.90 17.46 18.38

GDP 5,807.01 6,070.11 6,413.86 6,725.91 7,123.10 7,464.0016

Domestic debt exceeded international debt for the first time in 2015, and since then has

continued with such an upward trend in favor of domestic debt. This part of Kosovo's debt

portfolio consists of debt instruments with a maturity of 1 year to 10 years. The Ministry of

Finance since the beginning of the issuance of securities (year 2012) has focused on budget

financing mainly from the internal market, contributing to market development. Through

securities, the Government of Kosovo has borrowed funds on favorable terms and has

contributed to the development of the Securities market. At the end of 2019, the domestic debt

amounted to 791.94 million euros, or 66percentof total debt. By July 2020, domestic debt has

reached the level of 909.51 million, while by the end of 2020, domestic debt is projected to reach

962.09 million euros or 14.33percentof GDP.

The rest of Kosovo's public debt is international debt which at the end of 2019 consisted of the

program17 with the International Monetary Fund (IMF), loans from the World Bank (WB),

15 The Guaranteed Loan for Urban Traffic has started to be paid, and consequently the State Guarantee is reduced by

the amount paid.

16 GDP as in the Budget Law 2020, July 2020 17 Stand By Arrangement

occurred for several reasons. First, the deficit excess in 2020 requires that this excess be offfset

in subsequent periods. Second, the economic activity projected in these two years is slower than

that foreseen in the previous MTEF and it has affected the wages ans salaries to have a slower

increase. Third, there was a revision of projects in the investment clause based on the probability

of their execution. Finally, the Economic Recovery Program has been included which has

resulted in some additional expenditures.

39

German Bank for Reconstruction and Development (KfW), European Bank for Reconstruction

and Development (EBRD), the European Investment Bank (EIB) and other low-participation

creditors. Excluding the program with the IMF and inherited debt, all other borrowings are

related to the financing of specific projects in various sectors. At the end of 2019, the

international debt amounted to 409.10 million euros, or 34percentof total debt. By July 2020 the

international debt stock was 420.93 while by the end of 2020, the international debt stock is

projected to reach 719.98 million euros or 10.73percentof GDP. The following is the current

state of the international debt portfolio, including committed and non-disbursed debt (meaning

agreements that have been ratified by the Assembly of Kosovo but have not yet begun to be

disbursed).

Table 3 International Debt including undisbursed debt as of sipas 31.07.2020

Creditor

Actual

Debt

Ratified

(A)

Actual

Debt

Disbursed

(B)

Undisbursed

debt

(C=A-B)

Outstanding

Debt

(D=B-E)

Debt

Repayment

(E)

Undisbursed

debt as

percentof

GDP

Disbursed

Debt

(unpaid)

as

percentof

GDP

IBRD 381.21 381.21 0.00 129.97 251.24 0.00% 1.74%

IDA 157.72

67.10 90.62 65.48 1.62 1.21% 0.88%

IMF 339.26 339.26 0.00 140.28 192.65 0.00% 1.88%

KFW 71.00 68.43 2.57 39.65 28.78 0.03% 0.53%

UniCredit 24.98 20.23 4.75 19.97 0.26 0.06% 0.27%

OFID, IsDB, SFD 45.87 13.54 32.33 10.39 3.15 0.43% 0.14%

EBRD 139.90 6.76 133.14 6.37 0.40 1.78% 0.09%

EIB 122.00 7.00 115.00 7.00 0.00 1.54% 0.09%

NATIXIS Franca 66.00 0.00 66.00 0.00 0.00 0.88% 0.00%

RBI Austria 5.13 1.83 3.30 1.83 0.00 0.04% 0.02%

Borxhi Ndërkombëtar 1,353.06 905.35 447.71 420.93 478.08 6.00% 5.64%

Remarks: The actual ratified debt means the total amount of all international financial agreements on borrowings (excluding

repayable loans), which are ratified by the Assembly of the Republic of Kosovo. The International Debt at column "D” in the table

changes also as a result of the foreign exchange rate on borrowing in non-euro currency.

Historically, the level of General Debt of the Government of Kosovo has been relatively low.

However, as the graph below shows, Kosovo's debt has marked a gradual upward trend. From the

following data, it can be noticed that there will be an increase in 2020. This will happen mainly

due to the need to finance the deficit to meet the immediate health and economic needs caused by

the pandemic COVID-2019: ( a) from additional borrowings from the domestic market through

Securities, (b) obtaining loans from incentive packages offered by international financial

institutions, and (c) a portion of the disbursement of funds through the investment clause.

40

The new situation created by the COVID-19 pandemic has presented the need for additional funds

to cope with the health and economic situation. As a result, the MFT, for immediate needs, has

planned to increase the issuance of securities in the amount of 50 million euros, by not preferring

the public auction method. In this regard, the possibility is being considered that these funds be

issued with private placement to the Pension Funds, in accordance with the law on public debt.

This would be a long-term instrument (at least 10 years maturity) that would coincide with the

strategy for extending the average return time and the Fund's strategy for prolonging the maturity

of their portfolio of liabilities and investments - assets. Also, through this investment of the Fund,

Kosovo's contributors will directly benefit.

In response to the emergency needs created by the pandemic, the Government is also considering

the benefit of emergency packages and special instruments of IFIs where Kosovo is a member.

The IMF has approved and disbursed the Instrument for Immediate Funding18 in the amount of

about 52 million Euros, to alleviate the urgent needs arising from the crisis. Kosovo is expected to

receive an amount of 50 million Euros from the World Bank (WB), as well as about 100 million

Euros19 in the form of loans with favorable conditions from the European Union (EU)

to deal with the effects of the crisis, a € 35 million loan from the Council of the European

Development Bank (CEB) and a € 30 million loan from the European Bank for Reconstruction

and Development (EBRD). Some other financing options are being analyzed, but it should be

borne in mind that according to the legislation in force it can be borrowed only to the extent

provided in the budget law (table 1) and such a borrowing must be ratified through an international

financial agreement with 2/3 of the votes.

As of July 2020, the total debt stock was 1,330.44 million euros, which represents

18.38percentof GDP, while by the end of 2020 it is projected to be 1,682.07 million euros or

25.68percentof GDP. The projected stock for the General Debt includes data from the Revised

Budget Law for 2020. The figure below shows the trend for the Total Debt stock.

18 https://www.imf.org/en/News/Articles/2020/04/10/pr20149-kosovo-imf-executive-board-approves-us-million-

emergencysupport-address-covid-19-pandemic 19 From which, 50 mln Euros will be disbursed in year 2020 and other 50 mln Euros in year 2021

41

Grafiku 8 Trend of General Debt and as percentof GDP

Due to favorable conditions on borrowing, in the medium term, the Government intends to be

slightly oriented towards international borrowing. In this regard, cooperation and communication

with international financial institutions, in particular with developmental ones, will be enhanced

in order to introduce the priority projects for the economy of the country and consequently, to

finance these projects through preferential loans from these institutions.

Moreover, the Ministry of Finance aims to further develop the domestic market of securities of the

Government of Kosovo by stimulating and supporting the expansion of the investor’s base. The

expansion of the investor’s base is planned to be done by issuing new debt instruments, which in

some cases will target new market groups with high investment potential. Also, the strengthening

of the secondary market, the increase of liquidity of securities through REPO transactions between

banks, but also with the beginning of the implementation of these transactions with CBK are

expected to increase the dynamism of this sector.

The financing the Kosovo budget deficit will always be in full consistency with the level of deficit

presented in the Budget Law as well as the need to finance the banking balance. In any case, the

Ministry of Finance will ensure that the amount borrowed for Government needs will be at the

lowest possible cost and always within the acceptable limits of exposure to market risks. In order

to ensure proper and strategic debt management, the Ministry of Finance prepares each year the

Mid-Term State Debt Program, which is complementary document and in line with the Mid-Term

Expenditure Framework. Regarding the public debt for the period covered by the MTEF,

borrowings for financing specific projects (those signed, but not debited and those that are

expected to be signed) have been taken into consideration. Moreover, the scenario of economic

and fiscal projections also takes into account the issuance of securities towards financing the

deficit. Taking into account the returns for the medium term, a gradual increase in public debt

stock is expected, but the total debt to GDP ratio will remain at acceptable and sustainable levels.

8.94%10.65%

13.07%14.38%

16.22% 16.91% 17.46%

25.68%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1,600.00

1,800.00

2013 2014 2015 2016 2017 2018 2019 2020 Pr

Total Debt Debt as a % of GDP

42

The new situation created by COVID-19, presents the need to review some of the main

macroeconomic indicators, therefore this requires a review of the structure and sources of funding,

to adapt in a timely manner to the consequences of pandemics. However, the limit of public debt

remains within the legal parameters, with any scenario that will be decided to finance the deficit

(due to declining budget revenues) as well as with any increasing budgetary pressures on spending.

2.3. MEDIUM-TERM RISKS 2021-2023

The basic framework presented in the MTEF, as every year, is accompanied by risks which may

adversely alter the macro-fiscal situation, depending on the probability of materialization and the

intensity with which those risks are executed. In order to support cautious planning and in the

interest of transparency, part of the Macro-Fiscal Framework will take into consideration these

fiscal risks, the details of which will be outlined below. Compared to last year, the risks have

significantly increased, mainly originating from macroeconomic developments in the country.

Systematic (macroeconomic) risks

This subsection presents the effects that deviations from the macroeconomic projections used for

the MTEF may have on key budget aggregates. Table 4 describes how the positive and negative

deviations from the macroeconomic projections used for MTEF 2021-2023 affect revenues,

expenditures and budget balance.

This sensitivity analysis shows that the developments of macroeconomic variables mainly

determine the performance of budget revenues rather than the expenditures, as in Kosovo few

categories of expenditures are directly related to macroeconomic developments. An example for

this impact is inflation, which some social transfers of the budget are linked to.

Law no. 04/L-131 "Law on Pension Schemes Financed by the State", Article 5, stipulates that if

any pension paid under this Law is increased by any other legal or sub-legal act, or by any other

authorized administrative measure, indexation with inflation or with the cost of living shall be

applied for two calendar years, starting from the month the increase has entered into force. Since

in 2019 there has been an increase in basic pensions and contributory pensions by a government

decision, there is no inflation-induced expenditure to be expected in 2021. However, there are

other areas of expenditure in the budget which were not affected by this government decision,

therefore the effect of inflation applies to them over the 2021-2023 period.

As mentioned several times throughout this paper, the macroeconomic projections on which the

Medium Term Expenditure Framework 2021-2023 is built carry high uncertainties and depend on

the duration of the period of social distancing or other restraint measures, as well as on pandemic

developments in the country, but also in other economies. The combination of these uncertainties

surrounding the baseline scenario would generate real economic growth, i.e. on average 3.5

percentage points lower than the projected growth rate in the baseline scenario for the 2021-2023

period.

43

Graph 9 Real economic growth, y-o-y, %

Given that Kosovo is an open economy, characterized by a high share of imports in GDP (about

45%), price developments in international primary commodities play an important role in the

domestic economy. In the baseline scenario presented in MTEF 2021-2023, a drastic decline in

prices in international markets during 2020 is assumed as a result of the pandemic to be followed

by an improvement trend in 2021 and onwards. Similar to the first scenario, under the assumption

that the current situation might last beyond 2020, then the likelihood that the fall in prices in

international markets will be even greater. A deviation by 10 percent in the “all primary

commodities” index20 has negative effects on budget revenues due to its impact on imports and a

smaller impact on expenditures due to inflationary pressure stemming from higher prices of

commodities.

Remittances represent an important source of foreign financing in Kosovo, accounting for about

12 percent of GDP over the past years. These inflows have significantly mitigated the trade deficit

and are mainly used for consumption, thereby mitigating the negative effects of poverty and high

unemployment in Kosovo. In the baseline scenario, remittances are expected to decline in the

second half of 2020 (with the main negative effect appearing in the second quarter and onwards)

and 2021, as a result of developments in the Eurozone. However, if the economic outlook in the

countries where Kosovar emigrants are located worsens, then the decline in remittances will be

even greater than expected. A decrease in these inflows is transmitted into lower/higher disposable

income and therefore into lower/higher consumption which is then reflected into lower/higher

GDP and budget revenues.

20 A deviation of 10percentis the approximate standard deviation of the annual growth rates of the "all primary commodities" index, which includes fuel and other commodities.

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2019 2020 2021 2022 2023

Baseline Scenario Risk Scenario

44

Table 4 Sensitivity analysis of the budget to fluctuations of macroeconomic variables for the three-year

period 2021-2023

Variable Change

Revenues Expendi

tures

Budget

Balance

impact in

million euros

percentof

projected

revenues

impact in million

euros

Nominal GDP 3.5 percentage points (-)

-210.8 2.90% -210.8

Remittances 10 percent

deviation (-) -80.06 1.3% -7.06

“All primary

commodities” index

10 percent

deviation (+) -16.68 0.27% 0.39 -17.07

Specific risks

1. Risk of contingent liabilities arising from on-borrowed loans and credit guarantees

The potential source of this risk in the public debt portfolio is posed by public sector guaranteed

loans and international on-borrowed loans by the Ministry of Finance and Transfers to companies

that provide essential public services. Guaranteed loans at the end of 2019 amount to 42.68 million

euros and account for less than 1 percent of total debt. Part of the portfolio that may require closer

monitoring is the state guarantee for 'Trafiku Urban' and on-borrowed loans to companies that

offer public goods. Analyzes of financial and economic risks have raised concerns about the poor

performance of public companies. A deeper deviation of the financial results of these companies

may cause a burden on the Government in the medium term, both in subsidizing the services they

provide and in assuming financial obligations to external creditors.

In order to limit the impact of risk of contingent liabilities, a number of measures will continue to

be implemented such as: (a) monitoring the financial position of beneficiaries (b) initial assessment

of the possibility of materialization of existing contingent liabilities. Depending on the estimates

for the alleged losses, the applicable guarantee fees in accordance with the Law on Public Debt

will be determined. The inclusion of guarantees in the amount of total debt in calculating the debt

limit to GDP also serves as a measure to manage these risks.

2. Under-execution of capital expenditures

An increase in public capital spending to address structural barriers is a pillar of the Government's

strategy to support a friendly economic environment for economic growth. In recent years, despite

improvements, under-execution of capital expenditures exceeded 5 percent of total budgeted

amounts. For prudent planning purposes, the 2021-2023 framework provides for a historical level

of under-execution for capital projects financed by the regular budget, while for loan-financed

projects, the assumptions are even more conservative.

45

Nonetheless, under-execution of capital projects over the level assumed in the baseline scenario,

especially for projects financed by loans, is considered as a potential risk to lower growth forecasts.

This happens because the execution of capital projects financed by concessionary debt, after the

signing of financial agreements, remains a challenge for budget organizations. This is mainly due

to a hasty decision-making on loans, without making sure that all the preconditions are met and

the necessary preparations, studies and detailed analyses (including market analyses) are done, in

order to ensure the immediate initiation of project implementation after the ratification of loans as

well as the efficient use of funds from loans. Another very important factor that can further

deteriorate the performance of capital expenditures is the situation created by the COVID-19

pandemic, during which the economic and administrative activities of the parties involved in these

projects have been reduced to a minimum, adding to the difficulties in execution of capital

expenditures or their postponement to a later time. Other factors include the lack of proper

alignment of procurement procedures with those of the creditor at the beginning of the process,

the unsatisfactory participation of officials of Line Ministries during the loan negotiation process,

the lack of consolidation and instability of Project Implementation Units and the lack of capacities

for projects.

3. Pressure to increase spending on transfers

As presented in MTEF 2021-2023, the fiscal space exceeds the legal deficit limit of 2 percent

according to the government's decision to create space to accommodate policies in the context of

fighting the COVID-19 pandemic. According to these projections and under the restriction that

exceeding the deficit above the level allowed in 2020 should be offset in the coming years, it is

clear that the fiscal space to accommodate new initiatives for social transfer is quite limited. The

increased pressure on the use of public money as redistribution, especially when such

redistribution does not target poverty but is based on other criteria, poses a fiscal risk to a fiscal

strategy targeting socio-economic development. However, if the pandemic situation continues

longer and the impact on the economy turns out to be significantly worse than that presented in

this version of the MTEF, then a reorganization of expenditures or finding resources of funding

will be inevitably necessary, in order to accommodate new fiscal initiatives to address the socio-

economic consequences of the pandemic.

4. Fiscal Risk from revenue collection

As mentioned in the macroeconomic risks, the new situation created by the COVID-19 pandemic

aggravates the process of collecting budget revenues. If prior to the pandemic, the informal

economy was one of the main risks for revenue collection, after the pandemic an additional risk

will be the inability of businesses or households to pay their debts due to the deterioration of their

financial situation.

One important fiscal risk linked to tax revenues is whether tax receivables can be collected or not.

According to the annual financial report for the year 2019, the uncollected receivables amounted

to about 634 million euros, of which 452 relate to the central government level and 182 to the local

government level. These 634 million euros of uncollected receivables represent a slight increase

46

from the previous year (by 23 million euros). The average annual increase over the period 2016-

2019 amounts to 7.2 percent, with the lowest increase registered in 2019 (3.8 percent).

5. Outstanding liabilities

Article 39 of the PFM Law defines outstanding liabilities as payments overdue 30 days. Compared

to the previous year, the annual financial report of the Budget of the Republic of Kosovo for 2019

includes an annex on outstanding liabilities which include financial commitments, accounts

payable and outstanding liabilities, while disaggregating the amounts in two different categories,

based on due date: i) less than 30 days; and ii) more than 30 days.

Table 5 presents outstanding liabilities (> 30 days) for three years at central and local level. In

2019, there is a slight decline in total outstanding liabilities, from 88.3 million Euros in 2018 to 79

million Euros in 2019, mainly as a result of the decline in outstanding liabilities at local level. At

the central level, most of the outstanding liabilities (> 30 days) are mostly attributed to the Ministry

of Environment and Spatial Planning (which has marked a significant increase from 2018 to 2019)

and the Ministry of Infrastructure (its liabilities which have been halved from 2018 to 2019). At

the local level, in 2019 Prizren and Gjilan are the two municipalities, which constitute most of the

outstanding liabilities (> 30 days). The decrease in liabilities at the local level in 2019 is mainly

attributed to the decrease in outstanding liabilities in the municipalities of Prishtina and Gjilan. In

2019, total outstanding liabilities accounted for 4.07 percent of current expenditures of budgetary

organizations at the central level and about 3.06 percent at the local level, which together account

for 3.82 percent of total budget expenditures.

Table 5 Outstanding liabilities

2017 2018 2019 2019/ Total

Spending of BO

Central Government (mil Eur) 33.83 62.99 63.32 4.07%

Ministry of Infrastructure 22.6 38.5 15.4 7.83%

Ministry of Environment and Spatial Planning 0.6 2.5 31.8 73.22%

Health Insurance Fund 4.0 6.0 9.8 104.40%

Ministry of Culture, Youth and Sport 2.3 3.1 2.5 8.07%

Local Government (mil Eur) 18.8 25.3 15.7 3.06%

Prishtina 1.3 7.5 0.1 0.18%

Prizren 3.3 2.2 1.3 3.08%

Gjilan 2.5 7.8 9.8 38.90%

Total (mil euro): Central + Local 52.7 88.3 79.0 3.82%

Tot. payments/tot. budget exp % 3.0% 4.50% 3.82%

6. Fiscal risks from litigation costs

One important indicator of fiscal risks from litigation is the performance of the annual government

payments due to court decisions. Table 6 shows the payments by court decisions over the last three

years, both at central and local government level. Overall, payments by court decisions account

for no more than 2 percent of total budget expenditures, though showing an increasing trend over

47

the years, both at central and local government. Most of the litigation costs over the last three years

53 stem from the local government level. Payments by court decisions at the central government

are mainly attributed to Ministry of Finance (on behalf of expropriation for MESP21), Ministry of

Public Administration, Hospital and University Clinical Service of Kosovo, and Property

Comparison and Verification Agency. At local level, municipalities Ferizaj, Leposaviq, Mitrovica

and Prishtina account for the majority of these payments. In 2019, payments based on court

decisions account for 0.67 percent of actual expenditures of budget organizations at central

government level and about 2.99 percent at the local government level, which add up to 1.25

percent for total budget expenditures. In order to have a fuller picture of the fiscal risks generated

by litigation costs, the magnitude of costs that could emanate from pending court cases would be

required.22

Table 6 Payments based on court decisions (mln Eur)

2016 2017 2018 2019

2019/ Total

Spending of

BO

Central government (mil Eur) 4.11 5.26 7.59 10.5 0.67%

Ministry of Finance 4.5% 1.9% 0.5% 27.5% 9.33%

Ministry of Public Administration 0.9% 1.2% 0.1% 12.2% 4.33%

Hospital and University Clinical Service of Kosovo 1.3% 5.0% 4.0% 11.6% 0.98%

Ministry of Environment and Spatial Planning 51.8% 46.5% 31.3% 5.6% 1.34%

Property Comparison and Verification Agency 0.6% - 7.9% 5.7% 22.32%

Local Government (mil Eur) 2.2 6.3 12.7 15.3 2.99%

Municipality of Ferizaj 7.2% 17.3% 22.9% 29.7% 14.31%

Municipality of Leposaviq 0.0% 3.2% 17.6% 8.7% 31.10%

Municipality of Mitrovica 6.7% 8.6% 8.3% 9.7% 7.66%

Municipality of Prishtina 18.3% 14.1% 5.2% 8.0% 1.56%

Total (mil euro): Central + Local 6.34 11.54 20.26 25.83 1.25%

Tot. payments/tot. budget expenditures, % 0.38% 0.66% 1.04% 1.25%

21 Ministry of Environment and Spatial Planning 22 The next MTEF will include more detailed information on the main payments by court decisions and will attempt

to quantify the magnitude of costs which might arise from pending court cases.

48

THIRD PART

3. SECTORIAL EXPENDITURES FRAMEWORK 2021-2023 – CENTRAL

GOVERNMENT

As can be seen, in the first part of this document are presented the government priorities related to

MTEF 2021-2023, where it is emphasized that the priorities derive from the National Strategy for

Development, the Government Program, the Program for Economic Reform 2020-2022, the National

Program for the Implementation of the SAA, as well as other strategic sectoral documents. Whereas,

following the document, the main objectives will be presented according to the central level sectors

where a total of 10 sectors are presented where each sector has presented the financing trend 2019-

2020 and budget estimates for the next three-year period 2021-2023. Within each sector, budget

organizations are presented according to the respective sectors. The following tables present the

projections for the years 2021-2023 for the general budget of Kosovo, at the central level and by

sectors. In the fourth part of the document is presented the municipal funding. Regarding the

projections of budget expenditures for the next medium term period 2021-2023, there are two key

elements that budget organizations should keep in mind. First, budgetary organizations can plan

spending within the given limits only after they have covered the contractual obligations, and then

they can use the free space within the ceilings for other priorities. Second, the budgetary ceilings

assessed by this document may change through the third budget circular, as a result of the change in

macroeconomic circumstances in terms of exiting from the pandemic COVID 19.

Kosovo

General

Budget

Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 2,068,083,728 2,620,368,614 2,475,084,683 2,359,770,099 2,411,016,698

Number of

employees

84,323 85,383 85,501 85,501 85,501

Wages and

allowances

610,090,935

634,531,459 638,752,281 641,324,257 644,530,876

Goods and

services

271,425,463 303,396,688 321,863,850 315,739,791 315,690,328

Utilities 26,186,131 25,005,711 30,210,654 30,558,405 31,058,405

Subsidies and

transfers

628,339,158 863,135,013 782,505,153 651,700,231 655,620,231

Capital

expenditures

532,042,041 729,891,772 645,616,744 665,747,416 699,916,858

Reserves 0 34,407,971 7,800,000 7,800,000 7,800,000

Interest 30,000,000 48,336,000 46,900,000 56,400,000

Sources of

financing

Government

grants

1,873,802,777 2,121,018,281 2,100,883,957 2,018,561,486 2,072,696,192

Own source

revenues

60,748,156 92,428,712 93,049,865 99,964,138 102,822,246

49

Revenues from

PAK

105,150,580 185,000,000 30,000,000 - -

Dedicated revenues

6,458,847 5,699,867 4,274,917 4,289,502 4,303,838

Financing from

borrowing

28,382,216 191,921,621 202,814,860 194,344,475 179,098,260

Financing from

budget deficit

(2%) – 04

20,895,548 44,676,383 24,383,812 18,750,060 8,456,274

Financing from

Investment

clause - 06

7,486,668 147,245,238 178,431,049 175,594,415 170,641,986

Donor grants * 1,066,557 265,910 - - -

Central level -

Total

Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 1,554,780,447 2,008,773,995 1,879,947,403 1,705,669,958 1,730,608,483

Number of

employees

40,120 41,034 41,139 41,139 41,139

Wages and

allowances

346,664,620 356,828,112 360,363,857 362,165,676 363,976,502

Goods and

services

207,035,898 224,773,313 241,887,016 232,197,045 233,690,328

Utilities 15,507,751 13,473,954 18,396,405 18,558,405 18,558,405

Subsidies and transfers

606,370,949 843,867,556 766,562,568 634,700,231 637,620,231

Capital

expenditures

379,201,229 565,036,469 484,937,556 450,248,602 468,963,017

Reserves - 4,794,591 7,800,000 7,800,000 7,800,000

Sources of

financing

Government

grants

1,416,884,304 1,628,370,374 1,640,327,267 1,497,123,848 1,537,294,252

Own source

revenues

6,354,433 9,312,133 9,912,133 9,912,133 9,912,133

Revenues from

PAK

105,150,580 185,000,000 30,000,000 - -

Dedicated

revenues

6,458,847 5,699,867 4,274,917 4,289,502 4,303,838

Financing from borrowing

19,932,284 180,391,621 195,433,085 194,344,475 179,098,260

Financing from

budget deficit

(2%) – 04

19,860,584 44,676,383 24,383,812 18,750,060 8,456,274

Financing from

Investment clause

- 06

71,700 135,715,238 171,049,274 175,594,415 170,641,986

Donor grants * 1,066,557 265,910 - - -

50

3.1. GENERAL PUBLIC GOVERNANCE

The main goals within this sector are good governance, professional public administration, socio-

economic development and advancement of the country's integration processes. The main objectives

during the next three-year period 2021-2023 within this sector are:

• Ensuring new recognitions, strengthening the international subjectivity of the Republic of Kosovo

and applying the criteria in the EU integration process and international institutions;

• Maintaining macro-fiscal sustainability, developing and perfecting the system of collection and

administering tax and customs revenues, and reducing the informal economy;

• Increasing quality level of public services;

• Standardization and simplification of administrative procedures and deepening the fight against

corruption;

• Advancing the electronic procurement system and improving the quality of public finance

management;

• Balanced development and increase of inter-municipal and cross-border cooperation;

• Food safety and public health.

The budgetary organizations that make up the Sector of the General Public Government are: the

Assembly of the Republic of Kosovo, the Office of the President, the Office of the Prime Minister,

the Ministry of Finance , Ministry of Local Government Administration, Ministry of Regional

Development, Ministry of Foreign Affairs and Diaspora, Ministry of European Integration, Public

Procurement Regulatory Commission, Anti-Corruption Agency, Procurement Review Body,

Election Complaints and Appeals Panel, Agency for Information and Privacy, National Audit Office,

Central Election Commission, Independent Oversight Board for the Kosovo Civil Service. This sector

also includes Unforeseen Expenditures.

General Government

Sector

Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 115,955,611

3,806 469,094,471

3,950 362,320,578

3,950 156,102,717

3,950 162,128,548

3,950

Number of employees 43,631,418 44,500,044 46,278,416 46,509,810 46,742,358

Wages and allowances 45,542,918 40,347,118 68,045,364 48,271,109 47,714,392

Goods and services 1,190,235 1,262,136 2,111,346 2,111,346 2,111,346

Utilities 12,183,797 214,222,190 165,730,000 26,230,000 24,150,000

Subsidies and transfers 13,407,243 163,968,392 75,355,452 27,180,452 36,610,452

Capital expenditures - 4,794,591 4,800,000 5,800,000 4,800,000

Reserves

Sources of financing 112,031,788 323,918,419 311,139,892 150,922,031 148,947,862

Government grants 286,656 180,686 180,686 180,686 180,686

51

Own source revenues 3,637,167 102,000,000 30,000,000 - -

Revenues from PAK - - - - -

Financing from borrowing - 42,995,366 21,000,000 5,000,000 13,000,000

Financing from budget deficit (2%) – 04

- 4,695,366 - - -

Financing from Investment clause - 06

- 38,300,000 21,000,000 5,000,000 13,000,000

Donor grants * 490,506 265,910 - - -

* Donor grants are not part of total expenditures according to sources of financing

3.2. DEFENCE

The mission of the Defence Sector is to draft and implement general state defence policies at the

strategic level, as well as to exercise its functions and competencies in accordance with the Security

Strategy of the Republic of Kosovo and the Defence Strategy, as well as the legislation in force.

The mission of the Ministry of Defence is to design, plan, manage, supervise, expand, implement,

evaluate and develop general state defence policies within the framework of democratic

governance and in accordance with the Constitution and laws of the Republic of Kosovo. Since

2019, a new chapter has been opened for the Ministry of Defence (MoD) and the Kosovo Security

Force (KSF) which is related to the realization of our goals, the approval of the Law on the Ministry

of Defence, the Law on the KSF and the Law on Service in KSF, which laws expand the mission

of the KSF as a professional military force with competencies and tasks for the protection of the

territorial integrity of the Republic of Kosovo. In the framework of meeting the objectives set out

in the Comprehensive Transition Plan (CTP), MoD and KSF are in the second year of transition

(first phase) which determines the establishment of priority units and the development of the

necessary skills in order to fulfil the constitutional and legal mission.

The current and future strategic, global, regional and internal security environment requires

flexibility and action, timely decisions on the development of defence capabilities and capacities

for the Republic of Kosovo, in order to deal with a variety of security challenges. Therefore, the

Ministry of Defence and the KSF, by following these developments closely, will address the

requests for new military projects to the institutions of the Republic of Kosovo. Based on CTP

certain priorities for the first year of transition have been successfully implemented in all

administrative planned actions. However, during 2018 and 2019, there have been procedural

challenges and delays in the execution of projects related to the planned military purchases to

achieve the capabilities and capacities for the protection of the territory. One of the main challenges

in this regard is the lack of a legal framework for long-term procurement of military equipment

and systems. MoD / KSF remains continuously engaged in effective and efficient planning for the

development of KSF's capacities and operational capabilities in conducting operations, for the

52

protection of the territory, for responding to crises in military support to civilian authorities and

for participation in international operations.

The Ministry of Defence, based on its strategy, and especially on the recommendations of the

Strategic Review of the Security Sector (RSSS), has defined its objectives which are:

• Continuation of transition and defence planning;

• Readiness and operations of the Kosovo Security Force;

• Capacity development, standardization and modernization;

• Inter-institutional and international cooperation and

• Strengthen transparency, accountability, integrity and reliability.

Defense Sector Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 49,703,787 63,602,303 60,455,674 64,128,837 65,766,381

Number of employees 3,455 3,636 3,636 3,636 3,636

Wages and allowances 21,973,358 23,504,455 27,371,977 27,508,837 27,646,381

Goods and services 9,450,545 9,067,683 10,204,993 11,400,000 11,400,000

Utilities 651,461 639,461 988,000 1,000,000 1,000,000

Subsidies and transfers -

Capital expenditures 17,628,423 30,390,704 21,890,704 24,220,000 25,720,000

Reserves - -

Sources of financing

Government grants 44,376,315 62,102,303 60,455,674 64,128,837 65,766,381

Own source revenues

Revenues from PAK 5,327,472 1,500,000 -

Dedicated revenues

Financing from borrowing - - - - -

Financing from budget deficit

(2%) – 04

Financing from Investment

clause - 06

Donor grants *

* Donor grants are not part of total expenditures according to sources of financing

53

3.3. RULE OF LAW AND PUBLIC SAFETY

The mission of the Rule of Law and Public Safety is to prepare public policies, legal acts and

mandatory standards in the field of justice in accordance with the Constitution and applicable law

and to ensure an independent, impartial professional and effective system of the prosecutorial and

judicial system. Part of this mission is also the creation, preservation, increasing and protection of

life safety and free movement for all citizens of Kosovo.

The Ministry of Justice, as the bearer of the legal sector, will manage and implement various

reforms and measures in the field of rule of law, in order to increase efficiency, accountability and

inclusiveness in meeting the needs and priorities of citizens in the field of rule of law. This sector

is committed to fulfilling the obligations arising from some strategic and planning documents,

including: Government Program 2020-2023, National Development Strategy 2016-2021, Kosovo

Program for Economic Reform 2020, National Program for Implementation of the Agreement of

the Stabilization and Association (PKMMSA) and the Legislative Program for 2020. It should be

noted that we have currently entered at the final phase of the Functional Review Process of the

Rule of Law Sector. The main goal of this process is to identify the main problems that hinder the

proper functioning of the rule of law and, consequently, to address them through clear and well-

thought-out measures, which will ensure the well-being of this sector and building trust of the

citizens in justice domain. In the end, this process will be finalised with the drafting of the Sectoral

Strategy for the Rule of Law. The Public Security Sector has successfully implemented its policies

towards meeting the objectives set for 2020. The fight against organized crime, corruption and

terrorism, the protection of public safety, the increase of security of documents and the

improvement of services to citizens were among the main priorities of the MIA.

In order to advance the necessary policies for meeting the objectives, the State Strategy Against

Organized Crime 2018-2022, the State Strategy against Narcotics 2018-2022 and the State

Strategy against Terrorism 2018-2022 have been approved. The Ministry of Internal Affairs is

continuing its activities and efforts for membership in the International Criminal Police

Organization INTERPOL and in signing of a cooperation agreement with the European Union

Agency for Cooperation in the Implementation of the EUROPOL Law.

In the field of the fight against terrorism, organized crime and corruption, the ministry has

implemented its policies. During 2019, the Kosovo Police has identified 40,128 cases, of which

26,895 criminal offenses of various natures and 9348 persons have been arrested. Compared to the

same period of 2018, the number of cases decreased by 8.81percentand the number of criminal

offenses decreased by 16.27%. In order to strengthen preventive measures against violent

extremism as well as de-radicalization and reintegration of persons returned from conflict areas,

the Division for Prevention and Reintegration of Radicalized Persons within the Ministry of

Internal Affairs has prepared and provided standard packages of services for persons returning

from conflict areas.

54

The main strategic objectives within the rule of law sector and public safety are:

• Strengthening the rule of law by reviewing the justice system and respecting human rights;

• Improving the legal and institutional infrastructure of the justice system;

• Fight against organized crime, corruption, and terrorism, as well as efficient migration and border

control management;

• Raising the level of quality of public services through capacity building of e-Government (State

Data Centre, State Network and Electronic Systems);

• Ensuring the independence of the judicial and prosecutorial system of Kosovo;

• More efficient administration of the system of execution of criminal sanctions;

• Maintaining public safety and improving services for citizens;

• Increasing the quality of the legal framework for the facilitation and better functioning of the

Constitutional Court of Kosovo;

• Strengthening the institutional and professional capacities for increasing the efficiency and

effectiveness of the administration of the prosecutorial and judicial system;

• Investigation and treatment of cases according to the submissions, based on the Constitution of

the Republic of Kosovo, other legal provisions and according to various international conventions

on human rights, as a fundamental responsibility in the functioning of the Ombudsperson

Institution and

• Provision of free legal counselling, ensuring equal access to justice for all citizens of the Republic

of Kosovo, especially for marginalised groups.

In order to achieve the above objectives, the implementation of activities, respectively concrete

actions, identified in many of the strategic documents of this sector will continue. Budget

organizations that are part of Rule of Law Sector and Public Safety are: Ministry of Justice, Ministry

of Internal Affairs, Kosovo Judicial Council, Kosovo Prosecutorial Council, Kosovo Intelligence

Agency, Kosovo Constitutional Court, Ombudsperson Institution and Agency for Free Legal

Counselling.

Rule of Law and

Public Security Sector

Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 231,784,886 232,841,026 234,976,080 243,636,838 247,339,645

Number of employees 15,967 16,317 16,421 16,421 16,421

Wages and allowances 137,162,328 142,964,134 139,862,394 140,561,706 141,264,513

Goods and services 47,920,036 45,919,308 44,415,017 49,951,463 49,951,463

Utilities 6,561,296 5,429,374 6,745,799 6,745,799 6,745,799

Subsidies and transfers 3,588,779 10,219,367 10,069,367 10,069,367 10,069,367

Capital expenditures 36,552,447 28,308,843 33,883,503 36,308,503 39,308,503

55

Reserves - - - - -

Sources of financing

Government grants 219,889,425 223,823,439 232,313,493 240,974,251 244,677,058

Own source revenues 2,254,254 2,662,587 2,662,587 2,662,587 2,662,587

Revenues from PAK 9,641,207 6,355,000 - - -

Dedicated revenues - - - - -

Financing from

borrowing - - - - -

Financing from budget

deficit (2%) – 04 - - - - -

Financing from

Investment clause - 06 - - - - -

Donor grants * - - - - -

* Donor grants are not part of total expenditures according to sources of financing

3.4. ECONOMIC ISSUES

Within this sector, it is intended that human, natural, physical and financial resources be used

effectively and efficiently in order to ensure sustainable socio-economic development. The main

objectives within the sector for the next three-year period are:

• Creating favourable conditions for increasing domestic productivity and export competition, as

well as investing in the protection of industrial property and the quality infrastructure system;

• Encouraging investment and exports, market surveillance and consumer protection;

• Ensuring sustainable energy supply, diversifying energy resources and implementing efficiency

measures in public sector buildings and in the services, household, industry and transport sectors;

• Drafting strategic policies for sustainable development of the mining sector and preventing and

stopping the informal economy in the mining sector;

• Accelerating the access and use of Information and Communication Technology through

broadband and human capital advancement to ensure inclusiveness and at the same time maximize

the benefits of the digital economy in the global market;

• Construction and maintenance of road infrastructure and development of railway infrastructure;

• Increasing the level of traffic safety;

• Normalization of the full airspace of Kosovo;

• Increasing agricultural productivity, increasing competitiveness in agriculture and increasing the

productive potential of farms;

• Improving and sustainable development of forests and their functions;

56

• Advancing entrepreneurship and private initiative through innovation with a focus on the

development of manufacturing SME and services;

• Improving working conditions and reducing informal employment by strengthening oversight

mechanisms and strengthening social dialogue.

Budget organizations that are part of the sector for economic affairs are: Ministry of Economy,

Employment, Trade , Industry, Entrepreneurship and Strategic Investments, Ministry of

Infrastructure and Environment (divisions related to road infrastructure), Ministry of Agriculture,

Forestry and Rural Development, Energy Regulatory Office, Regulatory Authority for Electronic

and Postal Communications, Kosovo Competition Authority, Railway Regulatory Authority, Civil

Aviation Authority, Kosovo Air Navigation, the Independent Commission for Mining and

Minerals and Kosovo Privatization Agency.

Economic Issues Sector

Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 307,118,589 347,330,479 360,502,655 359,875,884 327,400,199

Number of employees 1,773 1,895 1,896 1,896 1,896

Wages and allowances 18,527,117 19,219,018 19,447,244 19,544,479 19,642,201

Goods and services 21,064,169 28,094,256 28,189,660 32,039,549 34,089,549

Utilities 531,139 573,116 882,148 1,032,148 1,032,148

Subsidies and transfers 64,287,583 108,326,712 63,422,043 65,759,706 65,759,706

Capital expenditures 202,708,581 191,117,377 245,561,559 239,500,002 203,876,595

Reserves - - 3,000,000 2,000,000 3,000,000

Sources of financing

Government grants 219,799,172 222,471,134 208,016,497 213,273,752 230,789,946

Own source revenues 110,151 183,155 183,155 183,155 183,155

Revenues from PAK 63,482,747 25,000,000 - - -

Dedicated revenues 6,458,847 5,699,867 4,274,917 4,289,502 4,303,838

Financing from

borrowing 17,267,672 93,976,323 148,028,085 151,129,475 92,123,260

Financing from budget

deficit (2%) – 04 17,195,972 34,323,085 24,083,812 18,450,060 8,456,274

Financing from

Investment clause - 06 71,700 59,653,238 123,944,274 132,679,415 83,666,986

Donor grants * - - - - -

* Donor grants are not part of total expenditures according to sources of financing

3.5. ENVIRONMENT

57

Within this sector, a balanced and sustainable development is aimed at ensuring the protection of

the environment and the development of proper spatial planning through monitoring, information

and environmental reporting. Kosovo faces problems with water, waste management, air and land

pollution. Other environmental problems are caused by unplanned spatial developments and illegal

constructions which damage the space and reduce the possibilities for the future development of

the country. While efforts have been made in recent times to address the challenges of these issues,

much remains to be done. As for the next period, the Government intends to take concrete actions

towards improving the current situation. The main objectives of the environmental sector are:

• Completion of legal infrastructure in the field of environment and their harmonization with EU

legislation and its implementation;

• Improving the state of the environment and monitoring its condition;

• Establishment of an efficient administrative system for spatial planning, construction, housing,

energy efficiency in buildings and cadastre;

• Better administration and management of water resources and rehabilitation of river beds and

waste management;

• Strengthening the environmental inspectorate, water, nature, spatial planning, housing and

construction;

• Advancing tariff policies, raising water service standards and reducing water losses and

• Strengthening of Expropriation at the national level.

The objectives listed above will be achieved by focusing on the implementation of field respective

actions, such as initially drafting primary and secondary legislation, preventing and reducing

environmental pollution and integrated access to pollution control and monitoring the

implementation of environmental permits, improving monitoring and reporting on air quality, etc.

Environment Sector Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 43,824,594 48,500,158 35,345,450 51,536,970 60,106,540

Number of employees 354 329 329 329 329

Wages and allowances 2,437,442 2,326,217 2,337,848 2,349,537 2,361,285

Goods and services 1,479,144 5,782,680 2,692,813 2,249,550 2,249,550

Utilities 60,581 65,817 74,723 74,723 74,723

Subsidies and transfers 200,000 - - - -

Capital expenditures 39,647,427 40,325,444 30,240,066 46,863,160 55,420,982

Reserves - - - - -

Sources of financing

58

Government grants 43,824,594 19,938,158 18,340,450 18,321,970 19,131,540

Own source revenues - - - - -

Revenues from PAK - 22,000,000 - - -

Dedicated revenues - - - - -

Financing from borrowing - 6,562,000 17,005,000 33,215,000 40,975,000

Financing from budget

deficit (2%) – 04 - 400,000 300,000 300,000 -

Financing from Investment clause - 06

- 6,162,000 16,705,000 32,915,000 40,975,000

Donor grants * - - - - -

* Donor grants are not part of total expenditures according to sources of financing

3.6. HOUSING AND COMMUNITY ISSUES

Within this sector, the purpose is to create conditions for sustainable return of displaced persons,

protection, integration and development of communities living in Kosovo, as well as the resolution

of property issues related to the original cadastral documents before June 1999.

In regard to this sector, key targets for the next three years’ period are:

Return, reintegration into Kosovo and construction of the necessary infrastructure for the

normal functioning of returnees;

Stabilization of communities and closure of collective centers in Kosovo;

Accepting, comparing and resolving the differences between the cadastral documents

obtained by the Serbian authorities and the current cadastral documents in Kosovo for

private, commercial property and religious communities;

Implementation of the decisions of the Kosovo Property Claims Commission and the

decisions of the Supreme Court, the destruction of illegal structures in private properties

and the administration of the lease scheme.

These objectives will be achieved through the undertaking of respective actions: construction of

houses for returnees, construction of collective residential buildings, construction of schools and

health centers, construction of roads and irrigation and sewerage systems, etc. The budgetary

organizations comprising the sector for housing and community issues are: The Ministry of

Communities and Returns and the Kosovo Property Comparison and Verification Agency.

59

Housing and Community

Issues Sector

Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 9,992,742 7,175,364 6,775,483 6,922,175 6,932,762

Number of employees 304 320 320 320 320

Wages and allowances 1,956,981 2,096,392 2,106,875 2,117,410 2,127,997

Goods and services 1,495,618 1,246,104 981,585 967,742 967,742

Utilities 60,376 61,976 105,523 105,523 105,523

Subsidies and transfers 288,325 300,000 300,000 300,000 300,000

Capital expenditures 6,191,442 3,470,892 3,281,500 3,431,500 3,431,500

Reserves - - - - -

Sources of financing

Government grants 9,038,105 7,175,364 6,775,483 6,922,175 6,932,762

Own source revenues - - - - -

Revenues from PAK 954,637 - - - -

Dedicated revenues - - - - -

Financing from borrowing - - - - -

Financing from budget

deficit (2%) – 04 - - - - -

Financing from Investment

clause - 06 - - - - -

Donor grants * - - - - -

* Donor grants are not part of total expenditures according to sources of financing

3.7. HEALTH

Within this sector is aimed at maintaining health, promoting healthy lifestyles and providing

quality services with safe, easy and equal access, without financial and cost-effective risk.

In order to continue the reform in the health sector and achieve the objectives set by the Health

Sector Strategy 2017-2021, the Ministry of Health in 2019 is focused on the functioning of the

Health Insurance Fund which is a precondition for the establishment of a stable financing system

in health sector. The Health Sector in order to maintain and improve health and increase the quality

of health services in 2019 has intensified efforts to create infrastructural and diagnostic conditions

for the provision of quality health services, however, the implementation of infrastructure projects

has faced challenges and delays in all projects as a result of shortcomings in the initial projects and

inadequate implementation by economic operators, with emphasis on the emergency project that

60

is under court proceeding. In 2018-2019 started the extension of the basic system of health

information in primary health care. So far, the basic health information system has been extended

to 29 municipalities and 14 specialist ambulances. The Health Sector at the beginning of 2020 is

fully focused on taking measures to prevent and combat pandemic COVID-19 in order to maintain

the health of the citizens of the Republic of Kosovo.

Based on the Health Sector Strategy 2017-2021 and the Government Program 2020-2023, the goal

is to meet the four strategic priorities/objectives:

Protection of health and improvement of the quality of provided health services;

Reorganization of health sector and

Ensuring of sustainable health funding.

In order to achieve these objectives, actions such as providing and improving accessible and equal

health services, implementing an action plan for education and health promotion, maternal and

child health, reproductive health, and implementation of assessment of environment impact on

health will be undertaken, full functionalization of the Health Insurance Fund, implementation of

the Basic Health Services Package and contracting, development of the health information system

and integration of information technology (in Hardware and Software) in all health institutions.

Budgetary Organizations comprising this sector are: The Ministry of Health, Kosovo University

Clinical Hospital Service, and the Health Insurance Fund.

Health Sector Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 159,420,299 209,142,563 172,120,695 169,035,435 198,391,308

Number of employees 8,364 8,571 8,571 8,571 8,571

Wages and allowances 70,475,341 69,721,632 70,820,537 71,174,639 71,530,512

Goods and services 51,407,528 71,539,253 62,859,889 61,103,527 61,103,527

Utilities 3,936,108 2,913,527 3,833,964 3,833,964 3,833,964

Subsidies and transfers 10,629,011 10,293,805 8,813,805 8,813,805 8,813,805

Capital expenditures 22,972,311 54,674,346 25,792,500 24,109,500 53,109,500

Reserves -

Sources of financing -

Government grants 150,316,689 194,239,631 172,120,695 169,035,435 198,391,308

Own source revenues - - - - -

Revenues from PAK 7,386,532 9,645,000 - - -

Dedicated revenues - - - - -

Financing from borrowing 1,717,078 5,257,932 - - -

61

Financing from budget

deficit (2%) – 04 1,717,078 5,257,932 - - -

Financing from

Investment clause - 06 -

Donor grants * 221,130

* Donor grants are not part of total expenditures according to sources of financing

3.8. RECREATION, CULTURE AND RELIGION

Within this sector, the purpose is to create and develop policies, environment and mechanisms for

the promotion and increase of sports, cultural and youth activities, evidence, assessment and

protection of cultural heritage, as well as regulation, management and supervision of the

broadcasting frequency spectrum.

Key objectives of recreation, culture and religion sector are:

Supporting independent culture, supporting publishing activity as well as advancing

cultural diplomacy;

Advancing of legal and institutional system of protection, preservation of cultural heritage,

continuous approximation with EU legislation as well as commitments towards European

Partnership Priorities and UNESCO membership;

Education, promotion and civic awareness, study and objective and inclusive interpretation

of socio-cultural and economic values, increasing the number of publications, guides,

virtual and digital media for the promotion of cultural heritage;

Creation, reflection, protection, classification, processing, use and preservation of archival

documentation of historical and scientific value;

Design, construction and maintenance of memorial complexes;

Activation and mobilization of youth for active participation and representation,

preparation of youth for the labor market and providing a healthy and safe environment for

youth;

Financial support of sports federations, development of quality sports for all and

establishment of sports infrastructure according to international standards, and

Regulation, management and supervision of RTK digitalization and broadcasting

frequency spectrum, and implementation of digital terrestrial television broadcasting.

The budgetary organizations comprising the sector of recreation, culture and religion are: Ministry

of Culture, Youth and Sports, Kosovo Council for Cultural Heritage, Agency for Management of

Memorial Complexes, Independent Media Commission and Radio-Television of Kosovo.

62

Recreation, Culture and

Religion Sector

Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 47,116,582 54,065,301 51,132,476 52,251,637 54,280,553

Number of employees 829 855 855 855 855

Wages and allowances 5,588,734 5,717,924 5,754,126 5,782,896 5,811,812

Goods and services 2,218,658 2,675,405 2,623,342 3,013,733 3,013,733

Utilities 349,506 334,860 498,458 498,458 498,458

Subsidies and transfers 23,028,383 20,451,550 20,916,550 20,216,550 20,216,550

Capital expenditures 15,931,300 24,885,562 21,340,000 22,740,000 24,740,000

Reserves - - - - -

Sources of financing

Government grants 39,992,846 42,509,911 51,077,086 52,196,247 54,225,163

Own source revenues 17,873 55,390 55,390 55,390 55,390

Revenues from PAK 7,105,863 11,500,000 - - -

Dedicated revenues - - - - -

Financing from borrowing - - - - -

Financing from budget deficit

(2%) – 04

- - - - -

Financing from Investment

clause - 06

- - - - -

Donor grants * - - - - -

* Donor grants are not part of total expenditures according to sources of financing

3.9. EDUCATION

This sector aims to develop a knowledge-based society and competitive skills, integrated into

European flows, with equal opportunities for the advancement of each individual to prepare and

contribute to sustainable social, economic and political development in the country. The education

sector has state and civic responsibilities in proper education to prepare them as worthy and useful

citizens for the country. This sector is undergoing a reform process that aims to increase participation

and improve the quality of education. Legislation has been drafted and numerous legal and sub-legal

acts have been also drafted and many educational facilities have been built, renovated and many new

institutions have been established. Work has been carried over to improve curricula and to design

and provide new textbooks, which should be supported by new teaching and learning practices. The

goal is also to support scientific research and participation in all education activities at the national,

63

regional and international levels, to achieve European standards. The access to knowledge, scientific

research, innovation and skills acquisition, which are in function of the accelerated development of

our society and competitive skills inside and outside Kosovo in accordance with international

standards.

The key objectives to meet the goals of the education sector are:

Increasing inclusion and preventing abandonment in pre-university education;

Quality and efficient management of the education system, based on transparency and

accountability;

Development of a functional system for quality assurance, in compliance with

international standards;

Improving the quality of teaching through a sustainable system for the preparation and

vocational development of teachers;

Advancing learning through quality teaching, implementing competency-based

curriculum and utilizing high quality teaching resources;

Education and vocational training in accordance with the requirements of the labor

market in the country and beyond, and

Improving the quality and competitiveness of high education by promoting excellence

in teaching, science research, innovation and internationalization.

The first objective is related to the increase of inclusion and quality education in early childhood,

increase the inclusion of children with special needs in pre-university quality education, increase

the inclusion of children from Roma, Ashkali and Egyptian communities in pre-university

education, and repatriated children, reduction of abandonment and non-enrollment, and support

for children with high intelligence.

The second objective concerns the increase of management capacities at the central, municipal

and school level, professionalization of the position of leading staff of educational institutions,

implementation of a funding formula that takes into account the specifics of school levels and

types, advancement of the information management system in education, reviewing and

supplementing the legislation and creating a suitable and safe environment for the educational

process.

The third objective is related to the increase of capacity for quality assurance at all levels, building

of effective mechanisms for quality assurance, advancement of development planning at school

and municipal level, increase of stakeholders’ awareness to ensure quality assurance, increasing

the reliability of the results of national tests and their use for policy making, in addition to the

results of international tests.

64

The fourth objective is related to the continuous vocational development of teachers (VDT), the

assessment of teachers’ performance, the implementation of the licensing system, the legal

harmonization of VDT documents for the phase “before service” and “in service” and the assuring

of the system for sustainable funding of teachers’ vocational development.

The fifth objective is related to the implementation of the new curriculum in all schools, drafting

of new school textbooks in accordance with the curriculum and curricula, design/provision of

electronic teaching materials in support of the implementation of the new curricula and equipping

schools with ICT tools and other concretization tools.

The sixth objective is related to the adaptation of Education and Vocational Training (EVT)

programs to the labor market requirements, the provision of teaching materials for EVT, practical

work and professional practice, ensuring the sustainability of competence centers and their further

development, counseling and career orientation, the functioning and strengthening of mechanisms

for regulating the education system.

The seventh objective is about increasing of quality standards in High Education Institutions

(HEI), adopting of study programs to the demands of the labor market, promote scientific research

and innovation in HEI, harmonization and completion of the legal framework in high education,

performance-based HEI funding, promotion of international cooperation in the field of high

education and scientific research.

To achieve the above objectives, government institutions will take respective steps, as provided by

sectoral strategies and other strategic documents, including their action plans. The budgetary

organizations that comprises the education sector are: The Ministry of Education, Science and

Technology, the University of Prishtina, the Academy of Sciences and Arts of Kosovo and the

Academy of Justice.

Education Sector Year 2019

Expenditure

Viti 2020

Budgeted

Viti 2021

Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 90,928,641 95,946,916 98,466,019 98,938,114 100,995,460

Number of employees 4460 4349 4349 4349 4349

Wages and allowances 39,753,080 41,585,643 41,262,679 41,468,992 41,676,337

Goods and services 24,566,882 18,697,683 20,250,306 21,395,876 21,395,876

Utilities 1,851,245 1,975,622 2,786,959 2,786,959 2,786,959

Subsidies and transfers 3,157,487 8,376,300 8,110,803 9,110,803 9,110,803

Capital expenditures 21,599,947 25,311,668 26,055,272 24,175,485 26,025,485

Reserves - - - - -

Sources of financing

Government grants 79,380,326 82,716,601 91,635,704 92,107,799 94,165,145

65

Own source revenues 3,685,499 6,230,315 6,830,315 6,830,315 6,830,315

Revenues from PAK 6,915,281 7,000,000 - - -

Dedicated revenues - - - - -

Financing from borrowing 947,534 - - - -

Financing from budget

deficit (2%) – 04

947,534 - - - -

Financing from Investment clause - 06

- - - - -

Donor grants * 354,921 - - - -

* Donor grants are not part of total expenditures according to sources of financing

3.10. SOCIAL PROTECTION

This sector intends to define a sustainable system for funding of social services and continuous

implementation of pension benefits and schemes, providing services to the most vulnerable groups

in society, and where ever is necessary reforming of current social policies, reforming the pension

system in terms of legislative, organizational and international cooperation. Specific attention will

be paid to the aspect of strengthening the mechanisms of cooperation with social partners.

The key objectives for the next three-year period are:

Increasing welfare through the restructuring of social services by increasing the level of

employment for marginalized groups, drafting Concept Documents on the Social

Assistance Scheme, Child Allowances, supplementing and amending of primary and

secondary legislation on the benefits of persons with disabilities, creating of affordable

housing scheme and development of international agreements on Pension matters;

Increasing social welfare through expanding and raising quality, providing social and

family services, with a specific focus on groups in need and gender equality;

Development of a sustainable pension system and increase of institutional capacities for

the realization of the rights for benefits and better services for pensioners.

Budgetary organizations that comprise the Social Protection Sector is the Ministry of Labour and

Social Welfare.

Social Protection Sector Year 2019

Expenditure

Viti 2020

Budgeted Viti 2021 Estimated

Viti 2022

Estimated

Viti 2023

Estimated

Total 498,934,717 481,075,414 497,852,293 503,241,351 507,267,088

Number of employees 808 812 812 812 812

Wages and allowances 5,158,822 5,192,652 5,121,761 5,147,370 5,173,107

66

Goods and services 1,890,400 1,403,823 1,624,046 1,804,496 1,804,496

Utilities 315,803 218,065 369,485 369,485 369,485

Subsidies and transfers 489,007,584 471,677,632 489,200,000 494,200,000 499,200,000

Capital expenditures 2,562,108 2,583,241 1,537,000 1,720,000 720,000

Sources of financing - - - - -

Government grants

Own source revenues 498,235,043 481,075,414 497,852,293 503,241,351 507,267,088

Revenues from PAK - - - - -

Financing from borrowing 699,674 - - - -

Financing from budget deficit

(2%) – 04 - - - - -

Financing from Investment

clause - 06 -

Donor grants * -

Donor grants are not part of total expenditures according to sources of financing

67

PART FOUR

4. Municipal level

This document defines government grants for municipal funding for 2021 and orientations for the years

2022-2023, based on the Government's strategic priorities in the field of intergovernmental fiscal relations.

Also, this document determines the level of own source municipal revenues for the fiscal year 2021 and

the medium-term forecast 2022-2023.

The principles, criteria and formulas applied for the allocation of government grants for municipal funding

for 2021 are based on the Law on Local Government Finances (LFPL) and Table 1 of macro-fiscal

projections, prepared by the Ministry of Finance and Transfers as specified in the Law on Public Financial

Management and Liability (LPFML).

The municipal budget process takes into account the following aspects:

• Budgeting at the level of programs and sub-programs, in accordance with the existing structure of

the accounting plan,

• Improving results-oriented and performance-oriented budgeting approaches,

• Implementation of the multi-year concept on capital project planning as well

• Determining the structure of expenditures according to expenditure categories.

Multi-year capital projects should be reported in the Performance Public Investment Projects (PIP) system

based on performance. As a result, municipalities are required to design a draft strategy based on results-

oriented goals and objectives.

Sources of Municipal Financing for the year 2021-2023

4.1. General Grant

Based on Table 1, presented below, prepared by the Department of Economic, Public Policy and

International Financial Cooperation of the Ministry of Finance and Transfers in accordance with the LFPL,

the General Grant for Municipalities for 2021 has been approved in the amount of 182.58 million euros .

This division is based on the formula set out in Article 24 of the LFPL. According to this article, 10percentof

the total budgeted revenues of the Central Government are allocated to municipalities, excluding: budget

support and grants, property tax revenues, interest income revenues and taxes, encumbrances and others

from the local government.

As shown in the following table, based on the estimates of the Department of Economic, Public Policy and

International Financial Cooperation, the total government revenues for 2021 are expected to be 1,921.8

million euros. From this amount, the revenues are deducted as specified in Article 24 of the LFPL and we

68

come to the basis for the allocation of the general grant for municipalities, which grant for 2021 is in the

amount of 182.58 million euros.

Table 7 Determining the value of the General Grant for municipalities 2021-2023 (mil. Euro)

Përshkrimi Year 2018 Year 2019 Yar 2020 Year 2021 Year 2022 Year 2023

A. General revenues of the Government 1,896.00 1,920.3 2,060.5 1,921.8 2,025.8 2,121.3

Deducted:

Dedicated revenues -50 -9.2

Budgetary support and grants -5 -5 (10.5) (15.0) (15.0) (15.0)

Property Tax -30 -30 (33.2) (30.0) (40.1) (42.9)

Revenues from dividents -5

Donors determined grants -12

Taxes, fees and others from Local Government -52 -57 (50.0) (48.0) (50.5) (53.6)

Simultanous revenues from debts -6 -8

Revenues from interest -4.2 (4.0) (3.0) (3.0) (3.0)

B. Basis for calculation of general grant for municipalities 1,736 1,806.9 1,962.8 1,825.8 1,917.2 2,006.8

C. General Grant from municipalities (10%) 173.60 180.69 196.28 182.58 191.72 200.68

In order to level the low capacity of own source revenues of smaller municipalities, based on LFPL, each

municipality will receive a fixed total amount of 140,000 euros per year, deducting 1 euro per capita or 0

euros for municipalities with a population equal to or greater than 140,000 inhabitants. After that, the

distribution made in the municipalities is based on the formula for allocating the general grant in the

municipalities according to LFPL:

(i) the population number is calculated with eighty-nine percent (89%); (ii) the geographical dimensions of

the municipality by six percent (6%); (iii) the number of the minority population in the municipality by

three percent (3%);

(iv) municipalities where the majority of the population consists of two percent minorities (2%).

69

Table 8 General Grant Structure for 2021-2023 according to LFPL (mil. Euro)

Factors Year 2018 Year 2019 Year 2020 Year 2021 Year 2022 Year 2023

General Grant 173.6 180.69 196.28 182.58 191.72 200.68

Formula correction contingency (2.7%) 4.7 4.9

Fixed amount 3.6 3.6 3.6 3.6 3.6 3.6

Population(inhabitants) 1,780,021 1,780,021 1,780,021 1,780,021 1,780,021 1,780,021

Budget: 89% of aggregate amount 147.1 153.3 171.5 159.3 167.4 175.4

Municipal zone (km2) 10,901 10,901 10,901 10,901 10,901 10,901

Budget: 6% of aggregate amount 9.92 10.33 11.56 10.74 11.29 11.82

Minority community in the municipality 107,926 107,926 107,926 107,926 107,926 107,926

Budget: 3% of aggregate amount 5.0 5.2 5.8 5.4 5.6 5.9

Population of minority municipalities 62,031 62,031 62,031 62,031 62,031 62,031

Budget: 2% of aggregate amount 3.3 3.4 3.9 3.6 3.8 3.9

70

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for a

lloatio

n o

f Gen

eral G

ran

t (pu

rsu

an

t to L

FP

L)

To

tal G

en

era

l

Gra

nt fo

r 20

21

Po

pu

llsia

Ge

og

rap

hic

al s

ize

Min

ority

po

pu

latio

nM

un

icip

alitie

s w

ith

min

ority

po

pu

latio

n

Fix

ed

am

ou

nt

(14

0,0

00

-1€

)

Am

ou

nt p

er

po

pu

latio

n

(89

%)

Am

ou

nt fo

r

ge

og

rap

hic

al

size

(6%

)

Table 9 Distribution of General Grant at municipalities 2021-2023

71

4.2. Additional grant for the financing of the Capital City

Based on Law no. 06 / L-012 on the Capital of the Republic of Kosovo, Prishtina, Article 19 The Capital

of the Republic of Kosovo Prishtina receives an additional grant from the central level, at a height of not

less than 6percentof the total grant.

For 2021 the Capital, Prishtina benefits an additional grant of 10,954,800 euros, while for 2022 it benefits

11,503,200 euros and for 2023 it benefits 12,040,800 euros.

Table 10 Distribution of additional Grant for financing the Capital 2021-2023

Description Year 2018 Year 2019 Year 2020 Year 2021 Year 2022 Year 2023

General Grant for municipalities 173.60 180.69 196.28 182.58 191.72 200.68

Additional Grant for financing the Capital City(6%) 10.84 11.78 10.95 11.50 12.04

4.3. Specific grant for pre-university education

The specific grant for pre-university education according to the LFPL, is based on an open funding system,

taking into account the criteria in re-university education formula for 2021 of MEST.

The specific grant for pre-university education for 2021 has been approved by the Grants Commission in

the amount of 194.8 million euros.

The basic grant has been approved in the amount of 192 million euros as follows:

a) Salaries and allowances in the amount of 175.5 million euros;

b) Goods and services in the amount of 14 million euros;

c) Capital expenditures in the amount of 2.5 million euros.

The new policies approved by the KG are as follows:

a) Jubilee salaries according to the collective agreement for Education, at a cost of 1.1 million euros;

b) Pre-school salary for schools (2 to 5 years old) for 2021, at a cost of 1.6 million euros;

c) Goods and services for children (4 to 5 years old), at a cost of 78,848 euros;

d) Cost of payment of procedures for validation and accreditation for high vocational schools (8 schools),

at a cost of 38,400 euros.

The formula addresses the level of pre-school, primary and secondary education, based on the following

criteria:

a) Number of students enrolled for 2019/2020;

b) Student-teacher relationship for primary and secondary education for students of majority 1: 21.3 (based

on Administrative Instruction no. 22/2013 of MEST);

c) Student-teacher relationship for primary and secondary education for students of minority 1:14.2;

d) Student-teacher relationship for preschool education 1:12;

e) Student-teacher relationship for vocational secondary education for students of majority 1:17.2, and for

students of minority 1:11.5;

f) Student-teacher relationship for mountainous areas 1:14.2;

72

g) Calculation for English language teaching staff for grades I and II;

h) Calculation for technical administrative staff for 630 students 1 staff in pre-school and primary

education;i) Calculation for technical administrative staff for 470 students 1 staff in secondary education

j) Calculation for assistant staff for 170 students 1 staff (cleaner) and 1 staff per school (guard);

k) The calculation of salaries and allowances is based on the current average salary in education for each

municipality;

l) Professional Pedagogical / Psychological Service;

m) Quality coordinators;

n) Calculation of salaries for replacements during maternity leave from 3percentto 6%;

o) Goods and services are calculated according to the criteria for students (23 euros for majority students

and 25 euros for minority students) and for school (1,500 euros for pre-school and primary school and 3,250

euros for secondary school);

p) Capitals are calculated according to the criterion 7 euros per student;

q) Calculation of three salaries after retirement at a cost of 1.2 million euros;

r) Salary for child assistance with special needs at a cost of 0.6 million euros;

s) Professional practice at a cost of 3.5 million euros;

t) Jubilee salaries according to the collective contract for Education, at a cost of 1.1 million euros;

u) Pre-school salary for schools (2 to 5 years old) for 2021, at a cost of 1.6 million euros;

v) Goods and Services for children (4 to 5 years old), at a cost of 78,848 euros;

w) Cost of payment of procedures for validation and accreditation for high vocational schools (8 schools),

at a cost of 38,400 euros.

According to MEST, the number was reported to be 10,338 fewer students in pre-university education

compared to the previous year. Based on the continuous reduction of the number of students from year to

year and taking into account the teacher / student parameters according to the current situation, MEST

recommends municipalities that in case of retirement of teaching staff not to announce a competition for

admission of new staff, but to accommodate teachers who do not have a norm or do not have a full norm.

73

G

oods and

services for

schools and

pupils

Proffesional

practice

Jubilee

wages

according to

collective

contract for

education

Wage for

pre school

for schools

(2 to 5 years)

for 2021

Goods

and

services

for

children -

4 to 5

years

Paym

ent for

proceeding of

validation and

accreditation for

vocational high

secondary schools

(8 Schools)

359,811

173,644,706

619,645

1,231,239

175,495,590

10,476,508

3,500,000

13,976,508

2,494,681

191,966,779

1,068,638

1,659,239

78,848

38,400

2,845,125

194,811,904

212,460,183

213,360,111

1D

eçan5,568

3,386,274

18,471

26,167

3,430,912

165,987

32,511

198,498

38,493

3,667,903

22,460

33,5411,594

4,80062,395

3,730,297

4,040,021

4,057,737

2D

ragash3,908

2,766,888

5,976

16,434

2,789,298

152,284

-

152,284

27,048

2,968,630

17,509

21,2771,011

039,796

3,008,426

3,223,811

3,238,302

3F

erizaj24,442

11,186,186

38,027

90,313

11,314,526

672,757

260,563

933,320

169,575

12,417,421

67,137

104,8924,985

4,800181,814

12,599,235

13,739,096

13,796,427

4F

ushë Kosovë

9,801

3,029,208

24,528

19,929

3,073,665

257,349

62,576

319,925

67,991

3,461,581

17,75042,757

2,0320

62,5393,524,120

3,959,329

3,975,249

5G

jakovë 17,624

9,038,815

36,422

68,292

9,143,530

515,502

205,089

720,591

122,108

9,986,228

54,941

87,0724,138

4,800150,951

10,137,179

11,031,088

11,077,510

6G

jilan17,893

10,686,000

31,975

67,147

10,785,122

518,610

225,684

744,294

124,222

11,653,639

68,707

71,2843,387

4,800148,178

11,801,816

12,746,956

12,801,626

7G

llogoc12,194

5,755,860

18,468

32,319

5,806,647

338,176

123,416

461,592

84,462

6,352,701

30,067

61,8652,940

094,871

6,447,573

7,013,890

7,043,544

8H

ani i Elezit

1,843

752,387

12,752

4,782

769,921

52,996

-

52,996

12,768

835,685

4,5899,012

4280

14,029849,714

983,028

987,373

9Istog

7,393

3,785,736

18,201

31,851

3,835,787

225,810

42,927

268,737

51,226

4,155,751

24,27136,523

1,7360

62,5294,218,280

4,610,370

4,630,120

10Junik

808

392,155

-

1,556

393,711

23,150

-

23,150

5,600

422,461

1,4493,795

1800

5,424427,885

501,097

503,551

11K

açanik6,309

3,304,509

18,919

20,496

3,343,924

185,624

41,980

227,604

43,722

3,615,250

22,218

30,5601,452

054,230

3,669,480

4,002,671

4,019,949

12K

amenicë

4,484

4,282,987

24,096

28,613

4,335,697

172,827

39,061

211,888

31,157

4,578,741

33,08616,059

7630

49,9084,628,649

4,911,773

4,934,035

13K

linë7,864

4,011,528

18,893

34,636

4,065,057

227,585

64,391

291,976

54,397

4,411,430

30,791

45,1282,145

078,064

4,489,494

4,902,818

4,923,720

14L

eposaviq2,265

935,710

-

4,068

939,779

95,370

29,039

124,409

15,834

1,080,022

604

1,28761

01,952

1,081,974

1,162,567

1,167,765

15L

ipjan12,805

6,189,480

17,820

54,945

6,262,245

388,551

82,619

471,170

88,844

6,822,259

37,070

54,6152,595

094,280

6,916,540

7,563,566

7,595,510

16M

alishevë12,335

6,259,884

18,594

38,737

6,317,215

353,990

63,602

417,592

85,428

6,820,235

38,036

63,6273,024

0104,686

6,924,921

7,526,118

7,558,337

17M

amusha

898

404,918

6,135

3,068

414,121

28,316

-

28,316

6,216

448,653

2,0534,946

2350

7,234455,887

525,635

528,191

18M

itrovicë 16,568

7,752,299

24,610

73,831

7,850,741

459,782

216,057

675,839

114,772

8,641,352

47,938

83,0743,948

0134,959

8,776,311

9,609,735

9,649,660

19N

ovo Bërdë

1,401

952,504

5,351

5,351

963,206

77,432

17,992

95,424

9,758

1,068,388

3,2603,524

1670

6,9511,075,339

1,162,913

1,168,229

20O

biliq4,932

2,295,552

17,568

13,176

2,326,296

158,849

46,242

205,091

34,223

2,565,610

13,403

20,599979

034,981

2,600,591

2,878,781

2,890,946

21P

ejë 18,627

9,217,902

38,704

69,344

9,325,950

510,004

200,433

710,437

128,856

10,165,243

58,202

106,1125,043

4,800174,156

10,339,399

11,261,487

11,308,825

22P

odujevë17,962

8,509,704

24,864

57,498

8,592,066

511,497

197,040

708,537

124,607

9,425,210

39,606

78,0603,709

0121,375

9,546,585

10,404,033

10,447,684

23P

rishtinë45,405

18,671,616

73,728

124,416

18,869,760

1,180,998

388,398

1,569,396

314,734

20,753,890

124,614

214,52810,195

4,800354,137

21,108,027

23,193,296

23,288,592

24P

rizren30,587

14,047,488

32,160

94,872

14,174,520

867,862

315,169

1,183,031

211,722

15,569,273

89,717

164,8607,834

0262,412

15,831,684

17,270,596

17,342,299

25R

ahovec9,839

5,214,054

6,244

42,150

5,262,448

292,933

36,693

329,626

68,131

5,660,205

27,169

51,1592,431

4,80085,559

5,745,764

6,223,738

6,250,657

26S

htërpcë2,352

1,186,664

-

4,384

1,191,049

77,967

868

78,835

16,373

1,286,257

15,456

6,302299

022,057

1,308,314

1,408,562

1,415,023

27S

htime

5,780

2,710,164

6,036

36,216

2,752,416

169,295

46,715

216,010

40,089

3,008,515

15,57725,478

1,2110

42,2653,050,780

3,344,426

3,358,732

28S

kenderaj10,093

5,073,584

18,338

39,733

5,131,655

302,105

119,392

421,497

69,867

5,623,018

32,723

54,2082,576

089,507

5,712,526

6,202,980

6,229,242

29S

uharekë11,056

5,938,236

31,620

41,106

6,010,962

332,190

105,267

437,457

76,580

6,524,999

39,002

55,9022,657

097,561

6,622,559

7,204,989

7,235,669

30V

iti8,209

4,944,168

12,438

32,650

4,989,257

254,807

52,554

307,361

56,973

5,353,591

31,516

33,6771,600

4,80071,593

5,425,184

5,860,727

5,886,273

31V

ushtrri14,469

6,815,831

18,708

48,328

6,882,867

418,472

148,589

567,061

100,338

7,550,265

42,987

65,3213,104

0111,412

7,661,677

8,364,042

8,399,104

32Z

ubin Potok

1,263

391,558

-

1,100

392,658

44,942

21,306

66,248

8,820

467,726

1,3281,626

770

3,032470,758

529,286

531,734

33Z

veçan1,153

439,953

-

-

439,953

37,326

20,043

57,369

8,050

505,372

-

1,491

710

1,562506,934

562,520

565,206

34K

llokot615

331,985

-

-

331,985

23,579

11,915

35,494

4,291

371,771

725

88142

01,647

373,418

418,582

420,726

35M

itrovica e veriut4,878

1,157,664

-

-

1,157,664

152,852

159,320

312,172

34,118

1,503,955

0

1,69481

01,775

1,505,729

1,641,922

1,648,215

36P

artesh999

409,625

-

2,593

412,217

48,454

22,963

71,417

6,986

490,620

5,796

27113

06,080

496,700

550,686

553,233

37R

anillug1,192

428,713

-

-

428,713

44,416

28,723

73,139

8,344

510,197

4,589

683

04,659

514,856

572,722

575,351

38G

raqanice3,998

986,916

-

1,137

988,053

135,862

70,862

206,724

27,958

1,222,735

2,294

2,168103

04,566

1,227,300

1,350,324

1,355,765

Total

proposal of

specific grant

for

preuniversity

education for

2022

Total proposal

of specific

grant for

preuniversity

education for

2023

Municipality

Ground G

rant

for

preuniversity

education for

2021

Total

number of

pupils

Total w

ages

and allowances

Total proposal

of specific

grant for

preuniversity

education for

2021

New

policies

Cost of

new

policies

Wage and

allowance (for

Teaching,

administrative,

assistant staff)

Assistant

for children

with special

needs (100)

TO

TA

L

Capital

expenditureN

o.T

otal goods

and services

Three

wages after

retirement

Go

od

s an

d services

Table 11 Distribution of Specific Grant for Education for the year 2021-2023

74

4.4. Primary health specific grant

Health specific grant is based on an open system in line with the LFPL.

The specific grant for primary health care for 2021 has been approved by the GC in the amount of 62.6

million euros.

The specific grant for primary health care - basic grant for 2021 is in amounted to 61.7 million euros and is

prepared according to the criterion per capita (35 €) and in accordance with the recommendations of the

Grants Commission issued by the annual report on Adaptability Assessment of Municipal Financing

System.

New policy approved by GC for 2021 is care of palliative visit (visit x 20 euro) with a cost of 0.9 million

euro. Table 12 Primary health specific grant, for 2021-2023

M F

Females of

reproduction

age 15-49

years

Number of

children

from 0-14

years

Number of

elderly

persons -

over 65

years

1 Deçan 40,019 20,125 19,894 10,941 10,471 4,084 151 1,386,900.81 3,480 1,390,381 2,138,546 2,149,239

2 Dragash 33,997 17,035 16,962 8,500 10,000 5,000 497 1,178,202 9,220 1,187,422 1,814,473 1,823,545

3 Ferizaj 108,610 54,841 53,769 29,300 31,566 6,900 982 3,763,995 91,480 3,855,475 5,732,650 5,761,313

4 Fushë Kosovë 34,827 17,621 17,206 14,123 6,585 3,202 233 1,206,967 44,520 1,251,487 1,841,970 1,851,180

5 Gjakovë 94,556 47,226 47,330 25,198 25,300 9,329 1,090 3,276,938 6,320 3,283,258 4,852,885 4,877,150

6 Gjilan 90,178 45,354 44,824 24,539 23,464 6,554 180 3,125,214 41,840 3,167,054 4,086,375 4,106,807

7 Gllogovc 58,531 29,733 28,799 15,996 17,507 3,336 177 2,028,454 24,160 2,052,614 2,905,945 2,920,474

8 Hani i Elezit 9,403 4,836 4,567 1,824 2,778 560 84 325,871 0 325,871 633,811 636,980

9 Istog 39,289 19,679 19,610 10,607 10,804 2,976 486 1,361,602 20,260 1,381,862 1,981,193 1,991,099

10 Junik 6,084 2,995 3,089 2,020 1,681 450 50 210,847 33,700 244,547 355,335 357,112

11 Kaçanik 33,409 16,970 16,439 9,054 9,683 1,940 200 1,157,824 3,180 1,161,004 1,804,596 1,813,619

12 Kamenicë 36,085 18,559 17,526 23,263 5,389 4,140 242 1,250,564 27,820 1,278,384 2,596,316 2,609,297

13 Klinë 38,496 18,960 19,537 10,726 10,915 2,830 260 1,334,120 92,240 1,426,360 1,999,168 2,009,164

14 Leposavic 13,773 6,969 6,804 3,443 2,754 965 477,318 11,880 489,198 652,566 655,829

15 Lipjan 57,605 29,325 28,280 15,355 17,461 7,032 706 1,996,362 0 1,996,362 3,087,960 3,103,400

16 Malishevë 54,613 25,901 28,713 37,276 20,758 3,500 640 1,892,671 0 1,892,671 2,792,431 2,806,393

17 Mamushë 5,507 2,672 2,836 2,543 2,670 737 40 190,851 7,300 198,151 378,544 380,437

18 Mitrovicë 71,909 36,275 35,634 18,624 20,351 5,074 1,200 2,492,083 14,820 2,506,903 3,627,727 3,645,865

19 Novobërdë 6,729 3,466 3,264 1,726 1,643 732 41 233,201 6,300 239,501 336,728 338,412

20 Obiliq 21,549 10,885 10,664 5,636 6,419 1,239 340 746,803 60,900 807,703 1,655,125 1,663,401

21 Pejë 96,450 50,466 45,985 24,817 24,993 7,495 1,411 3,342,577 0 3,342,577 4,662,844 4,686,158

22 Podujevë 88,499 44,955 43,544 24,042 12,975 2,476 872 3,067,027 6,940 3,073,967 4,199,260 4,220,256

23 Prishtinë 198,897 99,355 99,543 55,375 51,884 13,231 1,600 6,892,986 57,020 6,950,006 10,003,357 10,053,374

24 Prizren 177,781 89,173 88,608 49,156 49,661 11,524 1,578 6,161,189 0 6,161,189 8,023,493 8,063,611

25 Rahovec 56,208 28,512 27,696 15,393 16,081 3,352 377 1,947,948 3,100 1,951,048 2,590,376 2,603,328

26 Shtërpcë 6,949 3,554 3,395 1,744 1,577 500 47 240,825 0 240,825 437,253 439,439

27 Shtime 27,324 13,850 13,474 5,874 7,877 1,800 253 946,942 20,340 967,282 1,441,658 1,448,866

28 Skenderaj 50,858 25,646 25,212 15,665 14,265 4,241 1,523 1,762,538 12,660 1,775,198 2,607,180 2,620,216

29 Suharekë 59,722 29,478 30,244 16,413 17,409 4,104 400 2,069,729 21,320 2,091,049 2,916,349 2,930,931

30 Viti 46,987 23,686 23,301 12,343 14,168 6,100 731 1,628,384 0 1,628,384 2,307,320 2,318,856

31 Vushtrri 69,870 36,004 33,866 18,146 19,634 4,508 750 2,421,419 4,000 2,425,419 3,266,671 3,283,004

32 Zubin Potok 6,616 3,408 3,208 1,456 1,588 476 38 229,284 97,720 327,004 400,157 402,157

33 Zveçan 7,481 3,661 3,821 1,623 1,770 531 18 259,262 40,740 300,002 493,410 495,877

34 Graçanicë 10,675 5,428 5,248 2,463 2,661 993 81 369,953 92,360 462,313 724,130 727,751

35 Kllokot 2,556 1,417 1,140 688 670 214 18 88,581 30,260 118,841 179,043 179,939

36 Mitrovica Veriore 12,326 6272.5 6053.5 2,686 2,931 879 82 427,171 20,940 448,111 613,835 616,904

37 Partesh 1,787 922 865 477 340 202 0 61,930 0 61,930 79,848 80,247

38 Ranillug 3,866 1,969 1,897 1,012 393 259 0 133,980 0 133,980 266,755 268,088

1,780,021 897,179 882,843 520,067 479,076 133,466 17,378 61,688,512 906,820 62,595,332 90,487,284 90,939,721

Gender

Total

Total specific

grant for Health

for 2023

Demography

Specific grant

for Health for

2021

Paliativ care

visits (visit x

20 euro)

New policies

Total specific

grant for

Health for

2021

Total specific

grant for Health

for 2022

Ground Grant

No Municipality Population

AgeNumber of

persons with

special needs

(reported by

municipalities)

75

4.5. Secondary health financing

Financing for secondary health for 2021 has been approved in amount of 2,603,077 euros according to MH

proposal and projections of MTEF for three minority municipalities, as follows:

Shtërpce municipality, amounted to 522,371 euros,

Mitrovica municipality, amounted to 989,935 euros, and

Graçanica municipality, amounted to 1,090,771 euros.

4.6. Residential services financing

The financing of residential services for community houses for the elderly and community houses for people

with disabilities for 2021 has been approved according to the MH proposal amounted to 2,305,000 euros.

For 2021, the staff increase of 13 and additional financing for the functioning of Residential Services for

the elderly in the Municipality of Prizren has been approved.

Table 13 Financing for residential services for 2021-2023

4.7. Funding for the Historic Center of Prizren, the Cultural Center of the village of Zym and the

Council of the Hoçë e Madhe

With the entry into force of Law No. 04/L-066 on the Historic Center of Prizren, Law No. 04/L-196 on the

Historical Cultural Center of Zym Village and Law No. 04/L-62 for the village of Hoçë e Madhe, with the

budget planning for 2021, financial funds are allocated in the amount of 69,393 euros, for the two

municipalities as follows:

Prizren municipality, amount of 44,365 euros, and

Rahovec municipality, amount of 25,028 euros.

Nr. MunicipalitiesExtra

staff

Wages and

allowance

Goods and

servicesUtilities

Capital

expenditureTotal 2021 Total 2022 Total 2023

1 Skenderaj SHKPM 90,000 75,000 10,000 10,000 185,000 185,000 185,000

2 Graqanice SHKPM/SHKPAK 170,000 144,000 16,000 20,000 350,000 350,000 350,000

3 Istog SHKPM 90,000 75,000 10,000 10,000 185,000 185,000 185,000

4 Deqan SHKPAK 85,000 72,000 8,000 10,000 175,000 175,000 175,000

5 Ferizaj SHKPAK 85,000 72,000 8,000 10,000 175,000 175,000 175,000

6 Kamenice SHKPAK 85,000 72,000 8,000 10,000 175,000 175,000 175,000

7 Vushtrri SHKPAK 85,000 72,000 8,000 10,000 175,000 175,000 175,000

8 Shtime SHKPAK 85,000 72,000 8,000 10,000 175,000 175,000 175,000

9 Lipjan SHKPAK 85,000 72,000 8,000 10,000 175,000 175,000 175,000

10 Prizren SHKPM/SHKPAK 13 175,000 147,000 18,000 20,000 360,000 360,000 360,000

11 Novobërd SHKPM 85,000 72,000 8,000 10,000 175,000 175,000 175,000

13 1,120,000 945,000 110,000 130,000 2,305,000 2,305,000 2,305,000 Total

76

4.8. Financing for the endangered environmental area of Obiliq

Pursuant to Law No. 05/L-044 on the endangered environmental area of Obiliq and around it Article 9,

Obiliq benefits from the collection of mining rent by the respective institution, 20percentof the value of this

rent is reallocated from the Central Budget to the Municipal Budget of the Municipality of Obiliq,

specifically dedicated to investments in community development in the location where the business unit is

located in the field of environmental protection, infrastructure, sports, health and education.

For 2021, the Municipality of Obiliq, based on the collection of the mining rent, benefits extra financing of

4,600,000 euros.

4.9. Financing for Theatre

Financing for theatres for 2021 has been approved in amount of 900,000 as in attached table below:

Table 14 Financing for theatres for 2021

MunicipalitiesWages and

allowance

Subsidies and

transfersTotal

Teatri Profesionist Gjilan 100,886 100,886

Teatri Profesionist Gjakovë 73,443 42,500 115,943

Teatri Profesionist Prizren 111,558 29,750 141,308

Teatri Profesionist Pejë 85,639 43,500 129,139

Teatri Profesionist Ferizaj 94,788 18,700 113,488

Teatri Profesionist Mitrovicë 100,886 68,500 169,386

Teatri Profesionist Podujevë 79,800 50,050 129,850

Totali 647,000 253,000 900,000

4.10. Projections of Municipal Own Source Revenues for 2021 and forecasts 2022-2023

The projections of own source municipal revenues for 2021 based on macro-fiscal assessments are in the

amount of 78 million euros. These revenues are added to municipal funding in addition to municipal

grants.

This projection considered revenues of immovable property tax according to the property tax invoicing (tax

burden) and the trend of increasing non-tax revenues during the last three years, excluding revenues from

traffic fines and revenues by the courts.

Table 15 Projections of municipal own source revenues for 2021-2023

77

1 Deçan 537,024 799,528 933,255 109,140 301,756 320,280 646,165 1,101,284 1,253,535

2 Dragash 230,222 319,464 353,500 184,833 187,153 198,642 415,055 506,618 552,142

3 Ferizaj 2,693,566 3,766,930 4,194,386 1,751,063 2,603,127 2,762,923 4,444,628 6,370,057 6,957,309

4 Fushë Kosovë 831,722 1,060,168 1,089,171 1,857,932 1,811,700 1,922,914 2,689,654 2,871,869 3,012,085

5 Gjakovë 1,729,530 2,315,756 2,487,247 1,648,728 1,645,415 1,746,421 3,378,258 3,961,171 4,233,667

6 Gjilan 1,856,707 2,507,975 2,714,011 2,191,327 2,269,499 2,408,814 4,048,034 4,777,474 5,122,826

7 Gllogoc 495,709 650,580 686,583 810,951 763,050 809,891 1,306,660 1,413,630 1,496,473

8 Hani i Elezit 147,203 209,906 237,309 141,420 172,920 183,535 288,624 382,826 420,844

9 Istog 435,663 599,828 659,523 638,517 658,687 699,121 1,074,179 1,258,515 1,358,644

10 Junik 69,553 92,263 98,293 53,249 88,150 93,561 122,802 180,413 191,855

11 Kaçanik 324,705 449,309 496,048 321,949 329,012 349,209 646,655 778,321 845,257

12 Kamenicë 339,325 471,356 522,019 461,134 430,901 457,352 800,459 902,257 979,371

13 Klinë 425,320 565,041 602,771 405,117 515,150 546,773 830,437 1,080,191 1,149,544

14 Leposaviq - 41,790 54,065 57,383 41,790 54,065 57,383

15 Lipjan 903,311 1,157,900 1,195,879 1,004,006 1,003,346 1,064,938 1,907,316 2,161,247 2,260,817

16 Malishevë 436,484 620,388 699,625 370,824 442,782 469,963 807,308 1,063,170 1,169,588

17 Mamusha 30,791 41,011 43,848 26,143 30,535 32,409 56,934 71,546 76,257

18 Mitrovicë 934,702 1,232,528 1,306,216 1,401,156 1,539,276 1,633,766 2,335,857 2,771,804 2,939,982

19 Novobërdë 102,934 142,657 157,696 120,002 121,040 128,470 222,936 263,697 286,166

20 Obiliq 400,477 520,932 545,355 549,703 552,010 585,896 950,180 1,072,942 1,131,250

21 Pejë 2,122,687 2,851,428 3,071,157 1,794,778 2,001,795 2,124,677 3,917,465 4,853,223 5,195,834

22 Podujevë 465,314 644,341 711,788 877,245 817,194 867,358 1,342,559 1,461,535 1,579,146

23 Prishtinë 7,775,089 10,043,605 10,447,681 20,496,857 20,614,904 21,880,373 28,271,947 30,658,509 32,328,054

24 Prizren 2,453,993 3,267,929 3,493,407 4,720,034 4,767,260 5,059,904 7,174,027 8,035,189 8,553,310

25 Rahovec 499,593 691,785 764,175 561,500 626,392 664,844 1,061,093 1,318,177 1,429,019

26 Shtërpcë 327,821 441,968 477,506 86,478 150,941 160,206 414,299 592,909 637,712

27 Shtime 227,910 328,856 375,149 362,622 315,621 334,996 590,532 644,477 710,145

28 Skenderaj 253,639 345,956 377,452 1,267,865 1,395,517 1,481,182 1,521,503 1,741,473 1,858,634

29 Suharekë 832,746 1,119,833 1,207,230 980,209 1,021,426 1,084,127 1,812,956 2,141,259 2,291,357

30 Viti 439,589 595,983 646,966 421,661 471,877 500,843 861,250 1,067,860 1,147,809

31 Vushtrri 744,577 982,644 1,042,164 1,162,326 1,323,247 1,404,476 1,906,903 2,305,891 2,446,639

32 Zubin Potok - 31,343 43,252 45,907 31,343 43,252 45,907

33 Zveçan - 36,566 48,658 51,645 36,566 48,658 51,645

34 Gracanicë 759,213 981,580 1,021,889 883,753 1,121,892 1,190,760 1,642,966 2,103,471 2,212,649

35 Kllokot 74,151 99,673 107,414 69,904 77,471 82,227 144,055 177,144 189,641

36 Mitrovica veriore - 62,685 75,690 80,337 62,685 75,690 80,337

37 Partesh 56,425 74,213 78,470 15,671 37,741 40,058 72,096 111,954 118,528

38 Ranillug 42,306 58,690 64,930 79,519 69,550 73,819 121,825 128,240 138,749

30,000,000 40,052,005 42,910,113 48,000,000 50,500,000 53,600,000 78,000,000 90,552,005 96,510,113 TOTAL

No. Municipality

Tax revenues Non tax revenues

Projections for

2021

Projections for

2022

Projections for

2023

Tax on

property and

land 2021

Tax on

property and

land 2022

Tax on

property and

land 2023

Years 2021 Years 2022 Years 2023

78

4.11. Investment clause

For year 2021 with the mechanism of the investment clause, the financing of projects in following

municipalities continues as follows:

1. Construction of Water Supply System for the Municipality of Istog, amounted to 1,673,122.37

euros.

2. Wastewater Removal System Project for the Municipality of Podujeva amounted to 1,125,298.26

euros.

3. Project for Construction of Drinking Water Supply System for the Municipality of Ferizaj

amounted to 2,723,503 euros.

4. Project for Construction of Water Supply System for the Municipality of Graçanica amounted to

1,066,287 euros,

5. Project for the Construction of Sewerage System for the Municipality of Shtime amounted to

793,562.24 euros.

4.12. Sumamry of municipal funding for 2021-2023

For the allocation of government grants by municipalities for 2021-2023, the basic criteria and principle

formulas stipulated in the Law on Local Government Finance and other relevant laws have been

implemented, as well as based on macro-fiscal projections and data from line ministries.

Table 16 Summary of municipal funding for 2021-2023 (mil. euro)

Description Year 2018 Year 2019 Year 2020 Year 2021Projections

for 2022

Projections

for 2023

1. Government grants 392.4 419.1 463.5 440.0 494.7 505.0

1.1 General grant 173.6 180.7 196.3 182.6 191.7 200.7

General grant 168.9 175.8 196.3 182.6 191.7 200.7

Contingency to the correction formula 4.7 4.9

1.2 Specific health grant 48.5 53.4 61.7 62.6 90.5 91.0

Basic grant 61.7 61.7

New policies 0.9

1.3 Specific education grant 170.3 185.0 205.6 194.8 212.5 213.3

Basic grant 205.6 192.0

New policies 2.8

2. Financing for secondary healthcare 2.6 2.6 2.6 2.6 2.6 2.6

3. Residential services 1.7 1.6 2.0 2.3 2.3 2.3

4. Financing for CPC, QKHFZ and KHM 0.1 0.1 0.1 0.1 0.07 0.07

5. Grant for the Capital - Prishtina 10.8 11.8 11.0 11.5 12.0

6. Financing for Obiliq 5.0 4.2 4.6 4.6 4.6

7. Municipal own-source revenues 82.0 87.0 83.1 78.0 90.55 96.51

8. Financing for theatres 0.9 0.9 0.9 0.9

9. Financing from borrowing 3.7 4.8 0 0 0 0

10. Funding from the Investment Clause 23.1 11.5 7.4 0 0

Total Municipal Financing 482.41 554.05 579.75 546.8 607.2 624.0

79

ANNEX 1 Tabela 1. Parashikimet Fiskale

Përshkrimi 2019 2020

Rishikim

2021

Proj.

2022

Proj.

2023

Proj.

në miliona Euro

1. Total Revenue 1,888.2 1,788.5 1,916.9 2,020.9 2,116.4

1.1 Tax Revenue 1,662.0 1,565.2 1,684.1 1,771.0 1,852.5

Direct Taxes 292.3 282.4 301.0 322.4 336.2

Tax on Corporate Income 94.6 89.8 97.4 101.3 104.1

Tax on Personal Income 165.6 159.6 168.9 176.1 184.1

Tax on Immovable Property 27.3 28.7 30.0 40.1 42.9

Other 4.8 4.4 4.7 4.9 5.1

Indirect Taxes 1,415.3 1,322.4 1,429.4 1,497.4 1,567.7

Value Added Tax: 845.6 790.5 873.3 915.6 959.5

Domestic: 239.2 238.1 262.7 270.3 275.3

Border: 606.4 552.4 610.6 645.4 684.2

Customs Duty 130.3 105.9 127.1 135.4 143.8

Excize 435.5 422.6 425.5 442.6 460.5

Other indirect 3.8 3.4 3.5 3.7 3.9

Tax Refunds -45.5 -39.6 -46.2 -48.8 -51.4

1.2 Non-tax revenue 214.6 188.9 222.3 239.4 253.4

Fees, charges, and other - Central Level 121.4 105.0 122.1 135.6 143.5

Fees, charges, and other - Local Level 50.0 47.1 48.0 50.5 53.6

Concessionary fees 11.1 2.7 19.0 20.1 23.1

Royalties 29.4 30.2 30.2 30.2 30.2

Interest income (KEC loan) 2.7 4.0 3.0 3.0 3.0

1.3 Budget support and grants 11.5 34.4 10.5 10.5 10.5

1.4 DDG - Donor designated grants 8.0 12.0 12.0 12.0 12.0

2. Total Expenditure 2,093.4 2,620.4 2,475.1 2,359.8 2,411.0

2.1 Recurrent Expenditure 1,538.8 1,860.5 1,781.1 1,647.1 1,654.7

Regular recurrent expenditure 1,538.8 1,649.2 1,633.1 1,647.1 1,654.7

Wages and Salaries 615.9 620.7 638.8 641.3 644.5

Goods and Services 295.6 315.4 335.1 346.3 346.7

Subsidies and Transfers 627.3 678.6 651.5 651.7 655.6

Reccurent reserves 0.0 34.4 7.8 7.8 7.8

Economic Recovery Program 0.0 364.6 217.0 0.0 0.0

2.2 Capital Expenditure 531.2 729.9 645.6 665.7 699.9

Regular budget financing 386.8 397.4 437.2 490.2 529.3

Debt financing through the investment clause 12.5 147.5 178.4 175.6 170.6

Liquidation proceeds 131.9 185.0 30.0 0.0 0.0

2.3 Public Debt Interest 23.5 30.0 48.3 46.9 56.4

3. Budget Balance (1-2) -205.3 -831.9 -558.2 -338.9 -294.6

4. Expenditure exempted from the fiscal rule: 177.0 380.7 214.4 181.6 176.6

Expenditure from dedicated PAK revenue/2 1.0 6.0 6.0 6.0 6.0

Expenditure financed from municipal carried-over OSR 30.7 42.2 0.0 0.0 0.0

Capital spending from the investment clause and liquidation p. 144.4 332.5 208.4 175.6 170.6

5. Budget Balance, as per fiscal rule definition (5+6) -28.2 -451.1 -343.7 -157.3 -118.0

A. Financing Need: -205.3 -831.9 -558.2 -338.9 -294.6

B. External Financing -6.0 320.8 262.2 204.9 186.7

On-budget lending (IMF Drawings) 0.0 152.0 95.0 60.0 60.0 Regular on-budget project-loans 20.6 78.2 39.5 21.3 8.4

Investment clause project-loans 12.5 147.5 178.4 175.6 170.6 POE on-lending receipts (gross) 12.1 47.6 58.6 23.7 15.2 Principal repayment 51.2 104.5 109.4 75.7 67.6

C. Internal Financing 262.8 367.2 158.7 143.7 152.2

Issuance of treasury bills 115.3 170.2 170.0 150.0 150.0

Rapayment of POE debts 10.9 11.4 11.4 11.4 11.4

Liquidation/privatization proceeds 150.0 185.0 30.0 0.0 0.0

One-off finaicning (KPST) 0.0 0.0 0.0 0.0 0.0

Use of carried-forward municipal OSR -6.3 42.2 0.0 0.0 0.0

Use of dedicated PAK revenue 5.6 6.0 6.0 6.0 6.0

POE lending outlays 0.0 0.0 0.0 0.0 0.0

POE on-lending outlays (gross) 12.7 47.6 58.6 23.7 15.2

D. Change in usable bank balance: 51.5 -143.9 -137.3 9.7 44.3

E. Stock of Usable Bank Balance 356.5 213.3 234.6 244.3 288.6

Memo 1:

80

Revenues received from TAK 504.3 491.8 533.7 552.6 568.5

Revenues received from Customs 1,179.6 1,084.3 1,166.7 1,227.1 1,292.4

GDP 7,114.3 6,961.3 7,149.4 7,506.9 7,941.8

Budget deficit (fiscal rule def.) as percentof GDP -0.4% -6.5% -4.8% -2.1% -1.5%

Available bank balance as percentof GDP 5.0% 3.1% 3.3% 3.3% 3.6%

Memo 2:

Disclosure of the Economic Recovery Program 365 217.0

[1] Wages and salaries 14 0.0

[1] Goods and Services 13 17.0

[1] Subsidies and Transfers 111 77.0

[1] Support for municipalities 9.0

[2] Contingency for subsidies and transfers 74 45.0

[2] Capital contingency from Liquidation Funds (PAK) 100 30.0

[2] Capital Expenditures through Investment Clause and Borrowings 53 39.0

Memo 3:

Stock of Domestic Debt 792.1 962.3 1,132.3 1,282.3 1,432.3

Stock of Foreign Debt (+guarantees) 409.1 719.7 890.5 1,084.5 1,260.5

State guarantees 44.0 41.7 40.6 39.6 38.6

Debt as percentof GDP 17.5% 24.8% 28.9% 32.1% 34.4%

Tabela 1.1 Financimi i Bilancit Buxhetor

Pershkrimi 2019 2020

Rishikim

2021

Proj.

2022

Proj.

2023

Proj.

në miliona Euro

Budget Revenues 1,888 1,788 1,916.9 2,020.9 2,116.4

Budget Expenditure 2,093 2,620 2,475.1 2,359.8 2,411.0

1. FINANCING NEEDS -205 -832 -558.2 -338.9 -294.6

2. Net external financing -6 321 262.2 204.9 186.7

2.1. Inflows: 45 425 361.0 269.7 243.6

IMF - 152 95.0 60.0 60.0

On-lending 12 48 58.6 23.7 15.2

Withdrawals from creditors 4 37 48.0 12.8 4.6

Receipts from public lending entities 8 10 10.6 10.9 10.6

Draft loans 33 226 217.9 196.9 179.0

IFI financing as per the investment clause 13 148 178.4 175.6 170.6

IFI project-loans 21 78 39.5 21.3 8.4

2.2. Outflows: 51 105 109.4 75.7 67.6

Debt principal repayments 51 105 109.4 75.7 67.6

3. Net domestic financing 263 367 158.7 143.7 152.2

3.1. Inflows: 526 615 379.4 372.4 437.4

Domestic borrowing: new debt issuance 115 170 170.0 150.0 150.0

Refinancing of treasury bills 245 200 162.0 205.0 270.0

Loans to POEs (principal) 11 11 11.4 11.4 11.4

One-off financing (PAK) 150 185 30.0 - -

Inflows from designated funds 6 6 6.0 6.0 6.0

Inflows from funds (FS2, FS3) - 42 - - -

3.2. Outflows: 264 247 220.6 228.7 285.2

Loans to POEs (principal) - 0 - - -

On-lending 13 48 58.6 23.7 15.2

Outflows from debt service 9 37 48.0 12.8 4.6

Outflows from on lending 4 10 10.6 10.9 10.6

Outflows from isuance of treasury bills 245 200 162.0 205.0 270.0

Outflows from funds (FS2, FS3, increase) 6 0 - - -

4. CHANGES IN BANK BALANCE (Undesignated) 52 -144 -137.3 9.7 44.3

5. END-YEAR NET BANK BALANCE 357 213 234.6 244.3 288.6

off which : ELA 46 46 46.0 46.0 46.0

6. Designated Funds 97 47 46.9 46.9 46.9

Stock of donor designated grants 9 8 8.0 8.0 8.0

81

Stock of carried-over OSR (Central level) 6 3 3.0 3.0 3.0

Stock of carried-over OSR (Local level) 49 12 12.0 12.0 12.0

The development trust 8 6 6.0 6.0 6.0

Designated revenue 1 1 0.5 0.5 0.5

Other 18 17 17.4 17.4 17.4

Unspent funds from borrowing 7 0 - - -

7. END-YEAR GROSS BANK BALANCE 454 260 281.5 291.2 335.5

8. CHANGE in BANK BALANCE 66 -194 -137.3 9.7 44.3

Memo

Stock of Domestic Debt 792 962 1,132.3 1,282.3 1,432.3

Stock of Foreign Debt 409 720 890.5 1,084.5 1,260.5

State guarantees 44 42 40.6 39.6 38.6

Interest expenditure as percentof GDP 0.4% 0.4% 0.6% 0.6% 0.7%

Table 2: Nominal GDP and its components, mil eur

Description 2019 est

2020 Proj.

2021 Proj.

2022 Proj.

2023 Proj.

Mil eur

Consumption 7,037 7,027 7,377 7,691 8,074

Private Consumption 6,011 5,943 6,280 6,571 6,901

Public Consumption 996 1,054 1,066 1,089 1,143

General Government 868 922 932 953 1,003

Donors 128 132 134 137 140

NPISH 30 31 31 31 31

Investment 2,098 1,700 2,006 2,185 2,394

Private Investment 1,567 1,245 1,457 1,573 1,697

Public Investment 531 455 549 613 698

Net Export of Goods and Services -2,021 -2,014 -2,233 -2,370 -2,527

Exports 1,898 1,517 1,657 1,755 1,859

Exports of goods 393 422 442 464 487

Exports of services 1,505 1,095 1,215 1,291 1,372

Imports 3,919 3,531 3,891 4,125 4,386

Imports of Goods 3,253 2,992 3,280 3,466 3,674

Imports of Services 666 539 611 659 711

GDP 7,114 6,713 7,149 7,507 7,942

Other Indicators

Private sector disposable income in mln

Eur

7,212

7,032

7,074

7,453

8,034

Private Consumption to GDP 84% 89% 88% 88% 87%

Private Investment to GDP 22% 19% 20% 21% 21%

Exports to GDP 27% 23% 23% 23% 23%

Imports to GDP 55% 53% 54% 55% 55%

82

Investment Clause

The Government of Kosovo identified the need for extra space for financing major capital

projects and in 2015 started the negotiations for a third IMF program, which, among other things,

would allow the relaxation of the fiscal rule. In other words, for large capital projects of strategic

importance, the Government would be able to enter into debt beyond the fiscal rule of 2percentof

Gross Domestic Product (GDP) for a period of 10 years, with the main condition that it does not

exceed 30percentof the total debt of the country. This would enable the Government of Kosovo

to have an additional fiscal space of approximately 1.8percentover the 2percentstipulated by the

fiscal rule, in order to obtain more financing for capital projects of public importance. This was

recognized as the ”investment clause” amendment which introduced the approval of the

necessary legislative amendments by the Assembly in January 2016, through the amendment of

the Law on Public Financial Management and Accountabilities, which includes the fiscal rule

as well.

The Government of Kosovo remains committed to include, in a balancing manner, in the budget

the process of capital projects implemented through the ”investment clause”, so that the analysis

of funding of such projects is based on the analysis of the long-term sustainability of public debt.

Another condition provided by the provisions of the investment clause is that the Ministry of

Finance përpares, twice a year, a narrative report on the implementation of projects under this

provision.

The reports to be prepared in 2020 will include the following projects which are part of the

budget tables for 2020. It is worth highlighting that the inclusion of projects in the investment

clause is realized based on their maturity for implementation in 2020. Projects that are included

in the investment clause are shortly summarized as follows:

Rehabilitation of Railway Route 10– The implementing institution for this project is the Public

Enterprise “Infrakos” Prishtina. The total cost of the project is expected to be aaproximately

194.5 million Euros. The EBRD and the EIB fund half of it, whereas the European Union funds

the other half of the project. Financial agreements with EBRD and EIB have been signed and

ratified. With regard to the EU contribution, the first and second grant agreements have already

been signed and ratified. Civil works for phase 1 started in early 2019, while for works for phase

2 are expected to begin in 2020. Tender and procurement procedures for phase 3 are expected

to begin in late 2020, whereas works are expected to begin in 2021 and be completed in 2024.

The first disbursement of loans and grant agreement was realized during 2019, and due to

implementation delays, amendments to the agreements signed in 2015 must be made.

Rehabilitation of Ibër-Lepenc – The implementing institution for this project is the Public

Enterprise "Iber Lepenci" and the estimated cost of the project is 25 million Euros. The financial

agreement between the Republic of Kosovo and the World Bank was ratified in 2017, whereas

the first disbursement was made in January 2018.

83

Rehabilitation of Regional Roads - the implementing institution for this project is the Ministry

of Infrastructure and Environment (former Ministry of Infrastructure). The financial agreement

has been signed and ratified, and the project is worth 29 million Euros, with funding from the

EBRD. Fieldwork will begin during 2020 and expected to be completed in 2021.

Construction of Motorway N9 Pristina - Pejë (SEETO Route 6 A) Segment Kijeve-Klina to

Zahaq - the implementing institution for this project is the Ministry of Infrastructure and 89

Environment (former Ministry of Infrastructure). The cost of the project is 193 million Euros.

The Loan Agreement with the EBRD was signed in 2017 and with EIB in the second half of

2018. In January 2019, an agrement of 1 million Euros was signed between the Republic of

Kosovo and the EIB as part of the Economic Resilience Initiative for support during

implementation. Civil works have been delayed due to changes in implementation, as requested

by the line ministry, by dividing the project into 3 lots. By changing the leadership of the Project

Implementation Unit, implementation could be accelerated.

Project for Competitiveness and Export Readiness - The implementing institution for this

project is the Ministry of Economy, Lavor, Trade, Industry, Entrepreneurship, and Strategic

Investments (former Ministry of Trade and Industry and the Ministry of Labor and Social

Welfare). The 14.3 million Euro project is funded by the World Bank and the first disbursement

was made in March 2019.

Additional financing for the project of agriculture and rural development – The agreement on

this project was signed with the International Development Agency - World Bank, in 2017, and

has already been ratified by the Assembly. The estimated cost of the project is 20.8 million

Euros and the first disbursement was made in March 2019.

Treatment of wastewater in Pristina (construction of waste water treatment plant in Prishtina

region) – The Ministry of Infrastructure and Environment (former Ministry of Environment and

Spatial Planning) is the implementing institution of this project. Funding of the project will be

provided through a framework agreement between the Government of the Republic of Kosovo

and the Government of the Republic of France, which was ratified during 2017. Based on the

agreement, the project is worth 86 million Euros. Implementation is expected to begin in the

second quarter of 2020.

Construction of Pristina Ring Road – The implementing institution for this project is the

Municipality of Prishtina. The project is being evaluated by Banks, EBRD and EIB. The civil

works are expected to start in 2022, as the study of the project which is being funded by the

EBRD has not been finalized yet.

Kosovo Digital Economy (KODE) – The Ministry of Economy, Lavor, Trade, Industry,

Entrepreneurship, and Strategic Investments (former Ministry of Economic Development) is the

implementing institution for this project. The estimated value of the project is 25 million US

84

dollars, which will be potentially funded by the World Bank. The first disbursement was made

in November 2019.

Construction of wastewater treatment plants in Mitrovica – Mitrovica Regional Water

Company is the implementing institution for this project. The project is under assessment carried

by the EBRD (as the main financial institution) and the EIB, which will fund the project together,

whereas will be supported by a grant from the Western Balkans Investment Framework (WBIF).

Following the signing and ratification of the agreements, implementation is expected to begin

in 2020.

Wastewater Treatment Development Project in Gjilan – Gjilan/Hidromorava regional water

company is the implementing institution for this project, which has a projected value of 23

million euros, which will be funded by the EBRD and the EIB. The 10 million Euros financial

agreement with the EBRD was signed in May 2019 - and is awaiting ratification, while the 11

million Euros agreement with the EIB will be signed in mid-2020 as delays in the stabilizing of

institutions and due to the pandemic Covid-19 have postponed the planned signing for March

2020. The project is expected to be implemented during the period 2021- 2024.

Project for wastewater treatment in Podujeva municipality – Podujeva municipality is the

implementing institution of this project, which has a value provided by 5.4 million Euros. The

financial agreement was signed with UniCredit Bank Austria AG, on behalf of the Ministry of

Finance of Austria. The agreement was ratified and became effective in June 2019. During 2019,

about 2.4 million Euros were disbursed, whereas by mid-April 2020, another 548 thousand were

disbursed. The last disbursement for this project is expected to take place at the end of October

2020.

Construction of a Water Supply System in the Municipality of Ferizaj – The Municipality of

Ferizaj is the implementing institution for this project, with a total estimated value of 5.1 million

Euros. The financial agreement was signed in November 2018 with Raiffeisen Bank

International, which operates on behalf of the Ministry of Finance of Austria. The agreement

was ratified and became effective in June 2019. During 2019, approximately 1,025 million

Euros were disbursed, whereas by the mid-April 2020 approximately another 485 thousand were

disbursed. At the end of June 2021, the last disbursement for this project is expected to be

completed.

Construction of a Water Supply System in the Municipality of Istogu – The Municipality of

Istog is the implementing institution for this project, with a total estimated cost of 5.1 million

euros. The financial agreement was signed in November 2018 with UniCredit Bank Austria AG,

which operates on behalf of Ministry of Finance of Austria. The agreement was ratified and

became effective in June 2019. During the same year 1,018 million Euros were disbursed,

whereas by mid-April 2020 another 548 thousand were disbursed. The last disbursement for this

project is expected to be completed by the end of March 2021.

85

The Project for Treatment of Wastewater in the Municipality of Shtime -Shtime Municipality

is the implementing institution for this project, with a total estimated cost of 2.4 million Eur.

The financial agreement was signed in November 2018 with UniCredit Bank Austria AG, which

operates on behalf of the Austrian Ministry of Finance. The agreement was ratified and became

effective in June 2019. During 2019, approximately 1.4 million Euro were disbursed, while by

the middle of April 2020, 46,192.38 were disbursed. The last disbursement for this project is

expected to take place at the end of June 2020.

Construction of a Water Supply Scheme in the Municipality of Gracanica-The Municipality

of Gracanica is the implementing institution for this project, with a total estimated cost of 5.1

million euros. The financial agreement was signed in November 2018 with UniCredit Bank

Austria AG, which operates on behalf of the Ministry of Finance of Austria. The agreement was

ratified and became effective in June 2019. Also, during this year 1.48 million Euros were

disbursed, while by the mid-April 2020 another 315 thousand were disbursed. The last

disbursement for this project is expected to take place at the end of March 2021.

Real Estate Cadaster and Geospatial Infrastructure Project (REGIP) - the implementing

institution of this project is the Kosovo Cadastre Agency. The total project cost estimate is US

$ 16.5 million. The Financing Agreement (FA) between the Government of Kosovo and the

International Development Association (IDA WB) was signed in February 2019. The

implementation of the project is expected to begin in 2020.

Public Transport Project, Municipality of Prishtina - Public Enterprise of Prishtina ‘Trafiku

Urban’ is the implementing institution for this project, which has a total estimated 91 cost of 10

million Euros. The project is funded by the EBRD and its implementation began in 2016.

Replacement of Asbestos-Cement Pipes in the Municipality of Gjakova - Replacement of

asbestos water supply pipe lines - cement material, which were installed 55 years ago, in the city

of Gjakova. This investment will meet the need to support the supply of drinking water from the

tap for the next 30 years. The implementation agency is the Municipality of Gjakova. The project

has been approved by the National Investment Committee (NIC) to be funded through the

Agreement between the Government of the Republic of Kosovo and the Government of Hungary

on the Establishment of the Framework Program for Financial Cooperation (Law No. 05 / L-

153). Negotiations of the Financing Agreement are subject to the procedures of Law no. 05 / L-

153.

Wastewater Treatment Plant in the Municipality of Ferizaj - This project includes the design,

construction and maintenance of collection systems (Wastewater Treatment Plant) in the

Municipality of Ferizaj. This project will be implemented by the Municipality of Ferizaj. The

project has been approved by the National Investment Committee (NIC) to be funded through

the Agreement between the Government of the Republic of Kosovo and the Government of

Hungary on the Establishment of the Framework Program for Financial Cooperation (Law No.

86

05 / L-153). Negotiations of the Financing Agreement are subject to the procedures of Law no.

05 / L-153.

Sewerage system in the Municipality of Deçan - Zone 1: Sewerage system for Strellc village.

Zone 2: Sewer system for Dubovik village and part of Isniq village. Area 3: Sewerage of

Lëbushë, Isniq and Prapaqan villages. This project will be implemented by the Municipality of

Deçan. The project has been approved by the National Investment Committee (NIC) to be

funded through the Agreement between the Government of the Republic of Kosovo and the

Government of Hungary on the Establishment of the Framework Program for Financial

Cooperation (Law No. 05 / L-153). Negotiations of the Financing Agreement are subject to

procedures according to Law no. 05 / L-153.

Drinking water reservoir in the village of Verboc / Municipality of Drenas - Construction of

a drinking water collector / from the tap in the village of Verboc, which will provide drinking

water supply in the municipality of Drenas. This project will be implemented by the

Municipality of Drenas. The project has been approved by the National Investment Committee

(NIC) to be funded through the Agreement between the Government of the Republic of Kosovo

and the Government of Hungary on the Establishment of the Framework Program for Financial

Cooperation (Law No. 05 / L-153). Negotiations of the Financing Agreement are subject to

procedures according to Law no. 05 / L-153. In the Law on Budget of 2020, the following

projects are planned to be reflected through the Investment Clause in the medium term:

Construction of the Highway, section E from Besi to Merdare (Road 7 SEETO) - the

implementing institution for this project is the Ministry of Infrastructure and Environment (

former Ministry of Infrastructure). The project has a total estimated cost of 240 million Euros

and will be potentially funded by EBRD, EIB and the Government of Kosovo. The project has

been identified as a priority project by the National Investment Committee and is part of the

Priority List of Projects under the transport sector as it is part of the pan- European corridors of

the TEN-T network. So far, the European Union has supported the project with over 6 million

euros for feasibility studies and separate funding to supervise the works. As a result of support

from the Ministry of Finance, this project is suitable for investment grants through the Western

Balkans Investment Framework (WBIF). The application for the investment grant, prepared

with the support of the Ministry of Finance to the Ministry of Infrastructure and Environment,

for a grant of 20percentof the total value of the works is being reviewed by the WBIF, and the

preliminary response is expected to be provided during the summer of 2020.

Project for the purchase of equipment and renovation of tertiary and secondary health care

hospitals - This project is part of two studies requested by WBIF, where the first was to identify

the needs for equipment, while the study for improvement of health infrastructure has not started

yet. Projects arising from these two studies will radically transform the health system in the

country. The COVID-19 pandemic situation has made healthcare a priority since during the

curfew period, the country should create capacities that would enable easier coping with the

87

situation at the moment when the gradual reopening of the economy will begin. Therefore,

during review it is expected that funding will be approved by the Development Bank of the

Council of Europe and the World Bank to combat the situation and through which the projects

for the purchase of equipment and renovation of hospitals will continue.

Establishment of e-Testing Centers and further enhancement of e-Education services for pre-

university education in Kosovo-This project is run by the Ministry of Education, Science and

Technology and is financed with a loan through the Austrian Soft Credit Program, with a value

of 4.9 million Eur.

Prishtina-Mitrovica Highway Project (Phase 2) - The aim of the project is to connect the

capital city of Prishtina with the cities of Vushtrri and Mitrovica through the construction and

rehabilitation of the second main road (M2) and transform it from a one-lane road on each side

to high-speed two-lane roads on each side. The project will be funded by a loan from the Saudi

Development Fund, in the amount of 12.8 million Euros and will be managed by the Ministry

of Infrastructure and Transport.

Development of the Industrial Zone of Drenas - The area will be developed in a high quality

business center in an area of 37 ha, in front of the Industrial Park of Drenas now fully occupied.

The project will be funded by a loan from the European Bank for Reconstruction and

Development, with a value of 12.8 million euros, and will be managed by the Ministry of Trade

and Industry.

88

ANNEX 2

89

Table 2: Main deviations betweem MTEF 2020- 2022 dhe 2021- 2023 for year 2021

viti 2021 MTEF 2020-2022

MTEF2021-2023

Deviations

Recent MTEF to Actuals

Recent MTEFs to Actuals

% mln Eur

Total Revenues 2159 1916.9 -11.2% -242.1

of which

Excise 511 425.5 -16.7% -85.5

1) negative economic growth in 2020 has led to a lower level of revenues from excise in the base year 2020, which is used to estiamte the revnues for the comign years. 2) higher economic growth in 2021 compared to that in the previous MTEF had a positive effect, neverhtless the base effect had a higher impact leading to a lower level in mln eur.

Customs Duties 142 127.1 -10.5% -14.9

1) base effect as a result of a significant drop in import of goods in 2020, made year 2021 have a lower level of revenues from custom duties 2) despite a higher growth of imports in 2021 comapred to previous MTEF, the base effect has been more significant.

Border VAT 716 610.6 -14.7% -105.4

1) base effect as a result of a significant drop in import of goods in 2020, made year 2021 have a lower level of revenues from border VAT. 2) despite a higher growht of imports in 2021 comapred to previous MTEF, the base effect has been more significant.

Domestic VAT 273 262.7 -3.8% -10.3

1) base effect as a result of a significant drop in ithe tax base in 2020, made year 2021 have a lower level of revenues . 2) Government decision to lower VAT rate for some categories of products as part of the Economic Recovery Program (-3.4 mln)

Direct Taxes 327 301 -8.0% -26 1) base effect as a result of a significant drop in the tax base in 2020, made year 2021 have a lower level of revenues from CIT and PIT

Total Expenditure 2535 2775.1 9.5% 240.1

of which

Wages and Salaries 691 638.8 -7.6% -52.2

1) in accordance with LPFM, the wage bill is increased up to a maximum of nominal economic growth two years ago, but in this year a smaller increase is projecteed due to it being significant to cover all the needs. 2) Also, expenses planned in 2020 are lower than in the previous MTEF, which has made the base lower than before..

90

Goods and Services 357 335.2 -6.1% -21.8 1) the main difference compared to the previous MTEF comes from the need to conduct sacings in order to accomodate spending that is part of the Recovery Program

Subsidies and Transfers 630 651.4 3.4% 21.4 1) The current spending level has adressed all the needs to cover social schemes.

Capital Expenditure 825 665.7 -19.3% -159.3

1) The fall in this category has been primarily due to the LPFM regarding the deficit limit in 2020 that has been temporarily breached. 2) Also, some projects from the investment clause have been revised due to the execution plans.

Current Spending for the Economic Recovery Program

0 148 / 148

Interest Payments 28 48.3 72.5% 20.3

1) Increased emissions 30 mln Eur more than in the previous MTEF for 2020 2) Revisions in the structure of both domestic and foreign debt.

Table 3: Main deviations betweem MTEF 2020- 2022 dhe 2021- 2023 for year 2022

2022 MTEF 2020-2022

MTEF2021-2023

Deviations Recent MTEF to Actuals

Recent MTEF to Actuals

% mln Eur

Total Revenues 2276 2020.9 -11.2% -255.1

of which

Excise 533 442 -17.1% -91

1) lower revenues from excise in 2021, which is used to estiamte the revenues for the comign years. 2) despite an increase in tobaco excise (+6.1 mln), the reduction of excise in juices is estimated to have a negative impact (-10 mln)

Custom Duties 152 135.4 -10.9% -16.6 1) Lower level of revenues in 2021 which is used a base ; 2) despite a higher growth of imports in 2021 compared to previous MTEF, the base effect has been more significant.

Border VAT 760 645.4 -15.1% -114.6 1) Lower level of revenues in 2021 which is used a base 2) despite a higher growth of imports in 2021 compared to previous MTEF, the base effect has been more significant.

Direct Taxes 347 322.4 -7.1% -24.6 1) the base effect as a result of the significant drop in the tax base for CIT and PIT in 2020 made the revenues in 2021 be lower. Thus, the base effect influenced revenues in 2022 too.

Non Tax Revenues 233 239.4 2.7% 6.4

1) Non-tax revenues are mainly higher due to a more dynamic implementation of the process of legalization of illegal constructions and improved compliance with vehicle registration. Another important factor in this increase is the postponement of concession tax payments for 2020

91

Domestic VAT 288 270.3 -6.1% -17.7 1)Lower level of revenues in 2021 which is used a base

Total Expenditure 2603 2359.8 -9.3% -243.2

of which

Wages and Salaries 730 641.3 -12.2% -88.7

1) in accordance with LPFM, the wage bill is increased up to a maximum of nominal economic growth two years ago,n which in the previous MTEF was 5.6percentwhereas in the latest MTEF is negative. 2) Expenditure in 2021 are lower (by 52 mil Eur)and has made the base on which you apply the growht rate lower than in the previous MTEF.

Goods and Services 360 346.3 -3.8% -13.7 1) In this category, the main change with the planning in the previous MTEF comes as a result of the need for savings in order to return the deficit to the levels set by the LPFM, after allowing a temporary overrun.

Capital Expenditure 846 665.7 -21.3% -180.3

1) The fall in this category has been primarily due to the LPFM regarding the deficit limit in 2020 that has been temporarily breached. 2) Also, some projects from the investment clause have been revised due to the execution plans.

Subsidies and Transfers 633 651.7 3.0% 18.7 1) The current spending level has adressed all the needs to cover social schemes.

Interest Payments 30 46.9 56.3% 16.9 1) Increased emissions 30 mln Eur more than in the previous MTEF for 2020 2) Revisions in the structure of both domestic and foreign debt.