Macro Economic Framework for
Economic Growth
Renzo Daviddi
European Commission Liaison
Office to Kosovo
8 June 2010
Outline
 Introduction
 Macro economic framework
 The role of the European Commission
 Additional observations
 Conclusion
Introduction
Sources of financing for economic
growth; is there enough money in Kosovo?
Access to finance – one of the main barriers for
Kosovo’s private sector
Precondition: stable macro economic
environment – lower risk for banks and
investors
Economic challenges
Fiscal sustainability:
 Highway spending leads to deficits
Without counterbalancing measures:
- 3.4% of GDP in 2010
- 5.5% in 2011
 Therefore:
 Fiscal discipline
 Extra measures on revenue side
 IMF program
Economic challenges
External Inbalance:
 Current account balance (incl.
officials tranfers): – 18.5% GDP
 No exchange rate policy, therefore:
 Structural reform necessary to
increase competitiveness
Economic challenges
Structural reform:
 Energy sector
– power cuts make firms less
competitive and deters investment
- increase collection & billing,
privatisation KEK likely to help
Economic challenges
Structural reform:
 Increase product quality
- reforms necessary on internal market issues:
standardisation, accreditation, industrial property
rights, etc.
 Guarantee free competition
- leads to lower prices and higher competitiveness
- relevant for energy and telecom sectors
- Competition Commission & new state aid law
Economic Challenges
Structural Reform:
 Taxation:
- Tax reform for fiscal stabilisation
- Combat large informal sector and increase
collection by:
* introduction fiscal numbers and cashiers
* new IT system facilitating electronic
filing
* better cooperation tax administration with
police and courts
The European Commission’s role
Assistance:
 Projects, amongst others in:
- public finance management, leading to a less ad
hoc budget process
- energy sector – support to MEM, ERO
- privatisation of socially owned enterprises
- industrial property rights
- tax administration: technical assistance and new
IT system
The European Commission’s role
Assistance:
 Macro Financial Assistance:
- 50 million euro
- Conditions:
* Satisfactory implementation IMF program
* Improvement in public finance management
The European Commission’s role
Fiscal Surveillance Mechanism (FSM):
 Bi-annual consultations with Government
 Prepares for integration into existing EU economic
and fiscal monitoring structure (stability pact)
 If progress, Kosovo to submit annual medium
term economic and fiscal program, as other
(potential) candidate member states
The European Commission’s role
Kosovo – EU Trade Agreement:
 EC’s proposal adopted by European Council




December 2009
Free access for Kosovo for all products to a
market of 500 million consumers
Reforms necessary in internal market issues
(product quality, IPR, public procurement,
competition, etc).
6-7 July DG TRADE fact finding mission
EC to support Kosovo in reforms
Additional Observations
Question Workshop:
Is there enough money in Kosovo?
 Answer: yes, good deposit base of banks
 But; cost of financing high due to high risk perceived by
banks
 Ways to bring down risk:
* better enforcement of contracts (rule of law issue)
* better internal/external financial documentation of
businesses – audited financial statements
* real estate property to be documented better (building
permits)
* in time; introduction of country rating
Conclusion
 Stable macro-economic environment
is necessary for attracting financing
and stimulating economic growth
 In itself however not sufficient;
integrated approach, incl. structural
reform is needed
 EC is here to support this process
Thanks for your attention!