Economic and Financial Developments in Kosovo and the global crisis <ul><li>Behxhet  Brajshori </li></ul><ul><li>Deputy Mi...
Agenda <ul><li>Kosovo Declaration of Independence </li></ul><ul><li>Establishment of the financial system </li></ul><ul><l...
Key Events <ul><li>Serbia refused president Ahtisari plan,which proposed that Kosovo be Independent. </li></ul><ul><li>On ...
Establishment of Financial Institutions <ul><li>Kosovo emerged from  war with a severely damaged financial infrastructure,...
Financial Economic Sustainability 2005  2006  2007  2008 Real Sector Real GDP growth(%)  3.9  4.0  3.9  5.4 Prices (annual...
Remittances (inflow)   418.0  467.1  521.7  535.8(p) Foreign Dire.Inve. (inflow )  80.0  248.7  421.2  357.4(p) Registered...
<ul><li>2007  2008  rate </li></ul><ul><li>Consumption (mil. euro)  3,810  4,171  9.5% </li></ul><ul><li>Investment (mil. ...
Remittances <ul><li>Remittances have increased from 2005 until 2008 to 27.99%. </li></ul><ul><li>However, due to global cr...
Reforms in Fiscal Policies <ul><li>Since 1 January 2009,Kosovo,s government has begun applyingthe new tax rates </li></ul>...
Financial system (deposits, loans) <ul><li>The banking system in Kosovo overseen and regulated by the Central Bank of Koso...
ODC effective interest rates(averaging) % <ul><li>2007  2008  January 2009 </li></ul><ul><li>Deposit interest rates  3.11 ...
<ul><li>Despite the difficulties in the international financial market Kosovo financial system continued its normal operat...
<ul><li>The structure of loans issued by the banking sector remained broadly the same with the largest share extended to t...
<ul><li>Kosovo banking sector continues to be profitable, liquid and solvent. </li></ul><ul><li>The good liquidity and sol...
<ul><li>Insurance companies operating in Kosovo continue  to be profitable and well capitalized. </li></ul><ul><li>Micro-f...
<ul><li>The financial sector in Kosovo continues to growth, increasing its contribution to the economic development as wel...
<ul><li>The financial sector in Kosovo is largely dominated by commercial banks, whose assets represented 79.2% of the tot...
<ul><li>Net Foreign Assets (NFA) of Kosovo financial sector (including CBK) continued to growth in 2008. </li></ul><ul><li...
<ul><li>Liabilities to nonresidents marked an annual increase of 60.3% ,which represents a higher growth rate compared to ...
<ul><li>In September 2008 financial sector liabilities to the government amounted euro 998.3 million (euro 850.2 million i...
Structure of the banking sector <ul><li>During the second half of 2007 the banking sector of the Republic of Kosovo was ch...
<ul><li>The market structure of the Kosovo banking system is highly concentrated. </li></ul><ul><li>In September 2008,thre...
Financial intermediation of the banking sector <ul><li>In September 2008 banking sector assets reached euro 1.7 billion re...
<ul><li>The credit growth is supported by the increase in banking sector deposits to a large extent reaching euro 1.4 bill...
Interest Rates* <ul><li>During the period January –September 2008 ,effective interest rates for deposits averaged at 4.13%...
Banking sector performance indicators % <ul><ul><li>Dec.2005  Dec.2006  Dec.2007  Dec.2008* </li></ul></ul><ul><ul><li>ROA...
<ul><li>The inefficiency indicator which shows the share of general and administrative expenditures to average assets decl...
Kosovo consolidated budget (Cumulative with the calendar year in millions euro) <ul><li>2007  2008 </li></ul><ul><li>Tax R...
Public Expenditure and Financial Accountability Main Indicators based on PEFA assesment report 2008 1 Aggregate Expenditur...
PEFA Indicators 5 Classification of the budget A 6 Comprehensiveness of information in budget documentation B 7 Extent of ...
PEFA Indicators 13 Transparency of taxpayer obligations and liabilities B+ 14 Effectiveness of taxpayer registration and t...
PEFA Indicators 22 Timeliness and regularity of accounts reconciliation B+ 23 Availability of resource info received by se...
Recession in developed market economies and its possible impact in Kosovo <ul><li>The recent financial crisis in the inter...
<ul><li>Regarding Kosovo economy there is no evidence that the crisis has had an impact on the level of exports given that...
<ul><li>The possible decline in remittances would  negatively affect consumption and investments . </li></ul><ul><li>In th...
<ul><li>The FDI level is directly related to economic developments n the external sector,i.e., its level in Kosovo might d...
Measures <ul><li>Budget reserve increase -200.mill euro for 2009. </li></ul><ul><li>Fiscal policies reform (cut in persona...
Challenges <ul><li>Economic development </li></ul><ul><li>Unemployment  </li></ul><ul><li>Investment growth </li></ul><ul>...
<ul><li>THANK YOU FOR YOUR ATTENTION. </li></ul>
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Country Responses to the Financial Crisis Kosovo

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“Country Responses to the Financial Crisis”
Behxhet Brajshori, Deputy Minister, Ministry of the Economy and Finance, Republic of Kosovo
Lulzim Ismajli, Director of Treasury, Ministry of the Economy and Finance, Republic of Kosovo
Naomi Ngwira, Director, Department of Debt and Aid, Ministry of Finance, Malawi
Obadiah Mailafia, Chariman, Center for Policy and Economic Research, Nigeria
During this panel, participants will share observations of the effects of the crisis on their economies and future plans. They will also share existing tools to safeguard their investments.
The session will include a discussion on how they are mitigating the impacts and how they
expect to cover the cost. Panelists and the audience will be asked to address the following
questions.
Registration

Immediate Actions Being Taken to Manage the Impact

Is the situation different for middle vs. lower income countries?
How does the current financial crisis affect a country’s ability to borrow?
Is the situation different for resource rich countries?
Can we learn anything from previous financial crises (e.g. Asia and Latin America)?
How are recipient countries more efficiently managing their donor aid?
What is the role of the government in solving financial sector issues?

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Country Responses to the Financial Crisis Kosovo

  1. 1. Economic and Financial Developments in Kosovo and the global crisis <ul><li>Behxhet Brajshori </li></ul><ul><li>Deputy Minister in the Ministry of the Kosovo Security Force </li></ul><ul><li>(Miami,18-22.May 2009) </li></ul>
  2. 2. Agenda <ul><li>Kosovo Declaration of Independence </li></ul><ul><li>Establishment of the financial system </li></ul><ul><li>Economic financial sustainability </li></ul><ul><li>Remittances </li></ul><ul><li>Reforms in fiscal policies </li></ul><ul><li>Banking System </li></ul><ul><li>Kosovo Consolidated Budget </li></ul><ul><li>PEFA Assessment 2008 </li></ul><ul><li>Recession in developed market economies and its possible impact in Kosovo </li></ul><ul><li>Measures and Challenges </li></ul>
  3. 3. Key Events <ul><li>Serbia refused president Ahtisari plan,which proposed that Kosovo be Independent. </li></ul><ul><li>On 17 February the Kosovo Assembly declared Kosovo an independent state. </li></ul><ul><li>Untill now Kosovo has been recognized by 58 different countries from around the world. </li></ul><ul><li>Donor Conference held in July 2008,awarded a fund n euro of 1.2 billion for development of Kosovo. </li></ul><ul><li>In December 2008 in Kosovo was established the mission of Europian Union “EULEX”to assist the courts and Kosovo Police </li></ul>
  4. 4. Establishment of Financial Institutions <ul><li>Kosovo emerged from war with a severely damaged financial infrastructure, and it was presented the need of establishing a new system of fiscal management. </li></ul><ul><li>UNMIK crated the Central Fiscal Authority (CFA) to perform basic activities in public finance management. </li></ul><ul><li>CFA consisted of 4 units (Tax, Customs, Budget, Treasury and Internal Audit. </li></ul><ul><li>Today the Ministry of Economy and Finance is responsible for coordination and financial management of the Kosovo Budget. </li></ul><ul><li>The system of financial management in Kosovo is quite advanced and integrated. </li></ul>
  5. 5. Financial Economic Sustainability 2005 2006 2007 2008 Real Sector Real GDP growth(%) 3.9 4.0 3.9 5.4 Prices (annual aver.%) -1.4 0.6 4.4 9.3 Prices (Year/year%) 0.7 1.1 10.5 0.5 Fiscal Sector ( mil. euro) Revenues 638.4 712.0 896.4 941.5 Expenditures 696.1 635.5 662.7 943.8 Budget Balance -57.7 76.5 233.7 -2.3 Financial Sector (mil.euro) Net claims on ext. sect. 827.3 1,173.6 1,621.7 1,593.1 Net claims on fisc.sect. -230.2 -480.3 -856.8 -877.2 Net claims on real sect. -429.1 -429.3 -445.0 -343.6 Ext. sector (in mil. euro) Current Balance -410.3 -444.2 -558.9 -727.8(p) Goods -1,043.7 -1,142.1-1.341.1 -1,648.0(p)
  6. 6. Remittances (inflow) 418.0 467.1 521.7 535.8(p) Foreign Dire.Inve. (inflow ) 80.0 248.7 421.2 357.4(p) Registered unemployment - - 334.595 335.697 Registered unemployment Jan. 2009 337.017 Source: Central Bank of the Republic of Kosovo, Monthly Statistics Report, Table 1.February 2009 Burimi: MFE, Departamenti I Makroekonomisë
  7. 7. <ul><li>2007 2008 rate </li></ul><ul><li>Consumption (mil. euro) 3,810 4,171 9.5% </li></ul><ul><li>Investment (mil. euro) 967,0 1,236 27.8% </li></ul><ul><li>Total Exports (mil. euro) 343,0 410,0 19.7% </li></ul><ul><li>Total Imports (mil. euro) 1,720 2,064 20,0% </li></ul><ul><li>Coverage Imo/Exp (%) 19.94 19.86 </li></ul><ul><li>Source: MEF, Department of macroeconomic policies, Central Bank of the Republic of Kosovo. Monthly statistics Bulletin, tables 36,37,February 2009 </li></ul>
  8. 8. Remittances <ul><li>Remittances have increased from 2005 until 2008 to 27.99%. </li></ul><ul><li>However, due to global crisis in countries whrw migrants from Kosovo work they will decrease in 2009 approximately to 370,0 mil. euro or 30% compared to 2008. </li></ul><ul><li>Participation of remittancesin GDP ranges around 15%. </li></ul>
  9. 9. Reforms in Fiscal Policies <ul><li>Since 1 January 2009,Kosovo,s government has begun applyingthe new tax rates </li></ul><ul><li>Description Current rates Approved rates </li></ul><ul><li>Tax Income 0,5,10,20% 0,4,8,10 </li></ul><ul><li>Tax on Corporations 20% 10% </li></ul><ul><li>VAT 15% 16% </li></ul><ul><li>Excise on Tobacco 17euro/kg 21 euro/kg </li></ul><ul><li>Customs TAX 10% 10% </li></ul><ul><li>Source: Ministry of Economy and Finance </li></ul>
  10. 10. Financial system (deposits, loans) <ul><li>The banking system in Kosovo overseen and regulated by the Central Bank of Kosovo. </li></ul><ul><li>This system currently consists of 8 banks,6 of them owned by foreign and 2 local. </li></ul><ul><li>Deposits and loans over the years have increased significantly. </li></ul><ul><li>Description 2005 2006 2007 2008 </li></ul><ul><li>Deposits ( mil. euro) 844.7 924.4 1,151.8 1448.8 </li></ul><ul><li>Loans (mil.euro) 387.9 490.5 690.6 902.4 </li></ul><ul><li>Source: Central Bank OF the Republic of Kosovo </li></ul>
  11. 11. ODC effective interest rates(averaging) % <ul><li>2007 2008 January 2009 </li></ul><ul><li>Deposit interest rates 3.11 4.13 4.25 </li></ul><ul><li>- Nonfinancial corporations 4.23 4.51 4.88 </li></ul><ul><li>-Households 3.31 4.34 3.94 </li></ul><ul><li>Loan interest rates 14.68 13.08 14.00 </li></ul><ul><li>- Nonfinancial corporations 14.41 13.93 15.78 </li></ul><ul><li>-House holds 13.41 12.79 12.57 </li></ul><ul><li>Source: CBRK,Monthly Statistics Bulletin,Table17,february 2009 </li></ul>
  12. 12. <ul><li>Despite the difficulties in the international financial market Kosovo financial system continued its normal operations although the Kosovo Pension Savings Trust (KPST) decline in the value of its assets that were invested in stock markets abroad (about euro 91.0 mil.). </li></ul><ul><li>Banking sector which represents the largest share of the financial market in Kosovo was characterized with a significant growth in terms of financial intermediation. </li></ul><ul><li>By the end of the September 2008,loans extended by the banking sector reached euro 1.1 billion representing a yearly growth of 37,0%,wich is highest growth rate since 2003. </li></ul>
  13. 13. <ul><li>The structure of loans issued by the banking sector remained broadly the same with the largest share extended to the trading sector. </li></ul><ul><li>Regarding the maturity ,longer term loans continue to increase their share to total loans. </li></ul><ul><li>A significant growth is noticed also in deposits reaching at euro 1.4 billion and representing a yearly growth of 32.1%. </li></ul><ul><li>The main source of deposits remain households ,while in terms of maturity, short –term deposits continue to dominate the deposits structure. </li></ul>
  14. 14. <ul><li>Kosovo banking sector continues to be profitable, liquid and solvent. </li></ul><ul><li>The good liquidity and solvency position is shown also through results derived using the Stress-Test Model-wich tests the banking sector sensitivity to various potential shocks. </li></ul><ul><li>Positive performance is noticed also in other sectors of the financial market. </li></ul><ul><li>Insurance industry has shown that it is attractive sector for new investments since another insurance company joined the market during 2008.During 2008 the insurance industry upgraded services by providing life insurance services. </li></ul>
  15. 15. <ul><li>Insurance companies operating in Kosovo continue to be profitable and well capitalized. </li></ul><ul><li>Micro-finance institutions continue to support the domestic economy through their lending activity. </li></ul><ul><li>Loans issued by micro –finance institutions euro 89.1 million a yearly increase of 26.3%. </li></ul><ul><li>Source :CBRK </li></ul>
  16. 16. <ul><li>The financial sector in Kosovo continues to growth, increasing its contribution to the economic development as well as the range and quality of products offered to clients. </li></ul><ul><li>In September 2008 total assets of the financial sector reached euro 2.2billion,wich represents an annual growth of 25.2%.This growth is mainly attributed to the banking sector with its assets growing by 30.9% y-o-y. </li></ul>
  17. 17. <ul><li>The financial sector in Kosovo is largely dominated by commercial banks, whose assets represented 79.2% of the total assets in September 2008.The remainder consists of pensions funds(12,7%),micro-finance institutions (4.5%),insurance companies(3.4%) and others (0.2%). </li></ul><ul><li>The financial sector in Kosovo characterized with a large presence of foreign capital. This is mainly prevalent in the banking and insurance market where 91,0% and 72,1% of total assets are managed by foreign companies respectively. </li></ul><ul><li>The presence of foreign financial institutions in Kosovo has contributed in the modernization of the financial system by bringing more advanced practices in finance and stimulating competition. </li></ul>
  18. 18. <ul><li>Net Foreign Assets (NFA) of Kosovo financial sector (including CBK) continued to growth in 2008. </li></ul><ul><li>In September 2008 ,NFA amounted euro 1.8 billion which represents an annual growth 10.8%. </li></ul><ul><li>Claims on nonresidents recorded an annual growth of 13.1% amounting euro 1.9 billion. Claims on nonresidents are mainly represented by deposits accounting for 65.9% of total assets or 6.6pp higher compared to the previous year. </li></ul><ul><li>This is a result of the orientation of investments toward deposits, which are considered to be safer, compared to shares and securities which are experiencing a considerable decline in their value due to the global financial crisis. </li></ul>
  19. 19. <ul><li>Liabilities to nonresidents marked an annual increase of 60.3% ,which represents a higher growth rate compared to previous periods. </li></ul><ul><li>In September 2008 liabilities to nonresidents amounted euro 128,0 mil ,and despite the recorded growth, remain lower compare to claims on nonresidents. </li></ul><ul><li>Liabilities to nonresidents are mainly composed of credit lines from the external sector(69.4% of total liabilities) and deposits of nonresidents (30.6% of total liabilities). </li></ul>
  20. 20. <ul><li>In September 2008 financial sector liabilities to the government amounted euro 998.3 million (euro 850.2 million in September 2007),comprised mainly from government deposits at the CBK, while financial sector continues having no claims to the government. </li></ul><ul><li>In September 2008,financial sector claims to other sectors (mainly private corporations and house holds) amounted euro 1.2 billion and are mainly composed of loans extended by financial institutions. Meanwhile, liabilities to the real sector reached euro 1.6 billion (euro 1.3 billion in September 2007),composed manly from the real sector deposits in commercial banks. </li></ul><ul><li>Source: CBRK-Financial Sector Bulletin, February 2009. </li></ul>
  21. 21. Structure of the banking sector <ul><li>During the second half of 2007 the banking sector of the Republic of Kosovo was characterized with new entries. In third quarter of 2007,the license for operating in the Kosovo banking market was granted to Banka Kombëtare Tregtare(TNB)from Albania and Komercijalna Banka from Serbia. </li></ul><ul><li>At the end of 2007,Turk Ekonomi Bankasi(TEB) joined the Kosovo banking system and in January 2008 started operations. </li></ul><ul><li>Also NLB Prishtina wich took over and merged Kasabank (KSB) and New Bank of Kosovo (NB) started in January 2008. </li></ul><ul><li>As we mentioned before, in September 2008, Kosovo banking sector consisted of eight commercial Banks, of which six on foreign ownership and the remaining two in domestic ownership. </li></ul><ul><li>The dominance of banks with foreign ownership is shown through the share of foreign bank assets comprising 91.0% of total assets of the banking sector in September 2008. </li></ul>
  22. 22. <ul><li>The market structure of the Kosovo banking system is highly concentrated. </li></ul><ul><li>In September 2008,three largest banks represented 86.3% of total assets an increase of 2.1pp compared to the previous year. </li></ul><ul><li>Three largest banks attain a similar share in loan and deposits market representing 88.0% and 88.5% of total respectively. </li></ul><ul><li>The new entries in the banking market positively affected the competition in this sector which may be noticed by the sharp increase on loan and deposit volume ,as well as by the decrease in the interest rate spread (difference between interest rates on loans and deposits )and new products for clients. </li></ul>
  23. 23. Financial intermediation of the banking sector <ul><li>In September 2008 banking sector assets reached euro 1.7 billion representing an annual growth of 30,9%. </li></ul><ul><li>In relation to GDP Banking sector assets accounted for 45.7% of GDP compared to 39.0% in the previous year the growth of the banking sector assets is mainly generated by the growth in loans extended by the banking sector. </li></ul><ul><li>In September 2008 the level of financial intermediation of Kosovo banking sector expressed as ratio of loans to GDP was 29.5% compared to 24,1 % in the previous year. In September2008, loans amounted to euro 1.1 billion(sep.2008) an annual increase of 37.0%. </li></ul><ul><li>The credit growth was an outcome of the expansion of the economic activity which is of high importance for the Kosovo economy especially in this period when the financial crisis is being reflected in credit contraction. </li></ul>
  24. 24. <ul><li>The credit growth is supported by the increase in banking sector deposits to a large extent reaching euro 1.4 billion in September 2008(36.7% of GDP) or 32.1% higher than in the same period last year. </li></ul><ul><li>The growth rate of deposits registered during this period represents the highest annual growth rate since 2003. </li></ul><ul><li>To some extent ,this reflects the increase of competition in Kosovo banking sector, which stimulated the increase of interest rates on deposits and encouraged banks to be more active in providing new products in the market. </li></ul><ul><li>Source: CBRK ,Financial Sector Bulletin, February 2009. </li></ul>
  25. 25. Interest Rates* <ul><li>During the period January –September 2008 ,effective interest rates for deposits averaged at 4.13% compared to 3.11% compared in the same period January-September 2007. </li></ul><ul><li>Loans interest rates averaged at 13.80%(jan-sep.2008) compared to 14.68% (jan-sep.2007). </li></ul><ul><li>* Weighted average interest rates of different products and maturities. </li></ul><ul><li>Source :CBRK. Financial Sector Bulletin. February 2009. </li></ul>
  26. 26. Banking sector performance indicators % <ul><ul><li>Dec.2005 Dec.2006 Dec.2007 Dec.2008* </li></ul></ul><ul><ul><li>ROAA 1.5 1.9 2.6 2.5 </li></ul></ul><ul><ul><li>ROAE 20.1 22.4 26.2 22.2 </li></ul></ul><ul><ul><li>NIM 6.7 6.4 7.1 7.3 </li></ul></ul><ul><ul><li>Inefficiency indicator 5.5 5.1 5.4 5.1 </li></ul></ul><ul><ul><li>*Annualized data </li></ul></ul><ul><ul><li>Source: CBRK, Financial Sector Bulletin, February 2009 </li></ul></ul><ul><ul><li>In September 2008,Return on Average Assets (ROAA) remained at around 2.5%, </li></ul></ul><ul><ul><li>Return on Average Equity (ROAE) marked an annual decrease of 4.0pp ,standing at 22.2% ,mainly attributed to the faster increase in the shareholders capital in the banking sector. </li></ul></ul><ul><ul><li>Net Interest Margin (NIM) which is the difference between interest income and interest expenditure as a share to average assets stood at 7.3% in September 2008,compared to 7.1%in the same period of the previous year. </li></ul></ul>
  27. 27. <ul><li>The inefficiency indicator which shows the share of general and administrative expenditures to average assets declined from 5.4%in December 2007 to 5.1% in September 2008 suggesting a slight improvement in the efficiency of the banking sector. </li></ul>
  28. 28. Kosovo consolidated budget (Cumulative with the calendar year in millions euro) <ul><li>2007 2008 </li></ul><ul><li>Tax Revenues 712.3 804.5 </li></ul><ul><li>Border taxes 531.8 604.2 </li></ul><ul><li>Domestic taxes 180.5 200.3 </li></ul><ul><li>Non tax revenues 154. 8 94.3 </li></ul><ul><li>of which: Interest 9.5 16.4 </li></ul><ul><li>Local government revenues 29.3 42.8 </li></ul><ul><li>Total Revenue 896.4 941.5 </li></ul><ul><li>Wages and salaries 208.5 227.1 </li></ul><ul><li>Goods and services 145.2 158.5 </li></ul><ul><li>Subsidies and transfers 153.0 209.8 </li></ul><ul><li>Capital Outlays 155.3 348.5 </li></ul><ul><li>Total Expenditures 662.7 943.8 </li></ul><ul><li>Balance (REV-EXP). 233.7 -2.3 </li></ul><ul><li>Source: Ministry of Economy and Finance, Government of the Republic of Kosovo </li></ul>
  29. 29. Public Expenditure and Financial Accountability Main Indicators based on PEFA assesment report 2008 1 Aggregate Expenditure Outturn compared to approved budget (C) 2 Composition of expend. outturn compared to approved budget (A) 3 Aggregate revenue outturn compared to approved budget A 4 Stock and monitoring of expenditure payment arrears B INDICATOR Budget Credibility
  30. 30. PEFA Indicators 5 Classification of the budget A 6 Comprehensiveness of information in budget documentation B 7 Extent of unreported government operations incl. donor funds A 8 Transparency of Intergovernmental Fiscal Relations B+ 9 Oversight of aggregate fiscal risk C+ 10 Public access to key fiscal information B 11 Orderliness and participation in the annual budget process B+ 12 Multi-year perspective in fiscal policy, planning, & budgeting B Transparency and Comprehensiveness Policy-based Budgeting
  31. 31. PEFA Indicators 13 Transparency of taxpayer obligations and liabilities B+ 14 Effectiveness of taxpayer registration and tax assessment D+ 15 Effectiveness in collection of tax payments B 16 Effectiveness of cash floë planning, mgt. & monitoring. A 17 Recording & management of cash balances, debt and guarantees (A) 18 Effectiveness of payroll controls D 19 Competition, value for money and controls in procurement B 20 Effectiveness of internal controls. B 21 Effectiveness of internal audit C+ Predictability and Control in Budget execution
  32. 32. PEFA Indicators 22 Timeliness and regularity of accounts reconciliation B+ 23 Availability of resource info received by service delivery units D 24 Timeliness, quality and dissemination of in-year exec. reports. A 25 Timeliness of audited financial statements submitted to the legislature. A 26 The scope, nature and folloë up of external audit reports. B 27 Legislative scrutiny of the annual budget laë B+ 28 Legislative scrutiny of external audit reports. C+ Accounting, Recording and Reporting External Scrutiny and Audit
  33. 33. Recession in developed market economies and its possible impact in Kosovo <ul><li>The recent financial crisis in the international financial market is having impact also in the real sector in economies more exposed to the crisis. </li></ul><ul><li>Due to the high level of economic integration it is expected that the impact of the recession will be evident also in economies not directly affected by the financial crisis. </li></ul><ul><li>Kosovo economy as open economy may absorb some impacts of the potential recession in the region and EU. </li></ul><ul><li>Nevertheless the IMF and Ministry if Economy and Finance projections for 2008 suggest a real economic growth of 6.6% and 5.2% respectively. In addition there has been no revision to these projections ,while revised projections in some countries in the region suggest a lower economic growth than initially projected. </li></ul><ul><li>An initial impact of the financial crisis in the real sector was through the decline in aggregate demand (mainly domestic consumption and exports). </li></ul>
  34. 34. <ul><li>Regarding Kosovo economy there is no evidence that the crisis has had an impact on the level of exports given that until September 2008 the recorded level of exports was higher than in the previous year. </li></ul><ul><li>Moreover ,even in case of a drop in exports the impacts for the economy would not be large given that the level of exports is low anyway. </li></ul><ul><li>The recession in other countries may be transmitted in the Kosovo economy through its impact on remittances ,which represents an important source of finance for the economy. </li></ul><ul><li>The level of remittances was not affected during the year 2008,with preliminary estimates suggesting an increase compared to the previous year. </li></ul><ul><li>However having into consideration that the recession in EU is becoming deeper, reflected is considerable job cuts it may be expected that this will be reflected in the level of remittances in 2009. </li></ul>
  35. 35. <ul><li>The possible decline in remittances would negatively affect consumption and investments . </li></ul><ul><li>In this context continuous increase in lending by banking sector aligned with a proper risk management is a very important factor in supporting economic activity. </li></ul><ul><li>A very important instrument for stimulating the consumption and investments in Kosovo is prudent fiscal expansion. For 2009 ,government increased the planed budget to euro 1.4 billion while from January 2009 the cut in personal income and profit tax rates are implementing. This will stimulate consumption-though some off setting effect will have the increase in VAT-as well as investments including foreign direct investments (FDI) as a key component for the economic activity. </li></ul>
  36. 36. <ul><li>The FDI level is directly related to economic developments n the external sector,i.e., its level in Kosovo might drop as a result of the recession in countries affected by the financial crisis. </li></ul><ul><li>Level of FDI in Kosovo highly depends on structural reforms of the economy such as the privatization process which so far has attracted considerable amount of FDI. </li></ul><ul><li>Privatization of Public Enterprises ,may increase substantially FDI in Kosovo as well as tax cuts as attracting element for investments . </li></ul>
  37. 37. Measures <ul><li>Budget reserve increase -200.mill euro for 2009. </li></ul><ul><li>Fiscal policies reform (cut in personal income tax ,profit tax rates ect,). </li></ul><ul><li>Strengthening transparency and accountability in using the public revenues. </li></ul><ul><li>Enhancing sound regulations, </li></ul><ul><li>Promoting integrity in financial market. </li></ul><ul><li>Strengthening the regional cooperation and development of trade market. </li></ul><ul><li>Through privatization, increasing the investments especially FDI and than consumption. </li></ul><ul><li>The credit lines for sound economy. </li></ul>
  38. 38. Challenges <ul><li>Economic development </li></ul><ul><li>Unemployment </li></ul><ul><li>Investment growth </li></ul><ul><li>Europiane integration. </li></ul>
  39. 39. <ul><li>THANK YOU FOR YOUR ATTENTION. </li></ul>
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