Financial Stability Report No1 20 December 2010 - Banka Qendrore ...

Number 1Financial Stability Reporttaxes (55.3 percent of total revenues). The high dependency of the budget revenues on asingle source has increased the sensitivity of Kosovo’s budget to external sector shocks. Inthis context, the decline of imports during 2009 resulted in a slowdown of revenues fromborder taxes, which had a significant impact on the overall level of budget revenues. On theother hand, the increase of the VAT rate from 15 to 16 percent in 2009 had a positiveimpact on budget revenues. However, budget revenues during 2009 increased as a result ofthe dividend transfer from the PTK to the Kosovo’s Government budget.During the first half of 2010, Kosovo’s Budget was characterized with a surplus of euro 67.3million. During this period, revenues recorded a higher growth rate compared toexpenditures. While revenues recorded an annual growth of 27 percent compared to thesame period of the last year, budget expenditures increased by 8.4 percent, representing alower growth rate compared to the annual grwoth of 18.1 percent in the first half 2009.According to the revised budget, year 2010 is expected to record a deficit of 3.7 percent ofGDP. In general, Kosovo’s public finances may be considered to have been sustainableduring the post-war period and, as such, have not represented a potential risk for thefinancial stability in the country. In addition, the exposure of Kosovo’s financial sector tothe Government is limited, since financial institutions operating in Kosovo do not haveclaims on the Government, but only liabilities consisting of government deposits infinancial institutions (mainly CBK).The approval of the law on public debt and Kosovo’s membership in the InternationalMonetary Fund (IMF) and World Bank (WB) represents important developments for publicfinances and the economic development of Kosovo. In June 2010, the IMF for the first timeapproved the 'stand-by' arrangement for Kosovo amounting at euro 108.9 million (SDR 92.9million), which represents 157 percent of the total quota for Kosovo in the IMF. Thisarrangement has been approved for a period of 18 months. Initially, Kosovo could withdraweuro 22.1 million, while the withdrawal of the other instalments is subject to the quarterlyreviews. At the same time, the approval of the financial program with the IMF has createdthe possibility of using the donationspledged by the European Commission Figure 8. Trade Balance, in millions of euroand the World Bank. However,during the second quarter, Kosovo’s 1200.0938.8Parliament did not ratify the loan1000.0854.9 857.0800.0697.0allowed by the World Bank, 600.0amounting at USD 20 million, which 400.074.9 104.4 141.7200.064.0was aimed at modernizing the public0.0administration.-200.0-400.0-622.1 -750.5The transmission of the global -600.0-793.1-800.0economic crisis to the Kosovo’s-1000.0June 2007 June 2008 June 2009 June 2010economy was mostly channelledthrough the external sector, namelyExport Import Trade Balancethrough the decline of exports,Source: CBKremittances and foreign directinvestments, which represent important sources of finance for the economy. The crisisaffected also Kosovo’s imports, which recorded a slight decrease for the first time in thepostwar period. The main contributor to the decline of imports in Kosovo was the decreaseof prices in international markets during 2009. Kosovo’s economy continues to record a highlevel of trade deficit (44.5 percent of GDP in 2009), which reflects the low level of domestic-797.124 |