Page 115 - bne IntelliNews Southeastern Europe Outlook 2025

6.5 Budget and Debt – Kosovo
The Kosovan parliament approved the 2025 state budget in November, with expenditures set at €3.6bn, a 9% annual increase.
The approved budget includes significant provisions for capital investments, with €930mn allocated for infrastructure projects – a rise of €71mn against the previous year. This funding boost aligns with the government's plan to ramp up public sector spending and investment in key sectors.
The proposed budget outlines substantial funding for priority areas, including public sector wages, healthcare, defence and social welfare, all aimed at fostering economic stability and supporting public services.
The IMF stated that Kosovo's 2025 budget adopts a moderately expansionary fiscal approach, aligning with the objectives of its IMF programmes. Fiscal policy is crucial in addressing Kosovo's significant developmental and social challenges while supporting macroeconomic stability.
The 2025 budget highlights several key priorities. Improved revenue collection, in compliance with the fiscal rule, will enable a gradual increase in public sector wages. This measure aims to preserve the real value of wages and ensure the public sector remains competitive in attracting talent. Furthermore, the budget includes a 20% increase in all state-funded pension benefits, reflecting adjustments for the accumulated cost of living.
The IMF emphasised that, over the medium term, fiscal policy should be grounded in a strong policy framework, prioritising capital investments and targeted social protection. Sustained efforts to enhance revenue generation will be essential to secure additional resources for these expenditures. Building fiscal buffers remains crucial, particularly in light of heightened uncertainty, downside risks, and Kosovo's unilateral euro-isation. Advancing EU accession will further aid Kosovo's development by unlocking additional financial assistance.
Fitch stated that Kosovo has demonstrated a strong commitment to its fiscal rules and the IMF stand-by arrangement (SBA). The general government balance surpassed expectations in the first eight months of 2024, achieving a surplus close to 3% of GDP, driven by a 10.8% rise in tax revenue. Fitch anticipates a full-year deficit of 0.4% of GDP in 2024, up from 0.2% in 2023, reflecting increased capital expenditure in the fourth quarter. Looking ahead, the deficit is projected to rise modestly to 1.1% of GDP by 2026, remaining comfortably within the fiscal rule ceiling of 2% of GDP, which excludes donor-funded investments and privatisation revenues.
Fitch forecasts that Kosovo's general government debt-to-GDP ratio, which declined by 2.6 percentage points in 2023 to 17.5%, will remain
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