- Despite heightened political uncertainty, economic activity has moderated, while inflationary pressures intensified.
- Fiscal policy should be recalibrated to avoid a fiscal expansion in 2026, and over the medium-term balance macroeconomic stability with development goals.
- While the financial sector remains healthy, further strengthening of regulation and supervision, systemic risk oversight, crisis management, and the financial safety net are needed.
Washington, DC:Â The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for the Republic of Kosovo.[1]Â The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]
After a year-long political deadlock, economic activity has moderated while inflationary pressures have intensified. Real GDP growth slowed to 3.6 percent in 2025, down from 4.6 percent in 2024, reflecting weaker net exports and softer private demand, partly offset by stronger public consumption and investment. Headline inflation continued to rise, reaching 5¾ percent in January 2026, driven primarily by higher food prices. The current account deficit (CAD) widened to 9.2 percent of GDP in 2025, compared with 8.4 percent a year earlier, largely due to higher imports of energy and food. In the formal sector, real wage growth moderated to 9½ percent in 2025 (from 13 percent in 2024), while formal employment growth strengthened to 3¼ percent, up from 2 percent in the previous year.
Assuming renewed progress in political normalization, the outlook envisages a moderate slowdown. Driven by the effect of the conflict in the Middle East, real GDP growth is projected to decelerate to 3.3 percent in 2026 but converge to its estimated potential rate of about 4 percent over the medium term. Inflation is expected to accelerate to 5.9 percent in 2026 but gradually decline to the ECB’s 2 percent target by mid-2028, as global commodity prices normalize and second round effects of the conflict in the Middle East dissipate, and to stabilize around that level thereafter. The CAD is projected to widen in 2026, including due to the temporary shutdown of a coal-fired power plant for rehabilitation and filter installation, before narrowing over the medium term. Nonetheless, a large structural trade deficit is expected to continue underpinning an elevated external imbalance.
Risks to the outlook are tilted to the downside. External risks include persistence or intensification of regional conflicts, global trade tensions, and fluctuating commodity prices, which could adversely affect demand and employment. Domestically, political risks remain, including uncertainties surrounding the election of the new president. On the upside, timely implementation of the EU New Growth Plan could provide an additional boost to growth and employment.
Executive Board Assessment
Executive Directors welcomed Kosovo’s commitment to the EU growth plan and progress achieved under recent Fund-supported programs. Directors highlighted that while the outlook is positive, it is subject to downside risks, particularly from political uncertainty, weaker external conditions, and the effects of the conflict in the Middle East. Accordingly, they emphasized the importance of efforts to maintain macroeconomic stability and advance reforms under the EU Growth Plan to strengthen growth and competitiveness. Fund capacity development and strong coordination among development partners remain important to support these goals.
Directors noted that the fiscal framework has served Kosovo well in supporting macroeconomic stability, while nonetheless highlighting the need for policy recalibration in the context of the widening fiscal deficit. They emphasized that, over the medium term, fiscal policy should balance macroeconomic stability and development goals, while rebuilding buffers and adhering to a credible rules-based framework. Important measures include containing current spending, scaling up high-quality public investment, and enhancing revenue. Directors underscored the need to ensure that the revised fiscal framework aligns with these objectives and also called for reforms to improve the efficiency of social spending, enhance transparency, and strengthen public financial, investment, and fiscal risk management.
Directors welcomed that the banking sector remains sound and emphasized the need to continue strengthening financial sector oversight and crisis management frameworks. They called for close monitoring of credit growth, lending standards, and real estate exposures, and recommended timely deployment of targeted borrower‑based macroprudential measures should credit growth re-accelerate. Directors underscored the importance of further enhancing risk‑based supervision, strengthening systemic resilience, and enhancing crisis preparedness, including by safeguarding bank liquidity buffers. Further efforts to enhance the AML/CFT framework by aligning the legal framework with EU and FATF standards are important.
Directors underscored that comprehensive structural reforms are essential to strengthen competitiveness, support sustainable growth, and accelerate income convergence with the EU. They emphasized the importance of implementing the EU Growth Plan Reform Agenda to close structural gaps and unlock external financing. This should be supported by strong project selection and implementation. Noting the need to reduce unemployment and raise labor participation, particularly for women, Directors called for reforms to reduce informality, address skills mismatches, and better calibrate minimum wage policies. Directors stressed the importance of advancing energy reforms to expand generation capacity, improve efficiency, and align tariffs with market conditions.
READ MORE: https://www.imf.org/en/news/articles/2026/04/01/pr-26101-kosovo-imf-executive-board-concludes-2026-art-iv-consult
