The Kosovo government and the European Commission discuss the economy, statistics and financial control

The key economic indicators were discussed including GDP growth, inflation, the labour market and the balance of payments. Economic growth accelerated in 2013 and reached 3.4% of the GDP, but it was recognised that an internationally uncompetitive production base, a challenging business environment and a low level of foreign direct investment in the tradable sectors hamper sustainable economic development and job creation. In the view of precarious labour market situation the Commission recommended removing identified inflexibilities of the system and to address the evident skills gap in the labour market.

The Commission expressed concern over the sustainability of the recent decision to increase civil servants’ salaries and social pensions by 25%, and the spending initiatives for political prisoners and war veterans. The increases were significantly higher than those envisaged in the adopted budget, with their annual impact amounting to more than €130 million. The financing of these initiatives may put pressure on the spending initiatives relating to important reforms and entails potential risks of accumulation of government arrears. The Commission encourages the authorities to move towards a more growth friendly expenditure composition and in particular to increase non-highway investment spending. Declining trend of border revenues will require an appropriate tax policy response with the view to strengthen domestic tax base.

The authorities presented the state of play of key structural reforms in sectors such as health, public administration and privatisation. As in the past years, the Commission recommended a strong prioritisation of expenditures among the vast and pressing needs. The Commission took note of the progress made, in particular in the area of private sector development and business environment, especially as regards the time needed for company registration. Despite some progress, Kosovo would benefit from addressing numerous other obstacles to private sector development, such as insufficient administrative capacity, lack of access to finance, underdeveloped infrastructure especially in electricity supply, deficient rule of law, informal economy and inadequate professional education.

In the area of statistics, the Commission welcomed the finalisation of the European classification of economic activities the so-called NACE Rev. 2 into the business register. The authorities reported on the preparations for the agricultural census to be implemented in November 2014. The capacity of Kosovo Agency of Statistics still needs to be strengthened, in particular in the areas of business and macroeconomic statistics. Aligning Kosovo statistics with European standards is also still to be achieved.

Kosovo presented also the state of play and progress made as regards the public financial control. The European Commission raised its concerns as regards the delays in appointing the Auditor-General and stressed the need for the new law on the Office of the Auditor-General, and in particular the need for the law to be in line with EU requirements on the organisational, financial and functional independence of the Office.
The meeting was co-chaired by the Ministry for European Integration and the European Commission Directorates-General for Economic and Financial Affairs, and Enlargement.

Background information

The SAP Dialogue is a framework under which the European Commission and the Kosovo administration regularly discuss technical and policy issues in relation to the European agenda.  The SAP Dialogue monitors and accompanies Kosovo’s delivery on reforms, and identifies how the EU can assist in this process. Sectorial and plenary SAP Dialogue meetings are co-chaired by the European Commission and the government. Each meeting results in jointly agreed follow-up actions to be taken by the Kosovo authorities.
There are seven areas covered in sectoral meetings and they follow closely the format of the dialogue that the EU has with other candidates and potential candidates. These seven sectors are:

– Justice, Freedom and Security
– Innovation, Information Society, Social Policy, Education and Culture
– Trade, Industry, Customs and Taxation
– Internal Market, Competition, Consumer and Health Protection
– Agriculture, Fisheries, Forestry, Food Safety
– Transport, Environment, Energy, Regional Development
– Economic and Financial Issues, Statistics

The time between the meetings allows for the implementation of the recommendations and agreed follow-up actions. A plenary meeting, where the reform priorities will be discussed, is expected to take place in July 2013.