macro economic framework for economic growth renzo daviddi european commission liaison office to...
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Macro Economic Framework for Economic Growth
Renzo DaviddiEuropean Commission Liaison Office to Kosovo
8 June 2010
Outline
Introduction
Macro economic framework The role of the European Commission Additional observations
Conclusion
Introduction
Sources of financing for economic growth; is there enough money in Kosovo?
Access to finance – one of the main barriers for Kosovo’s private sector
Precondition: stable macro economic environment – lower risk for banks and investors
Economic challengesFiscal sustainability:
Highway spending leads to deficitsWithout counterbalancing measures:
- 3.4% of GDP in 2010- 5.5% in 2011
Therefore: Fiscal discipline Extra measures on revenue side
IMF program
Economic challenges
External Inbalance:
Current account balance (incl. officials tranfers): – 18.5% GDP
No exchange rate policy, therefore:
Structural reform necessary to increase competitiveness
Economic challenges
Structural reform:
Energy sector – power cuts make firms less
competitive and deters investment- increase collection & billing,
privatisation KEK likely to help
Economic challengesStructural reform:
Increase product quality- reforms necessary on internal market issues: standardisation, accreditation, industrial property rights, etc.
Guarantee free competition- leads to lower prices and higher competitiveness- relevant for energy and telecom sectors- Competition Commission & new state aid law
Economic ChallengesStructural Reform:
Taxation:
- Tax reform for fiscal stabilisation- Combat large informal sector and increase
collection by:* introduction fiscal numbers and cashiers* new IT system facilitating electronic filing* better cooperation tax administration with police and courts
The European Commission’s role Assistance:
Projects, amongst others in:- public finance management, leading to a less ad
hoc budget process- energy sector – support to MEM, ERO - privatisation of socially owned enterprises- industrial property rights- tax administration: technical assistance and new IT system
The European Commission’s role Assistance:
Macro Financial Assistance:
- 50 million euro- Conditions:
* Satisfactory implementation IMF program* Improvement in public finance
management
The European Commission’s role Fiscal Surveillance Mechanism (FSM):
Bi-annual consultations with Government
Prepares for integration into existing EU economic and fiscal monitoring structure (stability pact)
If progress, Kosovo to submit annual medium term economic and fiscal program, as other (potential) candidate member states
The European Commission’s role Kosovo – EU Trade Agreement:
EC’s proposal adopted by European Council December 2009
Free access for Kosovo for all products to a market of 500 million consumers
Reforms necessary in internal market issues (product quality, IPR, public procurement, competition, etc).
6-7 July DG TRADE fact finding mission EC to support Kosovo in reforms
Additional Observations Question Workshop: Is there enough money in Kosovo?
Answer: yes, good deposit base of banks
But; cost of financing high due to high risk perceived by banks
Ways to bring down risk:* better enforcement of contracts (rule of law issue)* better internal/external financial documentation of businesses – audited financial statements* real estate property to be documented better (building permits)* in time; introduction of country rating
Conclusion Stable macro-economic environment
is necessary for attracting financing and stimulating economic growth
In itself however not sufficient; integrated approach, incl. structural reform is needed
EC is here to support this process
Thanks for your attention!