The International Monetary Fund published a staff concluding statement for Kosovo’s 2026 Article IV consultation, pointing to slower growth and higher inflation in 2025 and calling for a tighter fiscal stance in 2026 to reduce macroeconomic imbalances. The statement also flags rapid credit expansion as a key area for close monitoring, alongside further upgrades to supervision and crisis preparedness. Growth slowed to 3.5 percent (year on year) by end-Q3 2025 from 4.75 percent a year earlier, inflation accelerated to 5.3 percent (year on year) through December, and the external current account deficit widened to 9.6 percent of GDP. IMF staff project growth to rebound to 3.8 percent in 2026 and converge toward about 4 percent over the medium term, with inflation declining toward 2 percent over the medium term, while the current account deficit is expected to rise in 2026 before narrowing gradually. On fiscal policy, the headline deficit widened to 0.75 percent of GDP in 2025 and is projected to reach 2 percent of GDP in 2026 under current policies, reflecting measures including higher pensions, expanded child and maternity allowances, and wage-related measures such as a 13th salary for public employees. Staff recommend avoiding the resulting fiscal impulse and targeting a deficit of about 1 percent of GDP, supported by steps such as reducing tax exemptions, aligning public wage coefficients with inflation rather than new structural pay changes, and identifying savings in goods and services, alongside rebuilding Treasury buffers and adhering to the existing rules-based framework. Over the medium term, the statement supports modernising the fiscal framework by streamlining the deficit rule through removal of adjustors and aligning it with the EU’s Stability and Growth Pact while maintaining the current debt ceiling, and considering an independent fiscal council. On financial policies, the banking sector is described as sound but credit-to-GDP has nearly doubled over the past decade to reach 60 percent in 2025; staff point to easing lending standards and real estate exposure, recommend considering targeted borrower-based macroprudential measures if credit growth re-accelerates, and note continued work on risk-based supervision including phased implementation of a Supervisory Review and Evaluation Process. Priorities also include strengthened oversight of nonbank financial institutions and crypto-asset activities, continued reserve accumulation and crisis-management testing, operationalising bank resolution following adoption of the Law on Banks, and advancing preparations for Single Euro Payments Area accession alongside deployment of a TIPS-clone payments platform. IMF staff will prepare a report based on the mission’s preliminary findings, which is subject to management approval and will be presented to the IMF Executive Board for discussion and decision.

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