Kosovo's negative tax effects rise significantly

In an interview for Voice of America, he spoke of factors that are not allowing Kosovo to grow higher than 4 percent.

The other problem for Kosovo's economy is disbalancing between import and export.

In interview with colleague Burim Gojuli, the BEC governor also talked about the impact it has on Kosovo's economy, the 100 per cent fee on Serbian goods, which, he says, increased inflation.

Voice of America: Mr. Mehmeti, the World Bank's projections speak of economic growth this year as much as 4 percent in Kosovo. Is that enough to lower the unemployment rate?

Fehmi Memeti: If we see the high trade deficit, which has negatively affected and that marks further deepening with the latest data available, I'm talking to the July 2019 data, we have an increase in the trade deficit by 3.8 percent. But even in 2018 it is one of the factors that have negatively affected economic growth in Kosovo. Also, high unemployment is one of those factors that have negatively impacted economic growth in Kosovo for 2018. It continues to be a challenge and to influence economic growth in Kosovo, so it is an increase to assess growth of 4 percent. If we compare it to countries in the region it is higher as economic growth. But it is not enough to address the challenges Kosovo has that in this case is high trade deficit and unemployment. Consider these two challenges mentioned above, and we need to have growth of between 6 and 7 percent, which is not hard to reach.

Voice of America: Your bank has estimated that for 2018, the value of imports was over 3 billion euros, while exports amounted to 350m euros. Is such dissonance disturbing?

Fehmi Memeti: I'm talking, since the data you've mentioned is factual, I won't repeat it again. Since we also have updated data on July 2019. Just like that. I'm talking about 2019 data, or July 2019, the value of exports marks about 250m euros with an annual increase of 9.8 percent. On the other hand, imports mark 2.25 billion euros, or an annual growth of 4.4 percent. In total, we have a deepening trade deficit of 3.8 percent that I am again negatively saying in Kosovo economic growth.

Voice of America: Mr. Mehmeti, the organisation as the International Monetary Fund has repeatedly warned of the pressure being exerted by social schemes on Kosovo's budget. How are you coping?

Fehmi Mehmeti: You know that the Central Bank and I as Governor are advisers of the Kosovo government, and our constant advice for the past government and the future is to be careful in managing social scheme. Given that these create long-term expenditures, which will then be a long-term burden to Kosovo's budget. So our advice is to have better management and access to these social schemes. Once again I'm saying that they create long-term expenses.

Voice of America: According to estimates you made, Kosovo's overall public debt is over a billion euros. Is such a scale affordable for Kosovo?

Fehmi Mehmeti: Public debt totals around 1 billion euros. If we look at it in terms of GDP, it's about 17 percent of GDP. It's pretty low if we compare it to countries in the region and to what the law allows. Because the law allows 40 percent in GDP to be public debt. There is space to increase public debt, it is not disturbing, it is very low. But what's important is that public debt needs to be known what it takes and always gets taken in order to have more value. Hence, no debt should be taken for activities that do not add to economic value. That's why I think it's good and there's space and it's low, but I would focus more on debt debt debt debt dedication in terms of activities that have added value to the country's economy.

Voice of America: Critics say high levels of corruption in your country has become an obstacle to the arrival of stable foreign investments. Do you share the same opinion?

Fehmi Mehmti: If we look at the recent July 2019 data, foreign direct investment has marked an increase of around 23.8 percent, and expectations are to have growth and expectations are to have further investment growth in Kosovo. If we see the banking sector...

Voice of America: But how stable are these foreign investments? How stable and how far have new job openings been open?

Fehmi Mehmeti: I'm talking about the financial sector. It is one of the sectors considered and is a success story for foreign investment. If we talk only about the banking sector, out of the 10 banks we have in Kosovo, eight banks are in foreign capital and make up about 90 percent in total assets in the banking sector. So do other sectors, the insurance sector and microfinance institutions, nonbank financial institutions, and so on. So this suggests that we are constantly asking foreign investors to be acting in the financial market in Kosovo and that they are stable investments.

Voice of America: What impact have the 100% tariffs on Serbian goods had on the economy?

Fehmi Mehmeti: If we look at inflation, I'm talking to July 2019, there is an increase in inflation of 3.1 percent. It's too high if you compare it to the first one year it's been 0.6 percent. Here it has contributed to increased price index growth and imports marking about 3.9 percent. But we must always keep in mind the fact that the tax application in Kosovo has also affected.

Voice of America: Next month the Kosovo Central Bank marks the 20th anniversary of its work. What is the situation of Kosovo's financial and banking sector in this anniversary?

Fehmi Mehmeti: We have organised an international conference attended by representatives of all international institutions. We've been doing a study on corporate governance of commercial banks in the last decade, a study of this first kind of which we're going to present during the conference. We have also established a historical database for the past few years related to developments in corporate governance. It will be this database even for regional banks then we expect a multilateral agreement between the Central Bank of Kosovo and the region's Central Bank to be signed during the conference. As for the indicators, we have many achievements during this 20 years. If we talk about the financial sector, we have a very stable financial sector. If we look at the annual banking sector, there is a 10.4 percent increase in loans, an increase of 11.6 percent in deposits. It's not something we're just saying but there are estimates that made the World Bank and the International Monetary Fund and other institutions on this issue.