Public debt risks putting Kosovo into crisis

World Bank in Kosovo has warned Government that Public debt in KosovoBy 2025, it can reach as much as 30 percent of the local Bruto Product if growth in current expenditures continues to exceed the growth of revenues.

Kosovo's overall public debt late last year had reached around 1.1 billion euros Or 17 percent of Bruto Product. From the overall debt, according to a report by the Ministry of Finance, about 700m euros belong to domestic debt, while more than 400m euros are due to international debt.

Public debt in Kosovo through years has marked growth. In 2014, the total debt value has been 582m euros, while three years after, in 2017 this value has reached about one billion euros.

The danger of rapidly raising public debt is highlighted by economic experts. Disturbing, they say, is the fact that Increasing Public Debt could result from wage bills, transfers and social schemes.

Leke Musa, former executive director at the American Economic Ode in Kosovo, tells Radio Free Europe that from the current ruling coalition, but also from past governments, the trend of misuse of budgetary means for political and party reasons has increased. And if such a situation continues, according to him, the budgetary crisis is inevitable and the only option remains borrowing through international debt.

And here, however, will have a negative effect, because with the removal of a kind of stricter supervision of Kosovo's governance and budget, there is a tendency of leaving fiscal discipline, which originally existed. Simply budget and public financing are being misused for party and political needs, and if that continues, the budget crisis is inevitable”, Musa said.

That Kosovo cannot be immune from the risk of increasing external debt, says economics expert Naim Gashi as well. He considers the way budgetary expenses for wages, hires and social schemes unacceptable, which, according to him, may even increase the value of public debt.

“Absolutely, it is unacceptable that a national economy and a country with the local Bruto Product that is under 7 billion euros a year, have such high cost for spending, wages and social projects, including war veterans and other energy schemes which Kosovo's economy with the current growth level could afford”, he said.

What the World Bank consistently insists on is to cut spending on salaries and social schemes and increase capital investments that generate development and employment for new generations”, Gashi said.

In the World Bank report released Tuesday in Pristina, the fiscal risks for this period reportedly are New Law on Public Salaries and increased spending on social protection. By 2025, according to the report, public debt and guarantees can reach 30 percent of the local Bruto Product if the increase in current spending continues to exceed income growth.

The Law on Public Debt in Kosovo says that in no case the unpaid amount of total debt should exceed 40 per cent of Bruto Local Product.

Naim Gashi says competent institutions can decide to enter external debt for projects providing profits and new jobs.

And what I think is that public debt should be based on revenues that have long-term benefits of both the economy and citizens, such as capital projects, construction of irrigation, thermal power plants, irrigation systems, railways, airports where the benefits are long-term”.

While entering projects where the benefits are short-term, they pose a danger to a national economy and pose danger to future generations who would have to pay off the bills that the state currently creates to”, Gashi says.

That future generations will face the public debt bill created by the state of Kosovo, says Leke Musa, under which the increase in external debt shows the poor economic perspective in the country.

There is an extremely high risk, because the increase in public consumption is not in proportion to economic growth. This will have other effects, since the private sector will contract and public spending financing opportunities will be reduced to the only option remaining borrowing from foreign institutions that will increase Kosovo's public debt. So future generations will have this burden that will be very difficult for them”, Musa points out.

The overall debt is the total of state and municipal debt. This debt is taken on behalf of central government institutions, which the Republic of Kosovo is obliged to pay.