IMF report on Kosovo: Economic slowdown, rising inflation, and risks due to political uncertainty

The Executive Board of the International Monetary Fund (IMF) today published its annual report on Kosovo, assessing that economic growth has slowed while inflation continues to rise, with risks still present, particularly due to political uncertainty.

According to the IMF, after a year of political stalemate, Kosovo’s economic activity has slowed, and real gross domestic product (GDP) fell to 3.6 percent last year from 4.6 percent in 2024.

“This is the result of a decline in exports and weakening private sector demand, but it was partially offset by increased public spending and investment,” the report states.

It also adds that “assuming progress in the normalization of the political situation, the outlook foresees moderate growth”.

“Under the influence of the conflict in the Middle East, real GDP growth is projected to slow to 3.3 percent this year, but to approach its estimated potential rate of around four percent in the medium term,” the IMF notes.

It is also stated that inflation in Kosovo has continued to rise and reached about 5.7 percent in January this year, mainly due to rising food prices.

The IMF expects inflation to increase to 5.9 percent and then gradually decline to two percent by 2028.

Kosovo’s current account deficit, which shows the difference between money entering and leaving the country, increased to 9.2 percent of GDP, mainly due to increased imports, especially of energy and food.

“The trade deficit will remain high due to large imports. One of the reasons for the increase in the deficit in 2026 is also expected to be the temporary closure of a coal-fired power plant for renovation,” the IMF states.

External risks include the continuation or intensification of regional conflicts, global trade tensions, and fluctuating commodity prices, which could negatively affect demand and employment, while domestic risks include political uncertainties, including the election of a new president.

On the positive side, it is noted that the timely implementation of the EU Growth Plan could provide an additional boost to growth and employment.

“Executive Directors welcomed Kosovo’s commitment to implementing the EU Growth Plan and the progress achieved under recently launched programs supported by the IMF. They emphasized that, although the outlook is positive, Kosovo is exposed to downside risks, particularly due to political uncertainty, weaker external conditions, and the effects of the conflict in the Middle East. Accordingly, they stressed the importance of efforts to maintain macroeconomic stability and advance reforms under the EU Growth Plan to strengthen growth and competitiveness,” the report states.

It is recommended that Kosovo does not significantly increase budget expenditures this year, maintains macroeconomic stability, increases public investment and budget revenues, improves public financial management, strengthens supervision of the banking sector, monitors credit and the real estate market, implements structural reforms to boost competitiveness, reduce unemployment and increase women’s participation in the labor market, as well as reduce the informal economy and improve the energy sector.

The IMF report assesses that Kosovo’s economy has a positive outlook but faces risks due to the political situation and international developments.

Therefore, it states that reforms, spending control, and smarter investments are needed so that the economy can grow sustainably and move closer to EU standards.