Distinguished citizens of the Republic of Kosovo,

As the days and weeks go by, the COVID-19 pandemic beyond its impact as a health crisis has begun to inflict crisis in the markets and economies of most countries, including our country as well. Taking into consideration that the collective knowledge of the Corona virus is emerging, the Kosovo government is also being forced to largely follow the actions of other countries, with the sole aim of keeping the spread of the infection under control. As a result, we have closed kindergartens, schools and universities without the emergence of even a single case of infection. Likewise, measures have been taken to restrict action so that the need to maintain physical distance can be respected, and citizens have been asked to stay within their homes and apartments. Thanks to these decisions and their observance, we have largely succeeded in protecting the health of our citizens, especially the elderly within us.

These restrictions, along with those imposed by countries in the region, have significantly slowed down the pace of production and market supply of goods and services. In addition to the negative impact on aggregate supply, it also affected the overall demand for goods and services. There is no need here to go into the theoretical analysis of the channels through which the above aggregates have been affected, but it is sufficient to conclude that the decline in economic activity has been to a certain extent reflected in three main economic categories: citizens (whether in their role or not, as revenue generators, or in the role of the final consumers), the business community, and the state's budgetary capacity. All three of these categories are going through a deterioration of the situation, in some cases temporarily and in some even in longer term. Consequently, the discussions of the measures to be taken in dealing with the pandemic and its impact on the economy should address the needs and sustainability of these three categories, with the aim of reducing losses in the production of goods and services that are in fact welfare reductions, and to be more equally allocated among all actors in society.

The governments of the countries of the region and beyond have come up with ideas for measures to be taken in this regard, but always considering the characteristics of their economies and the distribution of national income, budgetary spaces for fiscal intervention, and the available monetary instruments (subject to available features and instruments).

In this regard, our country is subject to the most problematic limitations:

1. fiscal capacity is very limited, fiscal rules very strict; current budget is burdened with outstanding debt of previous government and irresponsibility in long-term blockages of the assets;

2. Lack of autonomous currency precludes the use of monetary policies to increase and guarantee liquidity (the role of the lender of last resort, intervention through quantitative facilitating measures), as the capacity for additional domestic borrowing is very limited;

3. Government measures (restrictions on the exercise of economic activity for some sectors, restrictions on the movement of citizens, restrictions on the international movement of goods, decisions to defer payment of tax liabilities, a decline in aggregate demand as a result of reduced income most affected sectors) are automatically reflected in a sharp decrease in tax and customs revenues. Depending on the duration of the pandemic problem, on an annual basis, forecasts indicate a possible cumulative decline in tax revenues from 7.5% to 12.5% of the annual budget. In monetary terms, this implies that the state budget may have up to 200 million euros less revenue than those calculated in February;

4. Government measures to deal directly with the pandemic through additional allocations to the Ministry of Health, but also measures that have been taken and are being taken in order to protect the most affected citizens and the business community will result in higher budget expenditures than those agreed to the budget approved less than two weeks ago;

5. The implications arising from points 4 and 5 above automatically imply an increase in the budget gap or the difference between budget spending and general revenue at the State Treasury, or a breach of fiscal discipline. It is understandable that maintaining this fiscal discipline in this context acquires a secondary role in relation to the need to safeguard the health of citizens and the economy, but the extent of this gap and options for its coverage still need to be addressed. The bank balance with which this government has begun to work is in the measure of the national product of just three weeks, and any further downturn represents a direct attack on the operating capability of the government and thus on the country as a whole. Internal financing through borrowing is limited and potentially has only one address, that of the Pension Trust, but to an extent that does not even problematize the health of this institution. The rest remains to be agreed and contracted internationally.

The Emergency Package that the Government of the Republic of Kosovo has prepared as a first step in addressing the economic problems resulting from the pandemic has included actions and interventions aimed at providing immediate assistance to our citizens in those roles or functions that they have been affected by pandemic (as beneficiaries of social schemes from the state, consumers, employees, tenants or employers). The aim of the measures is not, and cannot be, to offset all the negative effects, as this is impossible when economic activity at the aggregate level declines, but is geared towards minimizing the damage caused.

Below you can find the composition of the emergency package of the Government:

1. The first focus of government measures goes to beneficiaries of social schemes, who have a hard time securing survival and are mainly involved in the group of society facing extreme poverty. In March, some 98.100 citizens in the country included in the scheme received additional monthly assistance, totaling 2.55 million euros. The same will be done in the next two months, raising the value of the intervention to 7.6 million euros.

2. A large number of pension scheme beneficiaries receive less than € 100 on a monthly basis. For all these beneficiaries, the Government of the Republic of Kosovo, in the next 3 months, will allocate an additional € 30 on a monthly basis. This group mainly includes beneficiaries of the basic pension scheme, pensions for disabled persons and family pension beneficiaries (all of these categories benefit from this decision, unless they are at the same time part of more than one pension scheme from which they receive regular income). They will also be temporarily included in the schemes and all those who have failed to renew their claims in the first two months of 2020 will be benefiters. This means a total of an additional € 13 million.

3. A number of domestic companies have experienced a decline in operating income over the past two weeks, and this trend is expected to continue in April as well.  As a result, employers are expected to have difficulty covering a range of costs. Some of the expected and significant expense on the company balance sheets comprises the settlement of tax liabilities and liabilities to the banking system. By Government and Central Bank decisions, these expenditures have been deferred for a specified period of time. But wages and rent costs are still a burden when economic operators operate on objects they do not own. The Government of Kosovo will support with the emergency package, the business community mostly on these two components. For those companies which operations have marked a decline as a result of government measures or have been forced to keep their staff at home, the government has decided to assist with these three interventions:

a.     Covering the wage costs at a minimum wage rate of 170 euros for the next 2 months up to a maximum of 41 million euros;

b.     Subsidizing the rent up to a possible maximum of 50% for small and medium enterprises, for the next two months for a total of 12 million euros

c.    For the workers affected and benefiting from point” a”, the government also undertakes to cover pension contributions for the next two months, amounting to 8 million euros.

4.    Companies that have experienced a temporary decline of regular revenues as a result of restrictions on freedom of movement, suspension of providing of some public sector services or irresponsible statements by Government officials (mainly, but not limited to, public enterprises providing utilities). or privately owned but providing basic services), may require temporary liquidity from the government to the extent necessary to maintain the regular operation of the business, amount this they are obliged to return to the state after stabilization of operation, but no later than the end of December 2020. To this extent, the government allocates 20 million euros, and the allocated funds carry zero annual interest.

5.    In confronting the pandemic, a great organizational burden has also fallen on the local government. To a large extent, municipalities have accommodated the need for additional and emergency interventions, through internal budget adjustments and reduction of funds dedicated to capital expenditure. In case of further extension of restrictions on freedom of movement and eventual extension of restrictions, municipalities will need additional financial support. In this context, the Government will provide additional funding to the most affected municipalities in the amount of 10 million euros.

6.    Each of us has tried to help minimize the impact of the Corona virus by respecting government decisions. However, without any doubt, at the forefront of our efforts are the medical and police staff and firefighters. Each of us highly appreciates their unparalleled commitment, and the Government of the Republic of Kosovo will award an additional remuneration of 300 € for each of the following two months for these categories of public servants. For this purpose, will be allocated 15 million euros.

7.    Despite the fact that Government measures to maintain physical distance have been aimed at preventing the spread of infection, it has been the employees of food markets, bakeries and pharmacies who have worked regularly providing supply to households with food and health needs. For all these employees, the Government of the Republic of Kosovo will allocate an additional payment of 100 euros for the following two months. For this measure will be allocated 3 million euros.

8.    The Government of Kosovo, in the second phase of economic intervention will use fiscal incentives that will favor those companies that have retained workforce in this time of crisis, starting production of new products or increasing exports. But in this situation, however, there may be enterprises that cannot avoid the dismissal of some workers. For those employees who lose their jobs during this period, the Government of Kosovo takes over to pay a monthly assistance of 130 euros for the next 3 months. The maximum amount allocated to this measure will be 4 million euros.

9.    There is evidence that COVID-19 prevention measures out of proportion have hit a minority of communities. The Government of the Republic of Kosovo allocates 2 million euros for initiatives and projects that targets improvement of the conditions of minorities most affected by the pandemic.

10.  A large part of the country’s enterprises consist of micro-companies and the self-employed. In order to overcome the tight financial throat, the Government will draft a package through which these companies can ensure financial liquidity (for a maximum period of 24 months, and a maximum of 10,000 euros), whereby the Government will take over to cover the cost of the loan. 15 million euros will be allocated for this measure.

11.  Pandemic COVID-19 has also highlighted the necessity of increasing domestic agricultural production. To encourage the increase of utilized capacity building within the country, the Government of the Republic of Kosovo will increase the budget for grants and subsidies to the Ministry of Agriculture by 5 million euros.

12.  The measures of the Government of the Republic of Kosovo have also severely affected sports, cultural and artistic activities. To assist these categories, the budget of the Ministry of Culture, Youth and Sports will be increased by 5 million euros, amount this which will be used for additional subsidies to the country’s sports and cultural associations.

13.  Immediately upon the end of the pandemic, the country will be in dire need to increase the exports. In this regard, the Government of the Republic of Kosovo will provide 10 million euros in support of exporters, who will benefit from in relation to increasing of their export volume.

The total amount of this emergency package amounts to 170.6 million euros, and surely that there will be a need to be backed by an additional fiscal and monetary stimulus package, but with a medium-term impact on the economy. The aim of the next intervention package will be to revitalize the economy as soon as possible, increase of production and employment. In the second phase most part of the intervention will be of monetary character and will include a credit guarantee scheme, and lending support to certain sectors of the economy.

The Government of the Republic of Kosovo, through the Ministry of Finance, is working intensively on finding additional sources of funding. In addition to the initial allocation of 10 million euros to the Ministry of Health, additional funding is being negotiated by the World Bank (up to 70 million euros). We've also submitted a request at IMF for a loan of 52 million euros from the fast financial instrument; a loan of 35 million euros has been requested from the Council of Europe Development Bank; official request for support has been filed to the German Ministry for Development and Cooperation; and European Union has also promised a support.

Finally, the Government of the Republic of Kosovo wants to assure every citizen that is doing its maximum to keep under control the harm of citizens’ health as well as economy.