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International Monetary Fund. European Dept.
Kosovo has been hit hard by the COVID-19 pandemic. Despite policy support, economic activity is estimated to have fallen 6 percent in 2020 on account of the combined effect of strict domestic containment measures and international travel restrictions. The fiscal deficit increased to 7.7 percent of GDP, given the large fall in tax revenues and the implementation of mitigation and recovery measures of 4.2 percent of GDP. The current account deficit is estimated to have increased to 7.5 percent of GDP mainly due to a large decline in diaspora-related inflows, most notably in tourism. Gross international reserves declined but remain adequate in part due to the purchase under the IMF’s Rapid Financing Instrument (RFI) in April 2020 and the use of other external financing. Banks have weathered the recession well to date, and the high pre-COVID19 liquidity levels and ample capital buffers bode well for the system’s stability.
International Monetary Fund. European Dept.

almost 20 percent; exports by 18 percent; imports by around 10 percent, whereas consumption remained stable, given the government’s targeted cash support. Within total exports and imports, services suffered the most, in particular diaspora-tourism receipts, due to international travel restrictions. Despite the decrease in imports and increases in the inflow of remittances by 14.8percent, the current account deficit increased from 5.5 percent to around 7.5 percent of GDP. This increase was financed by external borrowing, including a purchase under the IMF’s Rapid

Mr. Dominique M. Guillaume and Mr. Roman Zytek

energy subsidies will push costs and prices higher, including for many staple goods, policymakers should refrain from imposing price controls to limit pass-through of the higher energy prices. Price controls would only shift losses from energy producers to commercial users. Instead, supporting measures—such as tax rebates or well-targeted cash support for corporate restructuring—could help ensure profitability while providing incentives for companies to adopt energy-efficient technology. In addition, bank credit allocation and monitoring need to be strengthened to

International Monetary Fund. European Dept.

-benefit system aimed at encouraging full-time work would also be beneficial. These could include lowering the tax wedge for secondary earners by moving closer to a system of individual taxation, reducing differences in the health-insurance premiums for working and non-working spouses, and targeting cash support for non-working parents to poorer households. Addressing both types of constraint simultaneously should allow for a more effective response of female labor supply. Selected Labor Force Indicators by Gender, 2014 Source: Eurostat. Authorities’ Views 28

International Monetary Fund. European Dept.
This 2015 Article IV Consultation highlights that the ongoing upturn in Germany is benefiting from the euro depreciation and lower energy prices, and is underpinned by a healthy fiscal position and sound corporate and household balance sheets. Employment growth has been robust, supported by strong immigration. The unemployment rate hit an additional post-reunification low at 4.7 percent. The oil price drop brought inflation temporarily close to zero, which has contributed to lift real wage growth to a 20-year high. The current moderate growth momentum is expected to continue as robust real wages buoy private consumption and euro depreciation buttresses exports, opening the way for a recovery in machinery and equipment investment.
International Monetary Fund. External Relations Dept.
Asia Leading the Way explores how the region is moving into a leadership role in the world economy. The issue looks at Asia's biggest economy, China, which has relied heavily on exports to grow, and its need to increase domestic demand and to promote global integration if it is to continue to thrive. China is not the only Asian economy that heavily depends on exports and all of them might take some cues from the region's second-biggest economy, India, which has a highly developed services sector. Min Zhu, the new Special Advisor to the IMF's Managing Director, talks about Asia in the global economy, the global financial crisis, correcting imbalances, and the IMF in Asia. And "People in Economics" profiles an Asian crusader for corporate governance, Korea's Jang Hasung. This issue of F&D also covers how best to reform central banking in the aftermath of the global economic crisis; the pernicious effects of derivatives trading on municipal government finances in Europe and the United States; and some ominous news for governments hoping to rely on better times to help them reduce their debt burdens. Mohamed El-Erian argues that sovereign wealth funds are well-placed to navigate the new global economy that will emerge following the world wide recession. "Back to Basics" explains supply and demand. "Data Spotlight" explores the continuing weakness in bank credit. And "Picture This" focuses on the high, and growing, cost of energy subsidies.