Republic of Kosovo: 2026 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Kosovo

The 2026 Article IV Consultation highlights that even though a year-long political stalemate ended with the formation of a new government in February, Kosovo could be heading toward another phase of political uncertainty following the parliament’s failure to elect a new national president on March 5. The newly constituted parliament ratified key international financing agreements pending since 2024 and adopted the 2026 budget, averting a government shutdown. The prolonged impasse held back much-needed reforms to accelerate income convergence with the EU. The political deadlock weighed on growth, with recovery expected in 2026. Inflation rose sharply amid higher food prices, while the external current account deficit widened, partly due to temporarily large energy imports. Fiscal policy became expansionary, contributing to imbalances and potentially adding to price pressures, with a further widening of the deficit expected in 2026. Risks are tilted to the downside including protracted political uncertainty, tensions in northern Kosovo, and weaker external conditions. Comprehensive reforms, including those laid out in the EU Growth Plan, are needed to raise long-term growth. Greater labor market flexibility is critical in this regard. Policies should focus on strengthening competitiveness and boosting productivity.;