Jan-Peter Olters: In the absence of a budget, Kosovo risks falling off the fiscal cliff

October 22, 2014

Jan-Peter Olters, Country Manager for Kosovo Kosova Sot, published on Oct 19, 2014

Kosova Sot: What happens if the budget does not get approved this year?

Jan-Peter Olters: There are emergency provisions in Kosovo's legislation that give the authorities a little extra time to finance current -- but not capital -- expenditures, in function of the previous year's budget. But even this contains a number of important implications and risks. First, by having to delay public investments until a new budget will have been approved  by a Parliament that was able to constitute itself will reduce overall growth rates in the economy -- beyond the amounts not spent by Government. The uncertainty alone will have the private sector delay its own decisions on large expenditures as well. Second, without the mid-year budget review for the current budget, the ability to accommodate the salary increases within existing line-item constraints risks the Government's ability to pay (all) public sector salaries by year's end and rectify any arrears situation early in 2015. If the January emergency budget only allows one-twelfth of the previous year's budget for the wage bill, the Government will face immense difficulty in paying all January salaries and repaying any outstanding December wages. This would lead to an accumulation of payment arrears with a considerable risk of, ultimately, asphyxiating private sector activities. Even healthy and profitable companies would see their ability to honor payment obligations affected, resulting in arrears spreading throughout the economy. And third, if the politico-constitutional crisis goes beyond the emergency period specified in the laws, the ultimate risk consists of the Government's inability to authorize any spending, with incalculable risks to the economy and the country's socio-economic development potential. 

KS: Can it happen that the 2015 budget brings the country to bankruptcy?

Olters: Parliament's inability to vote on and approve a 2015 budget could provoke a very serious crisis, given the time limits that Kosovo's laws define on a budgetary emergency period. Beyond that initial phase, as said before, it is unclear on what  basis the Government could authorize any payments, which, of course, contains the risk of a fiscal crisis of difficult-to-contain proportions.

KS: Any possible alternative to get out of the budgetary crisis?

Olters: Sure. Parliament will have to find some way to adopt, in time, a budget for 2015. No political grouping with any hope of being able to form Kosovo's next Government could afford to have the country fall off the fiscal cliff. Beyond the resolution of the overarching politico-constitutional crisis, which represents a separate challenge, Members of Parliament will have to devise -- in parallel, if the formation of institutions extends well into 2015 -- an agreed-upon procedure that would allow for agreement on, and the adoption of, a "consensus" budget. 

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