Republika e Kosovës

RepublikaKosova – Republic of Kosovo

Qeveria - Vlada - Government

Ministria e Financave

MinistarstvozaFinansije – Ministry of Finance

Speech of the Minister of Finance, Avdullah Hoti, for the budget proposal 2015

22.12.2014

Honorable President of Assembly,

Honorable Prime Minister, Deputy Prime Ministers,

Dear colleagues, ministers,

Honorable deputies,

Today we are processing in the first reading the draft Budget Law for 2015, which is of special importance for the proper functioning of state institutions.

Allow me to highlight in advance at the outset that the draft budgetwe are revising is submitted to the Assembly by the previous Government within the legal deadline on October 31st, 2014.

Nevertheless, the newly formed government had to comply with the request of the Kosovo Assembly, that the draft budget for 2015 to be once again approved by the Government on December 15, 2014.

There are two reasons why we could not change the draft budget.

The first, due to the tight legal deadlines and the importance that the draft budget to be approved within this year, we have not been able to make any changes in the budget ceilings of expenditures and budget revenues, nor in the budget appropriations in the economic categories.

Second, most of capital projects for 2015 are indeed, a continuation of projects that started this year or in previous years for which we have already signed contractual obligations by the previous government. Therefore, we are obliged to respect these contractual obligations.

Due to these reasons, we remain committed that the new Government pledges are reflected in the future budget processes, at the first moment this is legally possible in the occasion of budget review in the June 2015.

Moreover, pledges of the new Government will be fully reflected in the Medium Term Expenditure Framework 2016-2018, which shall be finalized in April 2015, according to which will prepare the budget for 2016.

However, although confronted with such a situation, of tight deadline to amend the draft budget and already contracted majority of capital investments, we will make maximum efforts to address the needs of the country in this budget. Also, we will establish the essentials of long-term structural reforms that we as the new government plan to implement as part of our governing plan for economic development and providing opportunities for all.

These restrictions are not preventing us to:

- Work to essentially change the Kosovar economy from an economy that depends on the public sector in an economy where the private sector is the economic growth generator,

- Create new opportunities for small and medium-sized generators of new jobs and incomes for thousands of families,

- Increase the competitiveness of our economy,

- Support the businesses in their growth and expansion, and

-Support marginalized groups of society by providing new employment integration opportunities

However, I must say that success in the implementation of these plans depends on the discipline, commitment and cooperation of all institutions - the legislative, the executive and the judiciary, as well as the sustainable improvement of productivity in the private but also in the public sector.

Current fiscal and economic circumstances force us to spend wisely, in order to:

  • maintain a balance between budget expenditures and revenues
  • maintain a balance between the expenses in the social field and expenses that directly support economic growth,
  • And also attain appropriate revenues to fund new development initiatives and needs of the economy and new society of Kosovo.

We will be very discreet and very transparent in the collection of public revenues and their spending, orienting them on public expenses for projects with the greatest economic return and generation of new jobs.

Increase of revenues for 2015 will be as result of the implementation of measures to reduce the informal economy and creating an equal environment for all businesses and not through additional tax burden.

Honorable deputies,

In this context, allow me first to introduce the Macro-Fiscal Framework 2015-2017, based on which was drafted the budget proposal for 2015, and further focus on key policies addressed through the proposed budget.

Proposed budget structure is based on the projections for the economy of Kosovo, taking into account the possible effects of the crisis in the Eurozone and countries in the region.

Private investments as a very important component of economic growth are expected to grow at an average annual rate of nearly 8.6%. Their share in the Gross Domestic Product is increased from 19% in 2014 to 21% in 2017. Such a forecast gives us signals for changes in the economic structure, where the private sector shall take the primary role in generating economic growth. And this is very important for ensuring sustainable economic growth, which is not reliant on the public sector but the private one.

Exports in 2015 are expected to grow by 7%, while imports are expected to grow at a lower rate of 5%. This difference is expected to improve little bit the very high negative trade balance.

Aggregate consumption for 2015 is expected to have an average growth of about 4%, thus contributing to aggregate demand in the country.

Knowing that Kosovo's economy is very open to foreign markets, price performance in country will largely depend on the performance of prices in global markets. Expectations for inflation, based on which is drafted this draft budget, are modest with only 0.5% increase of prices. The recent fall in the price of oil derivatives are expected to positively affect all businesses that are using this product as a raw material.

Remittances of our citizens working in the Diaspora continue to be an important financing of consumption and investment. Expectations are that the level of remittances to be stable and follow the current growth trends, also in the following years.

Honorable deputies,

Now allow me to present the main items of the draft budget, which stems from the macro-fiscal framework that I discussed above.

The total budget revenues for 2015, are projected to be at a level of 1.576 billion euros, an increase of 8.1% compared to last year.

Revenues from domestic taxes are expected to grow by 17%. Such an increase is expected to come from increased capacity of the Tax Administration to reduce the informal economy. A contribute to domestic revenue growth will also be the projected increase in consumption and investment. These revenue projections for 2015 include several one-off revenues. Meanwhile, customs revenues will increase by 3%.

Other budget revenues are also planned to increase, including non-tax revenues by 2.1%, and municipal revenues by 10%. While, a decrease in own revenues of central level are planned, which mainly reflects the decrease of studying costs for students in public universities.

Based on these rates of revenues, expenditure projections were made for 2015.

The total expenditures will be 1,682 billion euros, an increase of 6% compared with 2014.

Regarding the distribution of these expenditures through the categories::

  • Salary budget has increased from 483.1 million euros in 2014 to 549.1 million in 2015, reflecting the additional cost for the whole year wage growth of 25% which occurred in April of this year. This includes also an amount of 10 million euros for health insurance.
  • Decrease in the category of goods and services and utilities is planned for 15% (from 252 million in 2014, to 218 million euros in 2015). This is aimed to rationalize operating costs, but in no case it does not affect the functionality of budgetary agencies, especially in the maintenance of investment projects in infrastructure, education, health and public administration facilities.
  • The category of Subsidies and Transfers is planned to increase from 314.1 million euros, what was in 2014, to 437.7 million euros in 2015 (an increase of 39%). This increase takes into account the earlier decision to increase the pensions of about 25% in 2014 and the impact of this growth for the whole of year 2015.
  • under this category are planned additional means for former political prisoners of 11 million euros,
  • For war veterans 24 million euros and
  • for subsidizing the agricultural sector, from 11.8 million euros as they were in 2014, to 53.6 million euros in 2015.
  • Capital Outlays are planned to be 470.1 million euros, the share of which in total budget expenditure remains 28%.
  • Investments in road and railway infrastructure, in education, safety, health and other sectors are also planned.
  • Major Road infrastructure projects, are:
  • Construction of the highway Prishtina - Hani i Elezi,
  • Construction of regional road Prishtina - Mitrovica,
  • Construction of regional road Prishtina - Peja.

Honorable deputies,

Please allow me to inform you more precisely about the planned budget by sectors:

Department of Agriculture, as one of the sectors with the greatest potential to increase employment and generating incomes for households, especially for families living in the rural areas, from the 2015 budget will benefit increase of about 32.3 million euros. Part of this increase covers borrowing liabilities of the Ministry of Agriculture, Forestry and Rural Development.

In the health sector, with the aim of providing quality services and equal access for all citizens of Kosovo, are foreseen:

-Increase of 2.2 million euros for the commencement of health reform,

-Increase of 10 million euros for the implementation of the law on health insurance an amount in the form of contingency in the Ministry of Finance as the contribution of civil servants in the health insurance fund.

-And 5 million are foreseen for the treatments abroad.

In the context of reforms in this sector, during this year is also established the University Hospital Service of Kosovo as an independent the budgetary organization, which will effect on the improvement of health services for the citizens.

In the education system, the Specific Grant for education for municipalities has increased for 10 million euros, and capital investments in schools and universities will also continue.

In the field of Social Welfare, the budget of the Ministry of Labor and Social Welfare for 2015 has increased for 79.3 million euros, in order to cover:

-Increase of pensions for all categories of beneficiaries to 25%,

-The implementation of the scheme for law on former political persecuted

-Eventual increase of social scheme beneficiaries and pensioners.

For Justice and Safety Sector, the budget for reforms in the sector has increased to meet the criteria for visa liberalization and other criteria:

-Ministry of Interior - an increase of 9 million euros,

-Ministry of Kosovo Security Force - an increase of 3 million euros,

-Kosovo Judicial Council - an increase of about 0.7 million euros and

-State Prosecutor - an increase of about 0.2 million euros.

On the local level, the budget is allocated based on the relevant budget circulars. From the materials you have in front, Table 1 to at the municipal budget, represents the revenues of 424.1 million euros and expenditures of 412.1 million euros.

Emission of securities will occur in harmony with market dynamics in Kosovo, and affordable cost to the budget. At the same time, we will ensure the stability of the financial sector and the positive perception of investors on this market.

Honorable deputies,

As the new government, I have a difficult task in front. As the state with the highest unemployment in Europe, we need more investment to revitalize the economy to prevent the escape of young people from the country.

We need investment in priority fields requiring large investments and additional sources of financing. Meanwhile, on the other hand, we have an obligation to strengthen fiscal and financial stability of the country. In 2013, the Assembly has adopted amendments to the Law on Public Financial Management and Accountability, where the overall budget deficit is limited to 2% of Gross Domestic Product. We are committed to respect this fiscal rule in 2015 and in the following years.

We need to develop fiscal prudence in accordance with this fiscal rule also due to maintaining the equality among the generations. We can’t continuously increase public expenditures, which will then be financed from taxes in the future. We should have in mind that any increase in the tax burden, means a smaller private sector, and we are committed that the private sector to be the leader of the economy.

It is highly important that we begin the year 2015 with approved budget. Therefore, I invite you to approve it.

I take the opportunity to inform you that in the Ministry of Finance are working intensively to identify opportunities for savings that can be made in this budget, within budgetary thresholds.

Within two readings in the Assembly, the Government will submit to the Parliamentary Committee on Budget and Finance a list of amendments for budget savings and reallocations. We hope that the Commission will support these amendments and then to forward to you for final approval on second reading.

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