A third report on the planning and implementation of the Investment Clause is approved

In meeting 137 on March 14, 2017, the Government of Kosovo took decision 10/137 on approving the third report on the planning and implementation of the "Investment Clause".

In 2012, as part of the Stand-by Agreement between Kosovo and the International Monetary Fund (IMF), the Kosovo Assembly adopted amendments to the Law on Public Financial Management and Accountability (LPFMA), including the adoption of the Fiscal Rule, which among others, limits maximum state borrowing on an annual basis to 2% of the Gross Domestic Product (GDP).

At the beginning of 2015, the Ministry of Finance (MoF) and the Central Bank of Kosovo began discussions with the IMF on the possibility of changing the legal deficit limit to enable capital investments funded by international financial institutions, the European Union, foreign governments or international development agencies.

After entering the IMF program, MoF has prepared the necessary amendments to the Fiscal Rule so that the budget deficit limitation does not apply to new capital investment projects funded by international financial institutions and international development agencies. This change was made to the Law on Public Financial Management and Accountability, adding a new article on the Investment Clause. Under the new Article, growth of deficit above 2% of GDP can only be made for capital investments that are financed by international financial institutions and donors in accordance with the criteria established by law.

The changes proposed after IMF talks were as follows:

- To be exempt from the regular deficit limit of 2% for all capital expenditure for capital projects funded by international financial institutions and donors;

- These exemptions apply only to new projects contracted after entry into force of the legal amendment - thus the loans received for the financing of previously contracted capital projects can not be exempt from regular deficit;

- These exemptions apply until the total government debt exceeds or is likely to exceed 30% of the GDP; and

- These exemptions expire ten years after entry into force of the law.

The investment clause includes loans for financing capital projects of public enterprises, if such borrowings are guaranteed by the government. This is because any government guarantee, in accordance with the Law on Public Debt, is counted as part of the Government"s total debt.

In the Report on the Planning and Implementation of the Investment Clause, 19 capital projects are included, which list may be expanded with other projects approved by the National Investment Council.

While the Law on Budget of the Republic of Kosovo for 2017, includes 105 million Euro of capital investments planned as part of the investment clause, but not specified as projects.  This fund will be divided to two ministries, € 78.8 million in the Ministry of Finance (Financing Contingency from the Investment Clause Funds) and € 26.2 million in the Ministry of Infrastructure (Road Rehabilitation - € 7 million and Rail Transport - € 19.2 million).

Investment Clause Projects

In the following list of projects that are part of the investment clause, the most likely financier is the EBRD, then the World Bank, Austrian Soft Loan, and other providers of finance. Five public enterprises will benefit from the investment clause: Infrakos, Iber-Lepenci, Urban Traffic Prishtina, KOSTT and the Irrigation Company “Radoniqi”. The Ministry of Infrastructure, the Ministry of Trade and Industry, the Ministry of Environment and Spatial Planning, the Ministry of Economic Development, the Ministry of Culture, Youth and Sports and the Ministry of Health will be responsible for project implementation. The municipalities that will benefit from the investment clause are: Podujevo, Gjilan, Gracanica and Shtime.

A list of projects included in the Investment Clause:

- Rehabilitation of the Railway Road 10, 195.4 million Euros.

- Construction and Modernization of the Railway Line Pristina - Fushe Kosove - Prishtina Airport "Adem Jashari", 40.2 million Euros.

- Rehabilitation of Iber-Lepenc, 22 million Euros.

- Rehabilitation of regional roads, 29 million Euros.

- Construction of the N9 Road Prishtine - Peja (SEETRO Road 6 A) the section from Kijeve - Klina to Zahaq, 142 million plus 4.5 million Euros.

- General Rehabilitation of the Eastern and Southern Railway Line (border with Serbia - Podujevo - Fushe Kosove, Klina - Prizren), 158.8 million Euros.

- Expansion of the Irrigation System of the "Radoniqi" Company - Phase II.

- Construction of the new highway from Prishtina - Gjilan - Dheu i Bardhe (border with Serbia - 68 km), 272 million Euros.

- Public Transport Project, Municipality of Prishtina, 10 million Euros.

- Improvement of the Transmission Network, Stage VI-VII, 25.5 million Euros (sub-lending from the Kosovo Government to KOSTT).

- Competitiveness and Readiness for Export, about 14.3 million Euros.

- Construction of the Main Wastewater Collector in the Municipality of Podujeva and Improvement of the Sewage System in the Municipality of Gjilan, 5.3 million Euros plus 7.5 million Euros (a total of 12.5 million Euros).