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Medium Term Expenditure Framework 2016-2018 April, 2015

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Republika e Kosovës Republika Kosova- Republic of Kosovo Qeveria- Vlada- Government Ministria e Financave Ministarstvo za Finansije Ministry of Finance Medium Term Expenditure Framework 2016-2018 April, 2015 List of abbreviations PAK Kosovo Privatisation Agency KSA Kosovo Statistics Agency TAK Tax Administration of Kosovo GNIA Gross National Income Available EBRD European Bank for Reconstruction and Development PB Payment Balance GDP Gross Domestic Product CBK Central Bank of Kosovo ERS Energy Renewable Sources EPPD Economics and Public Policy Department EU European Union EULEX European Union Mission on Rule of Law KAF Kosovo Armed Forces FIFA Fédération Internationale de Football Association IMF International Monetary Fund KSF Kosovo Security Force CPI Consumer Price Index IFI International Financial Institutions FDI Foreign Direct Investments IPA Instrument for Pre-Accession Assistance IT Information Technology MTEF Medium Term Expenditures Framework KEK Kosovo Energy Corporation ODC Other Depositing Corporations LLGF Law on Local Governance Finance LPFMA Law on Public Finance Management and Accountability MEST Ministry of Education, Science and Technology MoF Ministry of Finance MLSW Ministry of Labour and Social Welfare SAA Stabilisation and Association Agreement SME Small and Medium Enterprises UN United Nations RTK Radio Television of Kosovo SDR Special Drawing Rights USA United States of America UCHSK University Clinical and Health Service of Kosovo VAT Value Added Tax UEFA Union of European Football Associations USAID United States Agency for International Development WEO World Economic Outlook Content FIRST PART ........................................................................................................................................................ 2 1. GOVERNMENT DECLARATION FOR MEDIUM -TERM PRIORITIES 2016 – 2018 ........................... 2 1.1. Economic Development, Employment and Social Welfare ..................................................................... 3 1.2. Rule of Law .............................................................................................................................................. 6 1.3. European Agenda and Foreign Policy ...................................................................................................... 7 1.4. Education, Science, Culture, Youth and Sport ......................................................................................... 8 1.5. Modern healthcare .................................................................................................................................... 9 SECOND PART ................................................................................................................................................. 10 2. MACRO-FISCAL FRAMEWORK 2016-2018 .......................................................................................... 10 2.1. International Economic Environment..................................................................................................... 10 2.2. Recent developments and macro-economic medium term scenario ....................................................... 12 2.2.1. Real Sector ......................................................................................................................................... 12 2.2.1.1. Price fluctuation and projections for 2016-2018 ............................................................................ 14 2.2.2. Developments and projections of the external sector ......................................................................... 15 2.2.3. Financial Sector .................................................................................................................................. 16 2.2.4. Fiscal Sector ....................................................................................................................................... 18 2.2.4.1. Projections of budget revenues 2016-2018 .................................................................................... 20 2.2.4.1.1. Revenues according to collection source ................................................................................... 21 2.2.4.2. Budget Spending Framework and Structure 2016-2018 ................................................................ 23 2.2.4.3. Budget deficit and its financing ..................................................................................................... 26 2.2.4.3.1. Borrowings during 2016-2018 period ........................................................................................ 26 2.3. Development Potentials and fiscal risks for the period 2016-2018 ........................................................ 28 2.3.1. Development Potentials ..................................................................................................................... 28 2.3.2. Fiscal Risks ........................................................................................................................................ 29 THIRD PART ..................................................................................................................................................... 31 3. BUDGET EXPENDITURE FRAMEWORK 2016-2018 .......................................................................... 31 3.1. Framework And Structure Of Budget Expenditures 2016-2018 - Central Government ........................ 32 3.1.1. Budget expenditures for 2016-2018 for the Central Level ................................................................. 32 3.2 MUNICIPAL MEDIUM TERM EXPENDITURE FRAMEWORK 2016-2018.................................... 38 3.2.1 Municipal budget proposal for 2016-2018 ......................................................................................... 38 3.2.2 General Grant for 2016 ...................................................................................................................... 39 3.2.3 Specific grant for pre-university education for 2016 ......................................................................... 42 3.2.4 Specific grant for primary healthcare covering 2016 ......................................................................... 45 3.2.5 Financing of secondary healthcare for 2016 ...................................................................................... 47 3.2.6 Financing of residential services ........................................................................................................ 47 3.2.7 Municipality‟s Own Source Revenues for 2016 and forecasts 2017-2018 ........................................ 47 Annexes .............................................................................................................................................................. 49 2 Introduction The Medium Term Expenditure Framework (MTEF) 2016-20181 represents the main document based on which the draft annual budget is prepared. The main purpose of the MTEF is to provide an analysis based on the country‟s macroeconomic environment, thus establishing the basis for budget planning for coming years in line with the Government‟s strategic priorities. Sustainable economic development is the Government's key goal. It will enable the creation of new jobs and enhance people‟s welfare. Despite the advantages Kosovo has in terms of young population and vast natural resources, economic development and reduced unemployment rate remains a challenge that the Government will face. The Government of the Republic of Kosovo approved the Government Program 2016-2018 in the beginning of 2015, setting forth the policy priorities for the medium term. The main pillar of the Government's Program is economic development, employment and enhanced welfare for the citizens followed by other non-less important priorities, such as Rule of Law, Education, Health, and European Integration. To this end, MTEF 2016-2018 is an important tool for the Government in making the first steps towards achieving these objectives. MTEF 2016-2018 is structured into three main parts. The first part provides offers a comprehensive overview of the Government‟s priorities in accordance with the Government Programme. Macro- fiscal projections based on general parameters of economic development are discussed in the second part of this document. Fiscal estimations made in this part define the spending ceilings within which the central and municipal budgets are prepared. 1 Please note that in case of discrepancies, the Albanian version prevails FIRST PART 1. GOVERNMENT DECLARATION FOR MEDIUM -TERM PRIORITIES 2016 – 2018 The Mid-Term Expenditure Framework (MTEF) outlines Government priorities with a coherent, coordinated approach and is functionally harmonised with the key strategic documents and programme of the Government. MTEF enables budgeting of these priorities for the mid-term period. The Government of the Republic of Kosovo envisages the building of an effective, competent and accountable government as a primary goal towards achieving sustainable and inclusive growth and strengthening of social welfare. The 2016-2018 mid-term priorities are based on the Government Programme 2015-2018, the National Economic Reform Programme 2015-2017 and requirements from European integration process, in particular the Stabilization and Association Agreement. Statement of mid-term Government Priorities is oriented towards economic, social and institutional development of the country. Consequently, the Government of Kosovo, through this Statement, steers the
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