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IMF concerned over Kosovo wages increase, downgrades GDP growth

Source: Reuters - Tue, 1 Apr 2014 13:52 GMT
Author: Reuters
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* IMF downgrades GDP growth from 3.9 to 3-3.5

* PM increases wages ahead of general election

* Previous wage hike prompted IMF to cancel programme in 2011

By Fatos Bytyci

PRISTINA, April 1 (Reuters) - The recent 25 increase of pensions and public servants' wages will put significant pressure on Kosovo's budget and hurt the former Serbian province's private sector, an International Monetary Fund official told Reuters on Tuesday.

In 2011, the IMF canceled a precautionary programme with Kosovo when Prime Minister Hashim Thaci hiked public sector wages by up to 50 percent to keep a promise he made during the previous election campaign.

Last month, Thaci's cabinet raised salaries for 240,000 teachers, police officers, doctors, state administration, pensioners and welfare beneficiaries.

The move came a few months ahead of a next parliamentary election, expected between June and September. The opposition has accused Thaci of using public money to improve his ratings.

"The recent wage and pension increases raises concerns," the IMF resident representative in Kosovo, Jose Sulemane, said.

"Together, they will put significant pressure on the budget and hurt competitiveness in the private sector. A more moderate increase in wages and less generous benefits would have been more appropriate."

IMF and Kosovo had agreed on a 14 percent wage increase, only for the public administration, which employs some 80,000 people. There was no mention of other increases.

The broader new hike will require an additional 100 million euros ($137.82 million) for the remaining nine months of 2014 and around 130 million euros for the whole of next year.

The government did not say where the money would come from.

Kosovo is hoping to clinch a new precautionary programme with the world lender. An IMF delegation visited the country last week but a government official said the IMF would not start talks on a new loan before the elections are held.

The IMF cut its 2014 forecast for Kosovo's growth to 3-3.5 percent from 3.9 percent, which is still above most other countries in the Balkans.

The growth is largely based on positive developments in western Europe, mainly Germany and Switzerland, where up to 800,000 Kosovars work and send remittances home.

Six years after gaining independence from Serbia, the land-locked country remains one of the poorest in Europe. Government data show more than 35 percent of the population is unemployed.

Foreign investors are often put off by its reputation for organised crime and corruption and simmering tensions between the Albanian majority and the Serb minority.

($1 = 0.7256 euros) (Reporting by Fatos Bytyci; editing by Zoran Radosavljevic and Tom Heneghan)

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