Good Government Financial Management Helps Countries During Financial Crisis.

Behxhet Brajshori from the Government of Kosovo described the establishment of public financial management in Kosovo. The financial management system in Kosovo is modern and integrated throughout the country.

Mr. Brajshori described many of the challenges in Kosovo including a majority of population under 30 and high unemployment. Remittances to Kosovo is expected to reduce because of the global crisis.

Country Responses to the Financial Crisis Kosovo

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Réponse des Pays à la Crise Financière Kosovo

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The Government of Kosovo has changed new tax rates in response to the financial crisis. Income and business taxes have been reduced. VAT and tobacco excise taxes have been increased.

Despite the difficulties in the international financial market, the Kosovo financial system continues normal operations. The banking sector which represents the largest share of the financial market in Kosovo is characterized with a significant growth in terms of financial intermediation. Deposits and loans in banks in Kosovo have increased since 2005. The financial sector in Kosovo continues to grow, increasing its contribution to the economic development as well as the range and quality of products offered to clients.

Mr. Brajshori described the recent PEFA assessment and comparing 2009 with 2007. "A", "B" and "B+" indicators have improved. 12 indicators have improved. He concluded that Kosovo has improved government financial management.

The recent financial crisis in the international financial market is having an impact in the real sector in economies more exposed to the crisis. Mr. Brajshori says that the Kosovo economy is an open economy and may absorb some impacts of the potential recession in the region and EU.
A very important instrument for stimulating the consumption and investments in Kosovo is prudent fiscal expansion, according to Mr. Brajshori.

Measures taken by the Government of Kosovo because of the financial crisis includes:

• Budget reserve increase -200.mill euro for 2009.


• Fiscal policies reform (cut in personal income tax ,profit tax rates etc.)


• Strengthening transparency and accountability in using the public revenues.


• Enhancing sound regulations,


• Promoting integrity in financial market.


• Strengthening the regional cooperation and development of trade market.


• Through privatization, increasing the investments especially FDI (Foreign Direct Investment) and than consumption.


• Reduction of government expenditures.

Challenges remain for economic development, unemployment, investment growth and European integration.

Solutions to the Banking Crisis

Clay Lowery and Leonard Lapidus discussed the causes of and solutions to the world-wide banking crisis at the latest ICGFM DC Forum on March 4th. The topic, International Experience in Managing Banking Crises, generated interest from the ICGFM members who attended the learning event.

Clay Lowery charted the course of the crisis from the August 2007 liquidity problem to the current situation. Although optimistic about the ability for governments to turn around the financial situation, Mr. Lowery commented that the response in the current stimulus bill is not "targeted, timely and temporary". He suggested that the current response in the United States could have unintended consequences such as inflation, higher interest rates through higher government debt and crowding out of the financial sector from borrowing because the government is borrowing so much. Mr Lowery cautioned that governments often budget at the same level as the year before making the expenditures permanent.

Clay Lowery discusses the European context to the financial crisis

Leonard Lapidus described the financial crisis as one of liquidity, solvency and contagion. Mr. Lapidus described the network affect in the financial crisis that spread from one institution to another. Financial counterparts were not sure of their partner's solvency. 

Mr. Lapidus believes that the response among governments to the crisis has been vigorous and on the right track. The stimulus packages should be short term. 

There was discussion about whether improved governance and audit is necessary. Mr. Lapidus pointed out that many actors in the financial system are not good agents for their constituency. For example, many executives in firms have not been good agents of shareholders and have taken on the prerogative of owners through large pay packages.

Leonard Lapidus suggesting that major changes are needed in institutional arrangements to promote more effective governance.