Institute for Development Research Riinvest

Riinvest Blog

Petrit Gashi

Kosovo's Public Debt Management

In the context of the latest activities of the Privatization Agency of Kosovo, and the budgetary sustainability of the country, two developments need special attention:

The first is related with the latest amendments of the Law on the Agency (Law No. 06/L -023 decreed on March 2018), which enabled the unlocking of the Trust Fund asset, but with the cost of increasing the public debt of the country. According to the legislative amendments in question, the Agency will transfer the funds of privatization in the Budget of the country, even without finalizing completely the process of addressing the credit claims towards socially owned enterprises. According to Law: “after calculating the required amount for the fulfillment of valuable decisions of credit claims in the process of liquidation, … , Temporary Funds (if there are such), are transferred from the Agency in the Consolidated Fund of the Republic of Kosovo, in a special account in Kosovo’s Treasury; temporary funds which will be used for investments that affect directly in the long-term economic development of the country.” However, this was done with strong warranties from the Government. According to the same law, the country’s Government “guarantees and is obliged unconditionally” to return the funds to the Agency within thirty calendar days, if the assets held are not sufficient to fully cover the credit claims approved with a final decision by the Special Chamber. Moreover, the Agency’s request to return the funds, has the highest priority of payments as foreseen by the Law on Managing Public Finances and Responsibilities. According to the Agency’s Law: “the requests of the Agency towards the Ministry of Finance for the return of temporary funds, represent the first priority against the general account of the Treasury, and this temporary funds shall not be subject to any complaint or claim from any party.”

With these amendments, the road has been opened for €200 million to be transferred from the Trust Funds, during 2019 and in the next two years. Despite the fact that these transfers will raise the sum of public debt, the Agency’s projections suggest that the cases where the Agency could request a return of the assets from the Government, will be rare. Nevertheless, it is very important that the Government sticks to the principle of spending these assets for long-term development projects; and not be challenged by requests for “social” transfers to different layers of the society.

The second issue relates to a series of decisions of Kosovo’s Government on the topic of expropriation of properties under the management of the Agency, for municipalities’ needs. During 2018, Kosovo’s Government has taken a decision on early expropriation of hundreds of such assets. For the most part, the requests of the municipalities are very legitimate; properties under the management of the Agency are requested with the aim of investments in municipality infrastructure, such as roads, schools, health care centers, cemeteries, and others. However, such decisions by the Government, should be supported with a feasibility analysis of such projects, including here financial analysis. To see how complex is the process of addressing these requirements, it is enough to refer to the fact that from the existence of the Agency such decisions are extremely rare. Meanwhile only throughout 2018, more than 500 assets have been expropriated for municipalities needs.

Such decisions by the Government, can be contested in some areas. First, the legal basis of these decisions is contestable (with the request of the President, the process for the moment is suspended by Constitutional Court, in order for the court to interpret the constitutionality of these decisions). Further, among these properties there are such that have been sold from the Agency, a decade before. Above all, the main problem is that someone should carry the financial burden of these expropriations; either local or central governments. The actual legislation requires that the institution that conducts the expropriation (that could be only the central government or the municipalities) should pay 20% of the value of the asset of former employees of the company; 5% to the Agency for keeping its operations; and pay the part of the approved credit claims with a final decision. Only after erasing these obligations, the Agency will transfer formally the property to the municipalities. In this context, according to the decisions of 2018, municipalities are those that should carry the financial burden of the expropriations. However, historically municipalities have not been able to carry such a burden, thus their requests have been refused continually by the Agency. As a result, the municipalities have always requested from central institutions to take over the financial burden of expropriation. If the government accepts the request of the municipalities, and takes over the payment of these expropriations, then the pressure upon the country’s budget will be increased drastically (right now there more than €70 million of assets valued, that have been expropriated by the Government for infrastructure projects on national level; not a cent was payed). There should not be indications that the country’s Government is ready to take such a burden as such! Nevertheless, the potential danger lies is that if the Government’s preliminary decisions on expropriation of these properties can be seen from municipal governments as a green light for one-sided steps in using these properties without completing the obligations that come from the expropriation process, and without analyzing the possible repercussions. If something like that happens, the country (Government or municipalities) is at risk of being exposed to credit claims and other charges from anyone who has claims on these companies. Something like that would threaten much more than the country’s financial stability.

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