During most of the 2000s, Kosovo haspursued a highly conservative fiscal policy, restrainingexpenditures as revenues continued to climb. The Governmenthas now shifted toward an expansionary expenditure policy.In the short term, the Government intends to finance theresulting budget deficits from accumulated savings andborrowing, as well as through the sale of assets and donorbudget support. Neither solution is sustainable. Inprinciple, there is room to increase revenues Kosovo'stax burden is low by regional standards. But the weakness ofdomestic tax instruments makes this difficult. Restraint onthe expenditure side will be required. Given thewell-documented shortcomings of public services in Kosovo,this will require an improvement in the quality of publicexpenditure an improvement in the efficiency of publicservice delivery rather than a reduction in the quantity orquality of services. This report looks for suchopportunities in the major programs of Governmentexpenditure. Overall, Kosovo is in a position to maintain asustainable fiscal stance while continuing to improve thequality of public services. The public sector is small,relative to gross domestic product (GDP), and does not beara crushing burden of long term obligations to pensioners, toveterans, to creditors that threaten the finances ofneighboring countries.
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