1

Republika e Kosovës

Republika Kosova - Republic of Kosovo

Qeveria - Vlada - Government

Ministria e Financave

Ministarstvo Finansija– Ministry of Finance

Department for Macroeconomic Policy and International Financial Cooperation

Quarterly Economic Bulletin

April – June, 2020

The Quarterly Economic Bulletin provides an update on some of the key developments within

some of economic sectors. The bulletin is designed to be informative for all readers. Since the

negative effect of pandemic on the economy has peaked in the second quarter, this bulletin

provides a detailed description of indicators on monthly basis, as well, in order to provide a

better overview of the effects of the pandemic. The bulletin can be used for research or

presentation purposes, only by citing the source.1

1 This Bulletin takes into consideration the information which was available for the second quarter of 2020 up to the

23rd September ‘20.

2

Content

International Developments ......................................................................................................................................... 3

Real sector .......................................................................................................................................................................... 5

Economic growth ........................................................................................................................................................ 5

Inflation .......................................................................................................................................................................... 7

External Sector ................................................................................................................................................................. 9

Current Account ......................................................................................................................................................... 9

Financial Account ..................................................................................................................................................... 11

Financial Sector .............................................................................................................................................................. 12

Labour Market ............................................................................................................................................................... 12

Business Register ........................................................................................................................................................... 13

Public Finances ............................................................................................................................................................... 13

Revenues ...................................................................................................................................................................... 13

Expenditures ............................................................................................................................................................... 14

General budget balance .......................................................................................................................................... 15

3

International Developments

As expected, the negative consequences of the Covid-19 pandemic reached their peak during the

second quarter of 2020, coinciding with the faster spread of the pandemic and the intensification

of a series of preventive measures, which paralyzed a large part of the economic sectors. The

exception is the Chinese economy, which started the reopening earlier than other countries (in

early April). The main economic indicators (preliminary or indirect) suggest that the biggest

contraction of the economy occurred in April, whereas in June the signals that the economy has

gone through the worst and the process of economic recovery has begun have been more evident.

According to the second preliminary assessment, the economy of the United States of America

during the second quarter of 2020 in real terms marked a decline of 31.7% compared to the

previous quarter and a decline of 9.1% compared to the same quarter last year. This is the largest

decline ever recorded since the beginning of the data reporting in 1947. The unemployment rate

rose dramatically from 3.6% at the beginning of the year (January) to 14.7% in April (the peak),

to slightly drop to 13.3% in May and 11.1% in June. The US government has responded to the

pandemic situation by undertaking a substantial fiscal package (about 13% of GDP), while the

Federal Reserve has supported the economy by maintaining low interest rates and intensifying

the program of liquidity injection into the economy.2

According to the latest Eurostat data, the economy of the Eurozone and the EU during the second

quarter of 2020 marked an annual decline of 14.7% and 13.9%, respectively, constituting the

most significant decline since 1995. The decline was not uniform among Member States, of

which Spain, Croatia and Hungary recorded the largest decline. Countries like Germany and

Switzerland, which account more than 60% of remittances sources to Kosovo, also recorded an

unprecedented annual contraction in the second quarter, at about 11.3% and 9.4%, respectively.

The composition of the Gross Domestic Product by expenditure components (both in the

Eurozone and in the European Union) indicates that the final consumption of the population had

the largest negative contribution to economic growth (by about -8.5 pp and -8.0 pp, respectively),

to be followed by gross fixed capital formation (by about -4.8 pp and -4.3 pp, respectively). In

line with the economic decline in the second quarter, the employment also recorded the largest

decline since 1995, by about 3.1% and 2.9% in the Eurozone and the European Union,

respectively. Due to the support measures financed by the government, the decline was not as

pronounced as the decline in the number of working hours- the latter fell sharply in annual terms

by around 16.6% and 13.8% in the Eurozone and the EU, respectively.3

Inflation, in almost all countries, has been declining during the pandemic period. Inflation in the

Eurozone marked a rapid decline from 1.1% recorded in the first quarter of 2020 to 0.2% in the

2 https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020 3 https://ec.europa.eu/eurostat/documents/2995521/10545471/2-08092020-AP-EN.pdf/43764613-3547-2e40-7a24-d20c30a20f64

4

Graph 1 International market prices, %, y-o-v

second quarter. The inflation behavior in the US has been similar (from 2.1% in 2020 Q1 to

0.4% in 2020 Q2). Disinflationary pressures generated by the decline in aggregate demand in

combination with lower petroleum prices have compensated or even exceeded the rising cost

pressures generated by supply chain disruptions.

At the same time, commodity markets have been hit by the pandemic, which has affected both

aggregate demand and supply of goods. As a result, commodity prices in international markets

marked a pronounced decline during the second quarter.4 The decreasing trend for some goods

had started since January; however in April this decline reached the lowest level, while in June

the declining trend slowed, although the prices level of main commodities remains significantly

lower than the one recorded at the beginning of the year.

Regardless of the slowdown of the declining trend for the majority of the economic indicators in

June, there is still high uncertainty regarding the second half of the year. The main uncertainties

relate to the evolution of the pandemic; the reintroduction of restrictions in some states; and/or

developments related to the SARS-Cov-2 vaccine. Beyond the risks associated with the

pandemic, there are a number of other risks, such as: escalating tensions between the USA and

China on several fronts; weakening relations between OPEC member countries; and/or social

riots in different countries. 5

4 https://www.imf.org/en/Research/commodity-prices 5 https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

All Commodity Price Index Food and Beverage Price Index

Crude Oil Price index, Brent Nickel, US$ per metric ton

Base Metals Price Index

5

Real sector

Economic growth

Macroeconomic outturn 2020 Q1

In the absence of official data from the Kosovo Agency of Statistics (KAS) on GDP in the

second quarter of 2020, this Bulletin analyzes the latest available data which belong to the first

quarter of 2020 and furthermore provides a qualitative assessment on the economic activity

expectations for the second quarter of 2020.

In the first quarter of 2020, according to the data from KAS, Kosovo’s economy grew by 1.3%

(y-o-y) in real terms and by 1.2% (y-o-y) in nominal terms. This growth is significantly below its

historical average (in the last five years), of 4.0% which is attributed to several main reasons:

i) The political stalemate that characterized Kosovo’s economy at the beginning of the year,

the most obvious effect of which was reflected in the slow dynamics of capital

investments and is assessed to have contributed to the increase of uncertainty in the

country;

ii) The start of implementation of restrictive measures in the country in the second half of

March;

iii) The negative effect that the external economic environment has had on the Kosovo's

economy through trade channels, remittances or foreign direct investment. It is worth

mentioning that the pandemic and restrictive measures that were taken in many European

countries and in neighboring countries of Kosovo, were introduced earlier than in

Kosovo, deteriorating the external economic environment since early 2020 (January-

February).

The real economic growth rate in the first quarter of 2020 is mainly attributed to the export of

goods (with a contribution of 1.4 pp) and the consumption of households (with a contribution of

0.2 pp), whereas investments had a negative contribution of -2.4 pp (as a result of the decline of

both components: private and capital ones).6

In the first quarter of 2020, based on the breakdown of GDP by economic activities, the

“industry” sector7 had the highest contribution to real GDP growth (about 0.6 pp), to be followed

by the ”services” sector8 with a contribution of about 0.4 p.p. Similar to the previous quarter, the

6 According to the latest publication of KAS, in the first quarter of 2020, the export of services turns out to have a

significant positive contribution of 4.5 pp or an annual increase, in real terms, of 31%, whereas time series of the

CBK (which compiles the statistics of payment balance), exports of services in the first quarter of 2020 decreased by

2.8%. This discrepancy of data between KAS and CBK is due to non-updating by KAS of its data or assessments

whenever the CBK reviews according to its calendar the main items of the balance sheet of payments. This

discrepancy has existed since last year, and is a concern for the users of national accounts statistics, as it makes it

difficult to analyze economic developments but also the realization of short-term or medium-term projections. 7 The industry sector includes the categories: “extractive industry”; “processing industry”; “electricity and gas

supply”, and “water supply”. 8 The services sector includes the categories: ”wholesale and retail trade, repair of motor vehicles and motorcycles”,

”transport and storage”; ”hotels and restaurants”; ”information and communication”, ”financial and security

activities”; ”real estate business”, ”public administration” and other services”.

6

sector of ”agriculture, forestry and fisheries” has shown a contribution very close to zero,

whereas the "construction" sector, unlike last year (2019) has shown a negative contribution of

about -0.9 p.p.

Graph 2 Contributions to GDP Graph 3 Real GDP by activities, y-o-y, %

Expectations for macroeconomic progress for Q2 2020

In the absence of official KAS GDP data in the second quarter of 2020, indirect aggregate

demand indicators give signals for unprecedented drastic decline of economic activity:

o Signals for the outturn of private consumption during 2020 Q2 indicate a pronounced decline

compared to the same quarter of last year, supported by the two-digit decline of VAT

collection (22%, y-o-y); decrease of consumption goods import by about 10.4% (y-o-y, %);

and the decline in new credit for consumption purposes (59%, y-o-y). Whereas, remittances

and compensation of workers working abroad have marked annual increases by 11.4% and

5.4%, respectively in 2020 Q2.

o Public consumption9 was increased by about 7.15% in the second quarter of 2020 (y-o-y), as

a result of increased spending under the implementation of the Fiscal Emergency Package.

o The signals for private investment are gloomy and suggest a significant decline in 2020 Q2,

supported by: i) the decline in imports of capital goods by 16.7% (y-o-y); ii) decrease of new

credit for investment purposes by 33.8%; and iii) decrease in the net number of net

businesses (difference between the number of newly registered businesses and the number of

closed businesses) by 14.5% in annual terms.

o The dynamics of public investment in 2020 Q2 has been weak, marking an annual decline by

32.8% (y-o-y).

9 Public consumption includes two expenditure categories: “wages and allowances” and “goods and services” and

“utilities”.

Agriculture,Forestry and

Fishing

Industry

Construction

Services

2018Q1 2019Q1 2020Q1

7

o The trade deficit of goods and services in the second quarter of 2020 narrowed by about

5.4% compared to the same period last year, mainly as a result of the narrowing of the deficit

in trade of goods, which offset the decline in the surplus of trade in services.

Inflation

In Q2 2020, the Consumer Price Index (CPI) grew by an average of about 0.2% in annual terms.

This rate is lower than the inflation rate recorded in the same period last year (about 3.3%). The

monthly dynamics of inflation is continuously declining, with an annual rate of 0.28%, 0.19%

and 0.09% in April, May and June 2020, respectively. This declining trend is mostly attributed to

the drop in basic commodity (fuel) prices in international markets and the decline in vegetable

category prices.

CPI subcategories’ that indicated the most highlighted growth were:

- The food category with an annual growth of 2.3% and a contribution to total inflation of 0.8

p.p, mainly as a result of the price increase of all sub-categories, except the vegetable

category, which marked a decrease of 8.8%, on average.

- The category” Hotels, Cafes and Restaurants” marked a significantly higher contribution

than in the past, about 0.27 pp or annual growth of 8.6%; This increase can be attributed to

the pandemic situation, which has pushed restaurant and coffee businesses to raise prices in

an attempt to somewhat compensate higher operational costs and loss of sales.

- The category “health” marked a more highlighted growth than in the past with a

contribution of about 0.14 p.p. and annual growth of 5.5%.

CPI subcategories’ that indicated the most highlighted decline were:

- Category of “communication” with negative contribution about 0.22 pp, marking an annual

growth by 5.9%;

- The “Transport” category marked a significant decline of about 6.5% and a negative

contribution of about 1 pp., mainly as a result of falling prices in the sub-category” Use of

Equipment for Personal Transport” by about 17.6%, y-o-y. The latter is directly linked with

fuel price developments in the international markets.

8

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0y-o-y, %

Table 1 Main category contributions to annual inflation

Main CPI subcategories

(contribution in percentage points, unless stated otherwise)

2018 2019 2020

Av. Q1 Q2 Q3 Q4 Q1 Q2

Food and non-alcoholic beverages 0.62 2.54 2.54 1.97 1.27 0.74 0.98

Out of which: Food 0.62 2.50 2.52 1.86 1.10 0.57 0.79

Bread and cereals 0.22 1.08 1.28 1.36 0.79 0.22 0.21

Fruits -0.02 -0.20 -0.14 -0.05 0.09 0.27 0.28

Vegetables 0.23 0.92 0.65 -0.03 -0.19 -0.44 -0.29

Alcoholic beverages and tobacco 0.13 0.19 0.15 0.15 0.11 0.01 0.05

Out of which tobacco 0.09 0.11 0.12 0.09 0.08 0.02 0.02

Communication -0.04 -0.02 0.27 0.02 0.04 0.04 -0.22

Health 0.00 0.00 0.01 0.02 0.04 0.10 0.14

Hotels, Restaurants and Coffee bars 0.07 0.05 -0.11 0.02 0.03 0.08 0.27

Use of personal transport equipment 0.50 0.40 0.25 -0.01 -0.14 -0.58 -1.37

CPI (y-o-y, %) 1.06 3.20 3.26 2.56 1.67 1.07 0.19

Graph 4 Total inflation vs. core inflation Graph 5 Contribution of tradable and non-tradable inflation

The base inflation10 in the first quarter of 2020, measured excluding the categories "food and

non-alcoholic beverages" and "transport", marked an annual increase of 0.8%, which is higher

than total inflation (0.2%) for this period.

Also, as shown in Chart 5, unlike the previous performance, the contribution of the non-tradable

component in 2020Q2 is higher than the contribution of tradable inflation11, registering a positive 10 The base inflation measures the change in prices of consumer basket products, excluding temporary and transitional volatility, which mainly characterizes the food or energy category. 11 Trade inflation measures the change in the prices of those products that are exposed to trade in international markets and consequently their prices are not affected by developments in the local market. Whereas, non-tradable inflation measures the change in the prices of those products that are not traded in international markets and consequently are influenced by the local domestic market.

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00p.p

Non-tradeable Tradeable Inflation

9

contribution of 0.39 percentage points (annual growth of 1.8%), mainly as a result of increasing

inflation in categories of "health" and “hotels, cafes and restaurants”.

External Sector

Current Account

The trade deficit of goods in the second quarter of 2020 reached the value of € 553.3 million,

narrowing by about 5.4% compared to the same quarter of 2019, as a result of the narrowing of

the deficit in trade in goods, despite the reduction of the surplus in trade services.

o Imports of goods during the second quarter of 2020 marked an annual decline of about 18.6%

compared to the same period of the previous year. The decline in imports during Q2 was

reflected in almost all constituent sub-categories, with the most significant negative

contribution recorded by the category “Mineral Products” by about -6.9 percentage points (or

annual decline of 47.4%).

o Exports of goods during the second quarter of 2020 marked an annual increase of 15.0%.

This increase was mainly due to the increase in exports of base metals, with a positive

contribution of 10.8 pp, to be followed by exports of ‘chemical industry products’ with a

positive contribution of 5.5 pp; export of ‘other items’ with a contribution of 3.4 p.p; and

export of vegetable products with a contribution of 2.0 p.p;. Meanwhile, exports of mineral

products marked a significant annual decline of 55.6% or a negative contribution of 6.8 p.p.

The trade surplus of services for the second quarter of 2020 was € 4.8 million, marking a

significant decrease (about 90.5%) compared to the same period of 2019 (about € 138

million). For the first time during this month, the balance of services recorded negative

values (about - € 6.6 million in April and about € -2.2 million in May).

o Exports of services for the second quarter of 2020 was 64.3% lower than in the same period

last year, with the largest negative contribution coming from travel services (by -58.8 pp);

from transport (with -3.63 p.p) and from construction (with - 2.3 p.p)

o Similar to the export of services, the import of services also decreased - but to a lesser

extent, - by about -37.6% compared to the same period last year, mainly as a result of the

decline in imports of travel services (with negative contribution of -21.4 pp), transport

services (with -7.14 pp); computer, information and telecommunications services (with

negative contribution of -2.76) and construction (with negative contribution of -2.51 p.p).

o It is worth noting that since March, when the measures to prevent the spread of the Covid-19

virus began, the dynamics of imports and exports changed direction, with the exception of

exports of goods. The decline that characterized the import of goods and services and the

export of services in March was even more pronounced in the following two months (April

10

and May), while in June this downward trend slowed down or reversed, being in line with the

easing or removal of some travel restrictions, social distancing measures and in line with the

re-opening of a range of business activities.

Table 1 Monthly Indicators

Indicator, y-o-y, % Jan ‘20 Feb ‘20 Mar ‘20 April ‘20 May ‘‘20 June ‘20

Import of Goods 16.7% 12.7% -13.1% -33.8% -25.2% 5.4%

Import of Services 11.7% 25.9%% -8.5% -40.9% -42.2% -31.4%

Export of Goods 23.6% 48.3% 7.2% -14.7% 18.3% 31.6%

Export of Services 13.4% 20.9% -44.2% -80.2% -68.1% -44.1%

Graph 6 Current Account

In the second quarter of 2020, the

primary income balance12 increased

by 4.0%, reaching a value of 46

million euros, mainly as a result of

the improvement of the income

balance in the category of employees’

compensation. The balance of

secondary income13 for this quarter

reached the value of euro 352.8

million, which is 5.4% higher than

the balance in the same period a year

ago. This increase is mainly attributed

to the increase in the balance of

remittances by about 12.6%, y-o-y.

Given that the balance of secondary

income is dominated by remittance inflows, it is worth noting that in the second quarter of 2020

remittances marked an annual increase of 12%. Despite the annual decline of 12.4% in April, the

performance of remittances improved significantly in the following two months (April and May),

thus confirming their role as an important source of funding for households in Kosovo during the

periods of crisis. In addition, during the second quarter there was a noticeable change in

remittance delivery channels. As a result of the closure of the borders of Kosovo and European

countries, which remittances are sent from, the share of remittances sent through money transfer

operators to the total remittances, increased significantly from 51.6% in 2019 Q2 to 77.9% in

2020 Q2, while the share of remittances sent through informal channels (in the form of cash)

marked a significant decrease from 36.2% in 2019 Q2 to 6.6% during 2020 Q2 (in April and

May there were no remittances recorded through this channel).

12 Primary income includes collection of payments from investments in foreign financial assets and liabilities and employee compensation (paid

to non-resident and seasonal workers; 13 Secondary income includes state aid from abroad (official transfers) and remittances.

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2018 2019 2020

mil

Eur

Secondary Income (net) Primary Income (net)Services (net) Goods (net)Balance from Current Account

11

Graph 8 Financial Account

Graph 7 Remittances according to the delivery channels

As a result of the narrowing of the deficit in goods and services trade and the improvement of the

balance of primary and secondary income, the current account deficit for the second quarter of

2020 narrowed by about 24.8% reaching the value of -154.6 million euros, while the deficit

recorded in the same period of the previous year amounted to -205.7 million euros.

Financial Account

The financial account deficit for

the second quarter of 2020

widened by about 58.9 million

euros, mainly as a result of all

components, especially the

increase in the portfolio

investment balance

During this period, total FDI

inflows increased by 46.4%,

reaching the value of 60.1

million euros, compared to the same period of 2019. This increase is mainly attributed to FDI

inflows in the financial services sector, which marked an increase of 44.3%. Meanwhile, as

expected, the sector that usually has the highest share in the structure of FDI - the real estate

sector, rent and business activities - marked an annual decline of 22.9%. However, the monthly

performance shows that the increase in total FDI in 2020TM2 is attributed to the satisfactory

performance only in June, as in the previous two months (April and May), the increase in FDI

was negative.

12.2%

51.6%

36.2%

2019 Q2

Banks Money Transfer Operators Other

-400

-300

-200

-100

0

100

200

300

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2018 2019 2020

mil

Eur

Change in Reserve Assets Other Investment (net)

Portfolio Investment(net) Foreign Direct Investnment (net)

Balance from Financial Account

15.5%

77.9%

6.6%

2020 Q2

Banks Money Transfer Operators Other

12

Financial Sector

o The second quarter of 2020 was characterized by a significant annual decline in new

loans by 47.8%. This is attributed to the 44.2% decrease in loans to non-financial

corporations and a 53.2% decrease in loans to households.

o New deposits in the second quarter marked an annual decline of 40.4%. This decline was

mainly driven by the decline in household deposits by 32.7% and the decline in non-

financial corporate deposits by 54.4%. However, the monthly trend shows that June was

characterized by an improvement or slowdown of the downward trend shown in the

previous two months (April and May).

o The effective interest rate on new loans for the second quarter of 2020 averaged 6.2%,

while that on new deposits averaged 1.5%.

o Non-performing loans during the second quarter were 2.6% of total loans, showing

deterioration from the previous quarter (2.4%).

Table 2 Main Financial Sector Indicators

2018 2019 2020

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

New Deposits % Δ 20.6 19.0 17.9 36.1 0.8 22.6 -0.1 -5.9 5.3 -40.4

New Loans % Δ 14.6 12.3 -3.7 0.7 -5.0 1.8 26.1 1.5 28.4 -47.8

Effective Interest Rate on

new loans 6.9 6.7 6.7 6.3 6.7 6.4 6.4 6.4 6.4 6.2

Effective Interest Rate on

new deposits 1.1 1.2 1.5 1.4 1.5 1.4 1.4 1.5 1.5 1.5

Non-performing Loans Ratio 3.0 2.9 2.8 2.7 2.6 2.6 2.3 2.2 2.4 2.6

Labour Market

o The publication of the results of the Labour Force Survey for 2020 Q2 has been postponed

due to the situation created by the COVID19 pandemic, and consequently the latest

available data belong to the first quarter.

o According to the Labour Force Survey for 2020 Q1, the employment rate reached the value

of 29.1%. During this quarter, the number of employees increased by about 4.7% compared

to the same period last year, mainly as a result of the increase in the retail and wholesale

trade sector (4.8%, y-o-y); the accommodation and food service sector (3.3%, y-o-y), and

the electricity, gas, steam and air conditioning supply sector (3.3%, y-o-y).

o The labour force participation rate has remained almost at the same levels as the same

period of the previous year (38.8% in Q12020, 38.7% in Q12019).

o Whereas, the unemployment rate decreased by 1.9 p.p. in annual terms reaching 25.0%.

13

Business Register

o The number of new businesses during the second quarter of 2020 was 2,033. Compared to

the previous quarter (2020Q1) there is a decrease of 12% (278 less registered businesses),

while compared to the same period last year (2019TM2) there is a decrease of 3.9% (93 less

registered businesses). Among which:

488 new businesses in wholesale and retail trade, repair of motor vehicles,

motorcycles (102 less than in 2019 Q2)

328 new businesses in the construction sector (81 more than in 2019 Q2)

309 new businesses in the manufacturing sector (170 less than in 2019 Q2)

191 new businesses in the accommodation and food services sector (168 less than in

2019 Q2)

189 new businesses in professional and scientific activities (47 less than in 2019 Q2)

o The structure of new businesses in 2020T2 is dominated by micro enterprises (2,016

enterprises). Only 15 small enterprises and 2 medium enterprises were registered during this

quarter.

o According to the origin of capital, the majority were with local capital (2,011 enterprises)

and only 11 of them were with foreign capital.

o The number of businesses closed during Q2 2020 reached 146; this number is significantly

lower than the same quarter last year (total 447 closed). The enterprises closed during

2020T2 have been mainly from the trade, transport and storage, and construction sectors.

Public Finances

Revenues

o Total revenues during the second quarter of 2020, amounted to Euro 363.08 million,

marking an annual decrease of 11.0% compared to the second quarter of the previous year,

mainly due to deteriorating economic conditions caused by the pandemic situation Covid-19.

This collection represents a realization rate of 66.3% of the amount foreseen in the initial

budget for this period. But given the economic situation created due to the Covid-19

pandemic, the budget review has been done. Compared to the the revised values, the

realization of budget revenues is about 84.0%.

o Tax revenues for this period marked the value of 331.5 million Euros or a decrease of 19.6%

compared to the second quarter of the previous year. These revenues reached 68.4% of the

revenues initially projected for this period, and 85.7% compared to the revised values.

o Direct revenues reached the value of 60.2 million Euros and represent 18.7% of total tax

revenues for this period and are 23.4% less compared to the same period last year. Of them,

- Corporate income tax amounted to 21.06 million Euros (-22.1%, y-o-y);

- Personal Income Tax amounted to 35.2 million Euros. (-17.0%, y-o-y)

- Property tax reached the value of 8.9 million Euros (-52.9%, y-o-y);

14

o Indirect revenues in the second quarter of 2020 represent about 83% of total revenues.

Compared to the second quarter of last year, indirect revenues have decreased by about

20.1%. Of them:

- Value Added Tax which accounts for about 48.4% of tax revenues marked an annual

decrease of 21.8%;

- Excise (28.0% of tax revenues) marked an annual decrease of about 11.4%;

- Customs duty is 35.2% lower than the same quarter of the previous year.

o Non-tax revenues for this period amounted to 31.6 million Euros, and marked an annual

decrease of 39.9%. The realization rate of these revenues was 50.2% compared to the initial

forecasts and about 69.2% compared to the revised ones.

Expenditures

o Budget expenditures for the second quarter of 2020 amounted to 508.1 million Euros and

were about 5.9% higher than the same period of last year. The realisation compared with the

initial projections was about 83.1% while compared with the revised Covid-19 projections is

about 76.2%.

Graph 9 Contributions to budget revenues Graph 10 Contributions to budget expenditures

buxhetore

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

-160%

-140%

-120%

-100%

-80%

-60%

-40%

-20%

0%

20%

2017 2018 2019 2020

Non-tax revenuesReimbursementIndirect taxesDirect taxesBudget revenues, y-o-y %

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2017 2018 2019 2020

Interest payment

Capital Expenditure

Recuring Expenditure

Expenditure and interest y-o-y %

15

- Current expenditures in the second quarter of 2020 amounted to 439.6 million Euros

marking an increase of 16.0% compared to the same period of the previous year, mainly as

result of additional expenditures to be accommodated under the Economic Recovery

Programme. The “wage and salaries” category reached the value of 171.8 million euros and

represents an increase of 10.5%; the “goods and services” category reached the value of 63.4

million euros, which represents a decrease of 1.1%; while the category of “subsidies and

transfers” reached the value of euro 204.4 million euros, which is 28.2% higher than the

same period of the previous year.

-Capital expenditures reached the value of 64.2 million euros, which represents a decrease of

34% in annual terms.

- Interest expenses reached the value of 4.4 million euros in the second quarter of 2020,

registering an annual growth rate of 12.8%.

General budget balance

o The total deficit according to the fiscal rule in 2020Q2 reached 114.8 million Euros or about

1.7% of GDP, respecting thus the fiscal rule of 2% deficit of GDP.

o Total (net) bank balance at the end of the second quarter amounted to 343.3 million Euros or

4.9% of GDP (respecting the fiscal rule of at least 4.5% of GDP).