The proposed changes include €102 million for wages, covering the 13th salary and retroactive compensation for years of service, as well as €20 million for basic pensions. The International Monetary Fund has warned of a growing deficit and the impact ongoing spending could have on public finances.
The Government of Kosovo has requested a revision of the 2026 budget allocations, proposing an additional €122 million for wage and pension spending. The draft law amending and supplementing the Law on Budget Allocations has passed its first reading and is expected to be discussed at second reading in the Assembly of Kosovo on Thursday, about two months before the end of the fiscal year.
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Of the proposed amount, €102 million would be placed in the “Wages and Allowances” category of the “Contingencies” subprogram at the Ministry of Finance. The funds are earmarked for the 13th salary and retroactive compensation for years of service, in line with Constitutional Court Judgment KO79/23.
The draft law gives the Government the option, on the proposal of the minister of finance, to approve retroactive compensation for years of service for employees paid from the budget. However, the document does not specify how the €102 million would be divided between the 13th salary and retroactive compensation.
Finance Minister Hekuran Murati said during the presentation that some of the funds would be used for the 13th salary and the rest for retroactive compensation for the difference in the years-of-service allowance. He explained that the compensation covers the period from the entry into force of the Law on Wages in the Public Sector through the end of 2025, when the allowance of 0.5 percent for each year of service was not fully covered.
Judgment KO79/23 addresses the constitutionality of provisions in the Law on Wages in the Public Sector, including the method for calculating the years-of-service allowance. The proposed budget amendment is intended to ensure funding for obligations related to this matter.
The draft law also provides an additional €20 million for the Ministry of Labour, Family and the Values of the Kosovo Liberation War, for its Department of Pensions. The funds will be recorded under “Subsidies and Transfers” and used to cover basic pensions.
Dividends from public enterprises as a source of funding
To finance budgetary needs, the Government is proposed to be authorized to request the distribution of dividends from public enterprises, up to a value of €30 million. The provision stipulates that the money must be transferred to the Treasury Single Account within 30 days of the law’s entry into force.
The fiscal projections table accompanying the draft law estimates €42 million in revenue from dividends and profit distributions in 2026. For 2025, the forecast in this category was €15.4 million. The €42 million figure represents the overall estimate of revenue in this category, while the new authorization for dividends from public enterprises is capped at €30 million.
The document does not identify which public enterprises are expected to pay dividends or how much each would contribute. It therefore remains to be clarified which enterprises the funds would come from and what effect the distributions could have on their financial plans and planned investments.
According to the figures in the fiscal table, total budget revenue for 2026 is estimated at €3 billion and €749.3 million, while spending is projected at €4 billion and €89.6 million. This represents a budget deficit of €340.2 million.
The overall fiscal deficit is forecast at 2.8 percent of gross domestic product, while the balance calculated under the fiscal rule ceiling is minus 2 percent of GDP. These two indicators measure different things: the overall balance reflects the difference between the revenue and expenditure presented, while the calculation under the fiscal rule also takes into account spending items excluded from the relevant ceiling. These are projections in the document accompanying the draft law, not final figures for the execution of the 2026 budget.
IMF warns of pressure on public finances
The proposed budget changes come after warnings from the International Monetary Fund about Kosovo’s rising fiscal deficit and the need for greater caution in public spending. In its 2026 Article IV consultation report, published in March, the IMF assessed that new spending measures, including a 13th salary for public employees and an increase in the years-of-service allowance, are contributing to a widening deficit. According to the Fund, increased spending on wages and transfers could put greater pressure on prices, widen external imbalances and narrow opportunities for public investment.
The IMF has advised greater fiscal discipline, better oversight of current spending and offsetting measures for increased expenditure, with the aim of preserving the sustainability of public finances. Recommendations in the report include reviewing tax exemptions, finding savings in goods and services, and improving the efficiency of social spending. These conclusions form part of the IMF’s broader analysis of Kosovo’s fiscal policies and are not a direct assessment of each provision in the October draft law. Nevertheless, they raise the question of how the additional spending will be financed and what impact it will have on the budget balance and investment opportunities.
Proposed changes late in the year
The draft law is being considered late in the fiscal year, with about two months remaining until the end of 2026. The delay may be related to the failure to constitute the Assembly. The changes are intended to cover planned spending on wages and pensions, including obligations for retroactive compensation for years of service.
However, the document lacks detailed information on the cost of each measure, the amounts spent so far and the final impact of the changes on budget execution. The Ministry of Finance therefore still needs to clarify how the €102 million will be allocated, as well as how the planned funds will be secured and disbursed.
Changes to the 2026 budget allocations are a separate process from drafting and approving the 2027 budget. The latter is expected to be approved by the Government no later than October 31.
