The International Monetary Fund praised Kosovo's new prime minister on Monday for defying a strike threat and sticking to plans for steep public sector pay hikes.

Prime Minister Isa Mustafa, who took power two weeks ago, has vetoed a pledge by his predecessor to raise public sector salaries by 25 percent annually for the next four years, following a similar raise this year.

Legislators in the 120-seat Parliament in the first round of balloting on Monday cast 73 votes in favor of the 2015 budget of 1.57 billion euros, which is 8.1 percent bigger than the previous year. Drafted by the previous government, the budget was amended by Mustafa to remove the pay hike.

"In our view, not granting a second hike so soon after would be the right decision," Frank Lakwijk, IMF resident representative in Kosovo, said in a statement.

"By using a growing share of its income to pay salaries in the public sector, Kosovo is devoting fewer resources to education as well as to infrastructure and energy projects, all of which the country desperately needs," he said.

"Repeatedly promising more than one can afford is not the way to durably increase living standards."

Kosovo does not currently have a loan programme in place with the IMF, but government officials have told Reuters talks on a new arrangement are expected to begin early next year.

The IMF noted that since 2008, when Kosovo declared independence from Serbia, the average public sector wage has more than doubled, growing three or four times faster than in other western Balkan countries.

While the Kosovo economy is growing, it is driven mainly by state infrastructure projects, construction and remittances from Kosovars working abroad.

The private sector is weak, with Kosovo struggling to attract foreign investors wary of its reputation for organised crime and corruption. Around a third of the workforce is jobless.

The 2015 spending plan targets growth of more than four percent, and a deficit of two percent of gross domestic product (GDP). Unions have threatened to strike if the new government scraps its predecessor's pay plan.

Addressing parliament, Mustafa said: "The salary increase from this year will be respected. Further increases will be in accordance with budget capabilities."