How can inflation slow down? Economists have some ideas, Government is silent

These figures are high, says Kosovo Economic Ode Chairman Lulzim Rafuna. But, according to him, this inflation has not created businesses in Kosovo, they have imported it after they have bought at higher prices, whether raw materials, semi-products or final products.

This inflation in Kosovo is digital and is very high. If we enter the inflation structure, we see that food products have dominated and gone by price hikes of up to 40 percent or there are cases of up to 50 percent. This has been very disturbing for this year [2022]”.

For the year 2023, I am especially optimistic about the second half of the year, and perhaps even April or May, inflation begins to decline, as well as prices”, Rafuna tells Radio Free Europe.

The rise in prices in Kosovo, but also elsewhere in the world has started by the end of 2021, due to markets that have caused the pandemic and the coronary. The increase has continued at a faster pace than February of last year, when Russia has begun its invasion of Ukraine.

Growth has suffered almost all products and services in Kosovo from flour bread to currents and real estate. The average salary in the country is about 480 euros, while the minimum is brought from 130 euros to 170 euros.

In Some Surveys It Has Done REL with citizens in Pristina, many have said it is more difficult to obtain needed products.

Berim Ramosaj, professor of economics at Pristina University, says that even during 2023, Kosovo will face inflation, but the growth trend will be slower.

He estimates that inflation would be able to be introduced into controlled frames only after a year or two.

But, in order to get a real mirror regarding inflation in Kosovo, it should be based not only on prices of basic products for citizens but also on the amount of money in circulation, Ramosaj says.

He emphasises that Kosovo's Central Bank does not have the right to control the amount of money that is in circulation, because, despite the official currency in Kosovo, the country is not part of the Eurozone and, therefore, does not enjoy the right to decide on the amount of money in circulation.

“We will be on a trend of growth or slower inflation growth, like other countries in the region. But it reflects us more. There are countries where inflation stimulates growth, because it's a kind of accelerator in terms of increasing the amount of money, increasing demand, economic growth... In us, reflections are not so positive, taking into account that Kosovo's trade balance is highly inappropriate, in the sense of the export-import” report, Ramosaj tells Radio Free Europe.

According to Statistics Agency data, from January to November 2022, Kosovo has exported products worth about 850m euros, while importing products worth over five billion euros. Consequently, Kosovo's trade deficit for January-November 2022 has reached 4.2 billion euros.

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OEK Chairman Lulzim Rafuna says that in many countries around the world, governments have taken measures to alleviate the effects of inflation, helping their citizens even with subsidies.

Subvention of certain social groups has also made the Government of Kosovo through various financial packages. In one period, it has also set ceiling prices for oil derivatives.

Rafuna says the government can take other measures that could affect the easing of inflation.

“, for example, tax cut. At this time, to reduce excise tax or be completely removed for certain products if it affects price reductions. Then, the possibility of subsidizing companies, which subsidies could then carry to their workers. There are many measures, but it's just a matter of analysis. Our call, like OEK, has always been to sit down with the relevant ministries and prepare a package for business. Helping businesses also helps citizens”, Rafuna says.

REL contacted the Kosovo Government and the Ministry of Finance to ask how they plan to fight or manage inflation growth in 2023, but did not receive answers from them.

“grow formalization and bank savings”

Professor Ramosaj says there are a host of measures that may affect the easing of inflation, but, according to him, Kosovo should approach those who may be applicable to it.

According to him, the Government of Kosovo, among other things, must approach tax policies and economic growth policies, based on stimulating specific sectors, which have a direct effect on growth.

The introduction of money through informal channels in Kosovo, Ramosaj says, hinders the smoothing of inflation.

“Decreasing these informal sectors, respectively, increasing formalism in general in business, is a factor that can produce results. Second, if there is enough ability [Kosovo government] to increase interest rates for credit and, in some way, make the concept of savings attractive... Likely, much of the free means of citizens go to banks, save themselves, and do not create new demands on the market. This has an anti-inflation effect, immediately”, Ramosaj says.

He adds that these are cosmetic measures, but that may affect the easing of inflation.

According to a document published in October 2022 by the International Monetary Fund, inflation rates for average consumer prices in Kosovo have been 12 percent, in northern Macedonia 10.6 percent, in Albania 6.2 percent, in Montenegro 12.8 percent, in Serbia 11.5 percent, in Bosnia and Herzegovina 10.5 percent, and in Croatia 9.8 percent.

According to the World Bank, in 2021, Kosovo marked economic growth of 10.5 percent, while in 2022 economic growth was no more than 3.1 percent. For 2023, the World Bank expects economic growth in Kosovo to be between 3 and 4 percent.

The Kosovo Central Bank has seen inflation in 2023 as about 6.2 percent.

In the Eurozone, meanwhile, inflation has affected the record in October, reaching 10.7 per cent. / REL