Western Balkans in inflation maze: Imported or domestic, citizens foot the bill

The Western Balkans is facing a new wave of inflationary pressures which, according to Kosovo Online’s interlocutors, are a direct consequence of the sharp rise in energy prices on global and regional markets, as well as the region’s heavy dependence on imports. They agree that inflation is not merely an economic but also a social problem, best illustrated by consumers’ perception that, in the race between rising wages and rising prices, prices are generally winning.

Written by: Ivana Sanjevic

Annual inflation in Kosovo has reached a high 7.8 percent, with economic analysts attributing this to the economy’s dependence on imports, but also to the lack of a government response, unlike in Albania and Serbia, where authorities immediately froze fuel prices and reduced levies.

The Kosovo Government rejected a request by the Chamber of Commerce and the opposition to temporarily abolish value-added tax and excise duties on fuel. The International Monetary Fund has forecast that Kosovo will record the highest inflation rate in the Western Balkans this year, at 6.8 percent, while economic growth is expected to stand at 3.5 percent.

After Kosovo, the highest inflation is projected in Bosnia and Herzegovina, at 5 percent, while North Macedonia is expected to record a rate of 4 percent. According to IMF projections, inflation should stand at 3.5 percent in Montenegro and 3.2 percent in Albania, while Serbia is forecast to have the lowest rate in the region, at 3.1 percent.

Average wages across the region have risen in nominal terms, but one thing residents of the Western Balkan Six would likely say in unison is that, in the race between wage growth and rising prices, prices have won.

Empty support packages

A Kosovo Online survey in Pristina showed that citizens complained most about food prices, but also about the fact that institutions were not doing enough to help them.

“Food has gone up the most. Clothes and other things are not the problem, but food is,” Bucaj Sulejman said, adding that wages were not high while everything was “really expensive.”

Sefku Mekolli agreed, although he added that prices in Kosovo were still lower than in Montenegro, which he had recently visited. Asked whether institutions were helping citizens through various support packages, Mekolli replied: “There are support packages, but they are empty.”

Borrowing as a sign of crisis

President of the Kosovo Chamber of Commerce Lulzim Rafuna told Kosovo Online that citizens had taken out EUR 42 million in new loans from commercial banks, which he said was a sign that they were struggling with rising prices. He therefore renewed his call for the Kosovo Government to introduce measures to mitigate the effects of inflationary pressures.

“Inflation here is higher than in the region. Political factors have also had an impact, but Kosovo imports a great deal—imports amount to almost EUR 8 billion—so we are importing inflation as well. We have also contributed to its growth domestically because the Kosovo Government did not take any measures, such as reducing excise duties or the VAT rate when fuel prices rose,” Rafuna explained.

Rafuna added that, according to data from the Kosovo Chamber of Commerce and the Statistics Agency, food prices had risen the most, directly affecting citizens.

“I see a trend in the region, but also more broadly in the EU and globally, suggesting that inflation will continue to rise, particularly with winter approaching and electricity and gas prices set to increase,” he warned.

Accumulated crises

Sinisa Naumoski, a representative of the Management Board of Heidelberg University in Skopje, believes that the renewed rise in inflation in the Western Balkans, including North Macedonia, is the result of successive global crises, from the pandemic to the war in Ukraine, the Iran-US conflict and the energy crisis.

“We are dependent on imports, and all external pressures are absorbed primarily through inflation, while citizens’ living standards bear the brunt. That is why the IMF is forecasting a 4 percent inflation rate for North Macedonia. Most importantly, it does not foresee a rapid decline. I do not want to create a negative impression, but it is important that we are honest with the public,” he told Kosovo Online.

Residents of Skopje are divided over whether prices have risen. While some complain about high food prices, others say that this happens every year at this time.

“To tell you the truth, as I follow these developments, everything is staying where it was. Neither more expensive nor cheaper,” one Kosovo Online interlocutor said, while another added that “the market is expensive.”

They described the authorities’ measures as “smoke and mirrors.”

“Well, you can see that it is more expensive than before. Our incomes have now been increased, but it is still not enough for a person to feel completely at ease and shop without having to watch every penny,” one Kosovo Online interlocutor concluded.

The poorest hit hardest

Economists point out that the burden of inflationary pressures is borne primarily by socially vulnerable groups and small businesses. This has prompted the authorities in Serbia and Albania to launch digital platforms allowing citizens to monitor daily retail prices, in an attempt to pressure retailers into reducing their margins.

Economist Veljko Mijuskovic explained that energy and food costs were the factors contributing most to rising inflation, while high import dependence created additional inflationary pressure throughout the region, including Kosovo.

Mijuskovic warned that inflation had a negative impact on social inequality, as whenever inflation rose, the poorest segments of society had to spend more on food, utilities and similar expenses.

“The measures introduced should be targeted at helping the poorest groups,” Mijuskovic said, warning against what he described as indiscriminate measures applied to everyone, as these could further intensify inflationary pressures.

Inflation in Montenegro is influenced by both international and domestic factors, but one of the main reasons for the significant rise in prices is the country’s dependence on imports, economic analyst Mirza Muleskovic said.

“Over the past few years, Montenegro has twice introduced administrative wage increases, which boosted demand and increased costs for businesses, resulting in a general rise in prices,” Muleskovic told Kosovo Online.

He noted that Montenegro was an import-dependent country, which was one of the main reasons for such a significant increase in prices.

“I hope we will manage to address the problem because inflation is not a problem only for citizens. At one point, it ‘suits’ the state because it boosts budget revenues, but after a certain period—and in our case this has already been going on for almost four years—it becomes a major enemy of the state,” Muleskovic warned.