The end of 2021 and early 2022 saw an impasse in global supply chains due to the pandemic and the Russian invasion of Ukraine. These developments resulted in higher utility bills and weakened purchasing power, especially affecting those with lower incomes, since basic goods have become more expensive.

The cost of living in Kosovo is increasing and the effects are making themselves felt in people’s budgets.

This inflation provoked calls for the Kosovo government to support its citizens and businesses that are endangered by the higher production costs. Kosovo has a free market and the government cannot directly influence prices, but it has introduced several support packages.

From November 2021 until now, the government’s support packages consisted mainly of one-off grants of 100 euros for certain groups, such as pensioners, beneficiaries of social schemes, workers and students, as well as subsidies for salary increases for private sector workers.

However, the government did not include every group in need. Existing schemes, such as social assistance, do not accurately assess which groups are most vulnerable and in need of government support in times of crisis.

Who should the government support?

The Kosovo government compared the support package introduced to deal with inflation to the German government’s. However, the German government designed a more inclusive package, dictated by budgetary possibilities, but also by existing support schemes, such as unemployment insurance and housing support.

Beneficiaries of the housing scheme in Germany will receive a second supplement for heating. After that, a heating allowance will be permanently integrated into the housing allowance. Benefits for the unemployed were also increased, from January 1, 2023, they will receive an additional 50 euros in addition to the standard 450 euros.

In Kosovo, there is a lack of such schemes and this makes it difficult to target the most vulnerable groups in times of crisis.

The last assessment of the poverty rate in Kosovo was carried out in 2017, while information on the economic situation of families was collected by the Kosovo Agency of Statistics (KAS) through the Survey on Income and Living Conditions in 2018. According to this survey, that year, over 78.3% of households encountered difficulties paying for rent, energy or loans. With prices rising and wages mostly the same, the situation today is certainly more difficult.

In order to respond to the current crisis and others that may come, the government must fundamentally change the design of its social schemes by expanding those that exist and adding new ones.

In Kosovo, there is only one scheme aimed at reducing poverty through which citizens can receive social assistance from the state budget every month. The payment is between 70 to 180 euros depending on the number of family members.

This scheme covers two categories. The first category includes families where all members are unable to work. The second category includes families with a member able to work, but who is unemployed and has at least one child under the age of five or an orphan under the age of 15. In August of this year, 24,627 families with a total of 97,124 members benefited from this scheme.

According to the World Bank report on Kosovo for 2022, about 7% of the total population benefits from the social assistance scheme, while the official poverty rate is about 20%. Only one in four people in the lowest income quintile receive social assistance.

This scheme is not particularly inclusive. For example, it does not include families that have a member able to work, but who is unemployed and has children over the age of five in their care.

When the government targets beneficiaries of the social scheme to help them during a crisis, it must take into account that many citizens with low incomes remain unsupported. As recommended by the World Bank, Kosovo should review the criteria for social assistance in order to increase its coverage of poorer families.

A reformation of the unemployment insurance program was requested a long time ago. The government should start there. Employees would contribute from their wages, so if they lose their jobs they would benefit from insurance for a certain period of time. Unemployment insurance would not only take the burden off the state budget for the unemployed, it would make it easier to target the unemployed who do not meet the criteria to be part of the social assistance scheme.

The reform of the pension system also is particularly important and has been discussed for a while. The potential reform of this system would provide a higher pension, enabling pensioners to live more dignified lives and mitigate their vulnerability in times of crisis.

Through the re-design of these schemes, the government of Kosovo would make it easier for itself to heed calls for financial support. Not only would it know who to help and be able to avoid opportunities for misuse, it would not leave citizens who need help unsupported as a result of lack of funds or because some are unable to apply.

The private sector is unsupported

Apart from two surveys carried out years ago, there are no other indicators that show the economic situation of citizens who belong to vulnerable groups or who are more affected by the inflation crisis. The data on salary levels also point to another group that is affected by this crisis and has not been taken into account by the government’s support packages: private sector workers.

In the government’s support package, private sector workers only received 100 euros in total. While support is provided to public officials and those in public enterprises — who tend to have higher salaries — the government will support businesses that increase workers’ wages, subsidizing 50% of the wage increase per worker for a maximum of 100 euros for three months.

How likely is it for businesses to raise workers’ wages in times of crisis? We must keep in mind that if a business owner increases an employees’ salary based on government assistance, it will have to keep the increased salary beyond three months. The chances of this happening are low.

So, private sector workers are especially vulnerable. While prices have increased, wages have remained unchanged. There has been no increase in the minimum wage since 2011 when it was set at 170 euros, an increase would be helpful especially now to those in the private sector. A draft law that will increase the minimum wage to 264 euros gross was approved in June of this year, but awaits final approval in the Assembly.

With the increase in the cost of production for businesses, private sector workers are not likely to receive higher wages, but are instead more at risk of losing their jobs.

Another problem in supporting private sector workers is the high degree of informality — many workers do not have contracts. If the government launched a support measure targeting the private sector, it would leave out uncontracted employees.

The current support offer of 100 euros or the wage subsidy of 50%, sometimes targeting one group and sometimes another, does not ensure continuous support for vulnerable people. As a result, citizens cannot count on the support to make it until the end of the month.

Feature image: Majlinda Hoxha / K2.0.

The content of this article is the sole responsibility of K2.0. The views expressed in it are the author’s and do not necessarily reflect the views of K2.0.

Curious about how our journalism is funded? Learn more here.