Democracy, Pandemic and the Impact on the Economy

 The global level economic shock caused by COVID-19 Pandemic brought serious consequences that are far more serious than the financial crisis of 2008. Its impact is structural, with many lives lost and ramifications for the health system and the contracting economies all over the world. Surely, there will be even more implications because the structural reforms of the countries in politics, economy, healthcare raise the need of the addressing at the global level of many ethical dilemmas and security aspects, pertinent to the bio-ecological engineering and its potential consequences, similar to these that we are currently experiencing.   

Kosovo is also facing with these consequences. The addressing and the crisis management, so far has been relatively satisfactory and with no delayed measures, but the strict discontinuation of economic and social activities and the social distancing, surely will have its impact in the fall of production and economy services. The ramifications of this mean that there will be loss of many jobs, less family budget, and an increased number in emergent requests for social assistance. This will have a further impact on the still modest budget of Kosovo.  

The forecast from the International Monetary Fund (IMF) is that there will be a negative growth rate of -3% on the global economy. The COVID-19 Pandemic is shrinking our economy and according to IMF there will be a negative growth rate of -5%; The Government of Kosovo is predicting a negative growth rate of -3%, whereas the Central Bank of Kosovo (CBK) believes the negative growth rate will be from -2% to -4%.

During the discussion concerns were raised over the serious damage caused to the economy of the country. The private sector is facing with various difficulties, starting from financial ones, job-saving, productivity, production, losing of markets and the supply chain stability. Small and micro-enterprises (1–5 employees) are the most affected ones in this pandemic situation. The state budget revenues have fallen during the second part of April. The Government’s prediction is that if this situation continues until the end of May 2020, the revenues with decline for 200-220 million Euros, in 2020.

The Emergency Aid Package (EAP), being one of the measures of the Government is meant for social assistance schemes, pensions, and employee salaries of 170 Euro net for the private sector and the employees that may lose their jobs, and also to ensure the liquidity of small enterprises and the self-employed in micro-enterprises. The Emergency Aid Package (EAP) of 290 million Euros shall be compensated through Government’s cost-saving, without affecting the legal obligations, public sector salaries and other foreseen projections. This crisis situation is with a dual effect: unemployment will increase, and at the same time the demand for consumption will decrease.  

Measure undertaken by the Government were welcomed and are considered as the best ones in the region. It is expected that the Government’s Economic Revival Package (ERP) will correct some of the measures undertaken in the EAP. The ERP is estimated to have some 300-350 million Euros. This fund will be created from loans and other assistance, so that the Treasury and the banks maintain their minimum liquidity. There was also attention given to the amendment of the Law on Public Financial Management and Accountability, which should take place in cooperation with the Assembly, which in this existing political division is not an easy thing to do. One of the speakers mentioned that the hospitality industry is the most stricken one and its most affected sectors are: sector of services, tourism, production, and the building construction sector. We will be affected by a suspended economy for several months. Closing of countries will also have an impact over the decreasing demand, and the supply chain will encounter difficulties leading to a decrease in imports. An important source of incomes are the remittances. Our diaspora is considered as a great potential, in particular as a source of investment for household economies. Diaspora invests some 1 billion Euros per year. However, this year there could be a slight decrease in investments, but the effect could be negative if the borders remain closed for a longer period of time.  

These days, there are some concerns over the defining the minimum wage of 170 Euro net for the employees in the private sector and those that will lose their jobs. One has to have in mind that before the COVID-19 Pandemic, the minimum wage in the private sector was significantly lower for about 40%, compared to the public sector. It is important to implement the EAP in real-time, because any delay would deepen the crisis even more. The Government guarantees that they will undertake measures ensuring a fair allocation of assistance for the private sector, the laws will be respected, and there will be no discrimination whatsoever, during the implementation of these measures.

The CBK initiative for measures in the banking sector aimed at postponing the payment of loans for next three months was supported as well. It is expected to increase the Loan Guarantee Fund in Kosovo and this for sure would help the private sector. The increase of Bank Credit Portfolio from the banks, decrease of interest rates, possibility for a deferred loan payment (grace period), are quite important steps for the support of the private sector.

Taking into consideration that the private sector is the economic development generator, it is a necessity to reach a consensus among the key actors for the cooperation in designing of the Economic Revival Package (ERP). The ERP should focus on the sectors that develop rapidly and therefore increase their activities. It is important to guarantee that the money used for this fund should be allocated in sectors yielding economic results for economy revival. Sectors with this potential are: production, agriculture, IT services; namely the sectors that can increase exports.

Surely, the world after COVID-19 Pandemic will not be the same, and this is also foreseen by experts in economy.  This situation may also change the economic order of the countries.

The fight against the COVID-19 Pandemic in our country has further deepened the existing political and institutional crisis. This then raises serious matters of concern on the current trends of democratic, social and economic developments in the country.

Video of the debate can be found here: