20th June 2022, Skopje – In order to overcome the inflation crisis, brave and accountable economic decisions are needed, which are not to be driven by the daily political agenda. There will be based upon economic laws, profound analysis and explicit purpose – stabilization, overcoming the crisis, as well as economic growth, as underlined by Minister of Finance, Fatmis Besimi in his column on inflation, measures and economic growth maintenance.
In his column, Besimi wrote that the reports and analyzes of the international institutions share the same recommendations, and that countries should have targeted measures into place, i.e. measures, which will precisely determine which target category of citizens and companies are in need thereof. This, as he pointed out, is aimed at preserving the fiscal and macroeconomic stability of the economy.
– Following the pandemic, fiscal space to respond is narrowed, especially in the developing countries. Hence, when creating fiscal policies, this is also to be taken into account, considering the price rise expected on the capital markets. Fiscal measures should be put in place anyhow, but the fiscal response amid pandemic and in times of the price crisis is to be different, since the nature of the crisis is different, as are the current conditions for financing and implementing the measures, Minister of Finance indicated.
He refers to an IMF publication, as per which, fiscal policies should, during the ongoing crisis, be planned in line with the already existing social protection system, applied in the respective country. Recommendations on the fiscal measures are given according to three categories of countries: having strong social protection in place, with poor social protection, but no food and energy subsidies and those with poor social protection, as well as food and electricity subsidies.
-Although being greatly politically unpopular, it is recommended to allow the effectuation of the market forces of supply and demand, with support being provided to the most vulnerable categories. Price signals are crucial for both adequate demand response and beginning of the stabilization. Let us take the energy as an example therefor. Demand for energy is inflexible, in particular as regards fuels, meaning that higher prices can lead to lower demand. On the other hand, food is featured with even greater price inelasticity. Therefore, ensuring social security to the most vulnerable categories of citizens, is of great significance. In case low-income households use certain fuels for heating, the well-designed measures can impact the very price of these fuels. Reducing fuel and food taxes is not recommendable. Reducing the taxes for all means also subsidizing those in no need of support, at the expense of the vulnerable categories of citizens, as Minister of Finance wrote.
Besimi also indicated that although our country has a strong social protection system in place, the decision on substantial set of fiscal measures as of the beginning of the year, was aimed at slowing down the inflationary spiral, due to the high share of food and energy, being successfully attained. <0}
Furthermore, as the Minister announced, targeted measures will be put into place, while maintaining the stability of the economy.
-Under the Supplementary Budget, we keep adopting measures aimed at providing support to the citizens and the companies. Reserve assets have been allocated for new anti-crisis measures, as well as additional funds as support for farmers, aimed at increasing the domestic yields, thus mitigating the effects of the high prices of imported food. Additional funds have also been allocated for the vulnerable categories of citizens, as well as for increasing the pensions of retirees. All these are targeted measures, since in addition to the support for overcoming the crisis, preserving the macroeconomic stability, is of vital importance as well. Only a stable economy can produce strong and sustainable economic growth – Minister Besimi indicated.