Exchange rate effect, NPL write-off keep lending at negative growth rate

Exchange rate effect, NPL write-off keep lending at negative growth rate

TIRANA, Oct. 18 – The exchange rate effect and the mandatory write-off of non-performing loans have been keeping Albania’s credit at slightly below zero since last April, but real credit growth when adjusted for those effects is at modest positive

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One out of five businesses involved in tax evasion, inspectors say

One out of five businesses involved in tax evasion, inspectors say

TIRANA, Oct. 19 – One out of five businesses inspected in the first 16 days of October was engaged in tax evasion, the tax administration has unveiled following the launch of a new nationwide campaign against informality. Tax authorities say

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BoA: TAP, Devoll HPP projects boost Swiss, Dutch FDI to Albania

BoA: TAP, Devoll HPP projects boost Swiss, Dutch FDI to Albania

TIRANA, Oct. 18 – Swiss and Dutch foreign direct investment in Albania have registered a sharp increase in the past couple of years thanks to two major energy-related foreign direct investment which are being channeled through these countries. Data published

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State-run electricity companies face dire financial straits as costly imports continue

State-run electricity companies face dire financial straits as costly imports continue

TIRANA, Oct. 17 – Sporadic rainfall following one of the driest summers on record continues to negatively affect Albania’s wholly hydro-dependent domestic electricity generation, putting state-run electricity generation and distribution companies in dire financial straits and almost paralyzing much-needed investment

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New value-based property tax set to sharply increase bills for home owners

New value-based property tax set to sharply increase bills for home owners

TIRANA, Oct. 16 – The new property tax the Albanian government intends to apply next January on a value-based formula initially in Tirana and other main cities is set to sharply increase fees households currently pay to local government units,

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Inflation rate recovers by 1% in Jan-Sept

Inflation rate recovers by 1% in Jan-Sept

TIRANA, Oct. 12 – Albania’s inflation rate picked up to an average of 2.1 percent in the first three quarters of this year, up 1 percent compared to the same period last year as global food and oil prices recovered

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IMF downgrades Albania’s mid-term growth prospects

IMF downgrades Albania’s mid-term growth prospects

TIRANA, Oct. 12 – The International Monetary Fund has downgraded Albania’s mid-term growth prospects and expects the country’s economy to grow between 3.7 to 4 percent in the next five years. In its new World Economic Outlook, the IMF forecasts

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Youth unemployment rises as Italian call center legal changes produce first blow for Albania

Youth unemployment rises as Italian call center legal changes produce first blow for Albania

TIRANA, Oct. 11 – Italian legal changes making the supply of inbound and outbound services for Italy-based companies from non-EU countries such as Albania much tighter starting April 2017, have had their first negative impacts on youth unemployment. The booming

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VAT, property tax reforms lead to living cost worries

VAT, property tax reforms lead to living cost worries

TIRANA, Oct. 10 – Albanians will face higher consumer prices as the current 20 percent VAT system expands to small businesses and pay more under a new value-based property tax in 2018, according to some of the major tax policy

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Balkan Barometer: Unemployment, corruption remain top concerns for Albanian households

Balkan Barometer: Unemployment, corruption remain top concerns for Albanian households

TIRANA, Oct. 10 – Albanian households have become slightly more optimistic, but unemployment, the poor economic situation and corruption remain top concerns, and one out of two Albanians is considering leaving the country and working abroad, according to a Balkan

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                    [post_content] => TIRANA, Oct. 18 - The exchange rate effect and the mandatory write-off of non-performing loans have been keeping Albania’s credit at slightly below zero since last April, but real credit growth when adjusted for those effects is at modest positive growth, shows a European Commission report.

The Bank of Albania reports total credit growth to the economy in the national currency every month, making it vulnerable to exchange rate effects and the non-performing loan (NPL) write-off process.

Central bank data shows Albania’s national currency, lek, hit an 8-year high against Europe’s single currency last August when the Euro fell to as low as 132.24 lek affected by large Euro inflows from the peak tourist season and some major energy-related investment increasing the supply of euro in the local market.

With the tourism season over, the national currency has lost some ground against the Euro, which accounts for half of total credit and deposits, trading at 133.5 lek this week, up 2.7 percent compared to the same period last year. Europe’s single currency, has lost about 5 percent compared to the average exchange rate of 140 lek for about five years until mid-2015.

Meanwhile, the ongoing write-off of NPLs also had a negative impact as the 16 overwhelmingly foreign-owned banks continued the mandatory removal of bad debt from their balance sheets, statistically keeping credit at just below zero.

Since 2015, when banks were forced to write off non-performing loans that have spent three years in the ‘loss’ category, bad debt removed from banks balance sheets has increased to 43.3 billion lek (€320 million), of which 4 billion lek (€30 million) was written off in the first half of this year.

The bad debt write off as well as loan restructuring with large borrowers led to non-performing loans dropping to a 6-year-low of 15.6 percent at the end of June 2017, down from a record high of 25 percent in mid-2015.

"Total credit growth to the economy has been negative since April (-0.2 percent year-on-year in August) in domestic currency terms. This, however, is the result of the declining value of foreign exchange loans due to the lek's appreciation,” says the European Commission in its quarterly report on EU candidate and potential candidate countries.

“When adjusted for the exchange rate effect, credit to the business and household sectors increased by, respectively, 2 percent and 7.5 percent y-o-y in the second quarter. Relatively low credit growth to the business sector partly reflects the settlement of non-performing loans, including write-offs," adds the report.

With the key interest rate at a historic low of 1.25 percent since more than a year, and sharp fluctuations in Euro-lek exchange rates, Albanian businesses and households have been shifting to borrowing in the national currency in the past few years. Lek-denominated loans accounted for about 49 percent of total credit at the end of last August, up 3.3 percent compared to the same period last year and only about a quarter just before the onset of the global financial crisis in 2008.

The European Commission report describes the Albanian banking system as well-capitalised with a capital adequacy ratio of 16.3 percent at the end of the second quarter of 2017, comfortably above the regulatory minimum of 12 percent.

The Albanian economy is highly euroised with Euro-denominated savings and loans accounting for about half of the total and two-thirds of exports destined for Eurozone countries, making the country vulnerable to sharp fluctuations.

In its latest Spring European Economic Forecast report, the European Commission expects Albania’s GDP growth to slightly recover between 3.7 and 3.9 percent in the next couple of years, when the Albanian economy forecast to be the best performing among regional Western Balkan competitors, but says the balance of risks is tilted to the downside.

“Credit recovery may take longer than expected and the still elevated level of sovereign debt provides little room for countercyclical policies in case of need,” says the EU’s executive arm.
                    [post_title] => Exchange rate effect, NPL write-off keep lending at negative growth rate
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                    [post_content] => TIRANA, Oct. 19 - One out of five businesses inspected in the first 16 days of October was engaged in tax evasion, the tax administration has unveiled following the launch of a new nationwide campaign against informality.

Tax authorities say they conducted field inspections into 6,778 businesses, punishing 21 percent of them, some 1,423, for tax violations.

Authorities say they identified 323 informal workers who were put in the compulsory social security and health insurance system and closed down 212 companies not registered at all with the tax administration or caught failing to issue tax receipts for a second time.

Tax authorities say they also advised thousands of businesses urging them to self-correct and benefit from the partial tax amnesty that fully pardons only pre-2011 tax and customs debts. Fines and late-payment for the 2011-2014 are also pardoned on condition that full taxes, tariffs and social security contributions are paid until the end of December 2017.

Inspectors also identified some 810 businesses, apparently operating as small businesses below the 5 million lek (€37,000) VAT threshold to avoid paying the 20 percent VAT and the profit tax. Damage to public finances identified in the first two weeks of inspections is estimated at 170 million lek (1.25 million), 30 percent of which imposed in fines for alleged violations.

In a meeting with senior tax officials in early October few days after the launch of the nationwide campaign, the American Chamber of Commerce in Albania representing some of the biggest foreign and Albanian businesses complained about prolonged on-site audits by tax inspectors, holding back the normal running of business operations.

Since early 2017, Albania’s general tax administration has made available a hotline to assist businesses with tax related enquiries. Businesses can phone 0800 00 02 to get information on electronic filing, tax legislation and services offered by the tax administration.

Trained call center operators will be available to answer enquiries from Monday to Thursday from 09:00 to 20:00 and Friday and 16:00.

The Socialist Party government has announced a new campaign against informality and measures to further ease doing business procedures starting October 2017 in a carrot and stick approach following a tougher stance at the beginning of its first 2013-2017 term. The initiatives comes as the center left Socialist Party led by Prime Minister Edi Rama was reconfirmed for a second term out of the June 25 general elections, in a stronger mandate allowing it to rule without sharing power with allies.

The Socialist Party Albanian government has reconfirmed its intention to include small businesses in value added tax system as part of its renewed campaign against informality, saying that only handicrafts traders and municipal-run markets will be excluded from the 20 percent VAT. The reform is expected to trigger a hike in consumer prices starting next January and put a considerable number of small businesses engaged in retail trade at bankruptcy risk following already fierce competition by supermarket chains involved in the VAT system.

Under the current progressive tax legislation, enterprises with a turnover of up to 5 million lek (€37,000) are stripped of profit tax and VAT.

Businesses with a turnover between 5 million lek to 8 million (€59,000) pay a 5 percent profit tax and have to issue VAT receipt while businesses with a turnover of more than 8 million lek pay a fixed 15 percent corporate income tax. The 15 percent corporate income tax, one of the region’s highest, has been one of the main concerns for the business community after Albania abandoned its 10 percent flat tax regime in 2014.

 
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                    [post_content] => TIRANA, Oct. 18 - Swiss and Dutch foreign direct investment in Albania have registered a sharp increase in the past couple of years thanks to two major energy-related foreign direct investment which are being channeled through these countries.

Data published by Albania's central bank shows the Swiss FDI stock to Albania grew by six times in the past couple of years, climbing to €647 million at the end of the first half of 2017, up from a mere €98 million in mid-2015. The sharp increase is almost entirely dedicated to a surge in investment by Switzerland-based TAG AG consortium that is building the Albanian section of a major project bringing Caspian gas to Europe.

The Trans Adriatic Pipeline consortium has already completed half of its Albania onshore route works and is on track to start its offshore section across the Adriatic to Italy next year.

Shkelqim Bozgo, the TAP country manager for Albania, says the pipeline scheduled to bring Caspian gas to Europe is already in its peak construction stage and is expected to inject about €800 million in foreign direct investment in the next couple of years.

With construction works already in their peak stage, TAP’s first gas deliveries to Europe are targeted by early 2020.

After the withdrawal of Norway’s Statoil in mid-2015, TAP’s shareholding is now comprised of UK’s BP (20 percent), Azerbaijan’s SOCAR (20 percent), Italy’s Snam (20 percent), Belgium’s Fluxys (19 percent), Spain’s Enagás (16 percent) and Switzerland’s Axpo (5 percent).

One of Albania's main development donors, Switzerland has also recently opened a Swiss-Albanian Chamber of Commerce in Tirana

“I would like to see more Swiss businesses and investments in this country. The potential exists, but there is still a lot to be done to exploit it," Swiss Ambassador to Albania Christoph Graf said at a launch ceremony last September.

Xavier Davard, the President of the new chamber representing several Swiss companies, said “the new Swiss-Albanian Chamber of Commerce will be a great promoter of exchanges between businesses of the two countries and it will contribute to sectors that need expertise from Swiss companies.”

The Chamber initially has five Swiss companies as its founding members including Switzerland-based Trans Adriatic Pipeline (TAP), the SGS vehicles technical control concessionaire, the SICPA tax stamp concessionaire, PWC accounting firm which is one of the Big Four and the SIKA construction chemicals and industrial adhesives company.

Trade exchanges between Albania and Switzerland have been at an average of about 10 billion lek (€74 million) annually in the past couple of years, representing only about 1.1 percent of Albania's trade volume, according to INSTAT, the Albanian state statistical institute.

 

Dutch FDI

Dutch investment to Albania has also sharply increased in the past couple of years, making the Netherlands the second largest foreign investor in Albania.

Bank of Albania data shows Dutch FDI stock to Albania rose to €817 million at the end of the first half of this year, up from about €530 million in early 2015.

The sharp increase in Dutch FDI in the past couple of years is mostly related to a major hydropower plant that is being built by Norway's Statkraft through its wholly-owned Netherlands-based Statkraft Markets B.V.

A wholly state-owned Norwegian company, Norway’s Statkraft has already made operational its first Banja HPP as part of its Devoll HPP project, one of the country largest foreign investment projects and is set to complete its second and final Moglice HPP by 2018.

The Banja and Moglice HPPs, part of the €535 million Devoll Hydropower project, are being built on the Devoll River, about 70 km southeast of Tirana.

The Netherlands has emerged as the second largest foreign direct investor in Albania in the past couple of years and is on track to further increase its presence in the Balkan country thanks to increased investment in the oil industry and most recently retail trade by the Royal Dutch Shell and Spar International retailer.

Dutch companies in Albania also operate in the banking, mail delivery and agriculture.

However, trade exchanges between the two countries remain modest at only about €43 million.

 

FDI concerns  

The Trans Adriatic Pipeline bringing Caspian gas to Europe and the Devoll Hydropower project by Norway’s Statkraft have been the key drivers of FDI in the country in the past three years at a time when oil and mining investment has almost paralyzed following a slump in commodity prices in mid-2014, with a negative impact also on the country’s poorly diversified exports.

Unless no new major projects are undertaken, FDI is set to suffer a sharp decline by 2020 when both TAP and the Devoll Hydropower projects have been made operational, unveiling the need for the Albanian government to offer incentives that could attract FDI in non-energy related sectors, diversifying them.

With no new major investments in sight, the pickup in commodity prices and an ambitious €1 billion public-private partnership investment program the ruling Socialists have unveiled could provide an anchor for the post-2020 period despite concerns over their risks.

The PPP projects, already costing taxpayers dozens of millions of euros in government support to concessionaires, have sparked concerns over their high costs and allegations of corruption, especially in key sectors such as public health. PPPs also bear the risk of creating new hidden debt at a time when Albania’s public debt stands at about 67 percent, a high level for Albania’s current stage of development, and the economy is growing at about 3 percent, almost half of the level required to bring welfare.

Tourism which brings about 4 million tourists and more than €1 billion in revenue, as well as agriculture, an underdeveloped sector that employs about half of the country but produces only about 20 percent of the GDP, are seen as two key industries that foreign direct investment can make more competitive by bringing know-how and boosting employment.

A strong pickup in commodity prices could however make up, triggering investment by Bankers Petroleum, the country’s largest oil investor which last year was taken over by a Chinese company, and Dutch giant Shell, already engaged in oil exploration operations in the country.

Oil prices have currently recovered to above $50 a barrel after hitting a 12-year low of below $30 a barrel in early 2016.

Albania has been the second largest FDI recipient among five EU aspirant SEE economies for the past six years lagging behind only Serbia which is a much bigger economy. Thanks to huge investment in energy-related projects such as oil and hydropower plants, Albania has managed to attract about $1 billion in FDI annually in the past few years.

Greece, the Netherlands, Canada, Italy and most recently China are the main foreign investors in Albania.

The telecommunication, manufacturing and extractive industries have attracted around half of the FDI stock in Albania during the country’s past two decades of transition into a market economy after the collapse of communist regime and its planned economy.
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                    [post_content] => TIRANA, Oct. 17 – Sporadic rainfall following one of the driest summers on record continues to negatively affect Albania’s wholly hydro-dependent domestic electricity generation, putting state-run electricity generation and distribution companies in dire financial straits and almost paralyzing much-needed investment in the distribution grid.

State-run KESH power utility and OSHEE distribution operator have already spent about €100 million in costly electricity imports in the past four months and are due to spend another €30 million until the end of the year unless rainfall considerably increases.

The Albanian government has recently approved a 1 billion lek (€7.4 mln) loan to state-run OSHEE distribution operator to handle electricity imports for October 2017. The new support to electricity companies comes after the government already revised the 2017 budget and was forced to make use of an emergency World Bank loan last August to handle the electricity crisis in the peak tourist season.

Last August, Albania revised the 2017 budget through a special normative act procedure increasing support to state run power companies by another 3 billion lek (€22 mln) to 4.5 billion lek (€33.2 mln), but left unchanged the revenue and spending targets due to the positive performance of public finances despite the electoral year effects.

With domestic electricity generation securing only about a fifth of the country’s needs, the government was also forced to make use of a €22.4 million World Bank loan intended for emergency electricity imports last August.

Due to sporadic rainfall, the situation at the Drin Cascade, northern Albania, where state-run KESH power utility manages the country’s three biggest hydropower plants and produces about three-quarters of domestic electricity, has not significantly improved in the past few weeks.

The situation also remains critical for about 150 private and concession hydropower plants, the majority of which small and medium-sized ones and producing about a quarter of domestic electricity generation. Their 2016 income reached a record high of €80 million, triggered by favorable weather conditions and the launch of new HPPs, including the Banja HPP built by Norway’s Statkraft as part of its major Devoll Hydropower project that is expected to conclude by late 2018 with the completion of a bigger HPP.

As the whole region faced one of the worst droughts, paralyzing hydro-electricity generation, electricity import power prices surged to about €70/MWh last August.

The OSHEE distribution operator contracted about €6 million in electricity imports for October 2017, a small amount compared to the average monthly imports of about €25 million from June to September 2017 when the heat wave and the influx of tourists sharply increased demand for electricity.

With prices having dropped to below €60/MWh, the OSHEE operator also preliminarily purchased about €13 million for November and December in its latest late September tender.

State-run OSHEE distribution operator which turned profitable in 2015 thanks to an aggressive nationwide campaign to curb electricity thefts and collect hundreds of millions of euros in accumulated unpaid bills, was the largest Albanian company in 2016 and ranked the 125th largest SEE company, according to a regional annual report.

Government authorities have assured the costly imports pose no threat to public finances, but planned investment in the dilapidated grid where losses have considerably reduced but still remain high at about 28 percent, are at risk.

 

Diversification need

The critical situation the country faced this year has unveiled the need to diversify the country’s domestic electricity resources, currently fully reliant on hydropower and rainfall, making it vulnerable to adverse weather conditions such as last summer.

The existing but non-operational Vlora thermal power plant and the Albania-Kosovo interconnection line are considered as opportunities for Albania to diversify the country’s power resources in the short run.

The government is already mulling solutions to link the costly Vlora thermal power plant to the Albanian section of the Trans Adriatic Pipeline and make it operational on gas by 2020 when first Caspian gas flows are expected. TAP scheduled to bring Caspian gas to Europe through Albania, Greece and Italy is the only hope for the costly Vlora thermal power plant, a new 97 MW $112 million low-sulphur distillate oil-fuelled power plant, available for use since 2010, but which has not been put to use because of high fuel costs.

Meanwhile, the German government is pushing for a deal between Serbia and its former breakaway province Kosovo over a long-standing electricity transmission dispute holding back a newly built German-funded Albania-Kosovo interconnection line.

The Kosovo-Serbia dispute over the ownership of transmission assets in Kosovo territory has been holding back a newly built 400 kV interconnection line between Albania and Kosovo for more than a year, with negative effects on plans to create a common regional market and missed earning in both countries.

Albanian and foreign companies have invested in more than a hundred HPPs so far producing about a quarter of the country’s domestic electricity generation, but no major wind or solar energy projects yet.

With domestic electricity generation currently wholly reliant on hydroelectricity, Albania has large untapped wind and solar energy potential that can be cost-competitive, UAE-based International Renewable Energy Agency (IRENA) has unveiled in a South East Europe report.

“Due to the very good solar resource and relatively satisfactory wind speeds (3.3-9.6 m/s), there is high, untapped potential for the deployment of solar PV (up to 1.9 GW) and wind (987-2 153 MW),” says the report, adding that low temperatures of geothermal reservoirs make geothermal power generation an unlikely option in Albania.
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            [4] => WP_Post Object
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                    [ID] => 134171
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                    [post_date] => 2017-10-16 17:10:56
                    [post_date_gmt] => 2017-10-16 15:10:56
                    [post_content] => TIRANA, Oct. 16 - The new property tax the Albanian government intends to apply next January on a value-based formula initially in Tirana and other main cities is set to sharply increase fees households currently pay to local government units, especially for apartments in downtown areas and villas.

While the official coefficient has not been unveiled yet pending the announcement of the 2018 fiscal package, the International Monetary Fund has suggested the Albanian government applies a rate between 0.076 percent to 0.114 percent on the property's market value, which at an average of 0.1 percent increases current fees by up to 5-fold, or even more if the construction site value is taken into account.

A 100m2  apartment owner in Tirana currently pays a fixed annual amount of about €22 at a modest rate of 30 lek (€0.22)/m2 if the apartment was built after 1993 and half of that amount if built in the pre-1993 under communism or earlier, no matter what property’s market value is.

Supposing the apartment’s current market value is at about €100,000 the same owner would have to pay €100 in annual property tax, an almost 5-fold increase compared to the current rate a Tirana home owner pays in monthly installments along with tap water bills.

The IMF, whose relations with Albania have been downgraded to an advisory role after a 3-year binding deal supported by a €331 million loan was concluded in early 2017, has suggested the Albanian government also takes into consideration the value of the construction site which in cases of villas would considerably increase the property tax considering their surrounding areas.

Finance Minister Arben Ahmetaj has announced no higher taxes will be applied for second and third home owners.

The project will be initially applied in the country's biggest municipalities of Tirana, Fier, Durres and Korça and expand all over the country in the next couple of years when a fiscal cadaster is set up.

"I believe that in the next couple of years we will have a solid fiscal cadaster benefiting the real property value, but also local government units to collect the income they deserve to," Ahmetaj has said, unveiling that Albania currently collects only about 0.3 percent of the GDP in property tax and is far from meeting the normal level of 1 percent of the GDP.

Albania's 61 municipalities collected only about 30 million in property tax in 2016, about 40 percent of which in the municipality of Tirana which has been collecting the tax along with the tap water bills since March 2016 to increase its collection efficiency.

Government authorities have not made clear whether the new value-based property tax will also affect business owners, who in Tirana currently pay fees of 13 to 26 times higher compared to home owners.

The property tax levied on business facilities is already high, ranging from 200 lek (€1.46)/m2 in remote areas to 400 lek(€2.93)/m2 for the municipalities of Tirana and Durres, home to about half of the country's population and businesses.

The government says the fiscal cadaster is being developed in cooperation with state-run OSHEE distribution operator and pilot projects are being carried out in four large municipalities in order to strengthen collection by integrating property tax bills into electricity bills.

In its latest country report, the IMF, which helped draft the legislation, warns property taxation reform has lagged at a time when collection rates remain very low by regional standards.

To encourage voluntary reassessment of property valuation, the Albanian authorities undertook a temporary reduction in the capital gains tax on property valuation from 15 percent to 2 percent. The amnesty initially set to expire in late February after remaining effective for six months, was postponed until the end of May 2016, ahead of the June 25 general elections.

The government also plans to extend the 20 percent value added tax on small businesses starting next January as part of its renewed nationwide campaign against informality, in a move which experts say will increase costs for small businesses and in some cases also consumer prices, but place all businesses under equal conditions to avoid abuse with the 5 million lek (€37,000) VAT threshold.

In addition to some easier procedures, the 2018 fiscal package is not expected to bring any other major change in taxes, one of the key concerns for businesses after the 10 percent flat tax regime was lifted in 2014 and the corporate income tax raised to 15.
                    [post_title] => New value-based property tax set to sharply increase bills for home owners
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                    [ID] => 134115
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                    [post_date] => 2017-10-12 18:11:50
                    [post_date_gmt] => 2017-10-12 16:11:50
                    [post_content] => TIRANA, Oct. 12 - Albania's inflation rate picked up to an average of 2.1 percent in the first three quarters of this year, up 1 percent compared to the same period last year as global food and oil prices recovered with a considerable impact on local consumer prices.

The inflation rate in the first nine months of this year was triggered by a 4 percent hike in "food and non-alcoholic" beverage prices, the main item in the consumer basket, and fuel prices increasing by an average of 4.3 percent as international oil prices increased to about $50 a barrel, up from up from a 12-year low of $30 a barrel in early 2016.

The FAO food price index, a measure of the monthly change in international prices of five commodity groups, was up by an annual 4.3 percent last September, affecting Albania as a net importer.

The inflation rate in August and September 2017 dropped to a 10-month low of 1.6 percent as Europe's single currency also dropped to an 8-year low of 132.4 lek amid tourism effects increasing the Euro supply, a situation also making the country’s imports much cheaper.

The inflation rate is yet below the central bank’s 3 percent target rate, estimated to have a positive impact on the country’s GDP growth.

The Albanian economy grew by 4 percent in the first half of this year, mainly as a result of some large energy-related projects, but household consumption grew at a twice lower pace, signaling uncertainties in a pre-election period and an ongoing saving trend and unwillingness to invest as indicated by the poor performance of business and household loans.

"The return of the economy to its potential and the gradual absorption of unutilized capacities is expected to be accompanied with the gradual hike in inflation which is expected to achieve its 3 percent target by 2018,” central bank governor Gent Sejko as the central bank decided to keep the key interest rate unchanged at 1.25 percent for the 17th month in a row in a bid to stimulate sluggish consumption and investments by discoursing investments in traditional instruments such as deposits whose interest rates are slightly above zero and government securities whose yields stand slightly above inflation rate.

Albania’s annual average inflation rate hit a 16-year low of 1.3 percent in 2016, reflecting a slump in global oil and food prices, but also sluggish domestic consumption as the economy is estimated to have grown by slightly above 3 percent, mainly thanks to major energy-related investment.

The country’s inflation rate was on par with other Western Balkans enlargement countries and slightly above zero in the euro area.

Albania’s average inflation rate fluctuated at about 2 percent from 2012 to 2015 compared to 3 percent in 2007-2010.
                    [post_title] => Inflation rate recovers by 1% in Jan-Sept
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                    [post_date] => 2017-10-12 14:20:38
                    [post_date_gmt] => 2017-10-12 12:20:38
                    [post_content] => TIRANA, Oct. 12 - The International Monetary Fund has downgraded Albania's mid-term growth prospects and expects the country's economy to grow between 3.7 to 4 percent in the next five years.

In its new World Economic Outlook, the IMF forecasts the Albanian economy will only modestly pick up compared to the 2016 growth rate of about 3.4 percent and almost stay the same to the 4 percent growth rate reported by state statistical institute, INSTAT, for the first half of this year, until 2022.

The IMF’s growth forecasts are considerably lower compared to the Albanian Socialist Party government’s more optimistic forecasts of growth averaging at 4.5 percent in the next four years of its mandate and accelerating to 5.5 to 6 percent by 2021 at the end of its second consecutive mandate.

The Albanian GDP is estimated at €11 billion, and 1 percent change means about €110 million less to the Albanian economy, a considerable amount for the developing Albanian economy.

The IMF, whose relations with Albania have been downgraded to an advisory role after a 3-year binding deal supported by a €331 million loan was concluded in early 2017, also expects the country’s public debt to decline at a slower pace and not drop to below the 60 percent of the GDP target before 2021.

The more pessimistic forecasts are apparently related to the lower contribution of some major energy-related projects such as the Trans Adriatic Pipeline and the Devoll Hydropower plant which are in their peak construction stage and are set to complete in the next couple of years, waning the FDI-fuelled growth over the past few years.

The IMF also expects commodity prices to remain at about the same levels with a negative impact on Albania’s major oil and mining exports which have been severely affected following the mid-2014 slump.

“Commodity exporters, especially of fuel, are particularly hard hit as their adjustment to a sharp stepdown in foreign earnings continues. Despite expectations of more robust global demand going forward, commodity prices have remained low, with oil prices reflecting stronger-than-anticipated supply,” says the IMF.

Albania’s exports are back to double this year thanks to the resumption of production by the country’s largest steel plant and modest growth in garment and footwear sales, the country’s traditional top exporting industry.

Meanwhile, oil exports have registered only a modest increase as a considerable part of domestic production is being sold to a local refiner.

The IMF expects inflation rate to gradually pick up to the central bank's 3 percent target over the next few years, but total investment to remain unchanged at 25 percent of the GDP and general government revenue at about 28 percent of the GDP.

Last year, the Albanian economy recovered to 3.5 percent but that was mainly thanks to some major energy-related investment such as the Trans Adriatic Pipeline.

Experts say the Albanian economy, one of Europe’s poorest, needs to grow by at least 6 percent annually in order to produce welfare for the country’s households.

Few days ago, an IMF mission visiting the country warned a series of vulnerabilities including the much-rumored public-private partnerships pose serious threats to the country’s macro-economic stability and fiscal consolidation efforts.

The IMF expects the Albanian government’s commitments to PPPs to climb to €1 billion, around 7 percent of GDP by 2021, posing a threat to the Albania government’s agenda of reducing public debt to 60 percent of the GDP by 2021.

GDP forecasts by international financial institutions are always lower to the Albanian government's more optimistic scenarios and in most cases are later upgraded to INSTAT's final GDP forecasts.

In its latest Global economic Prospects report, the World Bank expects the Albanian economy to grow by 3.5 percent in 2017 and 2018 and pick up to 3.8 percent in 2019, in forecasts which are about 0.3 percentage point lower compared to the Albanian government’s more optimistic forecasts.

Meanwhile, last May, London-based European Bank for Reconstruction and Development left unchanged its 2017 economic growth outlook for Albania at 3.5 percent, and expects the Albanian economy to pick up to 3.7 percent in 2018, but warned of downside risks such as internal political problems ahead of the general elections and a reversal of the recent recovery in oil prices.

In its latest summer forecast, the Vienna Institute, one of the top centers for research in Central, East and Southeast Europe, expects the Albanian economy to grow by 3.9 percent for 2017, up from 3.5 percent in the previous Spring forecast, on recovering exports and ongoing energy-related investment. The 2018 and 2019 prospects are only slightly more optimistic with growth expectations ranging from 4 to 4.1 percent of the GDP, in forecasts which are in line with the Albanian government’s estimates.

U.K.-based BMI Research, a unit of Fitch, expects the Albanian economy to grow by 3.6 percent in 2017 and slow down to 3.3 percent in forecasts which are considerably lower to the Albanian government’s more optimistic scenario of a 3.8 percent GDP growth for 2017 and a pickup to 4.1 percent in 2018.

 
                    [post_title] => IMF downgrades Albania’s mid-term growth prospects 
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                    [post_date] => 2017-10-11 15:52:01
                    [post_date_gmt] => 2017-10-11 13:52:01
                    [post_content] => TIRANA, Oct. 11 - Italian legal changes making the supply of inbound and outbound services for Italy-based companies from non-EU countries such as Albania much tighter starting April 2017, have had their first negative impacts on youth unemployment.

The booming call center industry received a severe blow in late 2016 when the Italian Parliament approved legal changes affecting a rapidly growing industry in Albania in a bid to stop the rising transfer of call center services to low cost countries non-EU members such as Albania and protect some 80,000 call center jobs at home by offering subsidies to local companies.

Employing some 25,000 people, the call center industry had emerged as a catalyst for youth unemployment and the mismatch between skills earned at universities and labour market needs.

The industry boomed in about six years, thanks to rising demand for support services by Italian companies, leading to big Albanian and Italian-run companies employing up to 3,000 call center operators.

Due to good language skills and flexibility of working part-time or full time and relatively good wages for the Albanian market, call centers attracted both students and newly graduates provided they spoke fluent Italian and were convincing in the offers they introduced.

The Italian legal changes which became effective in April 2017, led to the first closure of some call centers while big mobile companies committed to gradually repatriate 95 percent of their direct activity and 80 percent of their outsourcing services to Italy.

At least 30 call center companies operating in Albania and employing about 3,000 people have suspended their activity in the country following some late 2016 legal changes in Italy that became effective starting April 1.

Most companies continue to operate and have diversified their services, also shifting to English-language support services and speculative services such as online trading platforms or currency exchange investments. However, prospects for a rapidly growing industry have currently been curbed and diversification of services and languages is seen as the only way to save thousands of jobs that could be cut.

The late 2016 legal changes gave Italian consumers the option of speaking to a call-centre worker at home rather than someone overseas, especially non-EU countries. The changes envisage huge fines ranging from €50,000 to €150,000 for call centers whose operators don’t inform customers about the country they are calling from or when answering to customer enquiries, something which had been avoided. The legal changes also make it more difficult for Italian companies to change their location or contract non-EU third parties who have to provide guarantees about data protection.

Data published by state-run statistical institute INSTAT, shows youth unemployment slightly increased in the second quarter of this year following consecutive declines in the previous five quarters.

"The professional activities and administrative services" group also contracted by 2.3 percent in the second quarter of this 'year as a result of the call center effect, registering the first negative contribution to the GDP since early 2011 just before the industry began to rapidly grow.

In its labour force survey for the second quarter of this year, INSTAT reports the number of jobless young men and women aged between 15 to 29 years old slightly grew to 78,419, up by a modest 639 people compared to the previous quarter, but was down by 9,164 youngsters compared to the same period last year.

The figure is however an estimate from INSTAT's quarterly survey with about 8,000 households nationwide which placed youth unemployment at 26.4 percent in the second quarter of 2017, down from about 30 percent during the same period last year and a record 34 percent in early 2015.

Meanwhile, other data shows only about 17,500 young men and women aged between 16 to 29 years old have registered with the country’s employment offices, accounting for about 19 percent of the total registered jobseekers of about 92,000 at the end of the June 2016.

Experts estimate the general unemployment rate, officially at 13.9 percent to be far bigger as people in rural areas possessing land are automatically counted as self-employed.

Agriculture, a sector employing about half of the country's population but accounting for only 20 percent of the GDP, is one of the country's most inefficient, hampered by fragmentation of farm land into small plots and poor financing and technology employed.

While the call center business dominated by Italian companies mainly attracts university students and newly graduates who are unable to find a job in the occupation they have graduated in, the façon industry, a traditional employer producing garment and footwear mainly for export, is attracting a considerable number of youngsters who have finished only the compulsory education or secondary education but failed to attend university. The garment and footwear sector, employing some 100,000 people, also relies on low cost and mainly produces for Italy.

Albania had some 191,500 jobless people at the end of the first half of this year, down from 227,800 at the end of 2014, just before an asylum exodus that saw more than 100,000 Albanians leave the country, mainly to Germany.
                    [post_title] => Youth unemployment rises as Italian call center legal changes produce first blow for Albania  
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                    [post_date] => 2017-10-10 18:01:03
                    [post_date_gmt] => 2017-10-10 16:01:03
                    [post_content] => TIRANA, Oct. 10 - Albanians will face higher consumer prices as the current 20 percent VAT system expands to small businesses and pay more under a new value-based property tax in 2018, according to some of the major tax policy changes that have been unveiled ahead of the 2018 fiscal package.

The Socialist Party Albanian government has reconfirmed its intention to include small businesses in value added tax system as part of its renewed campaign against informality, saying that only handicrafts traders and municipal-run markets will be excluded from the 20 percent VAT which is expected to trigger a hike in consumer prices starting next January.

"Many enterprises claim to be below the 5 million lek (€37,000) VAT threshold, but in fact exceed that by two or three times. That is inequality, distortion and directly affects citizens," Finance Minister Arben Ahmetaj has said.

"Small businesses will report VAT under a simplified system which means they will report quarterly and not every month," he added.

The expansion of the VAT system has sparked concerns among some experts and the opposition who say a considerable number of small businesses risk going bankrupt amid fierce competition by bigger businesses already issuing VAT receipts.

VAT, levied at a fixed 20 percent rate on almost all goods and services, is the key tax the Albanian government collects, accounting for about a third of total revenue. More than 80,000 businesses nationwide, half of the total, are small businesses with an annual turnover of up to 5 million lek (€37,000), which under current legislation strips them of the obligation to issue VAT receipts.

The 20 percent VAT means small businesses which up to now were stripped of their obligation to issue VAT receipts will incur extra costs in VAT balances and book keeping, curbing their profits by 20 percent unless they apply higher prices.

Levied at a fixed 20 percent, VAT is a considerable burden on final prices with Albania being the region’s sole country not to apply differentiated VAT on basic products.

Albania has one of Europe’s lowest consumer prices but suffers the poorest consumption per capita, according to a report by Eurostat, the statistical office of the European Union.

Economy expert Zef Preçi says a price increase is inevitable in the initial stage of the VAT application as “businesses will try to preserve their profit rates and because prices have a tendency to increase faster than the cost to cover.”

The main opposition Democratic Party says the VAT expansion serves oligarchs and will destroy small businesses.

"That is destructive for small businesses. It will threaten 280,000 jobs directly linked to small businesses. It will destroy and take them to bankruptcy as small businesses don't have the capacity to engage with VAT and its refund and pay all they earn to accountants," Democratic Party leader Lulzim Basha has said. He has proposed a hike in the VAT threshold from the current 5 million lek to 12 million lek (€89,000) to give a boost to the small businesses as the main driver of the Albanian economy.

The now stronger Socialist Party government out of the June 25 elections has undertaken a new nationwide campaign against informality and measures to further ease doing business procedures starting October 2017 in a carrot and stick approach following a tougher stance at the beginning of its first 2013-2017 term.

Meanwhile, a new value-based property tax is set to sharply increase current rates depending on the size and location of the property, although its implementation could be delayed until a fiscal cadaster is set up. Albanians are also expected to pay more for second and third home ownership.

The government says a fiscal cadaster is being developed in cooperation with state-run OSHEE distribution operator and pilot projects are being carried out in four large municipalities in order to strengthen collection by integrating property tax bills into electricity/water bills and collecting property tax based on area under the current law before new legislation is drafted.

Property tax levied on buildings and agriculture land accounts for only about 0.8 percent of total taxes in Albania, a small amount even compared to regional EU aspirant countries.

In its latest country report, the IMF, which helped draft the legislation, warns property taxation reform has lagged at a time when collection rates remain very low by regional standards.

To encourage voluntary reassessment of property valuation, the Albanian authorities undertook a temporary reduction in the capital gains tax on property valuation from 15 percent to 2 percent. The amnesty initially set to expire in late February after remaining effective for six months, was postponed until the end of May 2016, ahead of the June 25 general elections.

In addition to some easier procedures, the 2018 fiscal package is not expected to bring any other major change in taxes, one of the key concerns for businesses after the 10 percent flat tax regime was lifted in 2014 and the corporate income tax raised to 15.
                    [post_title] => VAT, property tax reforms lead to living cost worries
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                    [post_date] => 2017-10-10 15:29:37
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                    [post_content] => TIRANA, Oct. 10 – Albanian households have become slightly more optimistic, but unemployment, the poor economic situation and corruption remain top concerns, and one out of two Albanians is considering leaving the country and working abroad, according to a Balkan Barometer survey published by the Regional Cooperation Council this week.

Business perception also slightly improved but corruption, macroeconomic instability and the tax administration and tax rates were rated as the top three obstacles for business operation and growth.

About 59 percent of Albanian households say they are mostly satisfied or completely satisfied with the way things are going in their society, a 3 percent deterioration compared to the 2016 Balkan Barometer.

However, when it comes to financial and national economy expectations for the next 12 months, Albanians are more optimistic compared to last year, with a third of respondents expecting the situation to improve.

In similar regional trends among six Western Balkans countries and EU member Croatia, Albanians express dissatisfaction about health and education systems, transport infrastructure, utility services, present jobs and high level of prices at slightly greater degree.

In the gender inequalities section, more than half of respondents urge the authorities to address violence against women and prejudice because of preconceived ideas about the image and role of women and men as the most pressing issues that should be dealt with most urgently.

Albanians are once again the most optimistic and positive about EU membership with 81 percent saying it's a good thing and about 37 percent expecting the country to join the block by 2025, citing freedom to study and work in the EU and economic prosperity as the main personal benefits.

About 39 percent of Albanian households said they were unable to pay rent and utility bills for the past 12 months, considerably above the SEE-seven countries average of 23 percent.

Jobless Albanians say lack of jobs and not knowing the right people are the main two obstacles preventing them to get hired.

About 50 percent of Albanians, up 2 percent compared to 2016 and 12 percent more compared to 2015 said they would consider leaving and working abroad, but a majority of 82 percent said they were not willing to migrate to other economies in the region.

Earlier, this year a Gallup survey also showed more than half of Albania's population is willing to leave the country for a better life elsewhere, placing Albania second in the world for this indicator.

Albania already has one of the world’s highest per capita out-migration rates, and more than a third of the country’s citizens now live abroad permanently. Albania’s resident population was 2.8 million according to the 2011 census compared to about 4.3 million in the civil registry.

Economy experts say the drain in human resources is dramatic, while demographers have warned Albania will turn into a country of old people and shrink to half its 1990 population in the next 30 years.

More than three-quarters of Albanians thinks law enforcement is not applied effectively and equally and tend to distrust the judiciary which is about to be reformed with the launch of a vetting process that will scan all judges and prosecutors over their professionalism, independence, assets.

When it comes to businesses, some 40 percent of companies say the economic situation deteriorated in the past 12 months, but about the same number expect it to improve over the next year.

Three-quarters of Albanian businesses say EU integration would be a good thing for their own companies, considerably more optimistic compared to Serbia and Montenegro which have launched accession talks with the EU.

Businesses in Albania complain the government does not take into account their concerns and corruption in public tenders is a key concern with companies refusing to take part citing reasons such as "the criteria seemed to be tailor-made for certain participants" and "the deal seemed to have been sealed before the tender was published."

About 40 percent of companies in Albania say they occasionally and frequently bribe officials and provide gifts to get connected and maintain public services.

Due to the low exports to regional countries, Albanian companies say they find it equally the same to export to the CEFTA countries and the EU.

The opinion survey was conducted among 1,000 respondents in each economy collecting and analyzing data from region's citizens and businesses across a variety of thematic areas such as employment, trade, investments and corruption.
                    [post_title] => Balkan Barometer: Unemployment, corruption remain top concerns for Albanian households
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            [post_date] => 2017-10-19 13:16:08
            [post_date_gmt] => 2017-10-19 11:16:08
            [post_content] => TIRANA, Oct. 18 - The exchange rate effect and the mandatory write-off of non-performing loans have been keeping Albania’s credit at slightly below zero since last April, but real credit growth when adjusted for those effects is at modest positive growth, shows a European Commission report.

The Bank of Albania reports total credit growth to the economy in the national currency every month, making it vulnerable to exchange rate effects and the non-performing loan (NPL) write-off process.

Central bank data shows Albania’s national currency, lek, hit an 8-year high against Europe’s single currency last August when the Euro fell to as low as 132.24 lek affected by large Euro inflows from the peak tourist season and some major energy-related investment increasing the supply of euro in the local market.

With the tourism season over, the national currency has lost some ground against the Euro, which accounts for half of total credit and deposits, trading at 133.5 lek this week, up 2.7 percent compared to the same period last year. Europe’s single currency, has lost about 5 percent compared to the average exchange rate of 140 lek for about five years until mid-2015.

Meanwhile, the ongoing write-off of NPLs also had a negative impact as the 16 overwhelmingly foreign-owned banks continued the mandatory removal of bad debt from their balance sheets, statistically keeping credit at just below zero.

Since 2015, when banks were forced to write off non-performing loans that have spent three years in the ‘loss’ category, bad debt removed from banks balance sheets has increased to 43.3 billion lek (€320 million), of which 4 billion lek (€30 million) was written off in the first half of this year.

The bad debt write off as well as loan restructuring with large borrowers led to non-performing loans dropping to a 6-year-low of 15.6 percent at the end of June 2017, down from a record high of 25 percent in mid-2015.

"Total credit growth to the economy has been negative since April (-0.2 percent year-on-year in August) in domestic currency terms. This, however, is the result of the declining value of foreign exchange loans due to the lek's appreciation,” says the European Commission in its quarterly report on EU candidate and potential candidate countries.

“When adjusted for the exchange rate effect, credit to the business and household sectors increased by, respectively, 2 percent and 7.5 percent y-o-y in the second quarter. Relatively low credit growth to the business sector partly reflects the settlement of non-performing loans, including write-offs," adds the report.

With the key interest rate at a historic low of 1.25 percent since more than a year, and sharp fluctuations in Euro-lek exchange rates, Albanian businesses and households have been shifting to borrowing in the national currency in the past few years. Lek-denominated loans accounted for about 49 percent of total credit at the end of last August, up 3.3 percent compared to the same period last year and only about a quarter just before the onset of the global financial crisis in 2008.

The European Commission report describes the Albanian banking system as well-capitalised with a capital adequacy ratio of 16.3 percent at the end of the second quarter of 2017, comfortably above the regulatory minimum of 12 percent.

The Albanian economy is highly euroised with Euro-denominated savings and loans accounting for about half of the total and two-thirds of exports destined for Eurozone countries, making the country vulnerable to sharp fluctuations.

In its latest Spring European Economic Forecast report, the European Commission expects Albania’s GDP growth to slightly recover between 3.7 and 3.9 percent in the next couple of years, when the Albanian economy forecast to be the best performing among regional Western Balkan competitors, but says the balance of risks is tilted to the downside.

“Credit recovery may take longer than expected and the still elevated level of sovereign debt provides little room for countercyclical policies in case of need,” says the EU’s executive arm.
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