EU unveils barriers hampering Albania’s growth, competitiveness

Tirana Times
By Tirana Times June 6, 2018 13:51

EU unveils barriers hampering Albania’s growth, competitiveness

Story Highlights

  • Public debt at about 70 percent of the GDP, a high level for Albania’s stage of development, and non-performing loans at 13 percent, down from a record 25 percent in mid-2014, are considered key barriers to Albania’s economic growth agenda, curbing much-needed public investment and keeping investment and consumption below potential due to tight lending standards applied by banks

Related Articles

TIRANA, June 6 – The European Commission has identified a series of ongoing obstacles to Albania’s growth and competitiveness and urged the EU aspirant Western Balkan country to strengthen its fiscal consolidation efforts in order to bring public debt to 60 percent of the GDP by 2021.

In its assessment on Albania’s 2018-2020 economic reform programme, the EU’s executive arm says the policy recommendations agreed for Albania focus on pursuing fiscal consolidation, conducting monetary policy in line with reaching the inflation target and implementing the remaining measures of the non-performing loan resolution strategy.

Public debt at about 70 percent of the GDP, a high level for Albania’s stage of development, and non-performing loans at 13 percent, down from a record 25 percent in mid-2014, are considered key barriers to Albania’s economic growth agenda, curbing much-needed public investment and keeping investment and consumption below potential due to tight lending standards applied by banks.

“Structural obstacles to growth and competitiveness include still unclear land ownership and insufficient enforcement of property rights, a high level (though decreasing) of informality and corruption despite progress achieved through judicial reform, an excessive regulatory burden and unpredictability in the judiciary system, which act as a discouragement to both foreign and domestic investment,” says the Commission.

Albania is already implementing a long-awaited justice reform that has seen more than a dozen of prosecutors or judges either resign or being dismissed because of failing to justify their assets. If properly implemented, experts say the reform is expected to give a major boost to Albania’s efforts in tackling widespread corruption and improve business climate by restoring investor confidence in the highly perceived corrupt judiciary.

“The lack of a comprehensive cadastre hinders the development of the agricultural sector, tourism, infrastructure improvements, access to finance, amongst other things. Creating favourable conditions for private investment would facilitate much-needed investments in infrastructure. The completion of the liberalisation of the energy market is important.  Skills mismatch, disincentives to work and weak employment support contribute to high youth unemployment and low female labour market participation,” adds the report.

The EU’s executive arms urges Albania to introduce further fiscal consolidation measures including by broadening the tax base and avoiding new tax exemptions as well as ensuring that the new public-private partnerships are only contracted on the basis of solid cost-benefit analyses and fiscal risk assessments.

However, the EU recommendations run counter to the Albanian government’s new fiscal package offering a series of tax cuts and exclusions ahead of the mid-2019 local elections and an ambitious but controversial €1 billion PPP agenda for the next four years which the IMF says risks creating new arrears which if included in the public debt stock could take the debt burden to 70 percent of the GDP over the next four years.

The IMF estimates Albania’s central and local government institutions accumulated arrears worth 26.6 billion lek (€209 mln) equal to 1.7 percent of the country’s GDP at the end of 2017.

In its latest ‘Spring’ European economic forecast report, the European Commission downgraded Albania’s growth outlook for the next couple of years as two major energy-related projects that drove Albania’s FDI and economic growth recovery for the past four years complete their investment stage by the end of this year and no major investment replaces them.

The EU’s executive arm, expects the Albanian economy to slow down to 3.6 percent in 2018, down from a nine-year post crisis high of 3.8 percent and recover to 3.9 percent in 2019 to register the highest growth rates among regional EU candidates.

Meanwhile, the Socialist Party Albanian government is optimistic the country’s growth will recover to 4.2 percent in 2018 and gradually accelerate to 4.5 percent by 2021 when its second consecutive term of office expires.

An EU candidate since mid-2014, Albania is hopeful of launching accession talks with the European Union in late June 2018 pending the green light by EU leaders at the European Council although some big EU powers have shown clear signs of skepticism.

 

Regional reform agenda

The European Commission says structural reforms that Western Balkan countries should undertake range from increasing the quality of education and bridging the skills gap that contribute to the very high levels of unemployment to improving the business environment and investment climate by fighting corruption and the grey economy, cutting red tape and strengthening the judiciary.

“The focus should now be on the vigorous implementation of these reforms so that people in the region can see tangible results: more and better jobs and more inclusive growth”, said Johannes Hahn, the EU Commissioner for European Neighbourhood Policy and Enlargement Negotiations.

A decade after joining the CEFTA regional trade agreement, non-tariff barriers continue to hamper trade exchanges among EU aspirant Western Balkan countries where intra-regional trade has failed to expand and continues to be concentrated on goods with low value added, an earlier European Commission report has shown.

Western Balkan countries are preparing to adopt measures for an EU-backed regional economic area, a test before their apparent eventual European Union integration which the EU has indicated could see some candidate countries join by 2025.

Already negotiating accession chapters, Montenegro and Serbia are the regional frontrunners in the  race to join the EU among the six Western Balkan countries.

Macedonia, whose accession talks have also been held back by a name dispute with Greece, is also hopeful of launching negotiations at the end of this month while ethnically divided Bosnia and Herzegovina as well as Kosovo, whose independence is still not recognized by five EU member states, still remain potential EU candidates.

Tirana Times
By Tirana Times June 6, 2018 13:51