TIRANA, July 30 – With a new Socialist Party-led government due to take over next September, experts say the improvement of the business climate, the attraction of foreign direct investment and creation of jobs are the key pillars where the country’s economic recovery must focus. Experts say the government of Prime Minister-designate Edi Rama will face tough challenges from ongoing global crisis impacts and the poor condition of the country’s troubled public finances affected by soaring budget deficit and public debt at around 63 percent of the GDP.
Zef Pre詬 the director of the Albanian Centre for Economic Research, says employment, which he describes as a disease has haunted Albania’s during its transition in the past two decades, is a top challenge for the new government.
“Now the country has no more great resources created from the privatization of the strategic assets. The main focus must be the improvement of public services, the strengthening of education and health but also the handling of the chain of debts among government and businesses. These issues require an increase in production and exports. Employment cannot be solved with the vacancies available in the public sector but through the improvement of the business climate, attracting domestic and foreign investment and applying advanced technology,” Pre詠tells Deutsche Welle in the local Albanian service. He describes the harmonization of fiscal and monetary policies as very important in these times, convinced that the Albanian economy cannot be stimulated only with policies reducing or lifting taxes. He also suggests more cooperation between government and banks to boost lending to the real economy.
“Lending to the real economy must reinvigorate and get out of the current sluggish situation. Lending is a considerable reserve which increases employment indicators,” says Preci.
Meanwhile, Luan Bregasi, the president of the Business Albania association says the new government out of the June 23 elections must review its electoral promises by stripping them of the electoral emotions and making them achievable targets for the economy.
“The second term of the right wing government was very difficult for the domestic and foreign enterprises. The global crisis also affected Albania in recent years, but the authorities were more careful in hiding it rather than managing and buffering it,” said Bregasi.
“There was selectivity in law enforcement and payment of taxes by businesses, ruining fair competition and equality on the market. As usual in Albania, the state budget was ruined in this electoral year, a situation which creates difficulty in finding funds for the remaining of the year.
Speaking about the country’s economic prospects, Bregasi says the new government must carefully read the pros and cons of the outgoing government. “Proposals made by the Albanian and foreign business community must be carefully read. This brings what is known as contracts between government and enterprises. If there is a will, the accumulated difficulties and problems can be overcome, eliminating what he calls costs of lack of cooperation with the business community especially in the drafting of laws.”
SP’s tax policy
The transition of power next September when the new government is formed will also be accompanied by changes in taxes which have been on top of the agenda by both major parties during the campaign of the June 23 general elections at a time when the Albanian economy is more and more suffering the consequences of global crisis impacts from top trade partners Italy and Greece and problems at home with sluggish consumption and lending, public debt at around 62 percent of the GDP and bad loans at a record 24 percent.
The opposition Socialists have announced they intend to apply progressive taxation when coming to power while the outgoing Democrats insisted on the 10 percent flat tax introduced in 2008. At the start of the electoral campaign in late May 2013, opposition Socialist Party leader Edi Rama clarified that the Socialist Party intends to apply progressive taxation only on personal income tax and dividends but not on company’s profits. Rama said only the 10 percent profit tax would be preserved from the current 10 percent flat tax on personal income and corporate taxes introduced in 2008 by the ruling Democratic Party.
“We will act quickly to apply the new taxation project by shifting into fair taxation which will reduce taxes for 95 percent of Albanians and lift taxes for small businesses. We will act fast with a facilitating package on farmers to reduce their production costs and remove VAT on basic products and medicines and reduce household electricity prices. We will also launch a transparency process on concessions and privatizations suspected of favours at the expense of Albanians,” Rama said.
The Socialist Party has promised to create a rather unrealistic 300,000 jobs in the next four years focusing on the manufacturing, agriculture and tourism sectors.
