Having to take an IMF deal is an indication Albania’s economy is in trouble, but at a mere 331 million euros, the deal is not significant enough to either tout as a success as the government has done or treat as the bogeyman the opposition wants to present for political reasons.
TIRANA TIMES EDITORIAL
Albania’s main political parties have been involved in a debate over a deal between the Albanian government and the International Monetary Fund – a soft loan which will help the Albanian government inject some more liquidity into the economy to boost economic growth, which has virtually halted as the Albanian crisis endures at the heels of the larger European crisis.
The center right opposition, despite earlier agreeing to the return of the IMF, frets that the government has engaged in a backroom deal that is unfavorable for Albania, because it places strict conditions on things like increasing tax revenue, higher utility prices and reforming the pension system by increasing the mandatory retirement age. Much of this is populist politics, trying to convince the voters the government will engage in tough austerity measures that will make life harder on many Albanians.
The Socialist-led government on the other hand, again in a political mindset, has said that bringing in the IMF is necessary because the previous government left behind an economy in crisis and unpaid bills in the form of outstanding payments to private companies, which had in turn stalled private activity and withdrawn liquidity from the economy.
In reality, at the sum of a mere 331 million euros, the deal is not significant enough to either tout as the government is doing or fret as the opposition wants, trying to stoke the flames of popular fears over the economy. To put things in perspective, in 2013 alone, Albania’s largest foreign investor, Canada-based Bankers Petroleum had about 405 million euros as Albanian revenue. (It paid about 68 million euros of that to the Albanian government in the form of taxes, royalties and revenue transfers to the state-owned oil company, Albpetrol.)
The IMF usually gets involved in countries in crisis or that can’t manage themselves. Its presence is a good sign only when the country is already in trouble, which Albania clearly is.
The previous government managed to get the IMF out of Albania, touting it as success. To a degree it was right. Albania saw some growth, reform and development that kept it out of the hot water in the early days of the global economic crisis. But then the crisis caught up with Albania, even though the government tried to paint a prettier picture for far too long by investing heavily in public infrastructure.
But, absent external checks, the previous center-right government also relied heavily on borrowing to finance its many infrastructural projects – often at commercial rates – increasing the public debt to GDP ratio upwards of 70 percent, beyond international safety standards and far beyond Albania’s usual low-debt approach to economic development.
Albania’s governments in general do need some international advice and supervision on how much they borrow. Left to their own devices, Albanian politicians – like many politicians elsewhere – will borrow and spend as much as they can until the next election cycle. But there also needs to be a balance in what kind of restrains on spending and earning the government agrees to if Albania wants to return to the high economic growth rates of the last decade.
