By Ervin Lisaku
Albania’s Economic Sentiment Indicator dropped by 4.6 percentage points in the first quarter of this year, registering a turning point after a recovery in four consecutive quarters, affected by a confidence drop in all sectors of the economy, including industry, construction, services, trade, and deteriorating consumer confidence
TIRANA, April 15 – The Albanian economy is estimated to have slowed down in the first quarter of 2015 when the country suffered severe floods and exports declined on lower international oil and base metal prices.
The situation is also confirmed by the latest survey conducted by the country’s central bank showing that after recovering for four consecutive quarters, Albania’s Economic Sentiment Indicator, measuring both business and consumer confidence, dropped by 4.6 percentage points in the first quarter of this year, but yet remained 0.5 percent above its long-term historical average.
“The decline was affected by a confidence drop in all sectors of the economy, including industry, construction, services, trade, and deteriorating consumer confidence,” the Bank of Albania said.
Other indirect data published by INSTAT and the Finance Ministry show both consumption and private investments remain sluggish as indicated by the performance of the value added tax and imports of machinery, equipment and spare parts.
The value added tax, which is levied at a fixed 20 percent rate on almost every product and service and accounts for more than one-third of total government revenue also slightly dropped by 1.4 percent in the first two months of this year, hinting sluggish domestic consumption, which is the key driver of Albania’s growth.
Imports of “machinery, equipment and spare parts,” an indicator measuring private investments, grew by 12 percent to 15.1 billion lek (Euro 105 million) year-on-year in the first two months of this year, leading the country’s imports.
Tight lending standards applied by the 16 overwhelmingly foreign-owned commercial banks operating in Albania and poor demand by both businesses and households continue keeping lending at moderate growth rates in early 2015. Non-performing loans at around a quarter and poor demand for new loans as the economy struggles with growth rates of around 1 to 2 percent as well as sluggish consumption and private investments are considered the key barriers to a recovery in credit, experts say.
Latest Bank of Albania data shows lending slightly accelerated to 3 percent in February 2015, up from 2.4 percent last January, registering only a slight recovery and poorly reflecting the key interest rate at a historic low of 2 percent and the payment of accumulated unpaid government bills to the business community which seems hesitant to reinvest the money.
“For 2015, government plans to pay off 20 billion lek (Euro 141 mln) to clear government arrears, compared to 35 billion lek (Euro 247 mln) in 2014,” says the finance ministry.
Albania’s exports suffered another blow last February affected by a sharp drop in international oil and base metal prices and massive floods hitting southern Albania.
Data published by the country’s state statistical institute, INSTAT, shows Albania’s exports dropped by 6.8 percent to 35.5 billion lek (Euro 248 million) in the first two months of this year compared to the same period in 2014.
A sharp 40 percent decline in exports of “minerals, fuel and electricity” the country’s lead exports in the past three years, was the main cause for the poor performance of Albania’s exports for the second month in a row this year.
The country’s economic situation has further complicated by the recent suspension of the activity of two of the country’s largest investors over environmental and safety concerns.
Canada-based Bankers Petroleum which operates the Patos-Marinza heavy oilfield in south-western Albania and is the country’s largest foreign investor, has had its activity suspended after a blast incident at two of its oil wells, endangering local residents.
Turkey’s Kurum has also had its activity in Elbasan, central Albania, where it operates a huge steel plant, suspended over environmental pollution, a state inspectorate has ruled.
Public finances are also suffering in early 2015 with government revenue slightly dropping compared to the first two months of 2014) on lower income from VAT, corporate and personal income tax.
In a bid to bring the economy back to sustainable growth, the Socialist Party-led left wing majority has approved a rather overoptimistic budget for 2015 expecting a 3 economic percent growth and a slight reduction of public debt already hovering at 72 percent of the GDP.
While key taxes such as the personal and corporate income taxes will remain unchanged, defying businesses calls for a return to the flat tax regime after the corporate income tax was raised by 5 percent to 15 percent in 2014, the fiscal burden has further increase by raising the withholding tax on dividends and rents and capital gains, increasing the circulation tax on fuel and imposing higher excise rates on tobacco.
Albanians will pay an extra 16 billion lek (around 112 million Euros) in higher taxes on non-wage income, fuel and tobacco in 2015, according to the 2015 fiscal package government has just announced.
Electricity supply, competition from the shadow economy and corrupt practices are the top three business environment obstacles in Albania, according to a regional survey conducted by London-based European Bank for Reconstruction and Development and the World Bank.
Other minor obstacles identified in the survey included access to finance and land, political instability, workforce skills, transport, crime, courts, business licensing, labour regulations, and customs and trade.
TAP, eurozone recovery improve 2015 prospects
Top trade partners Italy and Greece escaping recession and the start of the Trans Adriatic Pipeline construction are expected to have a major impact on the Albanian economy in 2015 when government and international financial institutions expect a recovery to 3 percent after sluggish GDP growth rates of 1 to 2 percent in the past three years.
Albania’s prospects have in particular improved as top trade partner Italy is heading toward recovery and Greece has escaped 6-year recession. The two neighbouring countries account for around 50 percent of Albania’s trade exchanges, being the top investors in Albania and the overwhelming source of migrant remittances.
Albania’s greatest news for 2015 is that the Trans-Adriatic pipeline bringing Caspian gas to Europe will finally kick off its construction in its Albanian section in the second half of the year.
Public debt at around 70 percent of the GDP, non-performing loans at around a quarter, lending struggling to remain at positive growth rates and a slowdown in exports are considered key barriers to Albania’s growth.
The Albanian economy slightly accelerated to 1.9 percent in 2014 after quarterly GDP growth rates were revised upward but yet failed to meet the 2.1 percent target set by both government and the IMF due to a slowdown in the final quarter of the year.
Data published by the country’s state statistical institute, INSTAT, show the Albanian economy grew by 1.89 percent in 2014, up from an average of 1.2 percent in the previous two years, an average of 3.5 percent annually in the 2009-2011 period and a pre-crisis decade of 6 percent.
The Albanian government and the IMF and World Bank which are assisting in reforms with lending and expertise, expect the country’s economy to accelerate from 2.1 percent in 2014 to 3 percent in 2015, 4 percent in 2016 and 4.5 percent in 2016 and 2017.
