TIRANA, Aug. 19 – Albania’s exposure in terms of trade, financial links and remittances to Italy and Greece means that any unfavorable development in these countries might hit it hard, warns the European Commission in a report on regional EU aspirant countries.
Italy and Greece are Albania’s main trading partners, foreign investors, and the hosts of about a million Albanian migrants who have played a major role to Albania’s growth with the remittances and investments at home.
The report assessing the 2015 economic reform programs of seven EU aspirant countries in the Western Balkans and Turkey notes the domestic weather-dependent hydropower production and the sharp drop in international oil prices could also negative affect Albania’s growth.
“In particular, weather conditions traditionally cause large fluctuations in hydropower-based electricity generation, whose growth contribution varied widely in recent years. Furthermore, the sharp drop in international oil prices, while being a boon to consumers, could interfere with the expected step-up in Albanian crude oil production,” says the European Commission.
While the pre-crisis growth model might have relied on unsustainable factors, it is clear that
Albania needs a prolonged period of strong growth to support its catching-up process and absorb the projected expansion of the labour force. “This underscores the need to implement structural reforms that could lift long-term economic potential and materially raise living standards.
Other important obstacles to growth that need sustained efforts to address include the state of property rights, the rule of law, the informal economy, corruption and labour force skills,” says the report.
Advances in the EU integration process, including the granting of candidate status to Albania in June 2014, should maintain the pressure for further substantial improvements. At the same time, a proper sequencing of reforms will be important, so that the pace of implementation matches the available administrative capacity, recommends the Commission.
Albania’s medium-term programme realistically projects that economic performance will gain further traction between 2015 and 2017, as the external environment gradually improves and large FDI projects in the energy sector raise investment, says the report. The recovery is expected to be supported by an appropriate policy mix involving monetary easing and continued fiscal consolidation.
The programmes of most of the Western Balkan countries project a marked reacceleration of growth over the next three years, which appears somewhat optimistic, notes the Commission.
