While Albania’s unemployment and inflation rates, and the budget deficit are among the best in the region, public debt at 62 percent of the GDP, the current account balance at 10.5 percent of the GDP and the ratio of non-performing loans at 22.8 percent are the highest among the nine EU candidate and potential
TIRANA, April 15 – At 1.6 percent in 2012, Albania registered its lowest annual GDP growth rate since the collapse of the notorious pyramid schemes in 1997, and almost half of the average growth rate during the global crisis year from 2009 to 2011. However, the Albanian economy continued remaining one of the best performing among EU-aspirants despite its growth rate slowing down even compared to the onset of the global crisis in 2009 when at 3.3 percent it became one of the few regional economies to register positive GDP growth rates.
The latest quarterly report published by the European Commission Economic and Financial Affairs Directorate-General shows the Albanian economy performed better than most aspiring EU countries expect for Turkey and Kosovo and was on par with Iceland in 2012.
Macedonia, Montenegro, Bosnia and Herzegovina, Serbia and Croatia plunged into recession in 2012 after having recovered in 2011.
While Albania’s unemployment rate at 13.3 percent, inflation rate at 2 percent, the budget deficit at 3.4 percent of GDP are among the best in the region, the current account balance at 10.5 percent of the GDP and the ratio of non-performing loans at 22.8 percent are the highest among the nine EU candidate and potential candidate countries. Albania’s public debt at 61.5 percent of the GDP at the end of 2012 was the highest in the region along with Serbia at around 60 percent.
At 96 percent, Iceland has the highest public debt levels among EU aspirants.
The European Commission report notes Albania’s budget deficit at 3.4 percent of the GDP in 2012, 0.4 percent higher than the forecast, led to the call of state guarantees and a wide overrun.
At 2.2 percent Turkey, posted the highest GDP growth rate in 2012, followed by Albania and Iceland at 1.6 percent respectively. Negative GDP growth ranged from -0.3% in the former Yugoslav Republic of Macedonia to – 0.5% in Montenegro and Bosnia and Herzegovina and to respectively -1.7% and -2% in Serbia and in Croatia.
While Croatia is expected to join the EU this year, only Albania, Bosnia and Herzegovina and Kosovo remain potential EU candidates with all others having already obtained EU candidate status.
As key developments in Albania in early 2013, the European Commission points out the revocation of the distribution licence of Czech power group CEZ and the appointment of an administrator, on the ground that the company failed to meet contractual obligations. “CEZ has announced its intention to initiate international arbitration,” underlines the report.
The Albanian government also cancelled the Euro 850 million sale of Albpetrol oil firm to Albanian-led Vetro Energy after the consortium failed to make the required down payment equal to 20 percent of its bid.
The European Commission Economic and Financial Affairs Directorate-General expects growth in most EU aspiring countries to return to positive growth rates in 2013 and 2014, except for Croatia in 2013. No forecasts have been made for the only remaining potential candidate countries Albania, Bosnia and Herzegovina and Kosovo.
Tax-cut threats
Recent decisions to remove VAT on cement and steel used for the construction of hydropower plants and to introduce a non-taxable minimum of ALL 30,000 per month for personal income might put further strain on the revenue side, warns the EC report.
As a result of disappointing tax collection, total revenues fell by 0.2 percent year-on-year and by 1 percentage point as a share of GDP to 24.5 percent. Total expenditures fell by 0.3 percent year-on-year and by 1.1 percentage point as a share of GDP to 27.9 percent. The overall decline of expenditures was solely achieved by lowering capital spending.
In the first two months of 2013, total revenues increased by a marginal 0.8 percent year-on-year.
However, tax revenues declined by 1.7 percent as the largest item, VAT saw a 8.7 percent drop. This could not be compensated by a surge in revenues from personal income tax and profit tax (up by 9.4 percent and 13.9 percent, respectively), as well as a 4.9 percent increase in social security contributions.
Total expenditure in January-February edged up by 1.3 percent on the year, as a result of a 5.4 percent increase in current expenditure and a more modest 2.4 percent growth of capital spending. Total expenditure growth would have been higher had it not been for a high 2012 base, given a loan in February 2012 of ALL 2 billion to state-owned power utility KESH for the financing of electricity imports.
Public debt continued to rise in the last quarter of 2012, reaching an estimated 61.5 percent of GDP from 60.5 percent in the third quarter.
Despite having preserved an annual 3 percent growth rate from 2009 to 2011, compared to an average of 6 percent in the pre crisis period, the Albanian economy lags behind almost every EU aspirant, including Bosnia Herzegovina in GDP per capita and purchasing power indicators.
The Albanian government expects growth to accelerate from 3.1 percent in 2013 to 4.1 percent in 2015, twice higher compared to what international financial institutions have forecast. Meanwhile, public debt, whose 60 percent of the GDP ceiling was lifted in late 2012, is expected to rise from 61.9 percent in 2012 to 63.8 percent at the end of 2013, compared to a target of 62.6 percent in the 2012 budget.
Purchasing power at 30% of EU 27
In late 2012, the statistical office of the European Union, Eurostat, revised downward Albania’s GDP per capita expressed in purchasing power standards (PPS) ranking the Balkan country on the bottom of the 37-country list on par with Bosnia and Herzegovina. In its latest report, Eurostat ranked Albania’s GDP per capita in PPS at 30 percent of the EU 27 average, down from 31 percent in mid-2012 based on revised purchasing power parities, and the latest GDP and population figures. Back in 2009 and 2010, Albania’s GDP per capita in purchasing power standards, an artificial currency unit that eliminates price level differences between countries, stood at 28 percent and 27 percent respectively.
At 70 percent below the EU 27 average, Albania’s 2011 GDP per capita is also 5 to 22 percent below regional EU candidates Serbia, Macedonia, Montenegro and Turkey and 31 percent below acceding Croatia.
