Albania is ranked 27th among the 43 countries in the Europe region, and its overall score is above the world average
TIRANA, Jan. 15 – Albania lost one place in its level of economic freedom ranking the world’s 58th and as “moderately free” among 177 economies, according to the 2013 Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal.
Albania’s 2013 economic freedom score rose by 0.1 point to 65.2, with declines in property rights and labor freedom offset by improvements in business freedom and the management of public finance. Albania is ranked 27th among the 43 countries in the Europe region, and its overall score is above the world average.
Seven other Southeast European countries, Bulgaria, Croatia, Cyprus, Macedonia, Montenegro, Romania and Turkey, were classified as “moderately free.
Albania achieved its best ever result in the Index of Economic Freedom in 2010 when the country ranked 53rd. Back in 2012 and 2011 it ranked 57th and 69th respectively.
Natasha Srdoc, co-founder of the Adriatic Institute for Public Policy and International Leaders Summit, partner of the Index of Economic Freedom, cited corruption and slow reforms as some of the problems facing the region.
“The major weakness in … Southeast Europe is weak rule of law measured by high levels of political corruption and a very poor protection of property rights which have been in the repressed category of the Index of Economic Freedom since the start of the study,” she told SETimes. She also noted the successful implementation of the flat tax reform initiative in a number of countries as a positive development in the region.
“The flat tax does have an anti-corruption component and is a transparent and non-distortive tax system. The flat tax removes arbitrary tax related decisions by individual politicians and political groups,” said Srdoc, urging citizens in the Balkans to “press for principled reforms” like those successfully implemented in the Baltics.
The 19th annual edition of the Index of Economic Freedom covers 185 countries, evaluating their performance in four broad areas of economic freedom נrule of law, regulatory efficiency, limited government and open markets. It ranks 177 of the surveyed economies on the basis of 10 indicators, including property rights, freedom from corruption, fiscal freedom and government spending. Based on their aggregate grades, countries are classified into five groups: free, mostly free, moderately free, mostly unfree or repressed.
Reforms needed
Although the state continues to control key enterprises, particularly in the energy sector, the economy is mostly in private hands. Beneficial structural reforms have included bank privatization, implementation of competitive flat tax rates, and modernization of the regulatory environment. Deeper institutional reforms to reduce labor market regulations and increase the efficiency of the judiciary, which remains subject to political interference, are critical to further success. Corruption continues to undermine the prospects for long-term economic development, notes the report.
The report describes Albania as remaining one of Europe’s poorest countries despite economic and political reforms since the end of Communist rule in 1992.
Albania still lacks a clear property rights system, particularly for land tenure. Security of land rights remains a problem in coastal areas where there is potential for tourism development. Significant reform of the legal system is ongoing, but the courts are subject to political pressure and corruption. Protection of intellectual property rights is weak. Albania is a major transit country for human trafficking and illegal arms and narcotics.
Albania’s economy has benefitted substantially from a decade of increased openness and flexibility and weathered the immediate impact of the global economic crisis relatively well. Over the past two years, however, economic dynamism has slowed. Expansionary public spending that the government hoped would mitigate some of the pain of necessary adjustments has resulted in budget deficits and rising public debt, now near 60 percent of GDP.
Taxes
Personal and corporate tax rates are a flat 10 percent. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden equals 23.3 percent of total domestic income. Government expenditures stand at 28.8 percent of GDP, and public debt, which has increased since 2007, is around 60 percent of GDP.
The entrepreneurial regulatory framework has become fairly streamlined, and starting a business takes less than the world averages of seven procedures and 30 days. Minimum capital requirements are modest. Despite some reform, labor market rules remain relatively rigid. With international commodity prices stable, inflationary pressures have eased and allowed the central bank to lower interest rates to stimulate domestic demand.
The trade-weighted average tariff rate is 5.1 percent. There are few formal non-tariff barriers, but inadequate infrastructure and administrative bureaucracy add to the cost of trade. Foreign and domestic firms are generally treated equally under the law, but there are restrictions on foreign ownership of land. Excessive bureaucracy discourages dynamic investment. Banking consists mainly of subsidiaries of foreign banks and remains relatively stable.
