Negative growth in the the first quarter of 2012 has politicians, economists and other actors discussing Albania’s economic prospects and their political implications.
TIRANA TIMES COVER STORY
TIRANA, July 12 – As Albania’s economy officially registered quarterly negative growth only for the second time since the start of the global recession, debate is brewing over the true extent of the crisis in the local economy and measures that must be taken to help protect the country from the ongoing European economic crisis and the sluggish recovery elsewhere.
Albania’s economy shrank by 0.2 percent in the first quarter of this year, according to data by the state-run Institute of Statistics, INSTAT, which is often accused by independent experts and the political opposition as being unreliable and painting a rosier picture than the reality on the ground due to government pressure. More troubling than the number itself is the sharp drop seen in key industries for growth, like construction, where the fall was in the double digits, experts say.
It takes two consecutive quarters of negative growth for the country to be in official recession, so the technical definition has not been met yet, economists say. The last time the Albanian economy registered negative growth was in the final quarter of 2009, according to INSTAT, reporting a negative 0.8 percent, later adjusted to 1.5 percent year-on-year.
Official data aside, Albanians are bracing for the worst as consumer confidence and consumption have seen sharp declines. Some unofficial polls note as much as 80 percent of Albanians now believe the economy will get worse before it gets any better.
Adrian Fullani, Albania’s central bank governor, has been warning openly about the direct effects of consumer confidence on the economy. Answering media questions last week, he said it is clear that the country’s economic growth is now under threat as consumers are reluctant to spend and businesses reluctant to invest at this time.
“The simultaneous contraction of consumer confidence and investment slowdown to protect companies from the crisis hurts … economic growth prospects,” said Fullani. “The tendency of saving and postponing investments affect the competitive advantages of economy and its growth potential.”
Like INSTAT, Fullani and the BoA had been accused of sugarcoating the state of the economy in the past, but having secured another seven-year term as the head of the central bank (even being considered shortly as a possible consensual candidate for president of the country), Fullani as been more forceful in making his case – primarily urging commercial banks to lend money to the economy and the government – but also asking the government to keep balanced expenditures and investments going.
Government: Decline a fluke, growth will return
The government of Prime Minister Sali Berisha has long maintained it has been successful in keeping Albania’s economic growth going even during the worst part of global financial crisis of the past three years, but the latest Eurozone crisis is a different beast to tackle, and Albania seems unable to escape unharmed as neighboring economic partners and key migrant worker hosts Greece and Italy suffer.
Foreign investment in Albania is declining, the pool of state-own companies and assets up for privatization is getting smaller by the day and public funding for major infrastructure projects has hit the ceiling of 60 percent of GDP public debt Albania must maintain as per its good governance obligations.
As such, economic experts warn the options of the government to keep the economy afloat are running out, rights as Albania is getting closer to entering the electoral campaign for the 2013 general elections. Campaigning for these elections usually starts about a year before, and economic concerns are likely to be at the forefront of the debate.
Prime Minister Berisha and his Democratic Party insists Albania is moving forward thanks to their policies. Berisha said factors like harsh winter weather and drought affecting electricity production were to blame for the decline, not economic policies. And, he says, the economy has been good enough to allow for raises in public sector wages and pensions.
“All these factors and the deep crisis affecting the surrounding countries of course created serious difficulty in the first quarter but the difficulties were overcome in the second and third quarters. It is the performance of these quarters that made possible the increase of wages and pensions,” Berisha said last week at a meeting with Democratic Party lawmakers.
Review of options needed
Slightly increasing wages and pensions is an artificial adjustment, according to the experts and the economy needs other incentives.
The head of the World Bank office in Tirana, Ksenia Lvovski, has urged the government to be more cautious in its approach.
“We recommend a review of options. We are concerned with what has happened repeatedly in recent years, cutting investment and maintenance costs. This is not a pro-growth economic policy,” she said in an interview with the private Top-Channel television station. “For the Albanians is more important than economic growth continue to have a slight increase of their salaries in these difficult times.”
The World Bank and other financial institutions have called on the government to change its budget policy to not jeopardize the country’s stability and growth. “We are not proposing a strict policy tightening, because it would harm economic growth. What we seek is a more prudent strategy for reducing debt gradually then review the entire program budget in several years,” Ms. Lvovski said.
Opposition: Corruption making a bad situation worse
The opposition Socialist Party has long stated the country has been in recession for a while, accusing INSTAT of cooking the books at the behest of the government.
Ilir Beqja, a Socialist member of parliament, said the economic decline noted in the latest reports in not the result of harsh winter weather, as the government claimed, but wrong policies applied by the government, corruption and lack of anti-crisis action.
“The government is lying about economic growth, and recession didn’t just happen. It’s a product of corruption,” he said.
Fate rests outside borders?
Action or inaction aside, most economists and politicians agree that in large part what is happening in Albania is tied to the wider economic problems being experienced in Europe.
The European Bank of Reconstruction and Development, in a report published two months ago, said the recovery of the economies in Southeast Europe from the global economic crisis has been limited by the onset of the eurozone crisis as well as by the region’s links with the Greek economy. Nowhere are these links stronger than in Albania.
Another report, this time from the World Bank, notes that developments in the Eurozone economies have shaken the six countries of Southeastern Europe, but careful management of public finances and public debt remains a good long term prospects for growth. The World Bank report noted that economic development in the Balkans now faces declining consumption.
“The governments of the Balkan countries should consolidate their public finances and reduce public debt to avoid the economic problems that will come as a result of slowing economic development, said the World Bank in this latest report.
To a large extend, experts note that the fate of the Albanian economy will be decided as much outside its border as withing. One thing is sure:
Gone are Albania’s golden days of economic growth figures of 6 percent. This year and the next, Albania can only expect a modest economic growth rate or even a recession – these modest growth projections assume that the Eurozone crisis will be resolved in an orderly manner. If the crisis will worsen, the economic growth in these countries could be much worse, note World Bank experts.
