Despite having preserved an annual 3 percent growth rate from 2009 to 2011, the Albanian economy lags behind almost every EU aspirant, including Bosnia Herzegovina in GDP per capita and purchasing power indicators
TIRANA, April 16 – With an estimated growth rate of 3 percent in 2011, Albania’s economy is the only one among the 9 EU candidate and potential candidate countries to have recorded a lower GDP growth rate compared to 2009 when all EU aspirants registered negative growth rates, revealing that although initially immune to the crisis, recovery will be difficult and might take longer than its peers. Having recorded the highest growth rates in 2009 and 2010, Albania’s growth in 2011 ranks only the fifth highest after Turkey, Macedonia, Iceland and Kosovo, according to a quarterly report published by the European Commission’s Directorate General for Economic and Financial Affairs.
While Albania’s official unemployment rate and inflation rate at 13.3 percent and 3.5 percent respectively at the end of 2011 are among the lowest in all EU aspirants, the current account deficit at 12.2 percent of the GDP is the second highest after Montenegro’s 19.9 percent.
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.
According to latest data by Eurostat, the statistical office of the European Union, Albania suffered a drop in GDP per capita although being the only EU aspirant country to register positive growth rates in the crisis year of 2009. Albania’s GDP per capita dropped to 2,661 Euros in 2009, down from 2,784 in 2008, remaining better only compared to Kosovo which registered 1,790 Euros. Albania’s Gross Domestic Product (GDP) per person expressed in purchasing power standards (PPS) in 2010 was less than one third of the EU-27 average and remained even below regional competitor Bosnia and Herzegovina, according to Eurostat.
The report covering the 27 EU member states, three EFTA countries, four EU candidate countries and three Western Balkans countries aspiring to join the EU placed Albania at the bottom of the 35-country list with a score of 29 percent of the EU 27 average of GDP per capita expressed in purchasing power standards.
Fiscal developments
The government deficit is estimated to have reached 3.5% of GDP in 2011 up from 3.1% in 2010. The initial assumption of strong economic growth underlying the 2011 budget has proven overly optimistic with weak revenue performance missing the targets, says the European Commission report. Total revenue growth decelerated to 1.8%, reflecting a lower tax yield, especially for direct and indirect taxes, amid weak consumption expenditure, changes in customs and excise duties as well as a sharp fall in non-tax receipts. Total expenditure increased by 3.7% in 2011 following a contraction in the previous year. The rise in spending was primarily due to a 3.1% rise in capital outlays and 6.4% in social transfers. The planned fiscal deficit of 3.5% of GDP was reached only after mid-year re-balancing of the 2011 budget. The public debt continued to rise in the last quarter of 2011, reaching an estimated 58.8% of GDP from 58.5% in the third trimester
External sector
Despite the improved performance in the fourth quarter, the current account deficit deteriorated significantly in 2011 as a whole, increasing to 12.2% of GDP from 11.3% in 2010.
In the last quarter of 2011, the current account imbalance improved slightly by 2.2% year on year, thanks mainly to a significant rebound in tourism earnings and workers’ remittances. Exports of goods increased by almost 19% in the fourth quarter – a weaker performance compared to the previous three months. Higher foreign sales of food and machinery and equipment were not sufficient to counter lower exports of beverages and tobacco, construction materials, fuel and lubricants and manufactures. Imports of goods rose at a faster pace to 15.7% year on year in the last quarter 2011, following a deceleration in the previous two trimesters. Except manufactures, all major import categories rose with fuel and lubricants posting the highest increase of 53%. This was due to higher electricity imports as the country’s hydropower generating capacity was impaired by unfavourable weather conditions.
The surplus on the services account increased significantly in the last quarter of 2011 in the wake of higher tourism earnings which is characterized by higher migrant workers returning home for the year-end holiday season. Current transfers rose by 5.5% buoyed by workers’ remittances which rose by some 14% compared to the same period a year earlier. Following a fall in the third quarter, FDI inflows increased by slightly more than 16.5% in the last three months of 2011. There are indications that the bulk of the inward investment went into the hydropower and oil sectors. The balance of payments in the fourth quarter of 2011 was in deficit which led to a corresponding fall in reserves of some EUR 6.2 million. The stock of foreign reserves in the last quarter of 2011 provided 4.4 months of import cover. Gross external debt stood at EUR 4.5 billion in the fourth quarter of 2011, representing a significant increase of some 16% year on year. Almost half of gross external debt is composed of government long-term borrowing.
