Although having lowered the key interest rate to a historic low of 2.75 percent and approved a credit boost package of measures, the central bank measures have proven almost inefficient as lending stands at moderate negative growth rates of around 2 percent and interest rates on loans-denominated in the national currency have registered only a slight decline.
TIRANA, April 23 – With growth in 2013 registering a record low of 0.44 percent for the past 16 years, the central bank says it can’t do much under this situation and that structural reforms are needed to overcome the situation. Introducing the Bank of Albania annual report at the parliamentary economy committee this week, governor Ardian Fullani described 2013 as a very tough year for the Albanian economy, posing serious challenges for economic and policy-making stakeholders.
“The June 2013 general elections increased insecurity among economic agents and financial markets, curbing consumption and investments in the post-election period,” said Fullani.
Although having lowered the key interest rate to a historic low of 2.75 percent and approved a credit boost package of measures, the central bank measures have proven almost inefficient as lending stands at moderate negative growth rates of around 2 percent and interest rates on loans-denominated in the national currency have registered only a slight decline.
“All stakeholders must work more on the improvement of the business climate, the development of a new growth model based on productive activities and exports and the solution of legal problems still present in the execution of collateral,” said the central bank governor.
“Not everything can be solved by the monetary policy and not everything can be carried out by the central bank. The new approach should target the creation of favourable climate on investments and boosting demand, increasing productivity in competitive sectors, supporting technological development and improving education and implementing reforms in the labour market,” he added.
Affected by escalating trouble with public finances and spillover impacts from top trade partners Italy and Greece, the Albanian economy struggled to remain at positive growth rates in 2013, facing the worst situation since the 1997 turmoil triggered by the so-called pyramid investment schemes. Data published by the country’s state statistical institute, INSTAT, show the Albanian economy grew by only 0.44 percent in 2013, down from 1.3 percent in 2012, an average of 3.4 percent annually from 2009 to 2011 and a pre-crisis decade of an average 6 percent.
Economy recovering in early 2014
A double-digit rise in VAT and a recovery in imports of machinery, equipment and spare parts in early 2014 hints the Albanian economy is heading toward recovery after growth decelerated to only 0.4 percent in 2013. Finance Ministry data show the value added tax, which is levied at a fixed 20 percent rate on almost every product and service rose by 17.6 percent in the first two months of 2014, unveiling signs of a recovery in domestic consumption which has been the traditional key driver of the Albanian economy.
Imports of machinery, equipment and spare part, an item which indirectly measures private investments, unveils Albania’s private sector, which accounts for 80 percent of the GDP and provides the overwhelming majority of employment, is slightly more optimistic this year.
INSTAT data shows imports of this group rose by 9 percent to around 9.3 billion lek (Euro 65 million) year-on-year in the first two months of 2014.
Prospects for 2014 appear slightly more optimistic with international financial institutions and government expecting growth to slightly accelerate to 2 percent as top trade partners Italy and Greece are forecast to escape recession.
Sluggish domestic consumption, poor private investments, underperforming government revenue, public debt having climbed to around 70 percent of the GDP, non-performing loans at around 24 percent are some of the key wounds of the Albanian economy. In addition, poor consumer and business confidence and some increased taxes for 2014 are expected to further complicate the situation for 2014, when Albania switched to progressive taxation, abandoning its 10 percent flat tax system in force since 2008.
Lending having plunged to negative growth rates and deposits striving to maintain positive growth rates are some other indicators of the deteriorated situation. Both migrant remittances and tourism revenue have been on a downward trend since the outbreak of the global crisis in 2009.
