TIRANA, April 6 – Pervasive corruption and poor business environment cloud Albania’s growth prospects, says Deutsche Bank Research, the economic research unit of Germany’s largest lender.
The report cites Albania’s ranking in the latest Doing Business report where the country lost 35 places to rank 97th out of 189 countries. Albania also ranked 88th out of 167 countries in the latest corruption perception index published by Transparency International, worse than most of its regional competitors.
The coming 2017 general elections could undermine the government’s commitment, warns the report, implying possible concessions by the ruling coalition which will be seeking a new four-year term.
“The centre-left government of PM Edi Rama initiated some difficult structural changes, but parliamentary elections scheduled for June 2017 might undermine its commitment to reform,” says Deutsche Bank.
The Albanian government has undertaken reforms in the energy sector, pension system and most recently tackling high levels of informality.
The German lender expects Albania’s growth to recover to 3.2 percent in 2016 fuelled by strengthening private consumption and robust energy-related investments from hydropower plants on the River Devoll and the Trans Adriatic Pipeline bringing Caspian gas to Europe through Albania.
The report suggests the country’s central bank could further reduce its key rate, currently at a historic low of 1.75 percent to prevent disinflation.
“Although the effectiveness of monetary policy in bringing the inflation close to the 3 percent target is limited by high euroisation of the economy and external factors (low commodity prices), further rate cuts are likely given the recent sharp decline in CPI inflation to 0.2 percent yoy in February.”
The report describes banks operating in Albania, including the 14 percent of Greek subsidiaries, as well capitalized and liquid, but says the high share of foreign-currency loans and deposits and exposure to the government domestic debt pose risks.
“A high share of foreign currency loans (60 percent) and deposits (50 percent), and large exposure to the sovereign (banks hold 58 percent of government domestic debt) pose a risk to the
banking system.”
The three-year Euro 330 mln deal with the IMF and the EU candidate status in mid-2014 provide an anchor for structural reforms, says the report.
“However, a maritime border dispute with Greece might block the opening of accession negotiations with the EU,” the bank’s research unit warns.
Albania has hired Deutsche Bank twice to manage its two Eurobonds and borrowed Euro 250 million in a 10-year loan to support public investments and cover its budget deficit in April 2015.
