EBRD: Clearance of arrears to accelerate growth

Prospects for Albania look better because of the expected spillover effects from the progress in clearing arrears, says the London-based financial institution.
TIRANA, Sept. 18 – Citing progress in the clearance of arrears to the business community, London-based EBRD has left unchanged at 1.7 percent its 2014 forecast for the Albanian economy but revised upward its 2015 estimate to 2.5 percent, according to a regional economic prospects report issued this week.
The Albanian government says it has paid off around 31 billion lek (Euro 218 million), which is more than 40 percent of accumulated unpaid bills to private companies, estimated at $720 million or 5 percent of the GDP.
“Prospects for Albania, Macedonia and Montenegro look better now than two months ago because of expected spillover effects from the progress in clearing arrears in Albania and improved prospects for major public infrastructure projects in Macedonia and Montenegro,” says the EBRD. The London-based financial institution expects a modest reconstruction-related rebound in the Bosnian and Serbian economies in the Bosnian and Serbian economies, both of which suffered extensive flood-related damage in late-May 2014 badly affecting vital sectors such as energy and agriculture.
The forecasts are slightly lower compared to the Albanian government and the IMF which expect the economy to recover to 2.1 percent in 2014, up from 0.4 percent in 2013 and accelerate to 3.3 percent in 2015.
In its previous report last May, the EBRD said Albania will see a modest upturn in 2014-2015 supported by a new agreement with the IMF and World Bank assistance in dealing with high levels of non-performing loans and weak credit growth
“Albania’s economic growth was minimal in 2013, reflecting a combination of weak domestic demand and corporate balance sheets, as well as difficulties in neighbouring EU countries (Italy and Greece) which have contributed to a sharp drop in remittances in the past year. Public debt has risen to 70 per cent of GDP and financial sector vulnerabilities are evident with NPLs of around 23 per cent of total loans,” says the EBRD report. “The government has signed a new agreement with the IMF and, with the support from the World Bank, has started to clear public arrears to companies, which had surged to more than 5 per cent of GDP. This should help to alleviate the problems of high NPLs and weak credit growth, thus contributing to a modest upturn in growth in 2014 and 2015.”
Differently from 2009-2012 when Albania was one of the best performers, at 1.4 percent in 2013, Albania registered the lowest among eight South-eastern European countries. The EBRD expects growth in 2014 and 2015 to slightly remain below the SEE’s region of 1.9 and 2.6 percent respectively.
Albania’s public debt at 70 percent of the GDP and non-performing loans at 23.2 percent are the highest among the eight SEE EBRD countries of operation which include Bosnia and Herzegovina, Bulgaria, Macedonia, Kosovo, Montenegro, Romania and Serbia.
The EBRD had earlier warned “Albania’s strong trade, investment and remittance ties to Greece and Italy, both of which face continued economic gloom, are likely to continue to constrain growth and the high level of public debt will limit the room for fiscal manoeuvre.”
The EBRD is one of the largest investors in the private sector in Albania. Since the beginning of its operations in Albania, the EBRD has invested over Euro 700 million in various sectors of the country’s economy, mobilising additional investments of more than Euro 2 billion from other sources of financing.