The latest 2012 Transition report by the EBRD shows some indicators in the financial and infrastructure sectors still rank the country far from standards of an industrialized market economy
TIRANA, Nov. 12 – Twenty years after the collapse of the communist regime, the Albanian economy still has transition indicators representing little or no change from a rigid centrally planned economy, a report by London-based European Bank for Reconstruction and Development (EBRD) has shown. Data published in the latest 2012 Transition report show some indicators in Albania’s financial and infrastructure sectors still rank the country far from standards of an industrialized market economy. In the financial sectors, Albania has a major transition gap both in capital markets and private equity rated 2- and 1 respectively on a 1 to 4+ scale. In infrastructure the transition gap is bigger in the underdeveloped and dilapidated railway system and water and wastewater. While the energy sector does not have any major transition gaps, the corporate sector continues facing lack of progress with the real estate sector rated with a large gap.
The report measuring indicators for 33 economies in central and Eastern Europe as Caucasus, central Asia and Southern Mediterranean, rates Albania better on large and small scale privatizations, price liberalization and trade and foreign exchange system at 4+ but still considers the country governance and enterprise restructuring and competition policy undeveloped rating it at 2+. Out of all transition countries, Albania has the highest dependency on remittances from the eurozone as a share of the GDP. At around 9 percent of the GDP, Albania tops the chart followed by Bosnia and Herzegovina at 8 percent of the GDP. At 22 percent, Albania also has the highest percentage of non-performing loans in the region followed by Serbia at around 20 percent.
The transition indicators range from 1 to 4+, with 1 representing little or no change from a rigid
centrally planned economy and 4+ representing the standards of an industrialized market economy.
Spillovers from the eurozone crisis
Various indicators in 2012 suggest a sharp slow-down in economic activity, and vulnerability to spillovers from the eurozone crisis is likely to remain present for some time in Albania, says the EBRD report. Only limited growth is expected in 2012 and 2013. Under baseline expectations of slow and uneven progress in containment of the eurozone crisis, the external environment will remain unfavourable to a recovery in economic activity following the first quarter decline.
Domestic demand is also expected to remain weak, especially in light of weakening credit growth and the observed decline in remittances, which are a vital source of income for many Albanians. As a result, GDP growth in 2012 and 2013 is likely to be below the levels seen in recent years, and vulnerabilities will remain high as long as neighbouring eurozone countries stay in difficulties.
London-based EBRD has downgraded Albania’s GDP growth forecast for 2012 to only 0.6 percent, down from 1.2 percent last July citing close links to crisis-hit EU partners Greece and Italy and public debt at the legal threshold of 60 percent of the GDP. In its latest October Regional Economic Prospects, the European Bank for Reconstruction and Development, which is one of the country’s main financiers, expects growth to slightly accelerate to 1.3 percent only in 2013. The IMF expects the Albanian economy to grow by 0.5 percent in 2012 while the World Bank has downgraded its growth rate for Albania to 1 percent.
Poor performance in early 2012 when the economy officially shrank by 0.2 percent and a 2 percent growth rate in the second quarter of 2012 indicate the Albanian economy will suffer severe impacts from the crisis in the Euro area and problems at home where domestic consumption, the key driver of growth, remains sluggish. The reviewed government target of a 3 percent growth rate will also be difficult to achieve considering that the economy has officially grown by only 0.9 percent in the first half of the year.
2013 priorities
As key priorities for 2013, the EBRD report suggests continued vigilance is needed to address any fallout from the crisis in the eurozone periphery. “Albania is highly vulnerable to further escalation of the crisis due to its close trade, investment and remittance ties with the countries in the eurozone, particularly Greece and Italy.” Making further moves toward a sustainable energy is also listed as a priority for 2013 along with the reforms to advance in the EU approximation process. “The country has the potential to become a regional player in the renewable energy market, but this will require improved efficiency and viability of distribution and generation, a substantial increase in private sector participation in power generation, and an improved regulatory framework.”
