The latest 2013 Transition report shows some indicators in Albania’s financial and infrastructure sectors still rank the country far from standards of an industrialized market economy
TIRANA, Dec. 4 – 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 2013 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, unchanged compared to the previous report. Insurance and other financial services are also rated 2, indicating that transition has barely advanced. In infrastructure the transition gap is bigger in the underdeveloped and dilapidated railway system and water and wastewater. In the energy sector, the electric power was downgraded from 3 to 2+. “Albania has a history of severe electricity supply problems, including major distribution losses, and the local power company, Korporata Elektroenergjitike Shqiptare sh.a. (KESH), has a poor debt collection record.”
The report measuring indicators for 32 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 governance and enterprise restructuring and worse on small-scale privatization, trade and foreign exchange system and competition policy.
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.
Reforms needed
The 2013 EBRD Transition Report recommends Albania needs to undertake fiscal adjustment and that measures to stem the rise of public debt, including the restoration of a fiscal anchor, should be implemented next year.
“Privatisation needs to continue, and the dispute with the Czech-owned distribution company, CEZ, should be resolved as soon as possible. The protracted dispute is having an adverse impact on foreign investor confidence, both in the sector and more broadly in the economy.
Measures should be taken to address the high and rising level of non-performing loans (NPLs) in the financial sector. NPLs have risen to nearly 25 per cent of total loans, threatening the overall stability of the sector,” says the EBRD.
The London-based financial institution says Albania’s weak growth performance reflects the extent of difficulties in the eurozone, particularly in periphery countries that are Albania’s major economic partners. Cross-border parent bank deleveraging has been significant.
“The outlook for 2013 remains clouded by the economic difficulties in the eurozone. Moreover, the downside risks are high, as macroeconomic imbalances persist and the financial sector continues to be exposed to both domestic and external risks, while the macroeconomic policy buffers have been exhausted. Over the medium term Albania could benefit considerably from a global recovery if it is to be able to make further progress on much-needed structural reforms.”
“Limited progress has been made in improvements to the business environment over the past year. Only a few notable improvements have been made since a big push on reforms was made between 2009 and 2010, when the regulatory requirements for starting a business were reduced considerably. As a result, Albania continues to rank below most regional peers on the indicators of the quality of its business environment.”
Little progress in transition countries
Transition countries are in danger of failing to match the living standards of more advanced market economies, the EBRD’s 2013 Transition Report argues.
“After all the remarkable achievements in the 1990s, very little has happened in terms of economic reforms in most of the countries in the EBRD region,” Erik Berglof, the EBRD’s Chief Economist said at the Report’s launch.
The purpose of the 2013 Transition Report is to understand why countries often have difficulties implementing reform, and how these constraints can be relaxed or circumvented, he said.
“Much of our region is stuck in transition, in a vicious circle of weak political institutions and lack of economic reform,” Mr Berglof stressed.
But, he went on, the report also shows how countries can break out of these transition traps by “opening up, by encouraging experimentation and accountability at the local and regional levels, and by investing in people, giving them more education and establishing an institutional context that makes better use of the skills they have acquired”.
