EC: Lack of rule of law, political stalemate prevent economic progress

TIRANA, Oct. 12 – Shortcomings regarding the enforceability of contracts and the rule of law, together with weak infrastructure and human capital and the informal economy continue to hinder economic development, says the European Commission in its 2011 progress report on Albania. The ongoing the political stalemate hampered the capacity of the government to implement necessary structural reforms. The delay in establishing the administrative court, a bill which requires a qualified majority of 3/5 of votes, due to lack of political consensus remains an obstacle to investment, says the report
As regards the economic criteria, Albania made some progress towards becoming a functioning market economy by reducing the fiscal and external deficits and keeping inflation expectations anchored thereby reinforcing macroeconomic stability. “Albania should be able to cope with competitive pressures and market forces within the Union in the medium term, provided that it steps-up structural reforms, including by reinforcing the legal system and strengthening physical and human capital,” suggests the EU.
Despite a more polarized political landscape, a broad agreement on the key essentials of a market economy was maintained. The Albanian economy continued to grow, albeit at a slower pace and notwithstanding the weak economic conditions in important trading partners.
The concentration of the production in terms of sectors and export markets leaves the economy vulnerable to external shocks.
The report notes Albania’s progress in improving its ability to assume the obligations of membership, in particular in the areas of free movement of goods, enterprise and industrial policy, justice, freedom and security, external relations and financial control. However, progress has been limited in other areas such as free movement of workers, public procurement, intellectual property law, information society and media as well as energy, environment and air transport.
Albania has not succeeded in meeting on-time its SAA obligation of guaranteeing a level of protection similar to that in the EU, including as regards enforcement. There was moderate progress in the area of competition, in the fields of both antitrust and State aid.
There was some progress in the area of financial services. The regulatory framework on risk management and capital adequacy improved. Supervisory capacity in the non-banking sector remains weak.
There has been progress in the field of enterprise and industrial policy, particularly as regards improving the regulatory framework for business and on access to finance to SMEs.
Institutions have been established to facilitate innovation and technological development.
The economy of Albania maintained macroeconomic stability and positive growth during and in the aftermath of the global crisis. However, the political stalemate hampered the capacity of the government to implement necessary structural reforms. The economy grew by 3.8% in 2010, thanks to exports, while domestic demand was muted. Monetary policy has successfully assisted in keeping inflation stable, also against heightened international commodity prices.