Economy offers mixed recovery signals

Albania’s prospects have in particular improved as top trade partners Greece has escaped 6-year recession, and Italy is heading toward recovery.
TIRANA, 17 – After sluggish growth in the past three years, the Albanian economy is expected to head toward moderate recovery of 3 percent in 2015 fuelled by improving situation in the Eurozone and reforms at home. Although this year’s target of 2 percent is at risk after the economy is estimated to have grown by only 0.56 percent in the first half, the Socialist Party-led government and the IMF are optimistic that reforms and tighter control on public finances will bring the Albanian economy back to moderate growth rates.
The clearance of arrears, lending having turned to positive growth rates, consumption and private investments recovering are positive signs the Albanian economy is heading towards progress. In addition, the improving business climate and efforts to reduce widespread informality and reform the energy system are positive steps.
Albania’s prospects have in particular improved as top trade partners Greece has escaped 6-year recession, and Italy is heading toward recovery.
Public debt at around 70 percent of the GDP, non-performing loans at around a quarter, a slowdown in exports and a decline in public investments have had a negative impact on the Albanian economy this year. In addition, a double digit shrink in foreign direct investment, remittances at almost half of the pre-crisis period, and the increase of the fiscal burden after the corporate income tax was raised by 5 percent to 15 percent are estimated to have had a negative impact. In its 2015, fiscal package the government has further increased the tax burden by raising the withholding tax on dividends and rents to 15 percent, increasing the circulation tax on fuel and imposing higher excise rates on tobacco.
The business community represented by foreign and Albanian association have voiced concern over the new measures warning that Albania is losing its competitiveness against other regional countries which apply 10 percent flat tax regimes.
Power prices for both household and business consumers are set to undergo an unavoidable increase next year as part of a reform in the country’s electricity sector which causes the state budget around $200 million in losses.
The long-ailing construction sector, once the key driver of the economy, continues suffering also because local government units have been banned to issue new construction permits.
In a bid to bring the economy back to sustainable growth, the Socialist Party-led left wing majority has approved a rather overoptimistic budget for 2015 expecting a 3 percent growth and a slight reduction of public debt already hovering at 70 percent of the GDP at a time when the country’s economy continues suffering crisis impacts with the GDP having grown by only 0.56 percent in the first half of this year.