TIRANA, May 18 – The overcome of a three-month political deadlock that put an end to an apparent boycott by the main opposition Democratic Party and its allies to the upcoming general elections is expected to have positive impacts on the Albanian economy, especially the peak tourist season although new foreign investment is not expected to undergo a major boost until a new government is formed by next September.
The country’s central bank and major international financial institutions had warned the political crisis ahead of the initially scheduled June 18 elections which will now be postponed for June 25 following a last-minute deal, would have negative effects related to both investment and the country’s growth prospects and fiscal consolidation efforts.
“The balance of risks related to the expected developments continues to remain on the downside. In the short-term the tense political situation in the country could have an impact on increasing insecurity and delaying investment and consumption. Mid-term risks are mainly related to uncertainties in the external environment and the speed of the recovery of credit,” central bank governor Gent Sejko recently warned.
The World Bank, the IMF and the European Commission has also warned the prolonged political crisis and its possible escalation would affect the investment climate and business and consumer confidence, leading to a revise downward in the country’s expected GDP growth.
The emerging tourism sector seems to have profited most from the overcome of the impasse as Albania gears up for its peak 2017 season. The tourism industry has been one of the country’s fastest growing in the past few years, attracting more than 4 million tourists and generating about €1.5 billion, about 8.4 percent of the country’s GDP in 2016 alone.
However, the electoral campaign until the end of June will surely have a negative impact on the arrival of international tourists, very sensitive to possible incidents. With the country holding general elections during June in the past two decades, Albania’s tour operators have often complained summer time elections have a negative impact on the very sensitive tourism sector. The emerging tourism sector in the country faces tough competitiveness from regional countries with a longer tradition in the industry compared to Albania which was cut off for about five decades under communism and is promoting itself as Europe’s last secret.
Foreign direct investment will also likely face a slowdown this year when the major Trans Adriatic Pipeline and a big hydropower plant by Norway’s Statkraft continue to remain the biggest foreign direct investment in the country for several years now. FDI in the key oil and mining sector is also expected to remain sluggish as commodity prices have only slightly picked up from the mid-2014 slump.
The implementation of a long-awaited justice reform approved in consensus in mid-2016 is the key reform foreign investors have been demanding from Albania where the judiciary is perceived as highly corrupt, undermining investor confidence.
The Albanian economy grew by 3.4 percent in 2016 and is projected to further pick up to 3.8 percent this year, mainly thanks to some major energy-related investment such as the Trans Adriatic Pipeline as well as a boost in the emerging tourism industry.
While public finances seem on track in the first quarter of this year, the real effects of political tension and the electoral year will be better unveiled FDI and tourism revenue.
