TIRANA, May 24 – Few days after Albania overcame a three-month political deadlock ahead of the upcoming June general elections paving the way for fully participatory elections, the European Union has urged Albania, an EU candidate country aspiring to open accession negotiations, to undertake further structural reforms that would reduce obstacles to growth and competitiveness.
In its assessment of Albania’s 2017-2019 programme of economic reforms, the Council of the European Union, representing the member states’ governments, says that while Albania is experiencing a gradual economic upturn that is expected to continue in 2017-2019, the growth projection is associated with downside risks stemming from persisting macroeconomic vulnerabilities and a renewed slide in oil prices.
The Albanian government expects the country’s economy to pick up to 3.8 percent in 2017 and further expand between 4.1 to 4.3 percent in 2018-2020 based on some major energy-related investment and a gradual recovery in domestic consumption, but public debt at about 70 percent of the GDP poses a major threat to the country’s macro-economic stability and efforts to reduce it to a more affordable 60 percent of the GDP by 2020 require strong fiscal consolidation.
In addition, a reversal of the recent recovery in oil prices remains a major source of risk for commodity exporting Albania, holding back investment in the key oil and mining sector and negatively affecting the country’s poorly diversified exports, significantly suffering since the mid-2014 slump in commodity prices.
Urging the country to continue reforms, the EU Council, warns obstacles such as unclear property titles, corruption and inefficient judiciary hold back much-needed foreign investment and know how.
“Structural obstacles to growth and competitiveness include still unclear land ownership, poor access to finance, a high level of informality and corruption, an excessive regulatory burden and unpredictability in the judiciary system, which acts as a discouragement to both foreign and domestic investment. The lack of a comprehensive cadastre hinders the development of the agriculture sector, tourism, infrastructural improvements, access to finance,” says the report.
The political consensus ahead of the June 25 general elections is also expected to pave the way for the implementation of the long-awaited reform in the judiciary, perceived as one of the country’s most corrupt sectors and a key barrier to foreign investment.
In its assessment of economic reforms programmes on Western Balkan countries and Turkey, the EU urges Albania to continue pursuing fiscal adjustment with a focus on reducing public debt, persist revenue mobilization efforts including introducing a new valuation-based property tax, and tackle the ongoing high level of non-performing loans, a key barrier for the recovery of lending.
The EU also urges the completion of liberalization in the energy market and clarifying ownership of agricultural land and property registration by putting in place a functioning comprehensive cadastre and an e-cadastre by 2019.
In its Spring European Economic Forecast report, the European Commission had warned the protracted political crisis ahead of the upcoming general elections, initially scheduled for June 18 but postponed for June 25 following a deal ending three months of protests and an apparent elections boycott by the opposition, risked negatively affecting consumption and investment.
The European Commission expects Albania’s GDP growth to slightly recover between 3.7 and 3.9 percent in the next couple of years, one of the highest among EU aspirant Western Bank countries, but says the balance of risks is tilted to the downside.
“Credit recovery may take longer than expected and the still elevated level of sovereign debt provides little room for countercyclical policies in case of need,” says the Commission.
Unlike, other electoral years, when pre-electoral spending soared and public finances underperformed, government revenue in the first four months of this year seemed on track with a 6.6 percent hike while public investment registered a sharp 37 percent hike but remained within the target set for this period of the year.
The situation is apparently a result of 2016 fiscal rule disciplining spending in electoral years in order not allow incumbent governments gain electoral advantage and setting a 45 percent public debt target.
