TIRANA, Jan. 26 – Public finances in Albania and other Western Balkan countries remain a concern especially due to a strong rise in public debt over recent years and elevated financing needs, the European Commission warns in its quarterly report on EU aspirant countries.
Albania’s public debt climbed by an annual 10.5 percent to 73.6 percent of the GDP in the third quarter of 2015, being one of the highest in the region and close to Serbia’s 75.7 percent.
The report notes Albania and Serbia also have the highest ratios of non-performing among the seven EU candidate and potential candidate countries at around 20.2 percent and 22 percent, respectively, in the third quarter of 2015.
The Commission warns significant external imbalances remain a key challenge in most Western Balkan countries, reflected in large merchandise trade deficits ranging from 12 percent of the GDP in Serbia to above 20 percent in Albania and Macedonia and around 40 percent of the GDP for Montenegro and Kosovo.
International oil prices at a record low and a drop in remittances is affecting the current account, a key indicator of a country’s economic health.
“The annualized current account deficits widened somewhat in the third quarter in Albania to 10.9 percent of GDP as lower oil prices reduced revenues from oil exports and earnings from remittances dropped by 18 percent,” says the Commission.
The European Commission describes Albania’s new issue of a Euro 450 million Eurobond at an interest rate of 5.75 percent as successful following delays because of uncertainty caused by the Greek crisis.
The report also notes underperforming revenue even after a mid-year budget cut and persistent problems regarding the management of public investments which failed to meet targets.
At an expected growth of 2.7 percent in 2015, the Albanian economy returns to among the best performers in the EU aspirant countries. Only Macedonia, Montenegro and Turkey are expected to register slightly higher growth rates.
During the global crisis years of 2009 to 2012 Albania was among the best performers at a time when most regional countries suffered negative growth rates.
The economy is expected to accelerate to 2.7 percent in 2015 following poor growth rates of 1 to 2 percent in the 2012-2014, an average of 3 percent in 2010 and 2011 and a pre-crisis decade of 6 percent.
In its latest Autumn forecast on European economies, the European Commission revised downward Albania’s 2015 GDP growth forecast to 2.7 percent, down from 3 percent in its previous spring outlook, in line with the Albanian government and the IMF which reduced the growth target on lower international oil and base metal prices affecting exports and spillover effects from the debt crisis in neighbouring Greece, Albania’s second major trading partner.
The forecast for 2016 has also been slightly revised to 3.3 percent, down from an earlier 3.6 percent, which is among the highest amid EU aspirants. The Commission expects the Albanian economy to accelerate to 3.8 percent in 2017 on a revival in investments and improvements in the business environment.
The report hints FDI will get a boost from the start of construction of the major Trans Adriatic Pipeline bringing Caspian gas to Europe through Albania to Italy and the ongoing construction of the Devoll hydropower plant by Norway’s Statkraft which is set to become the country’s biggest ever hydro energy project by 2018.
The autumn report also warned of spillover effects from the escalation of the crisis in neighboring Greece, the country’s second top trading partner and the host of 500,000 Albanian migrants who have traditionally accounted for the majority of remittances to Albania. Greece is projected to face new recession in 2015 and 2016, just as it escaped its worst ever six-year recession in 2014 fuelled by a debt crisis.
“Should their situation deteriorate more than expected and should rising remittances from elsewhere not compensate for this, the decrease in this particular source of income might also negatively affect household consumption,” warns the report.
