Economy experts say public debt which is expected to climb to around 75 percent of the GDP in 2014 remains a critical issue and that 2014 will be the last year when government can stimulate the economy through increasing the debt level.
TIRANA, Jan. 15 – The Albanian economy is expected to slightly recover in 2014, when both government and international financial institutions expect growth to slightly accelerate to 2 percent down from a mere 1.2 percent in 2013, which would register Albania’s lowest growth rate in the past five global crisis year.
Top trade partners Italy and Greece, escaping their prolonged recession and several reforms are expected to have a positive impact.
Economy experts say public debt which is expected to climb to around 75 percent of the GDP in 2014 remains a critical issue and that 2014 will be the last year when government can stimulate the economy through increasing the debt level.
“We should prepare for reforms which help us that future restrictions coming from the reduction of deficit should be compensated by an increase in private investments, otherwise it will be difficult to remain optimistic,” says Arben Malaj, an economy expert and former Finance Minister.
“Government should give a priority to the ease of doing business and rule of law. Businesses should feel they have to compete and that the barriers which lowered economic growth should be reduced,” adds Malaj.
Selami Xhepa, another economy expert and former Democratic Party MP, says strong stimulus can accelerate economic growth but also poses major risks.
“The increase of government debt, which on the one hand is positive because of the increase of aggregate demand, on the other hand is accompanied with a considerable increase in the public debt stock and as a result increases risks,” says Xhepa.
“What can be considered as an issue which could counterbalance these negative impacts, is structural reforms and by this I mean reforms in the improvement of policy administration system, starting with regulatory entities and continuing with market supervisory entities,” says Xhepa.
Adrian Civici, another economy expert, who is also a member of the Supervisory Board of the Bank of Albania, says the renewed deal with the IMF, the payment of unpaid bills to the private sector will give a new impetus to the Albanian economy in 2014.
“2014 will bring a positive impulse for the Albanian economy, first of all because of the payment of unpaid bills to the business community, which could be reflected on the reduction of non-performing loans,” says Civici.
Italy, Greece to escape recession
Albania’s top two trade partners Italy and Greece are expected to register positive growth rates in 2014, escaping their recession period, according to forecasts by Eurostat, the statistical office of the European Union.
Italy, Albania’s top trade partner which is the destination of more than 50 percent of Albania’s exports, is expected to register positive growth rate of 0.7 percent in 2014 after being in recession in 2012 and 2013.
Meanwhile, Greece which still remains Albania’s second top trade partner is also expected to register positive growth rate of 0.6 percent in 2014 overcoming six consecutive years of recession, which has also considerably affected trade exchanges with Albania.
The two neighbouring countries account for around 50 percent of Albania’s trade exchange, being the top investors in Albania and the overwhelming source of migrant remittances.
“Albania’s strong trade, investment and remittance ties to Greece and Italy, both of which face continued economic gloom, are likely to continue to constrain growth in the coming year, and the high level of public debt, at close to the statutory limit of 60 per cent of GDP, will limit the room for fiscal manoeuvre,” warns London-based EBRD has earlier warned.
Trade exchanges with Greece, the second most important trade partner and the top foreign investor in Albania, have been declining in the past four years as the neighbouring country faces its worst recession ever. Bank of Albania data show both exports to Greece and imports have been on a downward trend after reaching their peak level in 2008 just before Greece plunged into recession.
Although maintaining its second position for imports, at around 10 percent in 2012 compared to 15 percent in 2008, Greece now ranks Albania’s fifth most important partner for exports after Italy, Spain, Kosovo and Turkey. Exports to Greece in 2012 accounted for only 4.4 percent of the total compared to 8.7 percent in 2008 when Greece was the second most important destination of exports.
The decline of exports to Greece has mostly hit garment and footwear plants in southern Albania which had Greece as their top trade partner.
The Greek economy has shrunk by about a fifth since 2008, partly due to punishing austerity measures demanded in exchange for the bailouts, also affecting Albania with lower exports and remittances from an estimated more than 500,000 migrants.
A recent study conducted by the Albanian Centre for Competitiveness and International Trade (ACIT) has found that around 180,000 Albanian migrants, or 18 to 22 percent of the total Albanian migrants in Greece, have returned home during the past five years due to the escalating crisis in the neighbouring country.
Meanwhile, trade exchanges with Italy, the traditional top trade partner for Albania have not been affected by the crisis there due to the recession being milder and the economy being one of the biggest in the Eurozone. In 2012, exports to Italy grew to 782 million euros, up from 747 million euros in 2011 and 567 million euros in 2008 just before the onset of the global crisis. Exports to Italy in 2012 accounted for 51 percent of the total compared to around 62 percent in 2008, according to central bank data.
Imports from Italy have also maintained their upward trend during the past five years. In 2012 imports from Italy reached 1.2 billion euros, up from 946 million euros in 2008.
Italy is Albania’s top trade partner with 50 percent of total exports and 30 percent of imports.
More than 80 percent of footwear and garment products manufactured in Albania, which are the country’s main exports, go to Italy. According to Italy’s Confindustria lobby group, some 300 Italian companies operate in Albania, mainly in the footwear and garment manufacturing.
Exposure to Italy, Greece
Sovereign debt crisis in Greece has shown little impact on the Albanian economy due to the limited role Greece plays in exports and imports and due to the recent flexibility shown by exporting firms to diversify geographically, says the Finance Ministry in its 2012-2014 economic and fiscal programme. However, the exposure of the Albanian economy toward the Italian economy is greater because of the share of Albanian exports to Italy is significant bigger at over 50 percent. Until now, financial problems in Italy have had little impact on trade, possibly due to the fact that this country is not always the ultimate destination of Albanian exports. However, a further deterioration in Italy would have a major impact on the Albanian economy. Remittances, which are used mainly to finance household consumption, are expected to fall significantly (in combination with those from Greece). Influence through foreign direct investment is expected to be smaller, as FDI from Italy decreased and its share to Albania’s GDP is relatively small.
Crisis-hit Greece, the second most important trade partner and top foreign investor until 2010, dropped to the second most important FDI partner with Euro 525 million in 2011, down from Euro 620 million in 2010, and Euro 521 million in 2007 just before it plunged into its worst ever recession, according to Bank of Albania data.
Italy is Albania’s top trade partner and one of the key foreign investors in Albania. According to central bank data, Italy ranks the fourth largest investor in Albania with 372 million euros in 2011, the same as in 2010 but higher compared to 220 million euros in 2007.
