Citing Eurozone spillover impacts, weakening internal demand and more mature lending, the IMF has recently slashed Albania’s GDP growth to 1.1 percent for 2011 and 0.5 percent for 2012
TIRANA, Feb. 13 – Despite global crisis impacts becoming more and more severe and the Albanian economy performing worse even compared to 2009-2010 period when it registered an average annual growth of 3.6 percent, government has not reflected in its new review of GDP growth targets, keeping them overoptimistic at 2 to 8 times higher compared to what international financial institutions predict for the tiny Balkan economy. Facing internal problems such as public debt at around the legal limit of 60 percent of the GDP, a slowdown in consumption and investments, the escalating crisis in the Eurozone, and especially for top trade partners Italy and Greece, will have severe consequences for the Albanian economy in 2012, international financial experts have warned. Apart from migrant remittances on a falling trend since 2008, exports and FDI, two important sources of growth during the past few years, are also endangered as the Eurozone is expected to plunge into mild recession for 2012 and prospects in severely crisis-hit Greece and Italy where more than 1 million Albanian migrants live and work remain pessimistic.
In its latest review of the macroeconomic and fiscal framework, made on Jan. 18 2012 but published only this week on the Finance Ministry’s website, government has lowered its GDP growth forecast for 2011 to 3 percent, down from 3.9 percent in late 2011 and 5 percent in early 2011, but left its growth expectations for 2012 to 2013 unchanged at 4.3 and 5 percent, respectively, the same to the review made in Nov. 2011.
Although claiming to have drafted a more conservative and realistic budget for 2012, when compared to forecasts made by the world’s most prestigious financial institutions the gap is wider than ever. The latest blow about the severe situation the Albanian economy is facing was given by the IMF which has been monitoring and assisting Albania for the past two decades.
Citing Euro area spillover impacts, weakening internal demand and more mature lending, IMF’s representative for Albania Gerwin Bell announced a couple of weeks ago the Fund had slashed Albania’s GDP growth to 1.1 percent for 2011 and 0.5 percent for 2012. The overoptimistic macroeconomic framework approved by government last month becomes more controversial with unemployment expectations. Currently standing at an official 13.25 percent, Albania’s jobless rate is among the lowest in the region, and is expected to further improve dropping from 12.1 percent in 2012 to 9.4 percent in 2015. Labour Unions and the opposition Socialist Party describe figures published by state Institute of Statistics, INSTAT, as ridiculous claiming that real unemployment is at least four times higher.
INSTAT, recently put under the PM’s personal supervision, calculates people living in rural areas possessing land as self-employed and numbers as jobless only those people who register themselves as unemployed with state agencies. In a recent press conference, opposition leader Edi Rama referred to Bank of Albania data to prove his repeated claims of 1 million jobless people in Albania. According to Rama, Albania had more than 1.2 million jobless people in 2010 taking into account the working-age population and total people employed. However, if calculations are made based on ‘population able to work,’ which INSTAT estimates at around 1 million, twice less than the working age population, the unemployment rate for 2010 stands at 13.5 percent. Under the data introduced by Rama, unemployment rate would stand at around 58 percent.
Public debt, the key burden of state budgets for the past three years, is expected to reach its highest level in the past decade. At 59.6 percent, the 2012 public debt would be only 0.04 percent below the legal limit, making Albania most vulnerable in the region, better only compared to Hungary’s 80 percent among Emerging Europe countries. What puts the Albanian public debt more at risk is that it accounts for more than double the annual revenues, while interest expenditure has risen to 3.4 percent of the GDP, compared to an average of 1.3 percent in the SEE 6, says the World Bank. Government expects public debt to lower to 58.1 percent only by 2015.
For 2012, investments are expected to slightly drop to 5 percent of the GDP and budget deficit to narrow to 3 percent. Meanwhile, the current account deficit for 2011 is expected to drop from 12.5 percent of the GDP in 2011 to 8.1 percent in 2015.
GDP per capita stood at 3,148 Euros in 2010 and is expected to reach 3,304 euros if the economy grows by 3 percent in 2011.
Developments in early 2012, with government being forced to spend dozens of millions of Euros in unplanned electricity imports, and experts warning of a more severe crisis impacts have accelerated the need for sharp budget cuts in the very early stage of the budget.
For 2012, government expects revenues to rise by 7.8 percent at a time when in 2011 they rose by a mere 1.75 percent, the lowest growth rate in the past 11 years.
While domestic consumption and investments remain sluggish, exports, which in 2011 grew by 20 percent are expected to remain one of the key promoters of growth preventing Albania from recession. Possible successful privatizations of oil giant Albpetrol, and remaining minority stakes in several important enterprises will also help government with revenues if sales prove successful in these difficult moments of uncertainty for foreign investors as the Eurozone crisis continues.
At 2 to 3 percent growth rates, 2011 and 2012 will be the worst years the Albanian economy has seen in the past 14 years after the 11 percent shrink in 2007 when the notorious pyramid investment schemes collapsed. It would even be worse compared to the 3.3 percent growth recorded in 2009 when Albania remained one of the few countries to register positive growth as the global financial crisis broke out.
