TIRANA, March 11 – Albania and other EU aspirant Western Balkans continue lagging behind other former communist countries that have joined the EU since 2004 in completing their transition to market economies which lays the ground for future sustainable growth, says a recent IMF report tracing 15 years of economic transition in the Western Balkans.
“Many of these countries are unrecognizable compared to where they stood at the turn of the century,” argues the report which examines economic developments in Albania, Kosovo, Serbia, Macedonia, Montenegro, Macedonia, Bosnia and Herzegovina, and the newest EU member Croatia.
However, six years after the crisis, it is clear that the Western Balkans lag behind other Emerging Europe states in income growth and closing the gap with the Advanced European Union countries.
“ We should be worried about this, as without further reforms the lackluster growth of recent years could become the norm, imperiling the convergence of living standards towards the levels of advanced EU economies, and denying employment opportunities to many in the region,” David Lipton, the IMF’s First Deputy Managing Director, writes in the report’s Foreword.
Between 2001 and 2008, the Western Balkans had an average GDP growth of just over 5 percent, slightly outperforming the group referred to in the report as “New Member States” (NMS) formed by Bulgaria, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Romania, Slovak Republic and Slovenia, countries that joined the EU during the 2004 and 2007 enlargement). However, the post-crisis years show the difference: while the NMS group had an average growth of around 2 percent, the Balkans had a lackluster performance, with a slightly negative result. While the external environment has been weak, “it is the incomplete reform process that is holding back convergence to income levels of richer EU economies,” the report argues.
The two main recommendations the IMF gives are to safeguard macroeconomic stability and embark on deep structural reforms. “Countries should tackle fiscal deficits and reduce public debt; invest in tradable sectors to boost exports and reduce trade and current account deficits; confront the problem of non-performing loans that clog financial systems, so banks can lend anew to the private sector; improve competitiveness; privatize state-owned enterprises that still drain public resources; and improve labor markets.”
“I remain confident that the region will rise to the challenge, as happened time and again in the past. A new wave of elected leaders, and an increasingly vibrant civil society, are ready for a second reform wave,” says David Lipton, who first advised transition countries in the early 1990s.
Albania’s challenges
Albania started the transition process as an isolated and autarkic state with virtually no elements of a market economy, but made swift progress, particularly in trade and foreign exchange liberalization, where reforms went further than in the rest of the Western Balkan states as early as 1992, says the IMF report.
The report mentions high debt and financing needs heavily dependent on banks as Albania’s biggest challenge. The IMF advises fiscal consolidation through revenue measures and phasing out energy subsidies.
The reports notes Albania’s poor diversification of exports and its gaps in infrastructure and financial market development with poor access to credit and savings.
“Albania and Montenegro have seen the sharpest increase in poverty since the global financial crisis, although poverty in Serbia also increased. Wage reductions, and importantly, a loss of remittances served to transmit the economic slowdown across Europe to poverty levels in the Western Balkans.”
