IMF’s Gerwin Bell says the Fund has slashed Albania’s economic growth forecast to 1.1 percent for 2011 and 0.5 percent for 2012, the latter being 9 times higher compared to government’s latest 4.3 percent expectations
TIRANA, Feb. 1 – Citing increased Euro area spillover impacts for developing economies, the International Monetary Fund has slashed Albania’s GDP growth rates for 2011 and 2012 for the third time in a row, making the most pessimistic forecast among international financial institutions.
Although not officially published in IMF’s latest World Economic Outlook Update published a few days ago, the bad news is given by Gerwin Bell, the IMF representative for Albania who heads the Fund’s inspection visits during the Albanian government’s budget drafting and reviews.
Speaking to Monitor magazine this week, Bell said the IMF had slashed Albania’s economic growth forecast to 1.1 percent for 2011 and 0.5 percent for 2012, the latter being 9 times higher compared to government’s latest 4.3 percent expectations.
The latest 2011 forecast is three times higher compared to initial projections made by IMF itself in early 2011 when it expected a 3.4 percent growth for Albania.
Even the latest data by the country’s state Institute of Statistics, INSTAT, show the Albanian economy will find it impossible to achieve government’s 3.9 percent target after growing by only 0.5 percent in the second quarter of 2011.
Despite constant differences in GDP projections between the Albanian government international financial institutions, the huge gaps in the 2011 and 2012 forecasts will have major consequences for government budget which even at a moderate 2 percent growth will have to undergo major cuts.
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.
“Internal demand in Albania is expected to remain feeble, reflecting a drop in migrant remittances, a limited fiscal space and more mature lending by banks which are adjusting their balances,” said Bell, stressing the need to apply clear fiscal rules lowering the public debt, currently close to the legal limit of 60 percent of the GDP.
The IMF senior official suggests the Albanian government also needs to undertake structural reforms to improve the business climate especially as regards the enforcement of contracts and property titles.
Expecting a mild recession for the Euro area, in its latest World Economic Look Update the IMF says that “growth in emerging and developing economies is also expected to slow because of the worsening external environment and a weakening of internal demand. The most immediate policy challenge is to restore confidence and put an end to the crisis in the euro area by supporting growth, while sustaining adjustment, containing deleveraging, and providing more liquidity and monetary accommodation.”
The IMF official has earlier described Albania’s newly drafted 2012 budget with revenues expected to grow by 8 percent, as remaining overoptimistic despite the government insisting on having drafted a more conservative and realistic budget for 2012.
Reminding the Albanian government of the mid-year budget cuts it had been forced to make in the past couple of years because of overoptimistic revenue targets, the IMF official says “this is not the appropriate way to plan the budget and fiscal policies.”
Speaking of the public debt, currently at around the legal ceiling of 60 percent of the GDP, Bell recommends lowering expenditure growth to 2 percent and also raising the flat tax to 15 percent, from 10 percent currently. The latter option has been rejected by the government as making the country less attractive to FDI.
