The IMF warned the aftershocks of the crisis were slowing economic growth, and exacerbating domestic and external vulnerabilities.
TIRANA, Oct. 2 – The escalating crisis in the Eurozone, especially impacts from top trade partners Italy, Greece, and public debt at the legal ceiling of 60 percent of the GDP will keep Albania on the verge of recession this year, an IMF official unveiled this week. Speaking at a joint press conference with the country’s Finance Minister and central bank governor after concluding a two-week visit, Nadeem Llahi, the new IMF representative for Albania said the Fund expects the Albanian economy to grow by only 0.5 percent this year and 1.3 percent in 2013 in a forecast which does not include around Euro 1 billion from the sale of oil firm Albpetrol and four small and medium sized enterprises. The IMF forecast, which is the most pessimistic among international financial institutions, is six times lower compared to the reviewed government target of 3 percent.
Commenting on the IMF forecasts later on Wednesday, Prime Minister Sali Berisha said “it was in the Fund’s nature to see the glass half empty and later make the necessary adjustment to the GDP growth.”
Hailing Albania’s economic performance after the 2008 crisis, the IMF warned the aftershocks of the crisis were slowing economic growth, and exacerbating domestic and external vulnerabilities.
“Risks to the outlook are mostly on the downside, as the economy remains vulnerable to external risks, particularly from the euro area crisis. Albania’s high public debt carries macroeconomic and fiscal risks. Tackling it requires a credible commitment to a medium term fiscal consolidation path,” said Llahi.
Speaking of the rising bad loans, currently at 21 percent of the total portfolio, the IMF representative said government arrears and problems with the execution of collateral have also influenced.
For 2013, the IMF mission suggests that the Albanian government should target keeping the public debt at the current level of around 60 percent of the GDP. “The 2013 budget should target an unchanged debt to GDP ratio. Consolidation would require raising revenues and reducing current spending, while supporting capital and targeted social spending.”
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, IMF officials had earlier suggested that “this is not the appropriate way to plan the budget and fiscal policies.”The IMF mission suggests receipts from privatization of natural resource wealth should be utilized primarily to lower debt, but also to clear unpaid government bills; the latter will aid near term economic activity.
Finance Minister Ridvan Bode said the IMF has hailed fiscal policies followed by the ministry as prudent and coherent. Citing Greece’s 7 percent economic shrink and Italy’s 2.5 percent, Bode said the crisis in the top trade partners had lowered government expectations for 2012 growth to 3 percent down from 4.3 percent because of falling internal demand. The minister also announced there would be a restructuring of the debt as government is negotiating with the World Bank to borrow at low interest rates in order to pay off loans at higher rates.
“We have an intensive agenda on privatizations in the energy sector which would enable new spaces to support the economy in the mid-term,” said Bode.
Central bank governor Ardian Fullani said low internal demand because of high insecurity about the future, and little space for stimulating policies would also affect Albania’s 2013 growth. The joint press conference comes after an IMF mission led by Nadeem Llahi visited Albania from Sept. 19 to Oct. 2 to hold discussions on the annual review of Albania’s economy meeting some of the highest financial and political stakeholders.
IMF’s forecasts
The International Monetary Fund says Albania will be one of the hardest-hit emerging economies in the Central and Eastern Europe region in the next few years. In its latest World Economic Outlook, the IMF expects the Albanian economy to grow by only 0.5 percent in 2012, 1.7 percent in 2013 and at an annual 2.5 percent from 2014 to 2017, recording one of the lowest growth rates among 14 Emerging and developing economies in central and eastern Europe.
What’s more concerning, Albania’s public debt currently at around 59 percent of the GDP, is expected to jump the legal deadline of 60 percent of the GDP by 1.7 percent in 2012 and gradually grow to 67 percent until 2017, remaining lower only compared to EU member Hungary, according to the IMF database.
Albania’s GDP per capita at 3,992 USD, and GDP based on purchasing power parity per capita at 7,741 USD in 2011 are the lowest among the surveyed countries. Some 14 countries Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Kosovo, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia and Turkey were covered in the regional database.
Albania’s exports will also be severely hit from the crisis in the Eurozone, the destination of more than 80 percent of Albanian exports. IMF expects the volume of Albanian exports to increase by only 1.5 percent in 2012, down from around 13 percent in 2011 and grow by an average of 7.7 percent annually from 2013 to 2017.
The IMF expects Albania’s inflation rate to drop to 1.8 percent in 2012 down from 3.4 percent in 2011.
General government revenues are expected to increase by only 3.7 percent in 2012 while total expenditure is expected to rise by 4.4 percent to around 393 billion lek.
The Albanian economy grew by 3.1 percent in 2011, remaining at the same moderate growth rates for the third year in a row, according to GDP report published by the country’s state Institute of Statistics. However, according to IMF, the Albanian economy grew by only 2 percent in 2011. For 2012, government has lowered its GDP forecast to 3 percent down from 4.3 percent, despite the economy slightly shrinking by 0.2 percent in the first quarter of the year and prospects for the rest of the year remaining grim.
