The outgoing World Bank country manager says factors such as bad loans, the slow recovery of loans, the shrink of the private sector will continue having a negative impact on internal demand and the recovery in South East European countries including Albania
TIRANA, August 6 – Outgoing World Bank Country Manager for Albania, Kseniya Lvovsky, says Albania’s economic recovery in the next two years will be slow due to the ongoing Eurozone crisis and its close links to Italy and Greece.
“Even though Albania’s performance has been relatively better compared to other regional countries, its economic growth has substantially declined due to the prolonged Eurozone crisis which is now putting higher pressure on internal demand. With its close links to the economies of Italy and Greece through exports and remittances and the capital flows it is difficult that Albania has a higher GDP growth,” Lvovsky tells Deutsche Welle in the local Albanian service. At 1.6 percent in 2012, Albania registered the lowest growth rate since the collapse of the notorious pyramid schemes in 1997, and half of the average of 3 percent growth rate from 2009 to 2011.
The World Bank country manager says factors such as bad loans, the slow recovery of loans, the shrink of the private sector will continue having a negative impact on internal demand and the recovery in South East European countries including Albania. She says there are slight improvements this year mainly in the energy sector and recession coming to an end.
The high level of unemployment, especially among youth and the deterioration in poverty reduction indicators are the most visible impacts of the crisis in the region and Albania, says Lvovsky. “Unfortunately we do not have available data to understand what has happened in the past five years. However, sources like ‘Life in Transition Surveys’ carried out in 2006 and 2010 show the poverty reduction has stuck or it has probably deteriorated.”
Speaking of the prospects of the new Socialist Party-led government which takers over next September, Lvovsky warns it will have to achieve a lot with fewer funds.
“The main challenge for the new government is to find new agents of growth and economic growth which generates new jobs. And it has to do this in a difficult external and internal environment where internal demand remains sluggish and the government lacks fiscal space to support the increase in internal demand.” She suggests the economic growth must focus on exports rather than consumption.
“That is why it is very important to consider opportunities for a shift from economic growth focused on internal demand to growth focused on exports, serious measures to attract foreign investors, fiscal consolidation, a rule for the public finances and the reduction of the high public debt. Foreign investors perceive high public debt as a risk to the economy,” said Lvovsky.
Extra measures must be taken on law enforcement because private investors feel that the law is not enforced equally to all, and this draws them back, failing to turn them into agents of growth.
She suggests the new government will have to increase confidence in public institutions, accelerate structural reforms focused on the increase of production, competitiveness and the efficiency of public spending and embark on a reliable fiscal consolidation programme to stabilize public debt. “This must be carried out in parallel to the payment of accumulated bills to the private sector and the establishment of a system which prevents such outstanding bills. Fiscal consolidation is not a popular motto for each government and especially when the economy is poor but under Albania’s conditions, the increase in public spending without a corresponding increase in income is unaffordable and extremely dangerous to the economic growth,” warns Lvovsky.
“There is need for a courageous and realistic strategy which will support growth and at the same time rebuild the fiscal space. It is time to consider the establishment of a fiscal regime and a programme with the IMF,” she adds.
In a previous farewell conference, Lvovsky described the process of clearing arrears and outstanding bills to the private sector as critical. The business community says government owes private companies an estimated Euro 200 million in outstanding bills for finished public works and services. She also stressed the need to reestablish relations with the IMF, which has also been promised by Prime Minister-designate Edi Rama.
The International Monetary Fund ended its mission to Albania in January 2009 after assisting Albania since the early 1990s. After eight years, the IMF is expected to assess Albania’s banking system which despite handling the financial crisis successfully has been suffering a sharp rise in non-performing loans, currently standing at 24 percent. The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth analysis of a country’s financial sector.
The World Bank has revised upward Albania’s economic growth forecast on improved external conditions in the Euro area. In its new Global Economic Prospects report for June 2013, the World Bank expects the Albanian economy to grow by 1.8 percent, up from an estimated 1.6 percent in 2012. The World Bank expects growth in Albania to slightly accelerate to 2 percent in 2014 and 3 percent in 2015.
