Public debt, including government arrears at 5 percent of the GDP, is estimated to have climbed to 70.5 percent of the GDP in 2013, and is expected to further climb to 72 percent of the GDP before going on a downward trend starting 2015
TIRANA, Feb. 4 – The Albanian government expects the country’s economy to moderately grow over the next four years and public debt to slightly drop. In its new 2015-2017 macroeconomic and fiscal framework, the Socialist Party-led government expects the country’s growth to drop to 0.7 percent in 2013, down from 1.2 percent in late December 2013 when it approved the 2014 budget. The forecast which is lower even compared to what international financial institutions expect comes after Albania registered a 2.3 shrink in the third quarter of 2013, the sharpest quarterly shrink in the past five global crisis year.
Public debt, including government arrears at 5 percent of the GDP, is estimated to have climbed to 70.5 percent of the GDP in 2013, and is expected to further climb to 72 percent of the GDP before going on a downward trend starting 2015.
The Albanian government’s expectations for the 2014-2017 period are rather more optimistic compared to international financial institutions which expect growth to range between 2 to 2.5 percent.
For 2014, government expects growth to jump to 2.1 percent and public debt to climb to 72.1 percent of the GDP. Growth is expected to climb from 3.3 percent in 2015 to 4.2 percent in 2016 and 4.5 percent in 2017 while public debt is projected to drop from 72 percent of the GDP in 2014 to 71.7 percent in 2015, 69.2 percent in 2016 and 65.6 percent in 2017.
Government expects growth to be supported by exports which are expected to climb to 19 percent of the GDP in 2014 and reach 23.5 percent of the GDP by 2017 and a recovery in domestic consumption.
The budget deficit is expected to climb to 6.5 percent of the GDP in 2014, up from 6.1 percent in 2013 before stabilizing 4.8 percent in 2015, 3.4 percent in 2016 and 1.3 percent in 2017.
Albania’s GDP per capita is expected to climb from 3,473 euros in 2013 to 4,422 euros in 2017, while unemployment rate as measured by INSTAT’s labour force surveys is expected to drop from 16.9 percent in 2013 to 12.1 percent in 2017.
Experts say top trade partners Italy and Greece overcoming recession and the payment of part of government arrears are expected to have a positive contribution in 2013 despite the corporate income tax having increased by 5 percent to 15 percent.
“The anaemic growth performance reflects primarily the extent of difficulties in the eurozone and particularly in periphery countries that are Albania’s major economic partners, but also home-grown problems related to weak corporate balance sheets and accumulation of government arrears have also played roles,” says London-based EBRD, which expects Albania to grow by 1.7 percent in 2014.
The International Monetary Fund, with which the Albanian government has signed a new assistance and loan deal, expects the Albanian economy to remain sluggish in the next five years with growth rates ranging between 1.7 percent in 2013 to 2.5 percent in 2018.
“The economy is expected to show a modest recovery in 2014, but stagnating credit, troubled corporate balance sheets, weak external partners and declining remittances are expected to limit growth to near 2 percent,” says the IMF.
The World Bank which expects Albania to grow by 2 percent in 2014 suggests fiscal consolidation and structural reforms for sustainable growth. “For growth, the way forward must be to tap external demand which for a small economy like Albania remains an important source of growth. For this, Albania needs to accelerate structural reforms in at least three areas: improving the quality of governance and rule of law; strengthening the quality of human capital (education and skills) and overcoming infrastructure bottlenecks, in particular in the power sector,” says the World Bank.
Sluggish domestic consumption, poor private investments, underperforming government revenue, public debt having climbed to around 70 percent of the GDP, non-performing loans at around 25 percent are some of the key wounds of the Albanian economy.
In its new review to the country’s GDP, INSTAT has revised downward Albania’s GDP for 2012 to 1.3 percent, down from 1.6 percent.
Three scenarios projected
Apart from the baseline scenario foreseeing a moderate recovery and a gradual reduction of public debt, the Albanian government is also prepared for two other scenarios. In its pessimistic scenario, government expects the 2014 growth to be at only 0.4 percent, the budget deficit to climb to 7.1 percent and public debt to reach 74 percent.
The pessimistic scenario which the Finance Ministry says has a low probability of occurrence assumes no credit growth, higher interest rates, the depreciation of the local currency by 20 percent and a decline of net interest income by 5 to 10 percent.
In the optimistic scenario, growth is expected to accelerate to 3.5 percent in 2014 and public debt to remain at 71 percent of the GDP.
The baseline scenario expects the 2014 growth to be at 2.1 percent and public debt to climb to 72.1 percent of the GDP.
The main objective of the economic policies in the mid-term is to preserve macroeconomic stability and continue the structural reforms in order to create the necessary conditions for the economy to operate at its potential growth, says the Finance Ministry in its 2014-2016 economic and fiscal programme.
The implementation of key structural reforms will also be a key lever to exploit the potential of the economy. “In this regard, the aim is to improve the legal and regulatory framework of business operation and improve the overall business climate, to increase the competitiveness of domestic products and services, to further improve the financial sector, to reduce the informal economy, to complete the reforms of the public administration, starting with the reforms on the pension system and going on with the reforms in the labor market.”
