TIRANA, Feb. 28 – The Albanian government’s baseline scenario is that the country’s growth will range between 4.2 percent to 4.4 percent over the next three years, but a pessimistic scenario envisages growth could be 1.5 percentage points lower each year in case certain domestic or external risks materialize.
In its 2018-2020 economic reform program, the Albanian government forecasts GDP growth could range as low as 2.7 percent to 2.9 percent over 2018-2020 in case of worse than expected performance in lending to the economy and lower than expected mid-term pace and impact of the country’s structural reforms related to strengthening rule of law and business climate.
Among external threats, the report lists risks stemming from the Eurozone and especially Albania’s top trading partners Italy and Greece, which are slowing recovering from years of recession in the aftermath of the global financial crisis. A lower than expected economic growth in the two neighboring countries could affect Albania’s exports of goods and services, migrant remittances, foreign investment flows as well as the country’s free floating exchange rate regime with the Albanian national currency having already hit an 8-year high of about 132 against Europe’s single currency, according to assumptions on the pessimistic scenario.
In the optimistic scenario, GDP growth is expected to range between 5.2 percent to 5.4 percent, about 1 percentage points higher than the government’s baseline scenario.
In its 2019-2021 macroeconomic and fiscal framework that the Albanian government approved this week, the ruling Socialist Party expects the country’s GDP growth to recover from an expected 3.9 percent in 2017 to 4.2 percent in 2018 and gradually accelerate by 0.1 percentage points to 4.5 percent by 2021 when its second consecutive term of office expires.
Meanwhile, public debt, currently hovering at 71.5 percent of the GDP, a high level for Albania’s stage of development is expected to achieve the 60 percent target only by 2021, compared to an initial 2020 target in the previous 2018-2020 macroeconomic framework.
The Albanian government’s forecasts are sharply more optimistic compared to what the International Monetary Fund and other international financial institutions expect for the country’s economy.
The IMF expects Albania’s growth to range between 3.7 to 3.9 percent from 2018 to 2021 as investment by large energy related projects such as the Trans Adriatic Pipeline and Devoll Hydropower project taper off and no new major projects appear in sight to replace them. The World Bank’s forecast is even more pessimistic as it expects the Albanian economy to slow down to 3.5 percent in 2018 and 2019.
The IMF’s public debt forecast is even more pessimistic, with the Washington-based lender of last resort expecting the country’s public debt to only drop to 64 percent of the GDP by 2021, in a forecast that excludes commitments for public-private partnerships but incorporates central and local government of about 1.1 percent of the GDP, some €120 million.
The economic reform program, which is assessed by the European Commission, outlines Albania will undertake 17 reform actions over the next three years, including establishing a fiscal cadaster, liberalizing the energy market and diversifying the current hydro-dependent energy sources through gasification and building a new railway line linking Tirana and Durres to the country’s sole international airport.
Reducing regulatory burden to businesses and improving the quality of vocational training education are also on the agenda.
An EU-candidate since mid-2014, Albania is hoping to open accession talks with the European Commission this year as a long-awaited reform on the judiciary has been initiated with the vetting of judges and prosecutors.
