TIRANA, Nov. 5 – Albania’s economic growth will be accompanied by painful reforms which will be undertaken in cooperation with the IMF but there will be no Greek scenario, says Prime Minister Edi Rama. The Prime Minister did not specify the painful reforms but announced a new deal with the IMF to guarantee economic recovery. The International Monetary Fund ended its mission to Albania in January 2009 after assisting Albania since the early 1990s. Since then, IMF’s presence in Albania has been reduced to an advisory role.
“It is sure that there will be economic growth in 2014 but this does not mean this it will not be a year of painful reforms which are a bitter but necessary pill to make the economy recover from the abyss we found it,” said Prime Minister Rama in a meeting with Socialist Party MPs this week. The Prime Minister said the road of recovery starts with the payment of accumulated debts to private companies, filling up financial gaps and eliminating corruptive affairs. The new programme with the IMF, the 2014 draft budget and the new fiscal package will respond to the programme voted on the June 23 general elections, he added.
The Prime Minister blamed the country’s severe financial situation with the dramatic failure to fulfill revenue targets in customs and tax administration in this electoral year and endemic corruption inherited by the previous government.
In its 2013-2017 government programme, the Socialist Party-led left wing coalition says profit tax on small businesses will be twice lower compared to profit tax on big businesses while the tax on small businesses will be lifted.
“The profit tax on big businesses will be at a higher rate compared to the current level in order to reflect the principle of fair taxation and the need for big companies to contribute more than small businesses which operate through self-employment. Personal income tax will be changed into a progressive scheme, by increasing the fiscal burden on higher wages and lowering it for the lower and mid-wages. There will also be new legislation regarding transfer pricing in accordance with OECD models,” says the government in its 2013-2017 programme.
The Socialist Party also says it will lift and reduce the 20 percent value added tax on a series of basic products and reduce VAT on agricultural inputs.
“We will act quickly to apply the new taxation project by shifting into fair taxation which will reduce taxes for 95 percent of Albanians and lift taxes for small businesses. We will act fast with a facilitating package on farmers to reduce their production costs, remove VAT on basic products and medicines, and reduce household electricity prices. We will also launch a transparency process on concessions and privatizations suspected of favours at the expense of Albanians,” Prime Minister Edi Rama has earlier said.
The Socialist Party has promised to create 300,000 jobs in the next four years focusing on the manufacturing, agriculture and tourism sectors.
In its 2013-2017 programme, the Socialist Party-led government has identified manufacturing, energy, tourism, agriculture and agri-industry, education and services, considering the current model based on remittances, donations, and the construction sector as already exhausted.
The Albanian economy grew by only 1.35 percent in the first half of this electoral year and is expected to grow at around the same levels of 2012 when at 1.6 percent, Albania registered its lowest annual GDP growth rate since the collapse of the notorious pyramid schemes in 1997, and almost half of the average growth rate during the global crisis year from 2009 to 2011.
Loans to businesses shrink by 2.4%
TIRANA, Nov. 6 – Hit by a sharp drop in loans to the ailing construction sector, lending to businesses shrank by 2.4 percent year-on-year in third quarter of this year, according to central bank data. Meanwhile, lending to households slightly rose by 0.5 percent in the third quarter of the year but was down by 3.4 percent compared to the third quarter of 2011.
The situation for businesses was first of all affected by a sharp decline in lending to the crisis-hit construction sector which dropped by sharp 25 percent to 54 billion lek in September 2013 year-on-year, registering similar levels to September 2008 just before the onset of the global crisis.
Detailed data show “trade, repair of cars and household equipment” holds the majority share of lending with 134 billion lek or 34 percent of total lending to businesses. Next come the processing industry with 57 billion lek and “production, distribution of electricity, gas and water” with 51 billion lek.
Despite accounting for almost 20 percent of the GDP and employing half of the country’s population, the agriculture sector is one of the least financed sectors by commercial banks. Total lending to the agriculture sector at the end of September 2013 was at 5.8 billion lek, up 10 percent compared to a year ago but accounting for only 1.5 percent of total lending to businesses.
Rising difficulty in paying off
Bad loans in the construction, manufacturing and trade industries have reached alarming levels with one out of two debtor enterprises failing to pay off for at least three months which is the deadline classifying loans as non-performing, warns the Bank of Albania. In its financial stability report for the first half of 2013, the central bank says bad loans in the construction sector rose to a record 53.2 percent in the first half of this year compared to 32.3 percent at the end of 2012. The processing industry also saw its bad loan portfolio increase to 44.6 percent compared to 27.7 percent at the end of 2012. Meanwhile, bad loans for businesses operating in the trade sector rose to 46.2 percent, compared to 29.2 percent at the end of 2012.
Bad loans have also sharply risen to around 38 percent in the agriculture sector, from around 22 percent at the end of 2012.
The Bank of Albania warns the credit risk represents the main challenge in the banking system activity. “The presence of a high stock of non-performing loans in banks’ balance sheets increases the cost of the banks’ activity, limits their financial intermediation ability and requires the use of additional and non-efficient capacities.”
More recently, the first transactions enabling the transfer of non-performing loans from banks to non-bank financial operators who act on their collection have been registered.
At the end of the first half of 2013, non-performing loans for households rose to 18.44 percent, increasing by 1.5 percentage points compared to the end of 2012 and 2 percentage points compared to the end of first half of 2012.
Non-performing loans for businesses rose to 26.49 percent at the end of the first half of 2013 compared to 22.77 during the first half of last year.
With lending having plunged to negative growth rates, non-performing loans which are considered the second major threat to the Albanian economy after public debt, rose to 24.34 percent in the third quarter of 2013, up from 22.7 percent during the third quarter in 2012.
