“Look at Albania, Serbia, Bulgaria, they had ties with Greece and Italy, ties in trade, banks, and workers. Those countries have the worst growth prospects right now,” said World Bank’s Indermit Gill
TIRANA, April 23 – The World Bank has warned the uncertain environment and continued recession in the Euro area pose challenges to the Western Balkans which have the closest links to the Eurozone through the finance, trade and workers’ remittances channels.
“Since the crisis, we see a multi-speed recovery in the region,” said Philippe Le Hou곯u, World Bank Vice-President for the Europe and Central Asia region at a press briefing during the World Bank/IMF Spring Meetings 2013. “As a rule of thumb, the closer the countries are to the Euro area, and in particular to Southern Europe, the stronger they feel the impact, as their economies rely more on the Euro area as an export market and the main source of banking flows, foreign direct investments and workers’ remittances.”
World Bank Chief Economist for Europe and Central Asia Indermit Gill also warned of dim growth prospects for those on the European periphery: “Look at Albania, Serbia, Bulgaria, they had ties with Greece and Italy, ties in trade, banks, and workers. Those countries have the worst growth prospects right now.”
He said the thinking used to be, the farther away from Brussels you were, the worse it was. “Now it’s the closer to Athens you are, the worse it is.”
According to World Bank projections for 2013, Central and Eastern Europe (CEE) and the Western Balkans growth will remain anemic at 1.2 percent, which is only slightly higher than 0.9 percent growth in 2012.
Average public debt for CEE and the Western Balkans has increased from 28.3 percent in 2008 to 45.5 percent in 2012. Public debt is at potentially risky levels in several countries of the region (Hungary – 76 percent, Albania – 62 percent, Poland – 56 percent, Serbia – 54 percent, Croatia and Slovenia – 53 percent), and poses a heavy burden on public finances.
Citing impacts from the Eurozone crisis and high commodity prices, the World Bank downgraded Albania’s growth forecast for 2012 to 0.8 percent down from 1.6 percent last June, according to a South East Europe Regular Economic report released last December. For 2013, the World Bank expects the Albanian economy to grow by 1.6 percent, slightly higher compared to other international financial such as the IMF and the EBRD, but yet 2.5 times lower compared to what the Albanian government expects.
“The growth outlook for 2012 is at around 1 percent, mainly due to the continued deterioration of the external environment. Significant external shocks from Greece and/or Italy would depress growth prospects further given Albania’s large trade, labor market, and banking system links with Italy and Greece,” said Jane Armitage, Country Director and Regional Coordinator of Southeast Europe in a farewell conference held in Tirana last October.
Speaking of the challenges the crisis poses, Armitage said “Albania, like many of its neighbors will have to develop strategies to stimulate growth, build human capital, and provide a reliable safety net for its most vulnerable.”
The World Banks suggests increasing Albania’s competitiveness through improving energy supply, strengthening road network securing property rights and making broad improvements in governance, anti-corruption efforts and public sector management.
Setting a debt target
Setting a credible debt target and achieving gradual fiscal consolidation over the medium term is Albania’s biggest challenge as the country economy struggles with crisis impacts from the Eurozone and debt levels now above the former 60 percent of the GDP ceiling. The recommendations were given by the World Bank and the IMF during a recent meeting representatives of these two top international financial institutions held in Tirana last February.
Currently, Albania’s public debt at over 60 percent of GDP is among the highest in Southeast Europe (SEE) and fiscal buffers are largely exhausted although the rise in Albania’s debt during the global crisis years has been slower than in other SEE countries. “Uncertainty in the energy sector and some arrears in public works add to the fiscal burden as they could require public sector outlays in the future. In addition, Albania’s public debt, a sizable part of which is domestic, has a large short-term component, implying risk of rollover,” warn the international financial institutions.
Public debt, whose 60 percent of the GDP ceiling was lifted in late 2012, is expected to rise from 61.9 percent in 2012 to 63.8 percent at the end of 2013 under government’s newly drafted economic and fiscal programme. The debt service and the pension deficit will cost the Albanian government around 140 billion lek in 2013, which is around 40 percent of the total 360 billion lek in revenues government expects to collect for 2013, according to Finance Ministry data in the 2013 draft budget. For 2013, the Finance Ministry expects expenditure on public debt service to increase by 15 percent to 64.1 billion lek (Euro 450 million). Albania’s public debt service dropped to 3.71 percent of the GDP in 2011, down from a record 3.89 percent back in 2010. Estimated at around 800 billion lek, the public debt costs the Albanian government 3.7 percent of the GDP in interest payment annually.
