By Arben MALAJ
The Albanian economy cannot be considered immune to the global crisis. First, the crisis in other affected countries is directly transmitted to us through effects on trade, on remittances and on foreign direct investment. Second, effects on the banking system resonate in the entire economy.
Our main trading partners have been affected by the crisis to no negligible extent, be it in their banking sectors or overall economy. According to IMF data so far on 2009, Italy will experience economic growth of 2.1% and Greece of 1.7%. As our main economic partners turn out to be considerably affected by this crisis, our economy will be negatively affected in at least three ways, a shrinking of exports, remittances and foreign direct investment.
The decline in exports, as testified by the tendency of these last months, has a considerable social impact. Some sectors that were revitalised during the period of high prices, such as mining and agriculture, are now hard-hit by the global crisis. Traditional sectors also, such as manufactured exports, seem to be affected to no negligible degree.
Naturally, by hitting hard some of the countries with the highest concentration of Albanian emigrants, this global recession will considerably reduce the cash inflow from emigrants and, thus, its contribution to the Albanian economy.
Another indicator of a negative impact is the halting and hindrance of some foreign direct investment projects. According to the latest IMF survey on the effects of the global crisis on low income countries, the share of foreign direct investment in the GDP is expected to go down to 3.5% this year, assuming the country receives loans from the IMF or other sources, from 4.9% in 2008. Overall, the decline in exports, remittances and foreign investment has tremendous impact on economic growth as well as on the balance of payments deficit.
The second source and indicator of crisis is our banking sector. Even though diversified, due to the global crisis, our banking system has been obliged to reduce the loan issuance rates, thus reducing the financial resources for economic activity. Furthermore, the credit structure, dominated by foreign currency for consumers and credit borrower with incomes in domestic currency, also risks enhancing the negative psychological effect if the devaluation of the lek continues.
If the banking crisis managed to bring an economic and social one in countries with modern and innovative banking systems, the financial sectors of countries with low living standards like Albania, affected by declines in growth rates, and increases in unemployment and poverty, are definitely, inevitably threatened.
The crisis is not the isolated event of a particular day. It started as a slowdown in growth rates, it continued as a recession and it comes now as a grave economic and social crisis. If we are to analyse the assertions of double-digit growth and the negative review that the IMF has made to the growth of the Albanian economy, from 6% to 3.7%, and then to the latest declining review of 2%, we will see that even though the figure is still positive, we are following the same tendency as that of the concrete phases of the global crisis.
The current evaluations of the country’s state of affairs conclude that due to the very low level of taxes, budgetary income and due to the rising level of budget deficit, Albania has very little room for fiscal manoeuvring.
Apart from the real economic effects, blocking local government budgets, as in the cases of Tirana and Durres, has a considerable psychological effect which is one of the most difficult factors to manage in crisis situations.
The lack of cooperation between political and economic factors in the country, and the rising political temperature due to the upcoming elections risk creating additional and harder to manage costs in this difficult economic situation.
No budgetary intervention can withstand the domino effect of psychological crises. Delays in accepting the hard economic reality, delays in determining cautious interventions as well as a disarray of fiscal policies under electoral fever influence considerably and negatively the management of this situation.
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The author is Member of Albanian Parliament , Former Minister of Finance.
Economic Crisis Starts to Hit World’s Poorest Countries
IMF Survey online, March 3, 2009
http://www.imf.org/external/pubs/ft/survey/so/2009/NEW030309A.htm
IMF Report
Effects of the crisis by sectors:
Trade Low
Investments Low
Assistance Low
Remittances Average
Trade
Balance of Payments (as % of GDP)
2008 -10 %
2009 -7.5 %
2009 (in case of assistance) -8.5%
Remittances
Cash inflows from emigrants (as % of GDP)
2008 11.5 %
2009 9.1 %
2009 (in case of assistance) 9%
Investments
Foreign Direct Investments (as % of GDP)
2008 4.9 %
2009 4.6 %
2009 (in case of assistance) 3.5 %
Foreign Assistance
Assistance from abroad (as % of GDP)
2008 2.7 %
2009 2.2 %
2009 (in case of assistance) 1.9 %
* “in case of assistance” means in case countries increase their foreign debt, receive assistance from the IMF or other loans.
