“It is absolutely critical to complete the process of clearing arrears and outstanding bills to the private sector. And no matter how ambitious the agenda that a new government might have, there is no fiscal space for new significant investments,” said World Bank’s Tirana chief, Lvovsky, in a farewell conference
TIRANA, July 15 – The World Bank has advised the new government out of the June 23 general elections will have to consider introducing a fiscal rule, establish an independent fiscal council and resume a programme with the IMF in order to achieve sustainable growth.
Speaking in a farewell press conference after completing her three-year mission as World Bank Country Manager for Albania, Kseniya Lvovsky described the process of clearing arrears and outstanding bills to the private sector as critical. The business community says government owes private companies an estimated Euro 200 million in outstanding bills for finished public works and services.
“It is absolutely critical to complete the process of clearing arrears and outstanding bills to the private sector. And no matter how ambitious the agenda that a new government might have, there is no fiscal space for new significant investments,” said Lvovsky, also stressing the need for fiscal consolidation. “It is very important to develop a dedicated and credible program to gradually rebuild the fiscal space. In this context, particular attention should be given to improving quality of public expenditure. We are preparing a major report, called Public Finance Review, that will provide recommendations in this area and, we hope, will help Albania to move in that direction.”
The outgoing World Bank country manager advised the new government to exercise strategic selectivity. “A major risk to any new government coming with an ambitious agenda is overestimating a country’s capacity to move in all direction at once. It’s very important to sequence interventions and only start reforming those which are absolutely necessary, while letting good reforms continue as they were designed before.”
Lvovsky stressed the need for a second generation of reforms in the power sector and a careful look to national-local government arrangements, giving more attention to the transparency of decision-making and data, ensuring true independence of supposedly independent institutions, enforcing and ensuring the rule of law.
“For credibility of public institutions it is also critical to maintain professional, de-politicized Public Administration. Another key priority area is to continue, accelerate and expand structural reforms. This is always important, but particularly in the current challenging time in Albania, regionally and globally,” added Lvovsky.
Conflict with CEZ
Speaking about the failed privatization of the distribution operator, the World Bank country director underlined the necessity of solving the ownership issue with CEZ Group. Since January 2013, CEZ Shperndarje has been under state administration after Czechs had their licence revoked over failing to fulfill contract terms.
“We will commit over a negotiated solution with CEZ because the CEZ sector is under state management but the property issue has not been solved yet. The important thing is the improvement of the distribution sector but it is up to the government to decide when to re-privatize it,” said Lvovsky.
CEZ received a 60 million euro guarantee from the World Bank as an incentive to take over Albania’s OSSH power distributor in 2009 but can no longer claim the guarantee after its departure from Albania.
Czech Republic-based CEZ Group, whose Albanian power supply subsidiary CEZ Shperndarje, was stripped of its licence last January, says it has officially initiated international arbitration procedures to claim compensation for the damage incurred in Albania. CEZ says it will claim Euro 200 million in international arbitration while the Albanian government claims that CEZ’s failure to fulfill its contract obligations over imports, investments and reducing grid losses caused the state USD 1 billion in damage. The CEZ Group entered the Albanian market in May 2009 by acquiring a 76 percent equity stake in the Albanian power distribution company for Euro 102 million.
World Bank expects Albania to grow by 1.8% in 2013
The World Bank has revised upward Albania’s economic growth forecast on improved external conditions in the Euro area. In its new Global Economic Prospects report for June 2013, the World Bank expects the Albanian economy to grow by 1.8 percent, up from an estimated 1.6 percent in 2012. The 2013 growth forecast is 0.1 percent lower compared to the developing Central and Eastern Europe as a whole which includes Albania, Bosnia and Herzegovina, Bulgaria, Georgia, Kosovo, Lithuania, Macedonia, FYR, Montenegro, Romania, Serbia.
The World Bank expects growth in Albania to slightly accelerate to 2 percent in 2014 and 3 percent in 2015. The current account deficit is expected to drop to -9.5 percent of the GDP in 2013, down from 10.7 percent in 2012 and further drop to 8.3 percent and 7.1 percent of the GDP in 2014 and 2015.
The World Bank forecast for 2013 is in line with the IMF and slightly higher compared to London-based EBRD.
Albania is projected to grow at about 1.8 percent, as it did last year, supported by a steady export performance, says the World Bank in its new South East Europe Regular Economic Report (SEE6).
IMF’s proposed return divides experts
TIRANA, July 16 – A proposal over the need to re-establish relations with the IMF, initiated by the incoming Prime Minister Edi Rama but also backed by the World Bank and the country’s central bank, has divided experts.
Ardian Civici, an economy expert, says Albania does not need to re-establish relations with the IMF because of its good repayment ability and stable deficits.
The business community represented by the Konfindustria Association has also opposed IMF’s return, saying that the Fund would deteriorate Albania’s international image and curb foreign direct investment because IMF operates only in countries facing financial difficulty and recession.
Meanwhile, Zef Preci, the director for the Albanian Centre for Economic Research, supports the idea of re-establishing relations with the IMF, which currently has an advisory role after the Albanian government cut relations with the Fund back in early 2009. According to him, the IMF mission in Albania would serve as an arbiter to control populist initiatives by governments.
The International Monetary Fund ended its mission to Albania in January 2009 after assisting Albania since the early 1990s.
Prime Minister Sali Berisha also said that the exit of the IMF signals the end of the transition period for Albania and that Albania can economically stand on its own feet now.
IMF’s suggestions
In its latest 2012 country report on Albania, the IMF suggests Albania needs to undertake austerity measures which include a freeze in wage and pension increases, a rise in tax rates and recommitment to a credible debt ceiling.
Albania has successfully avoided a serious economic slowdown since the outbreak of the global crisis four years ago. But now, policy buffers are absent, and macroeconomic imbalances persist. With the ongoing eurozone problems, the economy has slowed, and the financial sector is exposed to domestic and external risks, said the IMF.
Fiscal Policy: Arresting the upward trend in public debt in the near term to anchor market expectations, and undertaking sustained but gradual fiscal consolidation over the medium term would strike an appropriate balance between signaling the government’s commitment to debt sustainability, and limiting the adverse impact of fiscal consolidation on the weak economy. Adjustment could entail modest increases in tax rates, as well as trimming current spending. Improving the debt trajectory would also mitigate fiscal financing risks emanating from high rollover needs.
Financial Sector: Containing spillovers from the eurozone crisis and minimizing negative feedback from a slowing economy will require close banking supervision and continued close cooperation with foreign regulatory authorities. The problem of rapidly rising nonperforming loans should be addressed by clearing unpaid government bills and improving collateral execution. Work on deepening public debt markets and lengthening maturity should continue.
Structural Reform: Strengthening property rights, improving contract enforcement, and simplifying the tax system would encourage investment and medium-term growth.
Joint IMF-World Bank mission in Tirana
A joint International Monetary Fund- World Bank mission arrived on Tuesday in Albania on a three-day visit to assess the country’s economic and financial situation. The joint mission scheduled to visit Albania from July 17 to 19 will assess the country’s financial system and its possible contribution to the country’s growth and economic development.
The joint mission comes at a time when the Socialist Party expected to take over next September has announced it intends to re-establish relations with the IMF, an initiative which has also been hailed by the World Bank, but divided experts, some whom oppose the IMF’s return because of its austerity measures.
Incoming Prime Minister Edi Rama says he intends to hire an international company to audit the country’s finances.
