TIRANA, Jan. 14 – The World Bank says Albania has to continue doing business reforms and be careful with its ambitious public-private partnership program in order to maintain its growth pace for the next couple of years.
The warning comes by Maryam Salim, the World Bank country manager for Albania, after the Washington-based financial institution recently upgraded Albania’s 2018 economic outlook to 4 percent, but expects the country to slow down to around 3.5 percent over 2019-21, in forecasts that are up to 1 percent lower compared to the Albanian government’s baseline scenario of growth picking up to 4.5 percent by 2021 when Albania heads to new general elections.
Speaking in an interview with local Monitor business magazine, the World Bank’s Albania representative says the Balkan country has to focus on long-term solutions to the land reform, the improvement of the business climate, setting a predictable and enforceable tax legislation and applying careful fiscal policies.
A long-standing unclear property titles issue and a higher tax burden compared to regional EU aspirant Balkan countries are among the top concerns for local and foreign investors operating in the country, in addition to highly perceived corruption and an inefficient judiciary which Albania is trying to settle through a judiciary reform that has already ousted dozens of judges and prosecutors for failing to justify their financial assets.
“Albania should accelerate doing business reforms and create equal conditions for foreign entrepreneurs to invest and make use of the country’s untapped potential. The country’s labor force should be appropriately qualified to integrate better into the global value chain,” Salim is quoted as saying in the Albanian version of the interview.
The World Bank appeal comes at a time when TAP and the Devoll Hydropower, the two major energy-related projects that drove FDI in the past four years, are set to complete their investment stage by the end of this year, leaving a huge trade gap that will be difficult to fill unless other key projects replace them.
“Investment in health and education should be priorities on the government agenda,” she adds.
Albania currently spends only around 3 percent of its GDP on health and education, two sectors that play a major role in residents’ willingness to leave the country, in addition to poor income.
PPP risk
Commenting on the much-rumored PPPs, which the World Bank has earlier called for greater transparency and the cancellation of controversial bonuses for unsolicited proposals, the World Bank’s Salim says high spending on taxpayer-supported PPP projects and accumulation of new unpaid bills to private companies could pose fiscal risks.
“While it’s too early to judge on the impact of those investments, we always require strong assessment of short and long-term implications for PPPs… which are a legal instrument but their use requires a strong environment with a strong public administration, control mechanisms and full transparency,” the World Bank official is quoted as saying.
According to Salim, Albania’s high debt levels of around 70 percent of the GDP, makes the strengthening of fiscal transparency a must to boost market confidence and reduce refinancing risks in internal and external markets.
The government should also actively manage fiscal risks from PPPs and state-run enterprises and engage in more efficient public spending, she adds.
Taxpayer support to some controversial public private partnerships is expected to increase by around 50 percent to €100 million for 2019 as the government starts paying on three news public private partnerships, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.
Risks to growth outlook
The World Bank country manager says higher and more qualitative growth is the only way forward for Albania to catch up with EU member countries.
A late 2017 World Bank report showed that catching up with the average EU income could take Albania and other EU aspirant Western Balkan economies about six decades unless current sluggish GDP growth doubles to 5 or 6 percent.
“With faster growth of 5 to 6 percent, convergence could be achieved in just two decades. That will require a bold and sustained implementation of structural reforms and steady progress in EU accession processes,” says the Washington-based financial institution.
Risks to the 3.5 percent 2019-20 growth outlook that the World Bank predicts for Albania include a possible tightening of refinancing conditions for emerging markets and developments in the EU where Albania awaits a decision on the long-awaited launch of accession talks by next June soon after the upcoming late May 2019 European elections that could change enlargement balances at the European Parliament through a possible increase in populist representation.
Internally, it’s essential to achieve progress in fiscal consolidation and the expansion of the taxpayer base so that macro-economic stability is preserved as a pre-condition of growth, says the World Bank official.
Supporting all-inclusive growth requires commitment to treat structural challenges related to the business environment, energy security and human capital, she adds.
Experts estimate the Albanian economy has to grow by 6 percent annually, a growth rate it enjoyed for around a decade ahead of the 2008-09 global financial crisis in order to produce sustainable growth.
