Albania remains one of the poorest countries in Europe, suggests a report of the World Bank

Albania remains one of the poorest countries in Europe, suggests a report of the World Bank

Tirana, 27 May 2015/Independent Balkan News Agency

By Edison Kurani

Albania remains one of the poorest countries in Europe, says the report published by the World Bank in the framework of the partnership with Albania in the past 5 years.

The results became public in the document attached to the 5 year program of collaboration that the World Bank will have with Albania for the period 2015-2019.

Based on the report, the Albanian economy faces a number of weaknesses.

The report underlines the need to reduce public debt and to strengthen rule of law.

The international financial institution says that corruption remains one of the biggest problems for businesses. This widespread corruption encourages massive informality in economy.

The document says that 36% of the economy is informal. Based on the report, this makes half of employment in the country to be informal, while noting that particular sectors such as construction, informality of workers amounts up to 75%.

Business climate

An observation conducted on the business climate in 2013 by the World Bank, states that 85,9% of medium sized enterprises and 100% of big enterprises pay bribes to secure government contracts.

According to the World Bank, the country has made improvements as far as the latest Doing Business report is concerned, which ranks the country 68th on a global level, from the 90th position where it was previously ranked.

However, the survey for the Business Environment and Entrepreneurship (2013) shows that in contrast to its neighbors, in Albania it’s still difficult to secure construction permits, commercial logistic, to register properties and lands.

The high level of debt

The World Bank suggests that the high level of public debt is accompanied with the risk of changes in interest rates, thus representing a greater vulnerability for the budget and by risking the exclusion of other more productive expenses.

The surveys that the World Bank claims to have carried out, suggest stagnation and also deterioration of respective indicators of the governance during the past two years, although the government claims that the economy is moving in the right direction.

A few days ago, the Bank’s board of directors approved the 5 year program of collaboration with Albania.

The program foresees a 1,2 billion USD loan for the next 5 years, which will be used in key sectors, for the recovery of economy and development of the country.

The document praises the government for the reform it has undertaken in domains such as energy, pensions or administrative reform. The World Bank suggests that these reforms have started to give the first positive effects in the stability of the economy and its recovery.

In its document, the World Bank sets several concrete objectives until 2018, such as the reduction of public debt to 65% from 71%, where it was taken in the past two years.

The World Bank also demands the reduction of energy losses to 16% as opposed to 40% two years ago.

Some of the findings of the report

-After 2008, Albania prevented recession mainly due to the high level of government expenses, while growing public debt is significantly high and has become the main source of the vulnerability of the economy since the crisis.

-Economic fall in 2008 led to the rise of fiscal deficits and public debt. Inability to boost fiscal revenues because of low tax revenue collection and large tax evasion, and structural burdens on the public expenditures led to an increase in the fiscal deficit. The public debt increased from about 55 percent of GDP in 2008 to about 71 percent in 2014.

– In 2014, Albania’s Government started to implement an ambitious program of policy measures aimed at fiscal consolidation. The combined measures on the revenue side are estimated at 2.1 percent of GDP.

-Fiscal pressure relating to deficiencies in the electricity sector were covered by the budget or state guarantees for the debt of the state owned electricity production company. The weak fiscal policy and the weak management of public finances, led to the accumulation of many outstanding debts to businesses, estimated to amount to 5,3% of GDP in 2013.

-In terms of expenses, growth of public salaries has been frozen in 2014, apart from police, while the increase of pensions has been indexed with inflation.

-Consolidation measures in terms of revenues and expenses are expected to significantly increase fiscal indicators in the medium term. The increase of revenues by the government (namely the increase of duty stamp on cigarettes, road tax, introduction of tax on interest incomes, rents, dividends and capital benefits) in the new budget of 2015, along with the improvements in tax administration, are expected to boost incomes in relation to GDP.

-The crisis in the Eurozone pointed out the weak points of the Albanian economy.

-In spite of the long period of sustainable growth, which took GDP per capital to 8,123 USD, Albania remains one of the poorest countries in Europe.

-Amid 12 prefectures, Kukes is one of the poorest ones with 22% of the population that lives under the poverty threshold, followed by Fier and Lezha, with 18% of population living under the poverty threshold.

-The key development challenge for Albania is the return to macro-fiscal balance and preservation of financial stability. /ibna/