Assessment on Albania – Economic and Financial Dialogue between the EU and the Western Balkans and Turkey

Assessment on Albania – Economic and Financial Dialogue between the EU and the Western Balkans and Turkey

Representatives of the EU Member States, the European Commission and the European Central Bank met today counterparts from the Western Balkans and Turkey for the annual economic policy dialogue.

The submitted 2017 Economic Reform Programmes (ERPs) of the Western Balkans and Turkey outline the medium-term macroeconomic and fiscal framework as well as a wide range of structural reforms to enhance competitiveness and long-term growth.

The programmes cover the period 2017-2019. The dialogue on economic governance with the Western Balkans and Turkey is meant to prepare them for their future participation in the EU economic policy coordination and reflects to some extent the European Semester process at EU level.

Participants recalled the commitment to set out a new set of targeted policy guidance to support efforts towards fulfilling the Copenhagen economic criteria. In this context, participants also noted the links between the progress on rule of law / fundamental freedoms and the improvement in economic governance and the judiciary system.

The dialogue will continue in 2018, including on the implementation of these conclusions.

Assessment on Albania

The country is experiencing a gradual economic upturn that is expected to continue in 2017-2019. Fiscal consolidation has reduced the budget deficit to a long-time low in 2016, while fiscal adjustment plans for the following three years are expected to be moderated but sufficient to continue reducing public debt as a share of GDP in line with the recently adopted fiscal rule. The ratio of non-performing loans (NPL) stayed high despite the partial implementation of the resolution strategy and the introduction of mandatory write-offs.

Albania has partially implemented the targeted policy guidance set out in the conclusions of the Economic and Financial Dialogue of May 2016.

Notwithstanding progress, structural obstacles to growth and competitiveness include still unclear land ownership, poor access to finance, a high level of informality and corruption, an excessive regulatory burden and unpredictability in the judiciary system, which acts as a discouragement to both foreign and domestic investment. Improvements have been achieved through the introduction of an e-building permit system, measures that tackle the informal economy and steps to boost the financial sustainability of the electricity sector.

Policy Guidance Recommendations on Albania

Continue pursuing fiscal adjustment with a view to meeting the indicated medium-term targets for reducing public debt as a share of GDP. Introduce further fiscal consolidation measures if debt reduction is at risk of falling short of target.

Persist with recent revenue mobilisation efforts, in particular by (i) strengthening tax administration further; (ii) broadening the tax base based on a review of tax expenditures; and (iii) introducing a valuation-based property tax.

Implement the remaining measures of the NPL resolution strategy. Implement the measures foreseen in the Memorandum of Cooperation to increase the use of the national currency effectively, including differentiated reserve requirements for lek and foreign exchange deposits. Strengthen the supervision of the non-bank financial sector by increasing the capacity of the financial supervisory authority. Return to a normalisation of monetary policy if inflation rates converge to the target in a sustained way.

Ensure the full unbundling of transmission and distribution activities in the electricity and gas sectors, and establish a power exchange. Adopt the legal provisions necessary to promote and monitor energy efficiency improvement measures in compliance with the Energy Community Treaty.

Continue the processes of clarifying the ownership of agricultural land and registering property, and put in place a functioning comprehensive cadastre and an e-cadastre by 2019.

Enhance the capacities of employment services and their provision of active labour market measures to the unemployed and inactive. By end 2017, outline concrete plans to address undeclared work. Intensify teacher training to improve quality of teaching and support curricular reform.