Albania showing critical signs of economic crisis

09/04/2012

The signs are not good for the Albanian economy, and the finger-pointing is well under way.

By Jonilda Koçi for Southeast European Times in Tirana -- 09/04/12

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Consumer spending is down, as are other key economic indicators. [Reuters]

Though the government largely refuses to acknowledge it, a number of economic indicators are showing critical signs of decline in the Albanian economy for the first quarter of 2012, following a slowdown in economic growth over the past two years.

Inflation reached 0.6% during February, according to INSTAT, marking the very limits of deflation, also confirming serious hits in both demand and consumption. There are declines in private and public investment. The construction and industry sectors , in particular have been among the hardest hit.

Albanians consumed less, as imports fell for a number of categories and exports fell by 21% during the two first months of the year according to INSTAT.

Remittances, one of the main sources of income in the Albanian economy from emigrants working abroad, were down by 9% last year compared to 2010.

Shkelqim Cani, former governor of Central Bank of Albania, says the government should have accepted the crisis a long time ago. "The government did not take any measure and now we are suffering the consequences of their lack of knowledge, manipulation of reality, and their inaction," Cani told SETimes.

He predicts this year will be even more difficult. "The debt cost was extremely high and has now reached disturbing limits." He added that with 2013 being an election year, debt levels will soar further. Debt levels reached the maximum limit of round 60 % of GDP.

Gjergji Filipi, director of research at the Agenda Institute, a think tank, is also concerned.

"Consumers and the biggest investor in the country, the government, visibly spent less in 2010 and 2011, and data from these first months of 2012 confirmed that the country is immersed into crisis," he told SETimes.

But Sherefedin Shehu, an MP representing the ruling Democratic Party, has a different take on the matter. A member of parliament's Committee for Economy and Finance, he told SETimes "Consumption setbacks are caused by another direction, the saving trend," suggesting saving is a psychological response to international crises.

"The crisis is not caused by Albanian factors. Albania is only influenced by the crises; we are having growth deceleration, not a drop in economic growth," he stressed.

The Central Bank has been lowering several time the interest rate for Lek, to the actual lowest historic rate of 4. 25% in attempts to increase consumption, but the market reaction was quite weak. "Monetary policy could have been more aggressive. Central Bank could have realized an aggressive reduction of interest rates, within a trimester with 1 %," said former Central Bank Governor Cani.

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In terms of solutions, Shehu suggests one way out of economic slowdown would be "government partnership with the private sector" to boost investment and employment.

Cani thinks reforms aimed at institutions, public administration, infrastructure, human capital, and good governance would offer a way out, as well as support for small and medium enterprises and agriculture.

Filipi says structural problems must be addressed, as opposed to "cosmetic" interventions. He acknowledged however that "Deep reforms might be painful and unpopular, but their delay enlarges the problem."

The IMF is projecting an economic growth rate of 0.5 % for Albania this year, slightly lower than the regional level of 0.7 %. Ever optimistic, the Albanian government projection remains 4.3 %.

This content was commissioned for SETimes.com.
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