Non-corrupted elite and qualitative growth

While some fiscal reforms elements are going on in Albania, faster fiscal-stabilization capacity is needed to respond to macroeconomic risks and to improve the fiscal-monetary policy mix. While we’re waiting, it is always the possibility to remain over-reliant from monetary policy for stabilization of the burden to crisis response, which could fall on individuals, although their ability to respond depends on each group or individual’s fiscal capacity.

Growth has been above estimated potential for the second consecutive year in 2018, reflecting the positivity of the recovery process and the positive external investments, and especially in energy sector. Foreign direct investment performance in 2018, overcome the level of over 1 billion euros for the first time in last decades. Increasing confidence in the Albanian economy is good news. But it is also an important signal to fiscal consolidation and accelerate economic growth in order to maintain the positive performance of the macroeconomic indicators.

The real challenge on the waiting list is to improve the longer-term growth prospects while continuing the need to deal with the domestic issues and the unfinished battle between the formality and informality of economy. That means lifting productivity and enabling Albania to participate in the regional competition for future prosperity.

Albania has made remarkable progress since the time of its budget recovery program in 2013, and the most impressive performance belong to:

• The unemployment decrease, which reached at 12.9 percent in 20138. It’s been a sharp decline in the long-term unemployed and an impressive reduction in youth unemployment, which is yet far above the EU average.
• The fiscal deficit, which in 2009 achieved at 7 percent of GDP. The government is targeting a small deficit this year, and is expected to hit its lowest levels since ’90 at the level of 1.8% of GDP. This will contribute to the reduction of public debt, continuing the downward path that began years ago.

·         Exports and tourism, which lately have boomed, aiming to limit the negative trade balance.  All of these achievements have reduced Albania’s risk profile and strengthened its resilience to macroeconomic risks.But there is still to be done for more financial and economic improvement. Public debt remains high, about 68 percent of GDP last year but is the highest in the Western Balkans and is unlikely to fall below 55 percent by 2022. Continuing on the path of debt reduction will help restore fiscal space that can be useful in the way of market growth and economic extension. The private sector is on its way of empowering, financially and economically, even though non-financial corporate debt is about 29.5 percent of GDP, and households around 0.2 percent. Despite lower levels of bad debts, the banking system remains vulnerable. The non-performing loan (NPL) ratio of Albania’s banking system slightly increased to 11.3% at the end of January 2019, from 11.1% a month earlier. The NPL ratio at the end of January was lower on an annual comparison basis, according to figures published by Bank of Albania. The ratio stood at 13.5% in January last year.

Meanwhile, the decline in the level of non-performing loans in the banking sector is achieved only if capital is released, which can be oriented to meet the needs of the economy. This is a long way, because the NPL ratios in Albania still remains higher in comparison with other countries of Balkans area (average 7% – 8%).

An important challenge is to inject new capacities with skills into the country’s labor markets. Unemployment rate has been reduced markedly, and a high proportion of new jobs are permanent. Anyhow too many of the new jobs have been minimum wage.  This is the moment to think about changing this situation in terms of increasing the value of work in the Albanian market. The economy is increasingly focusing on export markets, and that is forcing companies not only to compete with goods from other Western Balkan countries, but with the whole region. Under these conditions, a driving force is the guarantee of a flexible workforce equipped with advanced technological skills. And saying this, you could see that the level of education among young Albanians is higher than in former generation.

Albania’s product market needs reforms, and the business sector needs to reshape itself to deal with the new coming expectations of artificial intelligence, and e-commerce to extend the business capabilities. The government can play a key role in facilitating this change if it remains focused on the reform effort and makes sure that the regulations it controls do not discourage dynamic and innovative activities.

But what is the most important of all that mentioned above, it is the fact that Albania’s economic success should be built on a foundation of political consensus in a time of crisis. This is easy to say, but most importantly for real achievements and future expectations. As we face a period of uncertainty and risk, this moment should be demonstrating that there is a open way forward by go beyond differences in the front of common challenges.

This moment of right justice movement (Vetting) should be start with a tough lesson for the all kind of injustices and politicians who glorificated the corruption. In the realm of economic policy, conflict and unilateral action only heighten vulnerabilities.

If the best part of the non-corrupted elite will go through this path, it’ll be unconditionally way for economy and prosperity to produce higher economic productivity and high-quality growth.