World Bank Overview - Albanian Economy 2019

World Bank Overview - Albanian Economy 2019 - 2019-10-20

RECENT ECONOMIC DEVELOPMENTS

After expanding by 4.1 percent in 2018, annual growth for 2019 is projected to slow to 2.9 percent, as a drastic decline in rainfall cut hydroelectric power production. An expansion in domestic demand led growth in 2019. Net exports reduced growth, as stagnant growth among trade partners limited traditional exports, while energy exports declined.

Employment continued to grow. Unemployment reached a record low of 11.5 percent in the second quarter of 2019. Poverty remains high, however; it is estimated that roughly 34.6 percent of Albanians are living on less than US$5.5 dollars per day per capita (in 2011 purchasing power parity) in 2019.

Inflation declined compared to end-2018, reversing the trend of the recent past. The Bank of Albania has maintained its policy rate at a record-low 1 percent since June 2018. The monetary easing and improvements in the loan portfolio has facilitated private sector credit growth. 

Although Albania’s fiscal position improved in 2019, risks from contingent liabilities and state-owned enterprises (SOEs) remain high. In 2019, fiscal revenue growth was limited by lower GDP growth and especially by the increased repayment of value added tax refund arrears. The budget deficit is projected to widen to 2.2 percent of GDP in 2019, while the public debt, including guarantees and arrears, is expected to decline to 68.4 percent of GDP. 

ECONOMIC OUTLOOK

Growth is projected to accelerate slightly to 3.4–3.6 percent by 2020–21, as labor income gains fuel private consumption. The slowdown in global growth will contain net exports. Investment will also contribute to growth, fueled by public projects and—assuming continued progress on structural reforms in the judicial and financial sectors—private investment. 

Over the medium term, fiscal consolidation will continue, as the Government further reduces expenditures on the wage bill, goods and services, and transfers to social insurance beneficiaries and local governments. A gradual fiscal consolidation, combined with continued economic growth, should eventually lower the debt-to-GDP ratio to 60 percent of GDP beyond 2022.

The country’s economic prospects are vulnerable to significant downside risks. Lower demand from foreign trade partners may constrain growth, worsen labor market conditions, and increase poverty. Preserving macro-fiscal stability is crucial to supporting sustainable growth, which includes continuing to streamline expenditures, increasing tax revenues, and managing fiscal risks from public-private partnerships and SOEs. Further, fostering inclusive growth requires the creation of better conditions for private sector development, including improving the business environment and increasing financial access, energy security, and human capital.

Source: https://www.worldbank.org/en/country/albania/overview#3