Albania is a middle-income country. In recent years Albania has maintained positive growth rates, despite the ongoing economic crisis. The country is facing a challenge of maintaining growth in a difficult external environment while rebuilding fiscal buffers.
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While many structural challenges like these continue to represent hurdles to sustained growth in the region, another, less predictable challenge also emerged during 2014 - significantly hampering grow... Show More +th in these countries and across the region as a whole: weather.Extreme weather events, including devastating floods in May, plagued much of the region throughout 2014 and negatively impacted nearly every economic sector in the region - from agriculture, to energy, to tourism.Unprecedented rainfall in May resulted in the worst floods the region has seen in more than 100 years. In Bosnia and Herzegovina, these floods killed more than 20 people and displaced a further 90,000 and resulted in billions of dollars in damages across the region. The floods are estimated to have cost the country some 15% of overall GDP in lost output and damages. In Serbia, the overall damage from these floods is estimated at around 4.7%. Nearly every segment of the economy was negatively impacted by these floods.The impacts of this flood were amplified by earlier weather events in the region, further exacerbating the negative effect they had on growth in 2014. A drought in the summer of 2012 and a severe winter that same year stymied the agriculture sector, reduced energy generation, hindered tourism, and slowed construction more than usual around the region. The severe impact these extreme events are having on economies in the region highlights the overall economic vulnerability of these countries. With climate, policymakers in these countries continue to explore options to help avoid or, at the very least, how to mitigate well these shocks.In addition to adaptation and mitigation efforts - such as flood defenses and weather-resistant infrastructure - the latest SEE RER also highlights the importance of expanding insurance markets in countries throughout the region to better protect homeowners and businesses against natural disasters - especially in the agriculture sector. As poorer households are more likely to work in agriculture and live in rural areas, the need for mechanisms to buffet them against the shocks brought on by floods, droughts, and heat waves is even more pressing. Although as many as 40% of people in Albania and 20% in both Bosnia and Herzegovina and Serbia work in agriculture, insurance rates for plan that protect against weather and other natural disasters among these people is drastically low. In FYR Macedonia, just 4% of registered farmers insure their crops against weather related perils. In Kosovo, insurance companies represent just 3% of the total assets of the financial system, while in Bosnia and Herzegovina they represent just 5% of the total.With economic growth forecasted at or above 3% in Albania, Kosovo, FYR Macedonia, and Montenegro, in 2015, this new year could see the South East region slowly emerge from stagnation. In addition to addressing the ongoing problems of high unemployment, stunted job creation, and boosting productivity of domestic firms, however, policymakers must also turn their attention to unexpected threats - such as floods, droughts and other natural disasters. Supplementing mitigation and adaptation initiative in these six countries with mechanisms such as insurance coverage - especially among the more vulnerable in the region - can go a long way in preventing the next disaster. These mechanisms can also drastically help recovery efforts on the ground if and when the next weather shock occurs. Show Less -
Published in the Monitor Magazine on January 12, 2015.The next year is likely to bring economic gains for Albania. Growth has revived during the last months of 2014 due to improved credit growth, clea... Show More +rance of domestic government arrears and a rise in business confidence. Recent survey indicators point to a broader-based recovery of private domestic demand. Even private investment which has been a drag on growth in recent years, have started to grow.We expect Albania to grow by approximately 3 percent in 2015 if this positive trend continues and growth is bolstered by large foreign investment projects related to the Transadriatic pipeline and the energy sector. The economic impact of the fiscal consolidation, which is key for strengthening Albania’s macro-fiscal outlook and putting Albania on a sound basis for long-term growth, is likely to be mitigated by continued reforms of the business climate. Tackling the long-standing clearance of arrears should also help further boost business confidence and support an increase in private sector investment which has been negative in recent years.In order to increase the economic gains from the government’s fiscal policy stance, it will be important that fiscal consolidation is “smart” so inefficient public spending is eliminated, public investments support the country’s priorities and fiscal policy is supported by far-reaching reforms in support of improvements of the business climate. Show Less -