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A better prospective for 2011 - Interview of Kseniya Lvovsky, World Bank Country Manager published by Monitor magazine

January 10, 2011

Monitor magazine

1. What is your opinion about the economic development of Albania during 2010?

After suffering a short period of contraction in the second half of 2009 the Albanian economy has shown clear signs of recovery in 2010. . The recovery in 2010 is seen mainly in services that resumed quickly after the short period of a slowdown in the second half of 2009 signaling a resumption of domestic demand. Strong growth in extracting industry reflected the pick up of commodity prices. At the same time,  sectors like constructions and some processing industries are still recording negative growth rates.The deposits regained their normal growth rate and new lending is not far from historical trends. Rightly, however, banks remain cautious about outstanding portfolio and external situation.  Overall, the future outlook is positive pending on the conditions of Western Europe economies that are the main destination of Albania exports and host the majority of Albanian emigrants.

2. What are some of the most critical issues or  important achievements for the last year?

The most important achievement would be weathering  the global financial crisis with a relatively contained impact on the Albanian economy. Albania is one of the few countries in Europe that maintained a positive growth rate in 2009. This was a combination of its sound banking sector and the fiscal stimulus. The acceleration of public investments led to a reversal in trends of reducing both the fiscal deficit and public debt. This calls for the renewed  fiscal consolidation efforts.  The mid-2010 fiscal adjustment  was a step in the right direction for preserving fiscal discipline and avoiding further increases in public debt. The challenge ahead is to ensure a declining debt path without abrupt adjustments that may affect key public services through pursuing a medium term budget framework .

3. How do you assess the business environment in 2010 and is there anything that needs improvement?

According to Doing Business indicators, Albania made good progress on tax administration. In addition to the need for  maintaining a stable macroeconomic framework in a harsher external environment, Albania faces a challenge arising from the success of its economic development. The progress achieved over the last decade implies that there will be much greater requirements for the necessary inputs to the development process. As the analysis of our latest report "The New Growth Agenda" indicates, the most pressing constraints are in the areas of human capital (particularly marketable skills), and infrastructure (connectivity,  electricity supply and transport). These constraints have become more important in recent years as income levels have risen and the sophistication of the goods and services being produced and demanded increased. For a middle income country, it will be difficult to  be competitive, and return to  and  sustain  strong growth  if  these factors are not dealt with. Moreover,  institutional infrastructure including  the “rule of law”, regulatory certainly,  and the ability to implement laws and policies  become critical.

4. How do you expect the Albanian economy to perform for 2011?

Growth is likely to remain moderate at around 3 percent for 2010, with a further recovery in 2011. We expect growth rates to reach the pre-crisis trend of about 6 percent  in the medium term, provided the global and regional recovery from the financial crisis remains steady.

5. What are the sectors that need to be improved? Do you expect any further impact of the financial crisis in Albanian economy, and at what extent?

As mentioned above,  education and skills as well as the backbone infrastructure  - ICT and electricity - are critical for Albania future development, together with further improvements in public administration, land property rights and business regulations. The global crisis has significantly reduced the appetite of foreign investors to take risks,  and capital is likely to be scarce in the next few years. Accelerating the pace of reforms in those areas will increase Albania's competitiveness as the destination of new capital inflows.