Interview of Kseniya Lvovsky, World Bank Country Manager to Planet TV

July 27, 2011

Interview of Kseniya Lvovsky, World Bank Country Manager Planet TV

1. The World Bank has established the office in Tirana since about 20 years now. What is the total of World Bank financing during all this years?

Albania joined the World Bank in 1992. Since then, we have financed 69 projects in different sectors totaling over US$1.4 billion when all sources of financing managed by the World Bank are counted.  Of this, about US$900 million has been disbursed.  Our current portfolio is at $230 million plus we signed with the government a new loan of $25 million last month. In the next 12 months, we plan to approve four new projects with the total value of $115 million in our financing, in addition to substantial funding by other development partners. Overall, the World Bank Group financing to Albania for the four years from 2011 to 2014 is expected to reach US$300 million from IBRD to support critical reforms and public investments. At the same time, our private sector arm, IFC is projected to provide up to $150 million to private sector projects.

2. Which sectors of the economy has the World Bank financed so far?

During its almost 20 years in Albania, the World Bank has supported country’s development across a broad range of sectors. It has helped to modernize Albania’s public administration and improve its public expenditure management practices. World Bank projects have focused on health care, education, and improving social protection and social service delivery systems. With our support, local infrastructure has been upgraded, and financing of national and rural roads has improved communications within the country, facilitating people's access to economic and social centers and services. The World Bank has helped Albania to improve the regulatory framework for business development and remove administrative barriers to opening and closing businesses.

Our current portfolio consists of 11 active projects, with the main focus on energy, transport, social sectors and environment. Our latest project, for which the financing agreement was signed in June, provides budget support for reforms in the social sector.  A follow-up operation to support improvements in the administration of the social assistance programs is under preparation.  Other projects under preparation will support Dam Safety, Water sector reform, Irrigation in the context of broader water resource management, and better governance and competitiveness.

The World Bank is also involved in analytical work - at the country and regional level. In addition to the country economic memorandum published in December, our latest products includes analyses of  property rights, governance trends, water service delivery, educational outcomes,  gender,  financial sector, and climate change adaptation in energy and agriculture. We have also started the preparation of regular regional economic reports for South-East Europe.

3. What is the World Bank’s view on Albanian economy? What is the Bank’s forecast for this year considering the fact that this was an electoral year?

Albania experienced impressive economic growth – one of the fastest in Europe and globally - over the decade preceding the global economic downturn of 2009.   The global economic crisis and weak recovery in its European neighbors and main trading partners avoidably affected Albania’s growth, as that of other developing countries of Europe with close ties to rich European economies. Yet, it continued to grow throughout 2009, unlike so many other countries in Europe, and in 2010 – better than many others. For 2011, we expect growth to be close to 4 %. In the meantime, the country has largely exhausted the fiscal buffers the government created before the crisis. Combined with continued problems in Europe, particularly Greece and Italy that host a large part of Albania's emigrants and thus remittances–this presents significant risks and uncertainties.  Add to this what is happening across the Atlantic Ocean in the US – and clearly live in a new economic reality not known before.  Albania needs to offset unusual external risks by boosting domestic demand, expanding its export markets, and attracting private investment.  For this to happen, macro-economic stability and further improvements in business environment are critical. As mentioned in several of our reports we see greater security of property rights, the rule of law, regulatory certainty and availability of marketable skills as key for sustaining Albania's growth.

4. Business community and the government are working for a fiscal amnesty since a long time. What the World Bank recommendation on this issue?

As I mentioned in my editorial back in April, there are three key considerations that will define the outcome of this initiative. First, full transparency and credibility in granting amnesty and applying exceptions, reviewed by an independent group, is essential. Second, sending a clear message that non-compliance with the legal framework is no longer acceptable – though swift actions towards those who would not come “clean” during the amnesty. Of course, the message will only be respected if the actions are seen as fair and impartial for all “violators”.   Third, working to put in place a comprehensive system of incentives that reward lawful and responsible behavior, such as preferential customer services, low interest loans, credit histories etc.  The ultimate objective is to nurture business culture in which companies and individuals realize that they are better-off when complying with the law and social responsibility than when by-passing it.

5. Prime Minister Berisha declared the salary and pension increase. In your opinion is this the right time for that?

As with fiscal amnesty, the key issue is how it is done. Adjustments to reflect inflation that are done with considerations of the fiscal space, and are linked to broader public administration and pension reforms would be a reasonable thing.  The mid-year budget adjustments aligned the overall increase in expenditures to revenue performance of the first half of the year, while preserving the aim to maintain a fiscal deficit at 3.5% of GDP and public debt below 60%. The structural element of salary increase should be closely linked to the performance based indicators of public administration. For this to be effective the human resource management system that is being assisted by the Bank (through the multi-donor trust fund that we manage) needs to be accelerated. The pension reform remains another important priority for for Albania.

6. Price increase has resulted in an inflation increase beyond the forecast of the Bank of Albania. What would be your advice to keep inflation low?

Recently prices have returned back to the Bank of Albania inflation targeting band, so there is no need for extra measures. Furthermore, the observed increase in inflation has been driven by supply factors (food and oil) and is more of a social protection issue than of monetary policy. The poorest 20 percent of Albanian households spend about 30 percent of their food budget on bread and cereals, compared to the richest who spend 11 percent. Fortunately, the government considers eliminating extreme poverty and improving social protection among top priorities. Total spending levels for social protection in Albania are in line with regional comparators and countries with similar demographic profile. And the parliament approved important amendments to Ndhima Ekonomike, the main social assistance program, I believe, in March.  I am pleased that the World Bank assisted with the preparation of this law and is now working with the Ministry of Labor and social protection to support its l implementation.