Putting People First: A New Year Carol - Op-ed by Kseniya Lvovsky, World Bank Country Manager to daily 'Shqip'

December 9, 2011

Op-ed by Kseniya Lvovsky, World Bank Country Manager Daily "Shqip"

He returned to Tirana after several years of studying and working as a licensed electrician in the UK, set up a small business of his own, and started a family. For some time, things worked well, it was hard to meet all the requests for work around the last New Year holidays.  Then, work orders slowed down, almost evaporated. While another New Year is around the corner, they are well below of what it used to be - and of what is needed to give his wife and newborn the comfort they need.

There are few people around who have not heard of or witnessed a similar story, or experienced themselves the impact of suppressed demand, delayed contractual payments, and increasingly cautious behavior of consumers, investors and banks. While solid data-based evidence will require time to assemble, stories are spreading about once confident families who have lost a critical stream of steady income from a family member working abroad, typically in Italy or Greece.  For some, it may mean falling, again, into poverty; for many, it means not being able to give their children the opportunities they had hoped for.

This is the human dimension behind the economic diagnostics of the recently issued World Bank’s Regular Economic Report for South-Eastern Europe (SEE), which covers Albania, Bosnia, Macedonia, Montenegro, Kosovo, and Serbia. The report points out that, after a positive trend in 2010, global growth slowed down in 2011. The economic outlook for the eurozone has particularly worsened, in large part due to the failure to timely address the sovereign debt crisis in Greece. All SEE countries have been affected by these developments outside their control: growth has stalled at less than half of the pre-2009 levels.  Latest growth outlook for Albania at around 3% per year over the medium term is respectable under the circumstances. However, this is below the level needed to continue aggressively lifting people out of poverty as the country was able to do for a decade preceding 2009. 

Among the channels through which the SEE countries are affected, remittances deserve special attention in Albania.  Coming mainly from Greece and Italy, they have been dropping by some 10 % per year on average since 2007. While much of the discussion - in economic analyses, parliamentary debates and media - is understandably given to budget, debt, trade, investment and banks, remittances are the channel that most directly and immediately affects poverty.   A decrease in remittances by 20 % (which has already occurred) is estimated to increase the poverty headcount by 1.1 percentage points, all other things equal. Should decline in remittances further persist, coupled with slower growth, stagnant employment rates and other potential income shocks, the risk of reversal in the poverty trends cannot be ruled out. The latest World Bank’s global outlook for remittances notes the on-going debt crisis and high unemployment in Europe as a major source of vulnerability for the economic and employment prospects of migrants. Stepping-up efforts to monitor the poverty levels and timely act to prevent the adverse trends, which is always important, is increasing in priority at difficult economic times.

At such times, it is crucial that measures to maintain macroeconomic stability and reduce public debt - another key priority for Albania - do not come at the costs of those in dire need.  One solution lies in improving the targeting and administrative efficiency of means-based assistance along with making sure that it is not squeezed out by other entitlement programs. To this end, the Ministry of Labor and Social Welfare initiated the Social Assistance Modernization project with support by the World Bank, which is expected to start in the early next year.

When it comes to tough budgetary choices, government can hardly go wrong with protecting critical investments in human capital. Postponed large public investment into the construction of major infrastructure that the country clearly needs, while regretful, can be resumed and completed at a later date. Postponing investments in health and education, usually a fraction of those into infrastructure, risks leading to irreversible losses - in the quality and quantity of lives, in the competitive workforce - which may haunt the country for years. And using scarce public resources for facilitating private investments with high and sustained “job creation potential”, like in agriculture, particularly in the regions where unemployment is most alarming, is a worthwhile measure. At the same time, measures that are not possible to target to the neediest, like reducing or abolishing certain taxes, need to be carefully assessed for their fiscal, economic development and distributional impacts, including in the long term.  For the time being, further improvement in tax administration and collection to offset the impact of slower growth on budget revenues, while strengthening existing  poverty-focused vehicles, like Ndihma Ekonomike , to support the families in need, appears a reasonable way forward.

It is also worth noting, especially in the light of the approaching Christmas and New Year festivities, that government - in all countries around the globe – is a very important but not the only player that can help the poor and vulnerable. It takes a community, it takes a society. It takes NGOs to increase activities that reduce poverty and support the vulnerable groups. It takes citizens and small businesses to use the formal economy channels and pay their dues to help finance public social services. It takes large businesses, including a wealthy Albanian Diaspora, to step-up charity programs. It takes political parties to encourage their major contributors to support the needy. It takes doing to the others what you wish would have been done to yourself, should the roles have changed…