The Attempts of the Albanian Economy to Get Back on its Feet

The Economic File

During 2000, the economic growth reached 7.8 percent, and inflation 2 percent. But, the country is still in the dark.

AIM Tirana, December 24, 2000

The International Monetary Fund estimated that the Albanian economic trends during 2000 were very positive and in line with the projections from the beginning of the year. Estimates for this year envisage economic growth (increase of gross domestic product) of 7.8 percent, but also inflation controlled by programmed parameters, i.e. to reach some 2 percent. Exports grew last year and are envisaged to increase further with the renewed activity of the chromium and steel industry. The official foreign exchange reserves are at the level of 4.5 months of imports.

According to experts, the reduction of financial deficit from internal sources (from the banking system) is one of the main factors of macro-economic stability achieved in the last three years. Systematic and stable growth of state sources of financing has been registered this year, mostly thanks to the increase of tax revenues. On the other hand, the total amount of funds tax and customs administrations have managed to cash in by the end of this November, reached 75 billion leks, or nearly 100 percent of the planned amount.

In late September, the level of budget expenditures amounted to 116 billions leks, which is 94 percent of the funds planned for this period. However, the projected level of consumption was not achieved mostly due to the low level of investments with foreign capital, as well as the fact that funds allocated for operational costs and maintenance were not used. However, experts envisage that by the end of the year, the amount of these funds used for the intended purposes will systematically grow, and that the total budget expenditures will thus amount to over 170 billion leks.

The results of privatisation of several major strong companies also reflect the increased interest of foreign investors. International financial institutions have assessed privatisation of the AMC mobile telephony company as very successful, both as regards the applied procedures, as well as from the point of the credibility of the buyer and state's profit.

Also, during 2000 the second largest Albanian bank "The National Trade Bank" was also privatised. Its main shareholder is the Turkish "Kent Bank" which owns 60 percent plus two shares, and the International Financial Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) with 20 percent minus one share, each.

In the third week of December, the Albanian Parliament adopted the state budget for 2001 which is based on the projected economic growth of 7.3 percent and inflation rate between 2 and 4 percent. The main fiscal indicators this budget is aspiring to achieve are: first, it is envisaged that with the 8 percent growth of general budget revenues, the tax and customs revenues will increase by 13 percent compared to

1. This is planned to be achieved through improved fiscal administration, while a number of new fiscal policy measures are also planned, including the reduction of tariffs and several other fiscal reliefs. These measures are designed to create more favourable conditions for business operation and encourage investments.

Consequently, the policy of reducing the highest customs duties will be continued. As of January 1, 2001 the maximum level of customs tariffs will be 15 percent compared to the current 18 percent.

This reduction will be one in a series of gradual reductions applied from the beginning of 1998, when the maximum level of 30 percent was registered. Investment incentives will be further developed through a reduction of the lowest customs tariffs from 5 to 2 percent for all items, including machines, production equipment and intermediaries. As for internal taxes, the income tax will be lowered from 30 to 25 percent.

In the field of excise tax, changes are envisaged for alcoholic beverages and liquor, as well for the method of their application. According to experts, public expenditure policy measures within the 2001 draft budget are based on the medium-term programme of the budget for the 2001-2003 where priorities include infrastructure, education, health and social welfare.

Further, for 2001 a significant increase of around 16 percent is envisaged in public consumption, which will directly create room for new investments in infrastructure, without encroaching upon the set priorities, namely education, health and social welfare. Likewise, this budget will also support the public administration reform, by simultaneously reducing the number of employees and increasing their labour motivation through a differentiated salary increase.

During 2001 salaries of budget-financed employees, as well as pensions will go up. The average salary increase for all budget-financed employees will be 8 percent as of July 1, 2001. Law enforcement and defence personnel will receive a 10 percent increase as of January 1, 2001, and all budget-financed employees an 8 percent increase as of July

1. Likewise, pensions will go up by 8 percent as of July 1, 2001.

A considerable increase in investments is envisaged for 2001 compared to this year. The budget projections envisage that investments financed from internal sources will reach 19.5 billion leks compared to 15.2 billion leks from 2000 plan.

This figure also includes sufficient financial resources for the Government's share in investments that will be financed from foreign sources, which are projected at 23.5 billion leks.

On the other hand, budget projections for 2001 for the economic sector envisage a considerable growth compared to 2000, as well as of spending for infrastructure and public works, education and health, ranging between 18 and 30 percent. According to this increase, the level of spending for infrastructure and public works will reach 4 percent of the gross domestic product, compared to 3.3 percent of that planned for

1. Outlays for education are planned to reach 3.2 percent of the gross domestic product in contrast to three percent in the past year. The outlays for health will amount to 2.7 percent relative 2.3 percent of gross domestic product in 2000. As for all other sectors, a 13 percent rise of costs is envisaged for 2001 in relation to 2000.

As for privatisation in the public sector, it is expected that at the end of the first semester of 2001, the Savings Bank will ready to issue a tender, while the second operator of the GSM services in Albania will be announced at the beginning of the year. Indeed, in the second half of 2001, conditions will be ready for issuing a tender for the only state fixed telephony company "Albtelekom".

Forecasts of the possibilities for the Albanian economy to get back on its own feet again seem optimistic, although this is the hardest winter in the last 30 years for the Albanians. Towns and villages of Albania are wrapped in deep darkness because of power shortages. Be that as it may, the economists claim that the next year will be better.

AIM Tirana

Dorian KOCA