Tirana, March 5, 2005 – Output in Albania increased by an average of 6 percent over the past decade, according to the World Bank’s latest Country Economic Memorandum (CEM) on Albania released today. The CEM analyzes country economic developments, prospects and the policy agenda. The report, “Albania: Sustaining Growth beyond the Transition” notes that Albania’s solid performance is driven by successful macroeconomic stabilization, a track record of structural reforms, increased total productivity growth, and a high level of remittances. Other economic indicators were also favorable, according to the report. Total public debt stock is down from more than 70 percent of GDP in 2000 to around 55 percent in 2004, the exchange rate is stable, interest rates are declining, and the build up of official reserves continues. Inflation is now at its lowest level since transition began 15 years ago. “We are encouraged by this performance and commend the government of Albania for its commitment. Major regulatory reforms have put the banking sector on a firmer footing, energy-pricing reforms are reducing the fiscal burden, and privatization is picking up momentum. Albania is also making important progress in its path towards EU integration,” said Nadir Mohammed, World Bank Country Manager for Albania. Despite this progress, Albania’s growth and competitiveness remain constrained by several key challenges. The report notes that for Albania to sustain high GDP growth and to improve living standards, the country must maintain macroeconomic stability and accelerate implementation of structural reforms. It should seek to boost foreign direct investment, increase the degree of trade integration, strengthen governance, and improve education and training systems. Key findings and recommendations of the report include: Maintaining a stable macroeconomic framework is a pre-requisite to sustained growth and raising investment levels. The overall results of macroeconomic stabilization over the transition period have been positive and have often exceeded the trajectory of other transition economies. Continued adherence to fiscal discipline to further reduce the budget deficit and increase public savings and the quality of public investment will be necessary in the medium-term. On the revenue side, decisive actions to improve tax revenue collection, broaden the revenue base and reduce the informal economy need to be pursued. On the expenditure side, steps are needed to ensure that: (i) the Medium-Term Budget Plan (MTBP) is fully integrated with the National Strategy for Socio-Economic Development (NSSED) process and fiscal decentralization; (ii) adopt budget rules to improve allocative efficiency in sectors where major investment projects are under consideration (transport, water, social sectors); (iii) adopt rules to limit the growth of non-priority recurrent spending; and (iv) strengthen transparency and auditing procedures. Mobilizing human resources is necessary for orienting economic activities in Albania increasingly toward investment and innovation-driven growth. Better education and training systems aimed at improving employment prospects, and facilitating the movement of labor to more productive and higher paying jobs are key to sustaining growth. Systematic curriculum revisions need to be complemented by changes in teaching materials and classroom practices and better monitoring of learning outcomes. Albania also needs to address low demand for education among the poor. Boosting trade and pursuing regional integration is essential for expanding exports and attracting FDI. Albania has recorded an impressive export performance over recent years but is still lagging behind other South East European countries in terms of openness. To take full advantage of its geographic location, and the potential for stronger trade relations with its neighbors and the EU, Albania needs to maintain the commitment to a liberal multilateral trade regime, and accelerate regional and European integration. Trade liberalization should proceed along all dimensions, as the biggest gains are to be realized when Albania lowers its barriers to trade with respect to all trading partners. Successful stabilization policies and structural reforms have helped Albania attract higher volumes of FDI, although not at levels sufficient to mitigate the external vulnerabilities. Upgrading public infrastructure will be needed to achieve gains in competitiveness, and will allow Albania to play an active in regional cooperation and further integrate with the EU. In the transport sector, the country needs to carry out the Transport Master Plan and sector strategy; strengthen the prioritization and economic analysis of proposed investment projects; set pricing for public infrastructure services to ensure full cost recovery; restructure the railways system along EU guidelines before new investments are made and launch the specialization of port facilities. In the electricity sector, key issues are sustained implementation of the Power Sector Action Plan and related sector reforms. The authorities also need to accelerate the implementation of the national and a rural water sector strategy. This should include the rehabilitation of the obsolete water supply and sewerage networks, the extension of services to the poor and under–served, the transformation of the water utilities into self-financing entities; an increase in private sector participation in the water sector, the enabling of local governments to provide safe and sustainable water and sanitation services, and the introduction adequate collection and treatment of wastewater. Improving governance and strengthening institutions should remain a key objective of government policies at all levels. A three-pronged approach will be required to significantly improve the impacts of ongoing efforts. First, political commitment at the highest level is needed to ensure managerial integrity within the public administration through continued support for competitive merit-based pay for civil servants, strengthened budget formulation and execution systems, and more competitive, transparent procurement. Second, reliable, predictable and fair enforcement of the rule of law must encompass both rules governing the actions of public sector entities and rules governing private sector actors. Finally, it is crucial to set up and nurture mechanisms that can strengthen good governance by facilitating checks and balances that will promote effective service delivery. This should entail bottom-up mechanisms that allow the concerns of beneficiaries to be heard. Citizens and firms need channels through which they can pressure the state to deliver on its regulatory and service functions. The CEM, which primarily covers the period from the mid-90s to 2003, is one of the core diagnostic reports of the Bank, undertaken in every country-member of the Bank every three or four years. A World Bank team visited Albania last year to gather information needed for economic analysis and to held policy discussions with government officials. The World Bank team worked closely with the government, local think-tanks, as well as with business associations. Various dissemination activities for the CEM are planned in March/April 2005. Technical discussions and workshops are planned with academic institutions, development partners and civil society organizations. The official version of the CEM is available in English and Albanian.
To access the report on-line, English and Albanian version please visit:
Sustaining Growth Beyond Transition:
A World Bank Country Economic Memorandum, Vol. 1 of 1 Albanian version English version For more information about the World Bank work in Albania:
http://www.worldbank.org.al -###- Contacts: In Washington:
Jan Erik Nora (1-202) 458-2931
e-mail: jnora@worldbank.org
In Tirana:
Ana Gjokutaj (355 42) 405 87/88/89
E-mail: agjokutaj@worldbank.org |
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