BB: High prices, PPP contracts and natural disasters endanger Albania's economic perspective

2023-10-19 12:40:00, Ekonomi CNA

BB: High prices, PPP contracts and natural disasters endanger Albania's

Further increases in food and energy prices are seen as a significant risk for the country's economic growth and poverty reduction in Albania, the World Bank announced today through the regular regional report "Towards Sustainable Growth", in which they were assessed as risks potential for the perspective of PPP concessionary contracts and natural disasters.

The Bank analyzed that high prices negatively affect real disposable income and slow down poverty reduction and potentially limit fiscal space.

As a small and open economy, Albania is highly exposed to external shocks, such as the recession in Europe and the further tightening of financing conditions in international markets in the coming years. While potential internal risks are considered natural disasters, public-private partnerships and state-owned enterprises, as well as fiscal risks deriving from an energy sector based on hydropower plants, which mainly depend on changes in hydrological conditions.

In the context of tightening financial conditions in international markets and limited economic growth in Europe, GDP growth is expected to slow to 3.6 percent in 2023. However, growth in the tourism and construction sectors is expected to boost exports, consumption and the growth of investments at rates similar to the period before the pandemic, the WB referred, in the section for Albania. The overall contribution of investment to economic growth is expected to slow, due to the effect of the very high comparative base and the end of post-earthquake reconstruction programs.

The inflation rate is projected to start returning to the 3 percent target in 2024. The primary balance is expected to reach 0.1 percent of GDP in 2023 and remain positive in line with the fiscal rule. On the expenditure side, fiscal consolidation is expected. For revenue, the government plans to introduce further tax policy measures, as envisaged in the Medium-Term Revenue Strategy.

Public debt is expected to continue to decline over the medium term, as a result of higher nominal growth and the gradual improvement of the primary balance. Given Albania's growing dependence on external financing, exchange rate, interest rate and refinancing risks remain high.

The government's fiscal position improved in the first half of 2023. The government posted a high surplus as a result of strong revenue growth and lower expenditures. Income from grants made the highest contribution to the increase in total income (14.5 percent in annual terms, due to EU disbursements), followed by income from social security contributions and income from tax on personal income, reflecting the increase in the mandatory minimum wage.

Spending growth was relatively small at 3.4 percent (in annual terms), but the pace of growth is expected to accelerate during the second half of 2023 due to increased capital spending. With a projected deficit of 2.5 percent of GDP in 2023, public debt is expected to reach 63.4 percent of GDP in 2023, from 65.1 percent of GDP in 2022./ Monitor