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Vienna Institute warns of PPP, judiciary reform risks to Albania’s outlook

TIRANA, Nov. 7 – The Vienna Institute for International Economic Studies says it expects Albania’s economy to grow by an average of 4 percent annually over the next couple of years, but warns of risks that public private partnerships and the implementation of a justice reform could pose to the country’s public debt reduction agenda and EU integration prospects.

In its latest autumn forecast, wiiw, one of the top centers for research in Central, East and Southeast Europe, upgraded Albania’s 2018 growth prospects to 4.1 percent, but left unchanged the 2019 and 2020 forecast at 4 percent on the back of domestic and external demand and higher commodity prices giving a boost to the country’s oil industry.

“Our forecasts are largely unchanged from the spring, and we continue to expect the [Albanian] economy to remain strong and grow above 4 percent in the medium term. Both domestic and external demand will support growth. Higher international oil prices should mean higher investments and exports in this sector,” says the Vienna Institute.

The research center suggests the Albanian government’s public private partnership must be transparent and well monitored in order to continue the public debt reduction agenda.

“Public private partnership projects must be transparent and well monitored in order to avoid rises in public debt. Tangible progress of judicial system reform is critical for the start of EU membership talks,” says the Vienna Institute.

The warning comes as international financial institutions such as the IMF and the World Bank have asked the Albanian government to give up the unsolicited proposal as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

The Albanian government is currently implementing an ambitious €1 billion PPP program to upgrade road, health, education and waste management infrastructure through taxpayer support in return from private investment and management.

Taxpayer support to 11 PPP contracts is expected to increase by around 50 percent to €100 million for 2019, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.

Albania’s public debt is already at around 70 percent of the GDP, a high level for the country’s stage of development that places at risk macro-economic stability and much-needed public investment due to high debt servicing costs.

Albania is also implementing a long-awaited justice reform which is slowly progressing with a vetting process that is scanning judges and prosecutors over their wealth, moral integrity and professionalism and whose progress is considered key to the country’s hopes of launching EU accession talks next year.

Experts say that if properly implemented, the judiciary reform is also expected to give a boost to the country’s business climate by boosting rule of law and investor confidence in a sector perceived as highly corrupt.

The Vienna Institute has earlier noted the emerging tourism sector and new planned infrastructure investment will keep the Albanian economy growing at about 4 percent over 2019 and 2020 at a time when TAP and the Devoll Hydropower, the two major energy-related that drove growth in the past four years complete their investment stage by the end of 2018, leaving a huge gap of about €300 million unless other major projects replace them.

At an average of about 4 percent over the next couple of years, wiiw expects Albania to register the highest growth among the six EU aspirant Western Balkan countries where overall 2019-2020 is estimated at 3.35 percent, mainly because of a significant slowdown in Serbia, the region’s largest economy.

The Vienna Institute’s forecast are slightly higher compared to the World Bank and the IMF which expect Albania’s economy to slow down to 3.5 to 3.7 percent in 2019 on the back of lower FDI following the completion of two major energy-related investment, but yet lower compared to the Albanian government’s target of 4.3 percent for 2019 and growth gradually picking up to 4.5 percent by 2021 when Albania heads to general elections.

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