The Albanian economic model criticized by the World Bank – Exit
Albania has a lot of work to do to secure its economic model, according to the World Bank’s country economic memorandum, published on Friday (February 11th).
The report says Albania was severely affected by the 2019 earthquake and the subsequent COVID-190 pandemic. In response, the government must invest more in people’s skills, productivity, sustainability and public finances.
Once the health crisis is under control, the focus should be on long-term economic goals, including sincere efforts to improve the standard of living of citizens, encouraging those with skills and talents to stay in the country.
“Through this report, we conduct a new analysis of Albania’s development challenges, summarize progress in implementing reforms, and offer key recommendations that can help Albania achieve a sustainable, resilient economic recovery. and inclusive,” says Emanuel Salinas, World Bank Country Director for Albania. .
“In our recommendations, we also focus on what needs to be done to enable the Albanian people to have healthy and productive lives and more and better jobs.”
The four priorities identified for the government include investing in people and development. This should consist of shifting labor from low- and medium-skilled workers to high-skilled workers. This would require university reform, improving education and adapting skills development to labor market needs.
The second recommendation is to increase business productivity and create better job opportunities. According to the report, if the government did this, the GDP of each employed person would increase by 40%, in line with the region. To achieve this, the business environment must be improved and the integration of Albanians into the global economy must be deepened.
Currently, Albanians have the lowest minimum wage in Europe, apart from Kosovo. Nearly 50% live on the minimum income necessary to survive and almost a million are at risk of poverty. Furthermore, Albania has the highest rate of emigration – by legal and illegal means – in Europe and exceeds even countries in a state of war.
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Third, Albania needs a more sustainable growth model. The report notes that 70% of the country’s waste is mismanaged and that environmental disasters cost up to $147 million a year on average. In response, Albania needs an economic model that respects the environment and is resistant to environmental disasters.
Finally, Albania must strengthen its public finances because its public debt is “well above the average of the six Western Balkan countries”. This strengthening should include fairer tax rates, increases in VAT revenues and “sustained political commitment to fiscal rules”.
Currently, Albania’s public debt is between 80% and 90% of GDP.
The government has used natural disasters, earthquakes and pandemics to increase public debt by around 2 billion euros over the past two years. Most of it was used to fund disaster-related projects.
The government announces that the public debt exceeds 80.1%, not counting dozens of PPPs
The government also authorized the increase in debt to finance several long-term projects, such as the construction of the new ring road, the national theater and the Llogara tunnel. At the same time, funding is still needed for pandemic and earthquake recovery. The debt expansion was done through a normative act, breaking a fiscal rule defined in the budget law, which does not allow tax measures that increase the debt as a percentage of GDP.
Over the past year, the government has increased public debt at a faster rate than the country’s economic growth. The per capita income of Albanians has grown at lower rates than the per capita debt, creating problems for the future.
However, an analysis by Exit.al in 2020 found that public debt already reached 86% of GDP. The discrepancy in the numbers is that the government does not formally account for the dozens of PPPs it grants to public debt.
Albania has been criticized internationally for this approach.