Albania needs to strengthen efforts to tackle informality – EBRD

“Measures include a simplified tax system and procedures, and strengthened capacities for inspections and the fight against corruption and bribery in public administration,” the EBRD said in its Transition Report 2019-2020.

The government should focus on improving standards of fiscal and public governance, the bank said, adding that issues that need urgent attention include improving the conduct of public-private partnerships (PPP) and strengthening of institutions and the rule of law.

According to the report, energy sources should be diversified by reducing the country’s dependency on hydro energy generation and continuing reforms to improve governance and transparency in the power sector.

“Financial sector resilience and intermediation should be enhanced,” the EBRD said, noting that the banking sector is stable but faces important challenges, including the relatively low quality and quantity of lending, high exposure to sovereign debt, an NPL ratio of 11% (at the end of August) and high euroisation (around 50%).

The EBRD also noted that Albania's economic growth slowed down to 2.4% year-on-year in the first half of 2019, from 4.1% in 2018.

“It came mainly as a consequence of weaker power generation, combined with the high base effect from last year. Unemployment continued to decline but remains at double-digit levels (12%),” the lender noted.

The business environment remains difficult, the EBRD estimated, noting that Albania was ranked 82nd out of 190 countries in the World Bank Doing Business 2020 report, dropping 19 places from the previous year.

“Large unsolicited PPPs continue to be awarded, particularly in the road sector (for example the Milot-Balldren and Orikum-Llogara sections), without a sufficient level of cost-benefit analysis and competition in the tender process,” the lender said. This increases the potential social cost and exposes the government to implementation risks, also given the general lack of track record and financial standing of the chosen bidders relative to the scale of the projects tendered.