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Reforms, technology and leadership will help Albanians toward the next storm

Knowing the situation, which economy will go through the economic challenges ahead will require Albanian leaders to have a clear sense of direction and steady but decisive hands on the tiller. The current environment still offers the opportunity to advance policies and reforms and build fiscal and financial scenarios for sustainable, robust, and inclusive growth. Albanian leaders need to take advantage of this moment.

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Reforms, technology and leadership will help Albanians toward the next storm

  1. 1. Reforms, technology and leadership will help Albanians toward the next storms Albanian real GDP is now back in the levels it was a decade ago, and its unemployment rate is at an eleven-year low, with the program-era labor reform facilitating formalization and job creation. Its business climate is more attractive to investors. For example, in the mid-2000s it used to take almost more than a month (40 days) to start a business. Now (2018) it takes only five days. Its economy has rebalanced to become more export-oriented, including a more oriented to regional market of the tourism sector and energy generation, leading the external current account to move from chronic deficits of around 11 percent of GDP to balanced. It has made impressive progress in cutting the fiscal deficit and reducing borrowing costs, especially in latest years. But, when we see that picture of economy of Albania in the global European and regional economic picture, we check that risks in the rest of the world are increasing and will likely constitute the most significant source of instability for the Albanian economy. So, pursuing reforms today might be difficult, but these reforms will help during next storm. Let be true, the facts do not show yet the near recession, but downside risks have clearly risen in the neighbors of Albania and main trade partners. What are the challenges? Rising trade barriers. Last move from Kosovo government about the trade barrier could subtract almost 0.2-0.5 percent from Albania growth going forward, as supply chains get disrupted, and the environment for investment becomes more uncertain. This situation, even look for Albania as a good opportunity, it is fact that the trade partners is not easy to be substituted even in the case of 100% tax on Serbian - Bosnian goods. In the case when the Albania has an increase trend of trade account with Serbia, the difficulty willrise the possibilityfor cooperation between Serbia – Montenegro – Northern Macedonia to be the next supply chain disrupted by this move. Knowing the situation, which economy will go through the economic challenges ahead will require Albanian leaders to have a clear sense of direction and steady but decisive hands on the tiller. The current environment still offers the opportunity to advance policies and reforms and build fiscal and financial scenarios for sustainable, robust, and inclusive growth. Albanian leaders need to take advantage of this moment. A slowdown in EU and especially the slowdown in main trade actors with Albania such as Italy, Turkey, Greece could lower the export target of Albanian goods for 2019 and beyond. Although the transition to lower, more sustainable growth is welcome, there is a risk that the deceleration in Italy and Turkey could be fasterthan expected. Even ifnew stimulus in EU countries is effective,
  2. 2. it is being targeted at relatively less import-intensive activities, so the rest of the Balkan might still feel a deceleration. Germany, has some difficulties in the auto sector and lower external demand, which will weigh on growth in 2019, and for Italy, where sovereign and financial risks are adding headwinds to growth. In general, growth forecast for 2019 in the Euro Area is 1.6 percent, a 0.3 percentage point reduction compared to the forecast in October. Many of the challenges facing us today transcend national borders and require coordinated responses.Some countries inthe Western Balkans havenot made sufficientprogress during 2018 in cutting deficits and placing their debts on a downward path. Risk reduction at the national level is indeed necessary for carefully designed risk-sharing frameworks to be viable and effective. On this occasion the primary action is about boosting productive spending targeted at raising potential growth. This would have positive spillovers on other neighboring economies. This action will be a step forward to enhance risk-sharing, in both the public and private sectors, but still should be measured with fully capable central fiscal capacity. The second action for Albanians is the intensity of cross-border private sector risk-sharing through the financial markets, or better said, a much deeper financial sector union. This means advancing the Union of Albanian Financial Market, to facilitate more cross-border investment diversification through traded financial instruments. It also means completing the Banks cooperation’s. Structural reforms are the very serious problem for economy to boost saving, investment and productivity. All these basic elements of economy are essential to raise living standards while helping the economy growth in qualitative way, reducing existing vulnerabilities and risk externalities. Key steps include making the labor market work better, simplifying regulations, and improving the efficiency of judicial processes. These reforms can be targeted in a way that shield the poorest in society and reduce the inequality, which in the last years has been increased. A timeline for the future technology. All countries are undergoing a period of fast technological change which will reshape the way we live and work. These changes cannot be ignored, and it is criticalthat Albanians should be prepared, starting from regulatory framework and infrastructure that help consumers and economy to be cost profit and real competitive with other countries of Western Balkans. Developing an education system, like supply chain system in the good circulation that is geared for the needs of the future workforce. Albanians are well placed to benefit from this technological revolution. It has long been an outward-facing country and is successfully reorienting its economy towards technology and innovation. The Albanians could engage the sources and capacities to build a service area where to be a shelter for big tech companies.

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