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World Bank: Albania will be hit by the oil and grain crisis

2022-05-04 12:33:09Biznes SHKRUAR NGA REDAKSIA VOX

World Bank: Albania will be hit by the oil and grain crisis

The war in Ukraine will slow down the economic recovery after the pandemic in Albania, because high prices will reduce consumption and increase costs for businesses, the World Bank estimated in the Regular Economic Report for the Western Balkans, "Maneuvering between crises" published Wednesday.

The Bank predicts that under the baseline scenario, Albania's economic growth is expected to slow to 3.2 percent in 2022. This is based on the assumption that the most critical phase of the crisis will be mitigated in the second quarter of 2022, even if the effects of sanctions continue. throughout 2022, even in 2023.

However, the crisis in Ukraine, if it lasts, could affect the Albanian economy through several transmission channels.

High commodity prices, especially oil and cereals, are expected to be the main channel of transmission of shocks. In general, direct trade, remittance and immigration links with Russia and Ukraine are small, accounting for less than 3 percent of the total.

However, Russia and Ukraine are very important producers and exporters of some goods, which are vital for Albanians, including cereals.

High energy prices are expected to lead to higher transport prices and cause further price increases for other goods in the consumer basket.

Inflation is expected to accelerate to around 5 percent in 2022 compared to the 3 percent forecast under the pre-conflict scenario. With rising import costs, the current account deficit is likely to increase to 9.6 percent of GDP.

As high prices affect the decline in household purchasing power and rising costs for businesses, economic growth forecasts are also lower.

If the increase in energy prices is reflected in the increase in electricity import prices, this shock could worsen the financial situation of electricity SOEs. This may increase the fiscal risks from these enterprises.

Public debt is expected to stabilize at 73.9 percent of GDP in 2022, before gradually declining in the medium term. However, the fiscal space may worsen even more according to a negative scenario, where the war continues for an extended period leading to further slowdown of EU economic growth and consequently a decline in Albanian exports to the most important trading partners in the EU accounting for 60 percent of its exports.

The Bank estimates that, in this case, the government may need to cut capital expenditures to prevent an increase in the debt-to-GDP ratio. Moreover, as Albania increasingly relies on external sources of financing, exchange rate, interest rate and refinancing risks remain high.

Also, Albania to increase revenue collection and to achieve fiscal consolidation, while enabling the implementation of significant expenditures that strengthen economic growth. Economic growth is projected to accelerate to 3.5 percent in the medium term.

Private consumption is projected to return to the main driver of GDP growth. Private investment can further support growth if reforms are implemented to improve the business climate. The current account deficit is expected to narrow in the medium term, as exports of services, including tourism and the rapid expansion of business process operations, are expected to increase, reflecting prepandemic trends. 


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