Albania: Incumbent PM’s third term improves the political stability outlook amid an ongoing slow economic recovery
Event
Incumbent PM Edi Rama, the leader of the Socialist Party (PS), was re-elected for a third mandate after having convincingly won general elections on 25 April with around 48.7% of the vote, just like in the 2017 polls. The Democratic Party (PD), the main opposition party that boycotted the 2019 local elections, significantly improved its results – within a broad coalition of 13 parties – securing nearly 40% of the vote. The international community, including the EU, endorsed the elections.
Impact
Albania saw continued anti-government protests and political instability before and during several months of the pandemic. PM Rama’s renewed victory – helped by major infrastructure projects, his dominating presence in the media and a recently accelerating vaccination campaign – and the good results of the opposition are positive for political stability and democracy. It is likely to ensure policy continuity and boost foreign investments in infrastructures (tourism, energy and transport). It might also have a positive impact on the start of the EU accession negotiations (approved in spring 2020) that could take place by the end of 2021. Until now, the negotiations have been postponed by Covid-19, slow justice reforms and EU criticism about media freedom and democratic rule during Rama’s second term. Hence, the judiciary reform is expected to continue gradually.
Rama’s re-election occurs in a gradually improving health and economic context. In Albania, the number of Covid-19 cases has dropped to very low levels, which might allow for a rapid lifting of containment measures just before the touristic season. Albania indeed has one the most tourism-reliant economies in Europe with about 15% of GDP and over 35% of current account receipts coming from tourism, prior to Covid-19. That means that the recovery is largely dependent on the vaccinations both in the country and in Europe. At the end of May, the vaccination rate (i.e. at least one dose) was nearing 17%, which is roughly half of the European average. The acceleration of the vaccination roll-out in most European countries brings some optimism for the summer tourism season as it should allow for an easing of travel restrictions. Moreover, Albania’s probable eventual access to the EU’s Digital Green Certificate – depending on compliance with EU standards – would be another positive factor in supporting the big group of EU travellers coming to Albania. Meanwhile, the country has already reopened the borders for US visitors and lifted restrictions against its neighbour Kosovo. Still, those positive developments could come too late for many undecided and cautious tourists amid ongoing vaccination roll-outs across Europe. Therefore, in spite of potentially higher spending per tourist, persisting uncertainty around the pandemic will certainly continue to weigh on tourist arrivals this year (and the next) and thus also on 2021 economic performances.
Last April, the IMF expected Albania’s GDP to grow by 5% this year, after a 3.5% contraction in 2020. The economic recession was obviously explained by Covid-19 and also suffered from an earthquake in November. Following a public-spending boost before the April elections, the ongoing recovery will continue thanks to the recovery in Albania’s top export markets – notably Italy – and in key workers’ remittances (estimated at 17.5% of current account receipts in 2020) from the diaspora in Italy and Greece. After having dropped by 20% in 2020, the expected rebound in remittances is likely to support private consumption in 2021. Adverse evolutions in export receipts sharply widened the current account deficit from 20% to over 30% of current account receipts in 2020. On the fiscal side, the deficit jumped from 2% to 6.7% of GDP, leading to Albania’s highest public debt (76% of GDP in 2020, coming from 67.8% in 2019) this century. Looking ahead, the twin deficit is expected to come down to pre-pandemic levels in the medium term in a favourable Covid-19 scenario whereas public debt is forecasted to moderate on a slow downward trajectory as from this year.
Based on the above developments, Credendo has a cautiously positive outlook in the second half of 2021 for Albania’s ST political risk (4/7) and business environment risk (F/G).
Analyst: Raphaël Cecchi – r.cecchi@credendo.com