ERN
Hello Klea, thank you for the interview. Could you please introduce yourself .
Klea Ducka
Hello ERN, thanks for your invitation to this interview. I was born in Durres, Albania and I have a scientific degree in Economics from the University of Vienna, at which i am currently continuing my postgraduate studies in the field of Applied Economics. I am currently living and working in Vienna, Austria. I am an active member of the Brain Gain and Excellence Department of the Democratic Party of Albania.
ERN
Seeing the voting of the Albanian parliament, 7.5 billion euro, in 4 minutes, what is your comment about it?
Klea Ducka
It is without a piece of doubt an arbitrary action, which clearly proves that the Albanian government is trying to establish an autocratic regime in Albania, by violating the basic principles of democracy. This was the first time ever in the history of the post-communist Albania, that a budget was passed by the parliament, without a formal review and discussion from the MPs, with the clear intention of avoiding the opposition and administrating Albanian taxpayers money according to the government’s own convenience and interests.
ERN
What is the situation of the Albanian economy, what is the government doing to improve it?
Klea Ducka
Well, first of all, the Albanian economy has been recently hit by a series of global financial shocks, such as those caused by the Covid-19 Pandemics and the ongoing war in Ukraine, which has induced a high inflation rate worldwide. Contrary to many governments around the world, the Albanian government has shown a lack of will, as well as incompetence in handling the crisis, for example, by raising the government spending for specific projects and investments ,which were not crucial for stabilizing the markets.
Judging from the recent budget, it seems that thanks to the continuously rising taxes every year, the government has sufficient revenue at its disposal for more investments and financial aid packages. However, there is a decrease of over 24% in investments, compared to last year and for most of the projects there is little to no transparency regarding fund’s distribution and tender competition procedures. Albania has currently a negative balance trade sheet and exports are suffering immensely; most exporters are going bankrupt as a result of the foreign currency devaluation, caused by rising informal economic activities.
The public deficit is probably higher (-159 billion lek according to the Supreme Audit) than the one officially reported by the Ministry of Finance (-83.8 billion lek), causing the public debt to rise. While the ministry of finance’s goal is to reduce the public debt, this would require the inflation to continue to increase. Amidst high interest rates and unanchored inflation expectations, it would be really hard for the Bank of Albania to steer the inflation rate to its target of 3% by early 2025 (according to the IMF concluding statement).
Labor markets continue to tighten, even though the inflation is high, and we can currently observe some sort of stagflation: a high inflation rate accompanied by high unemployment. One major cause of this, is the increasing loss of human capital, due to depopulation and emigration. Faced with high income taxes, no financial support from the state, tight labor markets and a suffering purchasing power, many young people in working age are choosing to abandon the country every day, putting the pension system at risk in the long-term.
Finally, speaking of general economic growth, even though the real GDP is projected to expand at 3.3% in 2024, presumably as a result of construction activity, we cannot speak here of a real growth, but rather of a general adjustment to inflation rate. Moreover, GDP reporting in Albania, neglects many complementary data. GDP alone, fails to capture the informal economic activity and the relative change in prices for new products introduced in the market, and it is merely a measure of aggregate output, not welfare.
ERN
According to the government, there are many international investments. What we see is that no EU country is investing, only Arab countries, do you have a comment about it?
Klea Ducka
The increasing Arab investments are viewed as a sign of great financial success by the government’s propaganda, even though in reality there are currently very few incentives for any serious investor to make a decision to invest in Albania. Attracting foreign direct investment, normally has a positive impact over a country’s GDP and economic growth in general. However, this is only the case when these investments meet a series of criteria’s. Most of the Arab or Turkish companies investing in Albania, are usually part of partnerships with other Albanian companies or shareholders. Some of these investors, choose sometimes to be represented by offshore companies, as in the case of Durres Port project, which is one of the most spectacular cases of illegal and corruptive investments ever planned to be carried-out by a government in the Balkans. In addition to this, what I personally, as an economist find to be the most disturbing thing in all of this, is that not only is there no transparency and corruption affairs involved in most of those project, but they are also not productive for the economy as a whole. As a result, since most of them are PPPs (* Public-Private-Partnership), they have a negative impact on taxes and generate high costs for both the state budget (by increasing the stock of public debt), and the Albanian taxpayers.
In this context, attracting serious investors and entrepreneurs from the EU countries or UK, who do not turn into a burden for the taxpayers, seems not to be very convenient to the Albanian government since this would require the fulfillment of a series of conditions and criteria. First of all, under the current financial situation, the country’s liquidity is questionable, since the trade balance is negative and the public deficit is high. Increased government borrowing has induced a crowding-out of private investments. Moreover, corruption and a justice system that is under government’s control have caused a loss of trust in institutions. The latter is important for the EU investors, because amongst other obvious reasons, the business communities and experts need to be heard, protected by the law and given space to by the government and institutions.
That being said, I would conclude that under the actual political and economic situation, it is not only unattractive, but also risky for any EU investor to decide to invest in Albania. At the end of the day, we all saw what happened to Francesco Bechetti.
ERN
What is the plan of the opposition, once it will come to the power, to change the situation. What would your visions be on it?
Klea Ducka
Before answering this question, I would like to remark that, for now, the Albanian’s opposition main challenge is fighting for its existence. It is, in my opinion, pointless to speak of any change or economic prosperity, while democracy is in danger.
Without preventing the reinstalment of autocracy, the government’s control over the institutions and the justice system, as well as the total capital accumulation in its hands and those of its oligarchs, there cannot be any discussion about any sort of political or economic progress in the future. Eventually, when there is no democracy, there is no future.
However, since the opposition is decided to fight and win this battle, despite the disturbing and difficult situation, I could describe in harsh lines, what its plans regarding the revitalization of the economy will be.
In order to ensure a stable economic growth, it is essential to work on reestablishing trust in institutions and the rule of law. We intend to work towards ensuring a fair and independent justice system and fight criminality, corruption and informal economic activity, as well as introduce better laws and regulations to protect the consumers and businesses. Increase of the country’s liquidity ratio and reduction of the public debt are some of the most urgent goals we will need to set, in order to save the country from crisis and possible bankruptcy, under the threat of which it currently lies. In order to also keep inflation and interest rates under control, cutting unnecessary government spending would be a first step in the right direction. Moreover, we believe that reforming the tax system and reintroducing a flat tax, would generate higher revenues for the state budget to be redistributed in salaries and public services. This would increase citizen’s welfare and create a more favorable environment for local and foreign direct investments, which in turn would create more jobs, as well as solve the human capital and labor force loss problem.
In order to sustain growth, we will also focus in building a well-thought strategy when it comes to the use of the national resources. When it comes to investments, especially PPP contracts, our decisions will be based upon careful considerations of costs and benefits, as well as the necessary technical expertise of the different projects.
Key to boosting the country’s economy, apart from investing in the most important sectors is also the allocation of a considerable fraction of public expenditure in research and development’s field.
Finally, it is also my personal recommendation, that, for the purpose of effectively monitoring growth and economic performance, GDP reporting needs to be technically improved and we need to make sure that is systematical, accurate and timely, as this is essential for effective economic planning and policy formulation.
ERN
Dear Klea thank you for the interview.
Klea Ducka
Thank you too.
