Foreign aid it’s like a mask of oxygen for a dying economy. And Albania throughout its modern history, with the exception of the disastrous “self-reliance" period in the 1970s and 1980s, has relied on foreign aid to achieve economic growth.
In contradiction to what Nobel Prize laureate, Angus Deaton believes, that foreign aid does more harm than good and hurts rather than help the poor, each interruption of aid in Albania has had immediate and dramatic effects, same as missing oxygen.
The economic system's breakdown during communism left Albania with acute shortages of many of the basic necessities of life, especially food.
Having no choice but to turn to the West for aid, Albania's leaders got responses from the United States, the member states of the European Community, and Turkey; Greece and Italy were particularly forthcoming.
According to data from the U.S Library of Congress western economists estimated that in 1992 Albania would need some US$500 million worth of food, basic consumer goods, and materials for its factories.
Foreign assistance was massive. In the five years 1992 to 1996, Albania received US$1.525 billion, or about US$475 per capita, in total aid, the vast bulk of which (68 percent) were official grants.
As foreign aid can be allocated in two forms. In grants or soft loans received by the official sector whose main objective is to promote the country’s economic development and wellbeing. Albania belongs to states which have continuously received both monetary and in-kind aid from foreigners.
In the 2008-2012 period, foreign assistance given to Albania amounted to 1.56 billion euros. Initially, grants made up the greatest percentage of the total aid but later on, they declined while the soft loans’ percentage has been increasing.
The greatest part of the loans have been provided by multiple donors and have been oriented towards sectors such like infrastructure, energy, health education and social reforms.
In 2008, because of the country’s economic growth, Albania was entitled the status of the midlevel revenue countries; consequently, it could no more benefit from the IDA-s zero-interest rates concessionary revenues, but it was qualified for commercial loans by IBRD, making up positive signals to investors and financial markets interconnected to the country’s economic future.
Albania has been supported by twenty-two big donors totally founding about 300-350 projects, which makes the country to be ranked among the top-ten European states benefitting from foreign assistance.
Six largest multilateral donors during the period 2000-2010 were the European Commission (grants worth over € 545 million) and EIB, WB, EBRD, CEB and IDB (with over € 1,021 billion in loan form), which together constitute 42% of foreign aid.
During the same period, five bilateral donors have been Germany (with over € 347 million in grants and loans), Italy (with over € 309 million in grants and loans), Japan (with over € 142 million in grants and loans), USA (with over € 123 million in grants) and the Netherlands (with over € 84 million in grants), which together account for slightly more than 27% of total foreign aid during 2000-2010.
But despite all the good foreign aid does to the economy, as it reduces budgetary deficit, on the other side, it has ulterior implications since obtaining foreign aid means increasing the country’s public debt.
Therefore, as far as the aid increases borrowing, it turns into a debt-creating means, whose future implications will compromise the liquidation of the loan interests and contribute to the further increase of the public debt.
Albania currently has the highest level of public debt relative to GDP among the countries of Eastern and Southeastern Europe with the exception of Hungary. On the other hand, the cost of debt service, the amount of money paid for interest was actually lower in 2014 due to the rapid decline of average interest of the public internal debt.
Country’s public debt has reached 72.2%, a record and concerning increase of the debt in the past years. Certainly, such situation is not favorable at all for Albania since paying of such amount of public debt back would require greater portions of revenues to go to liquidating its principal and interests, bringing chain problems to the country’s public finances.
That is why increasing foreign aid effectiveness in the country requires, first of all, good governance of its resources by the government, as the country is in dire need to foster growth in some of its key sectors, such as energy, infrastructure and agriculture. /Agroweb.org/