Political Risk Analysis - Electoral Crisis Risks Growing - JULY 2017

BMI View: The Albanian opposition's ongoing boycott of parliament and threat to not take part in June ' s election has increased the risks of a political crisis . With that said, we believe that concessions from the government combined with international pressure will see a deal being reached ahead of the vote and we maintain our view that the ruling coalition will hold on to power.

Political risk in Albania is rising with the approach of the elections scheduled to take place in June, with the opposition boycotting parliament and threatening to not take part in the vote if a caretaker government is not appointed to oversee the polls. Political risk is exacerbated by the fact that the opposition's parliamentary boycott has brought a halt to reforms to the judicial system, meaning that it is unclear how the courts would deal with a legal challenge to the vote. Our core view is that concessions by the ruling coalition combined with international pressure will lead to a deal being reached ahead of elections that will go ahead on schedule, and that will be won by the ruling coalition.

Opposition Boycott Has Stalled Judicial Reform

The boycott of parliament by opposition MPs, which began in February and which is aimed at forcing the government to make way for a technocratic government to oversee the polls, has stalled long-awaited reform to the judicial system. The reform process was agreed in 2016 after long and contentious negotiations but its implementation - specifically parliamentary vetting of judges and prosecutors in a bid to remove those accused of incompetence or corruption - has come to a halt with the opposition boycott of parliament. The stalling of the process raises uncertainty about how any challenges in the lead up to or after elections will be handled, meaning that the risks of political crisis are elevated.

Ruling Coalition With Healthy Majority
Albania - Seats In Parliament
Source: Republic of Albania Parliament, BMI

There is a very high likelihood of challenges to the electoral process given that the main opposition Democratic Party (DP) has said that it will not take part in elections, scheduled for June 18, unless its demands for the appointment of a caretaker government to oversee the process are met. Prime Minister Edi Rama has refused to stand down before the election, meaning that these demands are very unlikely to be met. With that said, Rama has stated that he remains open to dialogue with the opposition and is willing to make concessions that do not involve his government leaving power early nor shifting the date of the election, both of which he said would breach the constitution. Indeed, in a conciliatory move, his Socialist Party (SP) and their coalition partners did not nominate a candidate for president in a parliamentary vote despite having the numbers to elect a candidate, after the opposition refused to end their boycott and participate in the vote.

Election Deal Likely To Be Reached, Government To Hold On To Power

Although this conciliatory approach has not yet delivered results - the opposition escalated its protest by blocking major highways in the country for an hour on April 24 - we believe that, complemented by external pressure, it will lead to deal being reached for elections to go ahead on schedule. The European Union and United States were both instrumental in brokering the reform deal in 2016 and have called on the opposition to end their boycott, with negotiators from the EU flying into Tirana in the aftermath of the opposition blocking roads in a bid to end the impasse. The EU has a reasonable amount of leverage given that both the opposition and the government support Albanian accession to the bloc.

Falling Unemployment Will Bolster SP's Chances Of Holding On To Power
Albania - Unemployment Rate, % of labour force
Source: INSTAT

Perhaps more importantly, the majority of the Albanian electorate is in favour of joining the EU, meaning that if the DP spurns mediation efforts, it risks being seen as responsible for hurting the country's accession process by invoking an electoral (and possibly a constitutional) crisis. This would likely damage its chances of regaining power when elections are held. In fact, we believe that the DP's boycott of parliament is likely to have already hurt its electoral prospects. The party was the main stumbling block in the judicial reform process, which was supported by the majority of the electorate, and the disruption in its implementation on the back of the PD's absence from parliament is unlikely to be viewed favourably by many voters. Against this backdrop, we continue to believe that the SP will hold on to power at the elections, with the ruling coalition's prospects also being bolstered by strong economic growth and ongoing falls in unemployment.