Imf Pressures Albania To Reduce Budget Deficit

Under pressure from the International Monetary Fund, the Albanian government has agreed to cut its spending by ALL 29 billion (some Euro 242 million) for the current year. The spending cut amounts to nearly 2.7 percent of country’s GDP. The move is intended to reduce the budget deficit, the internal debt, and control inflation and exchange rates. The vice-minister of Finances, Sherefedin Shehu, said during a joint press conference with the IMF officials in Albania that, “We agreed to contain the budget deficit at 5.2 percent of the GDP”.
However, Shehu refrained from outlining where the government is going to cut the spending. Shehu repeated that, “This year, we are going to have another supplementary budget with surplus revenues from taxes and the re-allocations”. The Albanian government had initially planned to loan some ALL 85 billion during 2008, or 7.9 percent of country’s GDP. The goal was to realise the “$4 billion investment budget”, as Prime Minister Berisha so proudly named it last year. Reluctantly, the IMF agreed, then, to those figures. However, the plan coincided with the U.S. sub-prime crisis, the general slowdown of the world economy and the increase of the prices of food, commodities, and oil.
Albanian specialists grew increasingly sceptical about the plan. Only last month, they warned that the budget deficit was endangering the economic situation of the country. Ardiana Berberi, former Vice-Minister of Finances, argued that the government could not hide following an agreement with the International Monetary Fund. Gjergj Teneqexhi, former director of the Budget Directorate in the Ministry of Finance, made redundant after the 2005 elections declared, “The deficit has increased three times compared to a year ago, and this is far from being normal”.
Last month, the government turned a deaf ear to repeated warnings of former bureaucrats. However, it cannot do the same when it comes to ‘advice’ from the IMF. Unable to control inflationary pressures on the supply side coming from the global market, the Albanian government is obliged to cut spending in order to reduce inflationary pressure on the demand side.
Another element of the plan is the increase of the contingency funds to 1.5 percent of the GDP in case it has to cope with cost overruns in the Rreshen-Kalimash road and further losses at Albanian Power Corporation (KESH). The Albanian government had planned to keep Euro 135 million in contingency funds for 2008. The funds were intended to be used to cover possible cost overruns in the Durr촩-Morina road (Rr촨en- Kalimash is the most difficult and important segment of this road). Also, the government had made no provisions to subsidise KESH. The Albanian government has already allocated some Euro 15 million to cover damages and the rebuilding of G쳤eci following the catastrophic explosion of military explosives on March 15, 2008.