TIRANA, Oct 27ؔhe International Monetary Fund warned the Albanian government to be more realistic regarding its expectations on budget revenues and expenses. However, both Sali Berisha, Albania’s Prime Minister, and Ridvan Bode, Minister of Finance, made it clear that they will continue with their current economic agenda.
“A strong fiscal position and the consolidation of the public debt will help international and domestic faith in the Albanian economy,” said Gerwin Bell, IMF representative to Albania, in a joint press conference. “It will allow the banking system to direct its funds toward more profitable activities in the private sector and not toward the state’s debt. Moreover, a strong fiscal position, declining public debt and improving external position will be absolutely critical when you go to international debt markets to finance. If Albania fulfills these requirements, then it will return into the levels of economic growth it has enjoyed in the recent years. If not, the country’s economy will face huge risks.”
Ridvan Bode, the Albanian minister of finance, replied to IMF’s concerns with much confidence.
“In the same way as IMF and the Bank of Albania (BoA), we too are conservatives. However, we express our conservatism through a large fund of budget reserves,” Bode said. Meanwhile, the prime minister declared on his part that the government will continue with its policy to raise budgetary salaries and increase public investments in 2010.
Government’s forecasts
The Albanian government is currently discussing the budget-draft for 2010 and has forecasted an increase in budget revenues by 15%. Both IMF and BoA consider such projection to be way too optimistic. In addition, by forecasting high revenues, the government has also planned to increase its spending.
“It is imperative that realistic objectives are set regarding revenues. We can’t expect the same growth rates the country enjoyed in 2007 and 2008,” Bell said.
The government has had a similar debate with the IMF at the end of 2008 and the start of 2009, when IMF judged the projected revenues in 2009 to be unreflective of the economic reality of Albania. Even then, the government justified its projections with a large reserve fund, which at the end, increased public debt with more than half a billion euro in less than a year.
“If the proper steps are taken, then the Albanian economy has a very good chance to overcome the global crisis relatively unscathed,” Bell added.
The current fiscal stimulus must end
Despite the warnings, IMF improved its forecast regarding the economic growth in Albania to 2%, much higher than the previous 0.4% forecasted earlier this year. However, the Fund was quick to point that the growth will be entirely due to high spending by the government. Government spending in 2009 has increased by 24% in the first nine months, while revenues have increased by less than 6%. The gap between spending and revenues is clear, always threatening the economy with a possible galloping inflation.
IMF insists that high levels of public debts translate into inefficient investments and an increase in investment risk. The government has not only borrowed huge amounts, it has also agreed to borrow at very high interest rates in a damaging competition with the private sector and individuals. In May 2009, the government agreed to a foreign 200 million loan with interest rates at 11-12%, in a time when the credit rate in euro in the Albanian banking system was set at a 7% interest. Such high spending not only increases the interest of the public debt, it also creates uncertainty among businesses and individuals who are unable to make long-term investment decisions, such as increasing a production line or purchasing a new apartment.
