The Albanian government has denied any possible tax increase, at least for 2014
TIRANA, March 24 – Soon after the IMF okayed a Euro 330 million loan to the Albanian government and a report by the Fund highlighted the need for reforms to put the Albanian economy back on track, economy experts hail the IMF’s return to Albania but advise government to be careful with the tax hike proposals by the International Monetary Fund.
Ardian Civici, an economy expert and member of the central bank’s supervisory council, says the return of the IMF will restore macroeconomic stability for the country’s public finances which are threatened by public debt at a record 70 percent of the GDP.
“Our public finances are in a delicate situation. The deal with the IMF, more than the positive impact of Euro 110 million each year, is a package of reforms and commitments which will put the Albanian government, the finance ministry and development policies back on track to overcome this difficult moment,” Civici told VoA in the local Albanian service.
“The IMF does not go to normal countries with minor problems. We are facing a huge problem, which is a structural problem. The risk of public finances being endangered by debt levels continues lingering and under these conditions the best recipe, although tough and painful, is the deal with the IMF.”
Luljeta Minxhozi, another economy expert urges the Albania government to give a boost to domestic production and protect courageous investments in a delicate and unsafe market.
“In order to gain sustainability, the Albanian economy requires structural changes which means promoting production. The Albanian economy needs a boost to promote big manufacturing enterprises. A real promoter is needed to put the whole system into motion,” she said.
Minxhozi is also concerned about lending having frozen and banks having shifted to investments in government securities as an alternative at a time when non-performing loans stand at around a quarter.
“Banks possess a lot of savings which are not being turned into investments. The simplest macro-economic equilibrium is that a country should invest as much as it saves. Albania possesses savings and should also have investments but this is not taking place. It is exactly this weak structure of the Albanian economy which is not urging deposit holders to transform their savings into investments,” added Minxhozi.
Arben Malaj, a former Finance Minister, describes the deal with the IMF as an opportunity to restore Albania’s reliability toward financial institutions and international markets.
“The deal is an opportunity but not a guarantee. This is proved even by the latest examples with some EU countries. Failure to successfully implement reforms and fulfill targets and indicators made the extra measures tougher,” he said.
The International Monetary Fund expects the Albanian economy to strongly recover and public debt to sharply reduce in the next five years. In its latest country report on Albania, the IMF which will assist the Albanian government in boosting growth and supporting macroeconomic stability, expects the Albanian economy to recover from an estimated 0.7 percent growth in 2013 to 2.1 percent in 2014, 3.3 percent in 2015 and 4.2 to 4.7 percent from 2016 to 2019.
Public debt, which is estimated to have climbed to 70.5 percent of the GDP in 2013, posing a serious threat to the country’s macroeconomic stability, is expected to further climb to 71.7 percent of the GDP in 2014 before embarking on a downward trend that will take it to 57 percent of the GDP in 2019.
Ambitious reforms, including in the areas of pensions, energy, local government, public administration and the business environment, are essential to support medium-term growth and debt sustainability, says the IMF.
The IMF concluded its permanent mission to Albania in January 2009 when relations with the Fund were reduced to an advisory role. The renewed deal also comes after the country’s economy has sharply slowed down in the past couple of years, with GDP growth expected at only 0.7 percent in 2013, the lowest in the past 15 years and the forecast for 2014 is at 2 percent.
“Weak investor confidence, bank risk aversion, as well as incomplete investment climate reforms, have amplified the slowdown. Real GDP growth is expected to decline to 0.7 percent in 2013, the lowest in more than a decade,” says the Fund.
The renewed three-year deal is supported by a three-year Euro 331 million soft loan which will be used to pay off accumulated unpaid bills to the business community, estimated at around 5 percent of the GDP.
No tax increases for 2014
The Albanian government has denied any possible tax increase, at least for 2014.
“There is no plan and no commitment to increase taxes this year,” Economy Minister Arben Ahmetaj has told reporters referring to the deal with the IMF.
Asked about a possible increase in electricity prices, Ahmetaj said there was no recommendation and no commitment in the deal the Albanian government has reached with the IMF to undertake this step.
While some of IMF’s tax and expenditure measures have already been adopted in the 2014 fiscal package, the IMF recommends new tax hikes to improve the sluggish performance of Albania’s budget revenue.
The Albanian government has already adopted a higher corporate income tax, increased excise taxes on cigarettes and energy drinks, doubled property taxes, and increased the environmental tax on fuel. The IMF proposes new measures that would widen the VAT base by reducing exemptions on educational services and ship import and increasing the withholding tax on capital incomes from 10 to 12 percent. The IMF proposes the introduction of tolls on the Durres-Kukes highway linking Albania to Kosovo which is scheduled to be awarded to a concessionaire and increasing taxes on cars.
Among expenditure measures, the IMF recommends reducing network loss in electricity distribution, freezing public administration wages and limiting pension increases to inflation rate.
The IMF also proposes a reform in the pension system by increasing the retirement age for men to 67, up from 65 currently and to 65 for women, up from 60 currently.
