TIRANA, March 22 – The IMF warnings on the risks facing the country’s economy, mainly related to the expected negative effects that PPPs could have on the public debt reduction agenda, have also worried the country’s main opposition Democratic Party and some economy experts.
Democratic Party leader Lulzim Basha says the IMF report sounds the alarm for the country’s future.
“The IMF mission has issued critical and serious warnings about the country’s future. The IMF has issued a clear message that Albania’s economic situation will further deteriorate in the future,” says Basha.
According to him, the completion of the Trans Adriatic Pipeline and the Devoll Hydropower, two projects contracted when the Democrats were still in power before losing the mid-2013 general elections, will strip the economy of much-needed FDI to bring employment and welfare at a time when the government has not secured new foreign investment to replace them.
“The IMF raises the alarm that debt has reached an unaffordable level of 72 percent of the country’s GDP and that does not include debt hidden through PPPs which increases its level by another 10 percent, taking real debt to 82 percent of the country’s GDP,” says Basha.
“This debt level is dangerous to the Albanian economy and could take the country toward financial crisis,” he adds.
According to Basha, the €1 billion PPP project that the ruling Socialists are implementing, is intended to steal taxpayer money by laundering crime and drugs proceeds for “Prime Minister Edi Rama and a handful of businessmen with links to him.”
“During the past year, PPPs have turned into the key government tool to launder drug and organized crime proceeds,” says Basha.
The main opposition Democratic Party leader has earlier linked the current construction boom in Tirana to alleged drug proceeds from the massive 2016 cannabis cultivation and ongoing cocaine and heroin trafficking money being laundered in apartment blocks, business towers and PPP projects.
Albania turned into Europe’s largest outdoor cannabis producer in 2016 when police say they destroyed 2.5 million of cannabis plants in 2016 spread over a 213 hectare area nationwide, a 3-fold increase compared to the whole of 2015. The government claims the cannabis cultivation phenomenon came to an end in 2017, but international reports continue placing Albania as a source country for cannabis cultivation and a transit route for cocaine and heroin trafficking to Western Europe.
In late February 2018, Albanian police seized a record 613 kilos of Colombia cocaine with an estimated market value of €180 million at the country’s biggest port of Durres, hidden in a container of bananas.
Gov’t confident
The ruling Socialists have dismissed the opposition Democrats’ warnings as unfounded and politically motivated.
“The IMF report is much more serious than such non-serious human being such as the current opposition. The report makes clear the undisputable achievements and undeniable current challenges facing the Albanian economy which is sustainably growing and is not related to words like ‘crisis’ or others commonly used in the daily ultimatums of the Democratic Party and its head,” says Finance Minister Arben Ahmetaj.
Reacting to the IMF’s proposal of immediately suspending PPPs originating from unsolicited proposals that commonly favor concessionaires with prior bonuses in the tendering process, Finance Minister Arben Ahmetaj said that is not going to happen until 2021 when the Socialists second consecutive term of office expires.
“The finance and economy ministry has agreed that there will no longer be unsolicited proposals starting January 2021,” says Ahmetaj.
The IMF has also criticized the government’s new VAT policy that increases the number of small businesses in the 20 percent value added tax, saying that will exhaust the tax administration capacities.
However, the finance ministry says the logic behind reducing the VAT inclusion turnover threshold to 2 million lek (about €15,000), down from a current 5 million lek (€37,000) is reducing tax evasion and making a full scan of transactions.
For about three years until early 2017, the Albanian government’s tax policies were fully in line with the IMF recommendations conditioned by a binding €331 million soft loan to clear accumulated unpaid bills.
Experts worried
Economy expert Zef Preà§i has singled out the €1 billion public private partnerships and new entrants in the banking sector as the most imminent threats facing the Albanian economy from the IMF warnings.
“As already known, this program [PPPs], unfortunately for our national economy, has started being applied by both the central and local government and bears the risk of economically putting into circulation big amounts of criminal drug proceeds circulating in the Albanian economy (i.e. their legalization), but also their increase by converting them to public debt for the coming decades,” Preà§i, the head of the Albanian Center for Economic Research, wrote in an op-ed on IMF’s warnings this week.
“I am not exaggerating it when I say that this recommendation together with the other reiterated recommendation of showing great attention in the selection of new bank buyers, poses the most serious IMF warning regarding the country’s banking system since 1996 when the IMF warned of the problems that led to the 1996-1997 pyramid scheme crisis,” he adds.
In its latest statement, the IMF recommends that “ensuring that new market entrants have solid banking experience and meet fit and proper criteria to operate in the Albanian banking market will be critical.”
Albania’s Competition Authority has recently approved the purchase of the Albanian unit of Greek-owned NBG Bank by the American Bank of Investments, an American-Albanian bank that has been operating in Albania since 2016 after taking over France’s Credit Agricole’s Albania unit.
The American Bank of Investments, which the opposition says is linked to offshore tax havens, is set to double its market share to about 5.7 percent in terms of assets following the acquisition.
Expert Adrian Civici is also worried PPPs could undermine the country’s macro-economic stability.
“It should be clear that for a country that has debt reduction as its main strategy and has problems with the revenue collection and stability, every expenditure that increases debt could undermine macro-economic equilibrium,” says Civici.
“Considering their nature and other countries’ experience with them, PPPs need an institutional superstructure that can manage and supervise them,” he adds.
