At 38.3 billion lek (Euro 266 million), Albania’s budget deficit stands at an all-time record high, higher even compared to the same period in 2009 when the Durres-Kukes highway linking Albania to Kosovo was completed, estimated to have cost around 1 billion euros
TIRANA, June 19 – Albania’s budget deficit reached a record high for the first five months of this year on higher public investments ahead of the June 23 general elections and underperforming government revenues. A report issued by the Finance Ministry shows Albania’s budget deficit rose to 38.3 billion lek (Euro 266 million) in the first five months of this year, up 114 percent compared to the same period last year when it was at 17.8 billion lek. A sharp increase in public investments and a slowdown in government revenue which remain at negative growth rates are the main causes for the situation which risks further increasing Albania’s public debt stock, currently hovering above the former 60 percent ceiling. Finance Ministry data show public investments in the first five months of this year rose by 41.4 percent to 33.2 billion lek (Euro 231 million) while government revenue was down by 0.2 percent to around 133 billion lek (Euro 923 million).
At 38.3 billion lek, Albania’s budget deficit stands at an all-time record high, higher even compared to the same period in 2009 when the Durres-Kukes highway linking Albania to Kosovo was completed, estimated to have cost around 1 billion euros.
In 2009, Albania’s budget deficit rose to a record 7 percent and dropped between 3.1 to 3.7 percent annually between 2010 and 2012, according to Finance Ministry data.
This week, the ruling Democrats inaugurated the Kerrabe tunnel linking Tirana to Elbasan estimated to have cost USD 101 million. The tunnel is part of the Tirana-Elbasan highway, worth USD 204 million, currently under construction, which is the biggest infrastructural project inaugurated in the second consecutive term of the Democratic Party-led government.
Data show that consumption, the key driver of Albania’s growth, continues remaining poor with the value added tax, which indirectly measures it, shrinking by 5.4 percent. Excise taxes imposed on the so-called luxury products also declined by 4.1 percent in the first five months of this year.
Total government spending in the first five months of this year rose by 13.3 percent to 172 billion lek. With public debt standing at 62 percent of the GDP, the Albanian government paid 17.5 billion lek in interest rates.
Privatization revenue in the first five months of this year rose to 15.7 billion lek, up from a mere 607 million lek in the same period year last mainly due to the collection of income from the sale of four small and medium sized enterprises acquired by Turkey’s Kurum for around 110 million euros. Kurum had Euro 21 million deducted in VAT refunds for the steel plant operations in Elbasan.
The poor performance shows government’s goal of an 8 percent growth in revenues and a 3 percent GDP growth rate for 2013 will be difficult targets to achieve after last year’s 1.6 percent GDP growth rate, the worst since the collapse of the notorious pyramid schemes in 1997 and almost half of the average growth in the 2009-2011 global crisis years.
During the past three years, government has made mid-year budgets and revised GDP growth forecast downward also using normative acts but has kept a constant policy on increasing wages and pensions by an average of 3 to 5 percent. For the first time since 1997 when the notorious pyramid schemes collapsed and the economy suffered a sharp 11 percent shrink, government revenues suffered an annual drop, revealing the escalating woes of the Albanian economy since the onset of the global crisis in 2009. Finance Ministry data show total revenues shrank by 0.2 percent to 330 billion lek (Euro 2.3 billion) in 2012, registering the first annual shrink in the past 15 years. The performance proves the escalation of impacts from the global crisis and rising public debt now standing above the former 60 percent of the GDP ceiling.
The International Monetary Fund has suggested that it is better that the year starts with more realistic and mature projections in order to make its implementation easier.
“The repeated budget slippages underscore the need for more realistic macroeconomic framework. Weaker economic activity has pressured revenue, but the shortfall compared to the initial budget mainly reflects its overoptimistic forecasts,” says the IMF.
