TIRANA, Nov. 2 – Three months after a mid-year budget cut, the country’s underperforming public finances are heading for a new cut as government revenue continues to fail meeting targets.
A leaked report prepared by the finance ministry has unveiled the Albanian government expects revenue to underperform by another 1.4 percent or 5 billion lek (€37 million) by the end of the year after the budget was revised down by 0.7 percent (€22 million) in late July to handle overoptimistic forecasts.
Finance ministry data shows the nationwide campaign against informality that formalized thousands of previously unregistered business and lifted dozens of hundreds of workers out of informality is having minimal effects on public finances, which although recovering by 6.9 percent during the first three quarters of this year, failed to meet the target by about 1.5 percent or €32 million.
The sharp cut in international commodity prices affecting the country’s key oil and mineral exports, a slowdown in domestic consumption also affected by some aggressive nationwide campaigns in the electricity sector to collect accumulated debts and fight tax evasion are estimated to have temporarily negatively affected government revenue. In addition, some 80,000 Albanians leaving the country since 2015 to seek asylum in northern European countries, mostly Germany, has also been felt in a small economy of 2.8 million residents.
The new budget cut could also slightly affect government expectations of a 3.4 percent GDP growth for 2016, slightly above forecasts of 3 to 3.2 percent by international financial institutions.
In order not to further complicate matters, the Albanian government has also initiated arbitration proceedings against Canada-based Bankers Petroleum, the country’s largest oil producer recently acquired by a Chinese company, to settle a $57 million dispute after an independent auditor ordered the government to pay back the Canadian company $37 million in disputed costs from the company’s operations.
The tight spending policy the government is applying this year in order to slightly bring down public debt to 71 percent of the GDP is also affecting much-needed public investments which are forecast to register their lowest levels in the past seven years.
The Albanian government plans to spend about 60 billion lek (€432 million) or 3.9 percent of the GDP on public investment in 2016 compared to 4.3 to 5 percent of the GDP in the previous seven years.
Last year, the Albanian government cut the budget three times to handle the sharp decline in international oil and mineral prices affecting exports and handle a slowdown in consumption. The GDP was also revised to 2.6 percent, down from initial expectations of 3 percent.
Underperforming revenues could also affect government plans to spend a staggering $100 million in wage and pension hikes of 10 to 17 percent ahead of the upcoming mid-2017 general elections.
