Constitutional changes proposed on public debt ceiling

TIRANA, Oct. 8 – With public debt standing at the legal ceiling of the 60 percent of the GDP and projected to remain unchanged even for the next three years, the High State Audit has proposed to sanction its legal ceiling under constitution. Speaking on Monday at a meeting of the parliamentary economy committee, Bujar Leskaj, the head of the High State Audit said “We have recommended the Finance Ministry that within the next two years it should undertake an initiative on constitutional amendments which will clearly foresee that the public debt must not exceed the limit of 60 percent of the GDP.”
Finance Minister Ridvan Bode described Albania’s debt as controllable and within forecasts. Lowering public debt and budget deficit at a strong pace at a time when domestic and foreign demand is suffering means further escalating the crisis, said Bode.
However, to former Finance Minister Arben Malaj public debt at 60 percent of the GDP poses many threats to the Albanian economy.
“With a public debt limit of 60 percent of the GDP our possibility to intervene in economic situations when nobody is sure is going to improve will be very difficult because of the debt level, or very expensive because of rising insecurity,” said Malaj.
“Public debt has exceeded the 60 percent level if we consider that government has admitted that unpaid bills to part of the businesses,” added Malaj.
Currently the 60 percent ceiling for the public debt is only foreseen in the budget law. The adoption of this rule in the Constitution means that under no circumstances the public debt can exceed 60 percent of the GDP.
Albania’s public currently stands at around 59 percent of the GDP standing just one point below its legal threshold of around 60 percent of the GDP. Finance Ministry data show public debt rose to 58.85 percent of the GDP at the end of the second quarter of 2012, up 28.3 billion lek compared to the end of 2011.
At the end of the first half of 2012 public debt stock climbed to 801 billion lek (Euro 5.7 billion), up from 772 billion lek at the end of 2011. Domestic debt represented 56.6 percent of the total debt stock. External debt accounted for 43.4 percent in the first quarter of 2012 compared to only 39 percent in 2009 before Albania made its Eurobond debut.
Public debt at around the legal ceiling of 60 percent of the GDP, and bad loans at 20 percent are the key threats to the Albanian economy which since 2009 has stuck into moderate 3 percent annual growth rates, international financial institutions have warned.
Estimated at over 800 billion Lek currently, the public debt costs the Albanian government 3 percent of the GDP or 50 billion lek (euro 357 million) in interest payment annually.
What puts the Albanian public debt more at risk is that it accounts for more than double the annual revenues, while interest expenditure has risen to 3.4 percent of the GDP, compared to an average of 1.3 percent in the SEE 6, the IMF has warned.
In its review to the macroeconomic framework, government expects public debt to remain at 59.9 percent of the GDP for the 2012-2014 period, only 0.1 percent below its legal ceiling