The Albanian government has lowered its GDP forecast for 2013 to only 1.2 percent after the economy grew by only 1.1 percent year-on-year in the second quarter of the year.
TIRANA, Oct. 22 – Albania’s budget deficit is expected to climb to 6.2 percent of the GDP and the public debt at around 69 percent of the GDP at the end of the 2013 despite sharp budget cuts adopted by the new Socialist Party-led government this week. Under a normative act, the new government says the 2013 government spending will be cut by 16.2 billion lek (Euro 113 million), while the overoptimistic revenue target reduced by 38.8 billion lek (Euro 270 million). Introducing the changes at the parliamentary economy committee this week, Finance Minister Shkelqim Cani said the situation was a result of underperforming revenues, high pre-electoral spending and accumulated unpaid bills by the previous government which was in office until early last September.
“As a result of extremely low levels of revenue and accelerated spending without taking into consideration unpaid government bills, the deficit and debt has reached alarming levels for an economy such as Albania. The deficit is expected to jump to 6.2 percent of the GDP, from around 4.3 percent in the past decade and 3.5 percent in 2012,” said minister Cani.
At 6.2 percent of the GDP, the budget deficit will be one of the highest in the past 15 years lower only compared to the 7 percent deficit in the electoral year of 2009 when Albania completed the Durres-Kukes highway linking the country to Kosovo, estimated at around 1 billion euros.
Speaking of the public debt, minister Cani estimates it has jumped to 72 percent of the GDP if unpaid government bills and arrears are taken into consideration.
“The public debt, without including unpaid government bills to businesses, is expected to jump to 68 to 69 percent of the GDP at the end of 2013. If unpaid government bills, estimated at 4 percent of the GDP, are taken into account, public debt stands at 72 percent of the GDP,” said Cani. Government and the IMF estimate unpaid government bills and arrears at around 55-60 billion lek (Euro 382 to 416 million).
The Finance Minster, who was a former Bank of Albania governor, said the sharp budget review was also a result of an overoptimistic scenario of a 3.1 percent GDP growth and 9.3 percent growth in revenues.
In its normative act, the Albanian government expects growth to slightly accelerate to 1.9 percent in 2013, slightly better compared to last year’s 1.6 percent, the lowest annual GDP growth rate since the 1997 pyramid investment schemes and the average of 3 percent in the global crisis years of 2009 to 2011. However, the publication of the GDP growth rate for the second quarter of 2013 by the country’s Institute of Statistics has made the Albanian more pessimistic about 2013.
“Considering the GDP growth of 1.1 percent in the second quarter of 2013 recently published by INSTAT, a piece of information which was not available at the time the budget review was submitted to Parliament, we now forecast the real GDP growth rate for 2013 will be at 1.2 percent,” said the finance minister.
Minister Cani blamed both the customs and tax administrations for the poor performance in this year’s budget revenues.
The revised budget foresees the 2013 government revenue will be at 322 billion lek while spending at 405 billion lek. The budget deficit is expected to climb to 83.5 billion lek (Euro 582 million) at the end of 2013, increasing Albania’s debt by another 24.8 billion lek compared to the initial target.
The Albanian government says it is seeking to borrow 24 billion lek (Euro 167 million) from the top international financial institutions to handle the difficult situation with the country’s underperforming public finances in this electoral year.
Government revenue in the first eight months of this year reached 210 billion lek (around Euro 1.46 billion), down 3.5 percent compared to the same period last year, but around 16 billion lek (Euro 113 million) less compared to the target set for this period. Privatization revenue, which is used to finance the budget deficit, grew by a record 20 times to around 16 billion lek (Euro 111 million) in the first eight months of this year due to the sale of four small and medium-sized hydropower plants to Turkey’s Kurum for around 110 million euros.
The soaring pre-electoral spending has taken the budget deficit to 54 billion lek (Euro 378 million), more than double compared to January-August 2012 and at already 89.2 percent of the target set for 2013. The situation was a result of spending increasing by 9.2 percent to 265 billion lek in the first eight months of this year and revenues failing to meet targets by 7 percent.
Public investments in this electoral year also increased by 33 percent to 48 billion lek (Euro 333 million) compared to the first eight months of 2012, according to Finance Ministry data.
Opposition says normative act is a ‘time bomb’
Opposition Democratic Party leader has described the new normative act introduced by the Socialist Party-led government as a time bomb for Albania’s financial stability.
“The normative act is a time bomb to the financial stability, the abyss to recession of the Albanian economy which resisted the global crisis shocks, the formula of the Rama recession. The Democratic Party and the whole opposition will confront this adventurous government act in commissions and Parliament reserving the best expertise to it,” said Basha.
Speaking to journalists, Basha said the Socialist Party which had denounced the debt levels while in opposition was now trebling the debt levels. “In eight months the Democratic government borrowed 35.7 billion lek under the plan, while the Socialists want to borrow 40 billion lek in three months,” said Basha.
Former Finance Minister Ridvan Bode accused the government of trying to insinuate a non-realistic and miserable economic situation to justify a tax increase at another moment.
Jorida Tabaku, an opposition Democratic Party MP said the new USD 240 million debt government plans will for the first time in the past ten years be used on operating expenditure and not for public investments.
Former deputy Finance Minister Sherefedin Shehu says Albanian citizens should trust international financial institutions and the European Union which prove the stability of the Albanian economy.
Audit of debts prevents 2014 draft budget
The Albanian government says it will start drafting the 2014 budget once the unpaid government bills and arrears to the private sector has been identified by next November.
The Albanian government has contracted accountancy giant Deloitte to audit unpaid bills and arrears the central government owes to the business community. Deloitte, famous in Albania for auditing the pyramid investment schemes in 1997, will be paid Euro 85,000 for the audit of unpaid bills to the business community which has turned into a hot topic in Albanian politics with the opposition claiming unpaid bills are five times lower compared to what the new Socialist Party-led government pretends. The audit, which will cover debts until the end of last August just few days before a new government took over, is expected to conclude by the end of next November. The Albanian government and the IMF say government owes private companies 55-60 billion lek (Euro 382 to 416 million) in unpaid government bills and arrears.
Meanwhile, former Finance Minister Ridvan Bode who was in charge of the country’s public finances for the past eight years says government owes the private sector only 11 billion lek (Euro 76 million) in accumulated unpaid bills.
In its latest report on Albania, the International Monetary Fund warned the 2014 budget should initiate the process of fiscal consolidation while being cognizant of the weak economy.
Sluggish growth in year’s first half
The critical situation of the Albanian economy is also confirmed by the latest data published by the country’s state Institute of Statistics, INSTAT, which shows the GDP grew by only 1.1 percent year-on-year in the second quarter of 2013 with only the construction, agriculture and industry branches registering positive growth rates. Taking into account that the Albanian economy grew by 1.7 percent in the first quarter of 2013, the GDP growth rate for the first half of 2013 is at only 1.35 percent, one of the lowest in the past 16 years, higher only compared to the first half of 2012 when the Albanian economy grew by only 0.7 percent, affected by severe weather conditions in the first quarter of the year and an energy crisis. Albania enjoyed an average annual growth rate of 6 percent from 2003 to 2008 and was one of the few countries to register positive growth of 3.3 percent in 2009 in the outbreak of the global crisis. According to INSTAT, the 2010 growth was at 3.9 percent, down from 7.5 percent in 2008. Back in 2011, the Albanian economy grew by 3.1 percent, remaining at the same moderate growth rates for the third year in a row while in 2012 the GDP slowed down to 1.6 percent.
Although remaining one of the best performing enlargement economies in the global crisis years of 2009 to 2012, the Albanian economy is showing sluggish signs of recovery and has been overtaken by most EU aspirants in the first half of this year, shows a European Commission report. At only 1.1 percent during the second quarter of 2013, Albania’s GDP registered the second lowest growth rate among candidate and potential candidate countries, better only compared to Serbia.
