GDP growth rate lowered to 4.1% after budget cuts

TIRANA, July 12 – Government lowered its 2010 GDP growth forecast to 4.1 percent, down from the previous 5.5, after deciding to cut spending by 25 percent, some 39 billion lek (380 million dollars). The new growth rates, which are twice bigger than those of international financial institutions, were announced on Monday by Finance Minister Ridvan Bode while presenting in Parliament the changes to the revised state budget of 2010.
Bode said the changes, which come immediately after a wage and pension hike by up to 12 percent, were aimed at keeping under control the country’s public debt, currently at a record 60 percent of the GDP, and bring the budget deficit down to 3.1 percent by the end of this year.
Under the revised plan, budget revenues will decrease by 27.2 billion lek, lowering their annual growth rate to 11.4 percent, down from the expected 20 percent at the beginning of the year. Meanwhile public investments will be cut by 19 billion lek.
“These measures are necessary to create a more suitable and attractive environment for the Albanian economy and do not damage or affect the normal functioning of public activity of government or other legal institutions serving citizens,” said Bode.
Speaking of the public debt level, currently at 59.5 percent of the GDP, the minister said government’s goal was to preserve the rate during this year and lower it to 54 percent by 2013 when government’s term of office ends.
However, despite the budget review and significant cuts, government’s forecast remain far bigger compared to those of international financial institutions. The IMF expects a 2.3 percent growth of the Albanian economy this year while the EBRD only 1.4 percent.
Last year, the Albanian GDP growth dropped to 3.3 percent after an 8 percent growth in 2008, according to Albanian Institute of Statistics. However, a newly published IMF report said economy grew by 2.8 percent in 2009.
With private sector adjustment already under way, the budget must achieve a significant turnaround to bring down the current account deficit, currently at 14 percent of the GDP, and make space for credit extension to the private sector, said the IMF in its latest report.
The IMF predicts the public debt levels will further increase up to 67 percent of the GDP in 2013 differently from government’s goal of cutting it to 54 percent by the end of 2013. IMF’s 2010 public debt forecast is 63 percent while in 2011 it is expected to increase by another 0.8 percent.