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. VAT which indirectly measures consumption dropped by 9.7 percent compared to the first quarter of 2012, registering its poorest quarterly performance since the onset of the global financial crisis in 2008
TIRANA, April 4 – Sluggish government revenue in the first quarter of the year unveils the ruling Democratic-Party-led coalition has for the fourth year in a row drafted on overoptimistic budget and the new government out of the June 23 general elections will be forced to cut the budget and revise the GDP forecast downward as crisis impacts escalate. Finance Ministry data show total government revenue in the first quarter of 2013 reached 75.5 billion lek (Euro 527.7 million), down 3.6 percent compared to the same period in 2012 and 5.2 percent compared to the target for the first three months of the year, registering the first quarterly shrink since the collapse of the notorious collapse of pyramid schemes in 1997, but yet remaining higher compared to the first quarter of 2009 just as the international crisis impacts affected Albania’s growth.
Government revenue during the first three months of this year indicate the Albanian economy continues suffering and domestic consumption, the key driver of growth, remains sluggish as indirectly unveiled by the performance of value added tax.
The tax and customs administration managed to collect only 51.5 billion lek, down from 54.3 billion lek in the first quarter of 2012 mainly due to poor performance in the value added tax and the excise taxes which account for around half of total tax income.
VAT collection dropped to around 24 billion lek, down 9.7 percent compared to the first quarter of 2012, registering its poorest quarterly performance since the onset of the global financial crisis in 2008. The poor consumer consumption is reflected on businesses whose profit tax grew by 7.7 percent compared to the first quarter of 2012 but was far lower compared to the first quarter of 2008. Excise collected on the so-called luxury products including fuel, alcoholic beverages and tobacco dropped by 8.2 percent.
The budget deficit at the end of March 2013 slightly rose to 13.5 billion lek, up 41.5 percent compared to the same period in 2012 on higher current expenditure and spending on interest rates.
With the public debt officially above the former 60 percent of the GDP ceiling, the Albanian government spent 10.3 billion lek in interest rates during the first three months of 2013, up from 9.3 billion lek in the same period last year. Public investments, expected to increase as general elections come closer, dropped to around 13 billion lek, down 9.9 percent compared to last year.
The deficit in the pension scheme rose to 8.1 billion lek (Euro 56 million), up from 7.7 billion lek a year ago.
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. While domestic consumption and lending remain sluggish, exports which in the first quarter of this year grew by 17 percent remain the only hope for growth.
Foreign direct investment, migrant remittances and tourism revenue had a smaller impact on Albania’s growth in 2012 when the country registered a 1.6 percent growth, the lowest since the collapse of the notorious pyramid schemes back in 1997.
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 a more realistic and mature projection 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.
2012 budget cut by Euro 111 mln
Under a normative act approved last December, government cut budget for the third year in a row after failing to meet its overoptimistic targets. For 2012, government cut spending by 15.8 billion lek (Euro 111 million) to 381 billion lek and revenues from 355.7 billion lek to 332.7 billion lek. Meanwhile, the budget deficit was raised to 48,368 billion (3.7 percent of the GDP) up from an expected 41.163 billion lek under the initial 2012 budget. Investments were also cut to 64.7 billion lek, down from 69.8 billion lek.
Back in 2011 and 2010 government made mid-year budget cuts and also used normative acts at the end of the year to adjust the budget. The budget cuts came after government increased wages and pensions by an average of 5 percent in mid-year periods.
Facing a sharp drop in revenues, the Albanian government has also been forced to revise downward its overoptimistic GDP growth rates and increase debt levels several times during the past year. The latest review was made last January in the 2013-2015 economic and fiscal programme where the GDP growth forecast for 2012 was cut to 1.5 percent down from an overoptimistic 4.3 percent targeted in the initial 2012 budget. Meanwhile, public debt, whose 60 percent of the GDP ceiling was lifted in late 2012, is expected to rise from 61.9 percent in 2012 to 63.8 percent at the end of 2013, compared to a target of 62.6 percent in the 2012 budget.
Eurozone crisis impact
Affected by the Eurozone crisis, sluggish domestic consumption and high public debt levels, the Albanian economy registered its worst economic performance in the past 15 years in 2012. Data published by the country’s government controlled Institute of Statistics show the Albanian economy grew by 1.6 percent year-on-year in 2012, the worst annual rate since the collapse of the notorious pyramid schemes in 1997 when the economy shrank by 11 percent and almost half of the average 3 percent annual growth from 2009 to 2011.
“Albania’s strong trade, investment and remittance ties to Italy and Greece are likely to continue to constrain growth in the coming year, and public debt, which is close to the statutory limit of 60 per cent of GDP, will limit the room for fiscal manoeuvre,” says London-based EBRD.
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. Despite having preserved an annual moderate 3 percent growth rate from 2009 to 2011, the Albanian economy lags behind almost every EU aspirant in GDP per capita and purchasing power indicators.
