Prime Minister Berisha said the budget cuts would enable the government to keep public debt at 59.7 percent of the GDP and the budget deficit at 3.5 by the end of this year
TIRANA, July 4 – The government decided last weekend to increase wages and pensions but cut spending by 18.3 billion lek (USD 183 million, Euro 130 million) for the rest of the year despite being advised by the International Monetary Fund to freeze wages and pensions and increase taxes if it wants to lower the country’s high public debt, currently hovering at a critical 60 percent of the GDP.
Speaking at a government meeting, Prime Minister Sali Berisha did not mention how much wages and pensions will be raised, but said their continuous increase for the sixth year in a row was a result of Albania’s successful economic growth agenda.
Finance Ministry sources say the increases for the wages of around 100,000 public administration employees will increase by 4 to 7 percent while pensions for around 550,000 people will rise by 5 to 10 percent.
In its latest report on Albania, an IMF mission said the government could index wages and pensions only to inflation which last year was at 3.6 percent.
“Already interest, wage, and entitlement spending claim more than two thirds of every lek the government collects in taxes and fees. If capital spending is to be sustained at its current share in GDP, the wage and entitlement bill would have to be indexed to inflation only,” said the IMF.
The budget cuts in this mid-year initially planned at 16 billion lek, are still lower than the 20 billion lek IMF recommended. IMF chief, Gerwin Bell said a few days ago during a visit to Albania that government could lower its public debt to 50 percent in the next five years only if it freezes wage and pension increases, increases social security contributions again, or raises the flat tax to 12 or 15 percent, up from 10 percent currently.
However, Prime Minister Berisha said the budget cuts would enable government to keep public debt at 59.7 percent of the GDP and budget deficit at 3.5 by the end of this year. He described the IMF’s suggestions as well-intended but said Albania had a deal with the IMF only on keeping public debt in check.
Last year, the government increased pensions by an average of 6 percent despite the difficult financial situation which forced it to make considerable budget cuts of around 39 billion lek (390 million dollars). Public sector wages also underwent a 2 to 12 percent increase, with medical staff benefiting from the highest increase and pubic administration employees receiving high monthly wages and a 2 percent increase. The current budget cuts affect every sector starting with public investments and compensation of former land owners.
The new revised budget will cut investments by 8.9 billion lek (89 million dollars) for the remaining half of 2011, according to the draft law the Finance Ministry has prepared. The government says the forced cuts which were made to keep the rising budget deficit in check will mostly affect investments in the health and education sectors while investments in road and water supply projects will remain unchanged. Total investments in the initial 2011 budget were projected at 82.5 billion lek but will drop to 73.5 billion lek under the new changes expected to be approved in Parliament by ruling majority next July. These changes come following lower revenues and sharply increased spending during the first five months of this electoral year.
