By ervin lisaku
TIRANA, Nov. 9 – Unlike the International Monetary Fund which has suggested that the 2011 revenues growth should not be projected at more than 6 to 7 percent to make the budget’s implementation easier, government expects an 8.6 percent revenue growth which it says will take the GDP growth rate to 5.5 percent next year, up from an expected 4.1 percent in 2010.
Finance Minister Ridvan Bode, who introduced the budget priorities in Parliament this week after the 2011 draft law received the government approval, said the Democratic Party-led ruling coalition would achieve its revenue target by improving tax management without adopting new policies to increase taxes. “Our goal is that through better management, in 2011 we will increase the GDP from the central administration, mainly tax and customs offices, by 0.5 percent compared to 2010, taking their contribution to 24.9 percent of the GDP compared with 24.4 percent in 2010,” said Minister Bode.
Government says the new management approach will increase the VAT contribution by 0.8 percent of the GDP and excise and personal income taxes by 0.2 percent. Other tax collection rates will be kept at the same levels as in 2010.
Expenditure will also increase by 10 percent compared to the 2010 budget which was cut by a considerable 39 billion lek (390 million dollars) to keep the country’s high public debt at 59.5 percent of the GDP and lower budget deficit to 3.5 percent, down from a record 7 percent in 2009.
Some 500 million dollars will be invested in infrastructure and other public investments next year, when important projects such as a highway linking Tirana to Elbasan through a tunnel are expected to kick off.
Describing the 2011 budget as neither conservative nor optimistic, minister Bode said the expectations are based on the 2010 performance, when the economy has been gradually returning to its traditional growth rates after a contraction in the last quarter of 2009.
Year-on-year data show the Albanian economy grew by 2 percent in the first quarter of 2010 and 3.3 percent in the second quarter, a trend which is said to have continued even in the third quarter of this year. The situation was mainly a result of the ongoing poor performance in the construction sector which shrank by 20 percent in the first quarter and 29 percent in the second quarter mainly because of a sharp decline in sales and problems with liquidity and construction permits.
The telecommunications services have also been hit, registering year-on-year drops of 10% and 3% during the first and second quarters of this year respectively.
According to government, booming exports, also helped by huge electricity sales considering the favourable hydro situation, have been the main contributors to the 2010 growth. Made in Albania exports grew by 73 percent during the first half of this year 16 percent during the first nine months compared to the same periods last year.
The moderate increase in imports, by 8 percent in the first three quarters of 2010, has considerably improved the country’s trade gap and current account deficit.
A stable exchange rate after the 2009 shock, when the national currency, lek, lost 7.5 percent against Euro and 13.2 percent against the US dollar, and the inflation rate in check, have also had their positive impacts.
Tax policy
Despite facilitating policies, increases in the tobacco excise tax, a 10 percent cut in the VAT on medicine and health services and a lower VAT threshold for small businesses, will bring considerable extra revenues in the 2011 budget, says the Finance Ministry in its budget report.
Under the newly proposed changes expected to become effective starting from next year, the excise tax on tobacco will further increase by 20 lek (20 US cents) per packet, climbing to 70 lek, up from 50 lek currently, accounting for an extra 1.7 billion lek (17 million dollars) in 2011. The proposal to further lower VAT inclusion for businesses to 2 million lek of turnover, down from 5 million lek currently, a measure which some associations have opposed as inapplicable, will also increase revenues.
2011 budget
Under the government decision approved last week, the 2011 budget, made up of the state budget, the local government budget and the special funds covering social securities, health insurance and the compensation of ex-land land owners, foresees 362.2 billion lek (3.6 billion dollars) in revenues and 409 billion lek of expenditure, taking the deficit to 46.8 billion lek, up from 38.1 billion lek under the revised 2010 budget. Government hopes to finance the 2011 budget deficit through lending and privatization revenues, the latter expected to reach 300 million lek. The possibility of making budget cuts even this year in case the expected budget revenues are not met has not been ruled out.
Current expenses are projected at 240.7 billion lek while capital expenditure at 81.7 billion lek. The fund made available on the expected increase in wage and pensions is 3.5 billion lek.
Government says no new employees will be hired in the public administration in 2011 except for cases of the establishment of new institutions.
Some institutions such as the President’s office have had their 2011 budgets cut with local media describing this as an attack against President Bamir Topi, a former senior official of the ruling Democratic Party, whose relations with the majority are getting worse because of the ruling coalition’s refusal to vote in Parliament the candidates for the Supreme and Constitutional Courts vacancies proposed by him.
GDP growth
The International Monetary Fund (IMF) expects the Albanian economy to grow by 3 percent this year and 3.5 percent in 2011 under the new estimates raised last week, yet, almost twice less compared to government’s GDP projections. According to IMF’s new World Economic Outlook report published last month, Albania will return to 5 percent GDP growth rate only by 2015. Meanwhile, government expects a 4.1 percent growth in 2010, 5 percent in 2011, 6.1 percent in 2012 and 0.1 percent more in 2013.
The IMF representative Gerwin Bell has suggested that government should further lower the 2011 budget deficit to 2.5 percent of the GDP and provide prudent projections on economic growth and revenues.
IMF also hailed the issue of Albania’s first-ever Eurobond, worth 300 million euros last week and its 7.5 percent interest rate as a successful measure to improve public finances. Warning of the major risk the country’s high public debt levels pose, IMF’s Bell said that further lowering public debt was a key priority to reduce risks of macroeconomic instability.
While government says the 2010 public debt will be at 59.5 percent of the GDP, IMF’s prediction for 2010 is 62.8 percent, 2.8 percent more than in 2009. The 2011 government expectations are to lower it to 59 percent of the GDP, before dropping it to 56 percent in 2012 and 54 percent in 2013.
Opposition
Likewise the IMF, the opposition shares the same opinion on the 2011 draft budget describing it as unrealistic. “The credibility of the figures is entirely deficient and we don’t want Albania to experience what took place in other countries. We are not that naive in economical sciences as not being able to understand that the a priori economic growth you are making is the worst way to hide the real problems, especially in the country’s public finances,” said Arben Malaj, an opposition Socialist Party MP and former Finance Minister at the parliamentary economy committee this week.
Meanwhile, Mimi Kodheli, another opposition Socialist Party deputy said referring to IMF projections, that the government expectations’ were too optimistic to be realistic.
Jan-Sept revenues increase
by 7.7%
Budget revenues during the first nine months of this year were in line with government’s expectations reaching 238.7 billion lek, up 16.0 billion lek or 7.7 percent compared to the same period last, the finance ministry said in a report. Tax and customs revenues during this period increased to 165.7 billion lek, up 6.3 percent year-on-year. Meanwhile, local government units continued failing to meet their revenues targets, collecting 8.3 percent less, with only 8.7 billion lek out of the projected 10.2 billion lek, compared to the first nine months of 2009. Special funds, which cover revenues on social securities, health insurance and the compensation of ex-land land owners increased by 6.1 percent year-on-year registering 39.6 billion lek at the end of September. Grant revenues dropped to 2.3 billion lek, down from an expected 2.8 billion lek, while non-tax income increased by 33.5 percent to 21.5 billion lek. Tax and customs revenues increased by 7.7 percent during the first nine months of this years reaching 237.8 billion lek.
The good performance of the customs administration with 87.3 billion lek of revenues in the first three quarters of 2010, up 12.2 percent year-on-year, was mainly a result of the mining rent tax, which underwent a significant 75 percent increase during the first half of this year, increasing mineral export revenues from this item by three times.
VAT revenues from imports also increased by 12.2 percent.
The tax administration, which collects around 90 percent of the budget revenues, said it encountered problems during this managing to collect the same levels compared to 2009 mainly because of the poor performance in the first quarter of this year. Data show there were increases in personal income and profit, dividend and real estate taxes.
Excise tax revenues reached 28.6 billion lek at the end of September 2010, registering a 10.4 percent year-on-year increase, mainly as a result of higher income from oil, tobacco products while alcoholic beverages revenues dropped.
Customs duty revenues in international trade dropped to 5.1 billion lek, down 9.4 percent compared to the first 9 months of 2009 mainly as a result of the tariff reductions which are being implemented under free trade agreements with CEFTA, Turkey and the EU.
