TIRANA, Sept. 25 – Government revenues continue suffering as domestic consumption, the key driver of Albania’s growth, struggles due to consumer’s falling purchasing power and their rising saving trend. Finance Ministry data show government collected 218 billion lek in the first eight months of this year, up 3.7 percent compared to the same period last year but down 5.3 percent or 12 billion lek (Euro 84 million) compared to the target set for 2012.
The value added tax, which accounts for around 38 percent of total tax revenues, and indirectly measures consumption, grew by only 2.7 percent in Jan-Aug 2012 but was down around 5 billion lek compared to the set target. The excise tax imposed on the so-called luxury goods was down by 6.1 percent compared to the first eight months of 2011, revealing that Albanian have cut down on fuel, tobacco, coffee and beer consumption in these times of crisis.
What’s worse businesses continue suffering with the profit tax for the first eight months of 2012, down by 12.5 percent.
With revenues underperforming, investments have been the hardest hit. Data show government spend 35 billion lek on investments in Jan-Aug. 2012 down 16.8 percent compared to the same period last year and 7 percent less than it had planned.
Low revenues are also putting government into difficulty with the budget deficit which at 22 billion lek is 66 percent higher compared to targets.
The pension scheme deficit continues widening as it rose to 25.7 billion lek in Jan-Aug. 2012 compared to 23.3 billion lek a year ago.
During the first eight months of 2012 government also spent around 27 billion lek in interests, up 1 billion lek compared to the same period last year as the public debt stands at the legal ceiling of 60 percent of the GDP. Estimated at over 800 billion Lek currently, the public debt costs the Albanian government 3 percent of the GDP or 50 billion lek (euro 357 million) in interest payment annually.
Expected cuts
Government is expected to officially review downward its overoptimistic 7.8 percent growth target on revenues and cut its GDP growth expectations to 3 percent after completing the privatization of four small and medium sized hydropower plants and state owned giant Albpetrol. In its review to the 2013-2015 macroeconomic framework approved by government on July 1, , the 2012 GDP growth forecast has been lowered to 3 percent, down from 4.3 percent in the initial budget and the public debt raised to 59.9 percent of the GDP, only 0.1 percent below the legal threshold. For 2012, government has cut revenue expectations by 11.7 billion lek to 344 billion lek, an increase of only 4 percent. International financial institutions expect the Albanian economy to grow between 0.5 to 1.5 percent for 2012 while government has not reviewed downward its overoptimistic 4.3 percent target yet.
Lower domestic consumption, stagnating exports, some of the key industries in crisis, lending and deposits growth rates slowing down and government revenues far below targets are some of the symptoms of the ailing Albanian economy in the first half of 2012. Poor performance in early 2012 when the economy officially shrank by 0.2 percent and top sectors such as industry and crisis-hit construction droppiing by double-digits of around 20 percent proves the difficult situation. “Albania’s strong trade, investment and remittance ties to Greece and Italy are likely to continue to constrain growth in the coming year, while public debt is close to the statutory limit of 60 per cent of GDP, limiting the room for fiscal manoeuvre,” says the EBRD in its latest report.
