Total revenues shrank by 0.2 percent to 330 billion lek (Euro 2.3 billion) in 2012, registering the first annual shrink since the collapse of the notorious pyramid schemes in 1997
TIRANA, Feb. 19 – For the first time since 1997 when the notorious pyramid schemes collapsed and the economy suffered a sharp 11 percent shrink, government revenues have 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.
Total tax revenue shrank by 1 percent in 2012, fuelled by a sharp drop in value added tax, excise and profit tax income.
The Finance Ministry data reconfirm the stagnation of domestic consumption, which is the key driver of the Albanian economy at a time when exports’ growth has considerably slowed down due to escalating crisis in the Eurozone and especially top trade partners Italy and Greece.
The value added tax, which accounts for around 38 percent of total tax revenues, and indirectly measures consumption, shrank by 2.2 percent, and was even down 2 percent compared to the revised budget last December. The excise tax imposed on the so-called luxury goods was down by 9.9 percent compared to 2011, revealing that Albanians have cut down on fuel, tobacco, coffee and beer consumption in these times of crisis. An increase by 34 percent in the national taxes was government’s only positive indicator in the 2012 balance sheet.
What’s worse, businesses continue suffering with the profit tax for 2012 down by 14.5 percent. Local government units also collected around 17 percent less in taxes on small businesses.
The pension scheme deficit continued widening as it rose to 40 billion lek (Euro 281 million) in 2012 compared to 36.4 billion lek in 2011.
In 2012, government also spent around 41.5 billion lek in interests rates, up 1 percent or 376 million lek compared to 2011 as public debt jumped above 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.
Privatization revenues reached 1.2 billion lek, more than double compared to 2011.
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. The budget cuts came after government increased wages and pensions by an average of 5 percent last July.
Finance Ministry data show government collected a total of 301 billion lek in the first 11 months of 2012, up only 2 percent compared to the same period in 2011 but down 6.3 percent or 20 billion lek (Euro 140 million) compared to targets it had set, affecting public investments and the deficit.
Total government spending in 2012 also shrank by 0.3 percent to 375 billion lek while the budget deficit dropped by 1 percent to 45 billion lek.
Public investments, included in the capital expenditure item, dropped to 60 billion lek (Euro 421 million) in 2012, down 14 percent compared to 2011 registering the lowest level since 2007.
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. 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.
Revised indicators
Facing a sharp drop in revenues, the Albanian government has 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.
The Albanian government expects growth to accelerate from 3.1 percent in 2013 to 4.1 percent in 2015, twice higher compared to what international financial institutions have forecast.
The budget deficit is also expected to climb to 3.7 percent of the GDP at the end of 2012, up 0.7 percent compared to the initial target and remain at 3.5 percent even in 2013 when Albania holds general elections.
Both government revenues and spending registered a shrink in 2012 when they dropped to 24.7 percent and 28.4 percent of the GDP respectively, down 0.8 percent and 0.6 percent compared to 2011.
With an average growth rate of 1.5 percent during the first nine months of 2012, the Albanian economy is reflecting clear signs of crisis from the Euro area partners and developments at home where domestic consumption and exports remains sluggish, and public debt now beyond the previous legal ceiling of 60 percent of the GDP poses a real threat to the country’s macroeconomic stability.
