TIRANA, March 28 – While Albania’s central government cleared arrears of about €500 million in the past couple of years, the International Monetary Fund has warned local government units have accumulated about €62 million in arrears. The amount is equal to 0.6 percent of Albania’s €10 billion GDP.
In a report issued following a country visit last March, the IMF suggests the Albanian authorities should urgently implement multi-year commitment limits and introduce a new treasury IT system to prevent recurrence of new arrears. Approval of the organic budget law with the basic rules for managing public finances is also considered a priority.
The IMF says a recent survey of local government finances undertaken by the Ministry of State for Local Government has uncovered potential arrears of around 0.6 percent of GDP as of mid-2015. The findings come almost one year after a new territorial reform cut local government units to 61 municipalities from a previous 373 communes and municipalities.
“The authorities should require local government units to conduct formal audits and formulate action plans to resolve these arrears, with external auditors ensuring the integrity of the process,” says the IMF. “To mitigate fiscal risks from the ongoing fiscal decentralization and improve reporting and monitoring, the review of the local public finance law should be expedited,” it adds.
The IMF says strengthening public investment management and boosting the credibility of the authorities’ medium term budgetary framework is crucial in order to reduce the risk of unfunded commitments and arrears.
Last year, the Albanian government paid off 18.4 billion lek (€130 mln) in accumulated unpaid bills ending a two-year process that cleared about 72.6 billion lek (€500 million) one year ahead of schedule.
The arrears, estimated at 5.3 percent of the GDP included unpaid bills to the business community for finished public works and services, VAT and profit tax refunds as well as bills from court decisions against the Albanian government, expropriations and payment of social assistance to people with disabilities.
Clearance of these liabilities is estimated to have strengthened private sector balance sheets, reduced nonperforming loans and supported domestic demand, although credit growth still remains at negative growth rates.
