Last year’s cut in social security contributions aggravated the pension deficit to 2.5 percent of GDP, said the Fund
TIRANA, July 19 – The International Monetary Fund (IMF) warned in its latest report that past tax and contribution cuts should be reconsidered. IMF said that its staff saw little evidence that last year’s cut in social security contributions was delivering the expected improved compliance. On the contrary, it aggravated the pension deficit to 2.5 percent of GDP, which is high in view of Albania’s fairly young population.
Last year, government cut social security contributions for employers by 5 percent.
Earlier this year, the World Bank also warned the Albanian pension system could put government in financial difficulty in the next few years because of the low rate of contributions. The current ratio is 1.4 contributions to 1 pensioner at a time when a stable pension scheme requires at least 3 contributions for one pension. World Bank representatives have called for long-term sustainable reforms in the pension system.
The IMF staff advised against a planned tax amnesty, as it could undermine future tax compliance.
Regarding tax administration, the IMF mission said an effective compliance strategy is especially urgent, including by addressing the under-reporting of taxable income by high-wealth individuals and by capturing a greater share of informal economic activity.
However, Finance Minister Ridvan Bode has assured the cuts in budget spending will not be followed by tax increases.
Privatization obstacles
Obstacles to the effective operation of privatized industries need to be addressed. IMF staff encouraged the quick resolution of the regulatory issues regarding the privatized electricity distributor OSSH that could potentially trigger a World Bank Partial Risk Guarantee (PRG), with adverse effects for the country’s reputation. Furthermore,
increasing payment arrears from the privatized refinery complex (ARMO) threaten the successful privatization of Albpetrolءnd thereby the conclusion of the strategic privatization program. Staff recommended the initiation of legal recovery proceedings against ARMO.
