TIRANA, Jan. 30 – The International Monetary Fund expects the Albanian economy to grow between 1 to 2 percent in 2012, compared to a mere 0.5 percent in its October 2012 outlook, suggesting that the impacts from the European crisis have not been that huge. This is confirmed by Nadeem Ilahi, the IMF representative for Albania who in an interview for VoA in the local Albanian service warns 2013 will also be a difficult year for the Albanian economy, citing risks from key top trade partners Italy and Greece, high public debt levels and problems in the banking sector also identifying the need for structural reforms.
“Forecasts in these unstable times are difficult. When we saw the performance of the Albanian economy last October, indicators showed the economy was fragile. There are indications the impact from the crisis in Europe has not been that big. Our opinion is that growth will in fact be higher maybe more than 1 percent but we doubt it will reach 2 percent,” says Ilahi. Last October, the IMF forecast the Albanian economy would grow by 0.5 percent in 2012 and 1.3 percent in 2013.
Commenting on Albania’s public debt, whose 60 percent of the GDP ceiling has been lifted making it the highest and most expensive in the region, Ilahi said the situation poses a threat to GDP growth in the future. “The problem is that nearly half of the Albanian debt is short-term maturing in 12 months. Some 70 percent of the internal debt is held by the banking system which is overwhelmingly foreign-owned and has been under pressure by the European financial crisis. Our advice to the authorities is that they must be careful in following these links. Nothing could happen, but the financial crisis in Europe could bring increased risks with debt at these high levels,” adds Ilahi.
“Our advice is that measures must be taken to cut expenditure and increase revenues in order to keep debt in 2013 at the same levels and then gradually reduce it.”
Speaking of Albania’s economic prospects for 2013, Ilahi stressed the need to preserve fiscal discipline in this electoral year. There are also structural problems to be solved by Albania such as the implementation of contracts and property rights, problems that impede foreign investment. “There is also a problem with institutional reforms, such as the justice system reform, required for Albania’s EU accession, which also requires political consensus.”
IMF proposal on higher taxes not welcome
A proposal by the IMF to increase taxes personal income and corporate tax, currently at a flat 10 percent has not been welcome by both politicians and experts who argue that further increasing taxes in these times of crisis would be an inappropriate measure.
“Albania’s tax revenue and primary spending to GDP ratios are low, yet the country has significant medium-term development needs. Staff proposed that the burden of future fiscal adjustment should fall largely on revenues. With Albania’s VAT rate already relatively high, increasing the personal and corporate income tax rates will be necessary. The proposed rate increase would likely not affect Albania’s ability to attract investment, particularly if arbitrariness in collection is reduced, local “nuisance” taxesطhich are inefficient and effectively add to the tax burdenءre streamlined in a revenue neutral manner, and the priority business climate issues are addressed,” says the IMF in its latest country report.
