IMF says the wages and pensions could increase up to 3.4 percent, the same as the annual inflation rate is projected for 2010
TIRANA, March 19 – The International Monetary Fund (IMF) has warned Albania cannot increase wages and pensions by 10 percent in 2010 as Prime Minister Sali Berisha has promised because of the country difficult financial situation. The official warning came in a report issued by the IMF after an inspection the Fund’s experts carried out in Albania earlier this month.
“Current spending needs to be revisited with a view to rightsizing the civil service, and keeping wages and pensions in check. This could be helped by indexing the latter to only inflation,” said IMF in a statement. This means that the wages and pensions could increase up to 3.4 percent, the same as the annual inflation rate is projected for 2010.
Prime Minister Berisha said earlier this month government would not quit its electoral promises for continuous wage increases despite the country’s high levels of budget deficit and public debt.
The IMF is also worried the recent growth of expenditures has cast doubt on the government’s ability to maintain a small public sector. In the first instance, this calls for not spending all 0.4 percent of GDP of remaining contingency reserves in the 2010 budget.
The Fund also says that past tax and contributions cuts that were based on boom revenue growth should be reviewed, warning that last year’s cut in social security contributions improved compliance as was expected at the time, but aggravated the pension deficit to 2.5 percent of GDP, a high level when placed into the context of Albania’s fairly young population.
But more fundamentally, IMF says that public investment should be scaled back to more financially and administratively manageable levels after the completion of the Rreshen-Kalimash road linking Albania to Kosovo.
Fiscal tightening also has to be quickly affected as the buoyant and fast recovery projected in the 2010 budget and medium-term fiscal framework is unlikely to take place.
The IMF suggests a budget review in the next months should target reducing the deficit to some 3 percent of GDP from a record 7 percent in 2009. “This would lower the financing requirement, support the current account adjustment, and mark a first step toward bringing within credible reach the government’s appropriate goal of cutting public debt, (currently 60 percent) back to 50 percent of GDP by the end of its mandate in 2013,” added the IMF.
Despite the significant cuts to the 2010 budget that were proposed in the government’s new Medium Term Macroeconomic Framework, some 30 billion lek or 2.5 percent of GDP, the ongoing revenue trends imply a 2010 deficit of 5.6 percent of GDP, says IMF.
However, the IMF’s overall assessment of the Albanian economy was positive, saying that the Albanian economy has weathered the global crisis fairly well so far.
Despite severe economic downturns and confidence shocks in much of Europe and other advanced economies, and associated drops in Albanian exports and remittances, Albanian GDP is estimated to have registered some 3 percent growth in 2009 and is projected to grow between 2 to 2.5 percent in 2010.
The IMF saw as appropriate the efforts of the Albanian government to place a Eurobond in excess of 300 million euros.
“That would have major benefits in terms of reducing debt management vulnerabilities. But they should keep other options in the debt management strategy and area of foreign financing in addition to the Eurobond in mind,” said IMF Mission Chief Gerwin Bell earlier this month during his visit to Albania.
