A credible debt target and sustained but gradual fiscal consolidation over the medium-term, would provide a good signal of the government’s commitment to debt sustainability, IMF has earlier said
TIRANA, Sept. 25 – The International Monetary Fund has warned Albania’s public debt risks climbing to 80 percent of the GDP unless necessary measures are taken to keep it under control, according to Finance Ministry sources. The warning is given by an IMF mission which has arrived at the invitation of the new Albanian government to advise measures on accelerating Albania’s sluggish growth rate and bringing the troubled public finances back to normality. The IMF mission which is headed by Nadeem Ilahi, the IMF mission chief to Albania, suggests Albania needs to reduce its public debt levels from 63 percent of the GDP currently to 60 percent of the GDP as an immediate measures to prevent a possible collapse of the country’s public finances.
“A credible debt target and sustained but gradual fiscal consolidation over the medium-term, would provide a good signal of the government’s commitment to debt sustainability, thereby improving confidence, lowering public sector borrowing costs, and at least partly offsetting any adverse short-term demand effects from fiscal consolidation,” Nadeem Ilahi, Mission Chief for Albania, IMF, has earlier said.
The IMF’s recommendations are expected to be made public in a press conference in the next few days after meetings with the country’s top officials including Prime Minister Edi Rama, Finance Minister Shkelqim Cani and central bank governor Ardian Fullani.
Prime Minister Edi Rama has said the new government will hire an international company to audit the country’s troubled finances and re-establish relations with the IMF which were reduced to an advisory role in 2009.
The International Monetary Fund ended its mission to Albania in January 2009 after assisting Albania since the early 1990s.
Meanwhile, the Finance Ministry has already started reviewing the 2013 budget following the poor performance in the first eight months of this year. The Finance Ministry is also reported to have started work on a new fiscal package which is expected to introduce progressive taxation on personal income tax, reduce profit tax for small businesses and lift VAT on several basic products.
Citing Eurozone crisis effects and high public debt levels, the International Monetary Fund says the Albanian economy is projected to grow between 1.8 percent to 2.5 percent from 2013 to 2018, according to data published in IMF’s World Economic Outlook Database for April 2013. The IMF expects Albania’s public debt to climb from 61.7 percent of the GDP in 2013 to 65.8 of the GDP in 2018.
Public debt climbs to 62% in year’s first half
Albania’s public debt stock climbed to 62 percent in the first half of 2013, up 0.4 percent compared to the final quarter of 2012 and 3.1 percent compared to the second quarter of 2012, according to a report by the Finance Ministry. Experts say the figure for the first half of 2013 could be bigger considering the overoptimistic 3 percent GDP target government has set and soaring budget deficit ahead of the June 23 general elections.
Finance Ministry data show Albania’s total public debt climbed to around 871 billion lek or 61.94 percent of the GDP at the end of the first half of 2013, with domestic debt accounting for 35.53 percent of GDP and external debt at 26.41 percent.
Total debt service in the first half of 2013 climbed to 27 billion lek or 1.92 percent of the GDP. Total debt service in 2012 climbed to 52.16 billion lek, up from 48.7 billion lek in 2011, accounting for 3.88 percent of the GDP, up 0.12 percent compared to 2011.
Albania’s public debt, a sizable part of which is domestic, has a large short-term component, implying risk of rollover,” warn the international financial institutions. What puts the Albanian public debt more at risk is that it accounts for more than double the annual revenues, while interest expenditure has risen to 3.4 percent of the GDP, compared to an average of 1.3 percent in the SEE 6, the IMF has warned.
