TIRANA, June 29 – The International Monetary Fund has warned Albanian authorities the reemergence of accumulated unpaid bills to the private sector poses a threat to public finances, already struggling to recover because of sluggish consumption and a slump in international oil and mineral prices affecting exports.
The appeal comes six months after the Albanian government cleared arrears €500 million to the private sector under a two-year program that 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.
“The reemergence of arrears at the central government, mainly in public investment projects, poses a key challenge. The government should step up its efforts to prevent the accumulation of new arrears and improve investment planning and implementation,” said Anita Tuladhar, who headed an IMF mission to Albania to oversee Albania’s performance ahead of the next tranche of a Euro 331 million loan.
A finance ministry official confirmed the government had accumulated 2.3 billion lek (Euro 16.5 million) in arrears during this year from court decisions and public works.
Albania’s public finances seem on track this year with an 8 percent growth but the government’s tight spending as it targets to bring down public debt to 70 percent of the GDP has affected investment.
Public investment in the first five months of this year were down by an annual 22 percent to 14 billion lek (Euro 100 million), according to the finance ministry.
The IMF expects Albania’s growth to accelerate to 3.4 percent in 2016 driven by energy-related foreign investment from the Trans Adriatic Pipeline and a major hydropower plant. The forecast is slightly more optimistic compared to the country’s central bank and other international financial institutions which expect growth to range between 3 to 3.2 percent.
Earlier this year, the IMF also warned about the risks that local government arrears pose.
Albania’s local government units were reported to have accumulated about €62 million in arrears equal to 0.6 percent of the country’s GDP in mid-2015 following a territorial reform cutting the number of units to 61 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,” said the IMF.
In 2013, Albania had accumulated about Euro 500 million in 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.
In their latest country visit, the IMF mission also called on Albanian authorities to step up efforts to broaden the tax base and to strengthen tax administration in order to ensure continued fiscal consolidation.
The IMF warnings comes at a time when the ruling majority is also about to introduce a new fiscal package that sharply reduces penalties against the business community and facilitates tax procedures. The unusual mid-year package comes one year ahead of the new general elections and after reports of deteriorating business environment by several key foreign and Albanian business associations.
However, the new fiscal package will focus on cutting procedures and bureaucracy rather than taxes, which remain a key concern for investors along with the highly perceived corrupt justice system.
