TIRANA, Jan. 20 – With international oil prices at a 12-year low, the Albanian government has been caught by surprise again in its forecasts and public finances could face a new mid-year although a more realistic budget was approved for 2016.
Finance Minister Shkelqim Cani admitted this week the sharp cut in international oil prices which currently stand below $30 dollar a barrel will have a considerable effect on public finances which heavily rely on domestic oil production, destined for export and oil imports for domestic consumption.
The finance minister said the government had lost about 3 billion lek (€21.2 mln) from the sharp cut in international oil prices since October 2015 when oil prices were at above $40 a barrel.
“We have already received a blow to the 2016 budget but at the time we drafted the budget we couldn’t find any reputed international forecast that oil and gas prices would drop to their current levels where they are thought to remain until the first half of this year,” he said.
Oil prices plunged to a new 12-year low of $28 barrel this week with a significant negative impact on the country’s oil production and exploration industry affecting investments, exports and employment as companies have reduced production waiting for prices to recover.
The Albanian government levies a 10 percent royalty tax on domestic oil production and taxes oil imports by about 90 lek (€0.63)/litre which makes Albania’s fuel prices one of Europe’s highest despite the country having one of the lowest GDP per capita.
Retail fuel prices have dropped to an average of 162 lek (€1.15), at a slower pace compared to other regional countries, reflecting the poor transmission of international oil prices into the local market due to the high tax burden levied on fuel.
Overoptimistic forecasts forced the Albanian government to revise the 2015 budget three times last year, including twice in December following a sharp cut in international oil and spillover effects from the crisis in neighboring Greece, the country’s second top trading partner.
The Albanian government has drafted a more realistic budget for 2016 when it expects revenue to increase by 5 percent and spending to drop by 1 percent in a bid to reduce the deficit and public debt. The government expects the economy to accelerate to 3.4 percent in 2016, up from 2.7 percent in 2014, which would be the highest growth rate since 2010 after sluggish growth of 1 to 2 percent in the past three years.
The tight spending policy will allow the Albanian government to also bring down public debt to 70.9 percent of the GDP in 2016, down from a historic high of 73.7 percent at the end of the third quarter of 2015.
Public investments will also be affected as they are expected to drop to 60.5 billion lek (€432 mln) or 4 percent of the GDP in 2016, down from 4.4 percent of the GDP in 2015, in one of the lowest levels in the past 8 years.
