If Albania continues borrowing but does not achieve its overoptimistic 4 percent growth rate for 2013, the debt level could rise to 65 percent of the GDP and its service cost further increase, warns the report
TIRANA, Dec. 18 – In an analysis made as part of a public finances monitoring project, Open Society Foundation for Albania (OSFA) experts describe the 2013 budget with a growth rate of 4 percent, twice higher compared to what international financial institutions forecast for the Albanian economy, as overoptimistic. “The already identified risks such as lack of liquidity and the chain of debts among businesses, rising non-performing loans, the public debt levels, tighter lending standards are compounded by negative pressure coming from the 2013 general elections,” says the Soros Foundation report. Describing the projected revenue increase as the most controversial issue in the draft-budget, the report notes that the 5.8 percent increase in revenues seems too subjective and not based on factors, policies or specific measures that guarantee the achievement of this target in 2013. Commenting on government’s decision to remove the 60 percent of the GDP debt ceiling and increase budget deficit to 3.4 percent of the GDP, the report notes that “it is clear that by following a fiscal expansion policy, the Albanian government has opted to go against the mainstream of international developments and debates, especially in the eurozone, where concrete action is being taken to reduce public debt levels and not increase it despite the difficult economic and financial situation.”
Soros experts also describe the financing of the priority sectors in the 2012 budget as completely imbalanced. “Even though considered priority sectors, public investments in education, health and agriculture register a decrease compared to 2012 considerably deteriorating the possibility of achieving development goals set by government itself. The report notes that exceeding the 60 percent of the GDP public debt limit to 62.6 percent poses more threats than benefits. The only benefit is if the debt is used exclusively on important financing which yields quick and visible impacts on economic growth, reducing unemployment rates and helps government revenue. In this context, the risks stemming from exceeding the debt ceiling minimize and become manageable. The use of part of income from the sale of Albpetrol oil firm for euro 850 million to pay off part of the country’s external debt would also be positive, says the report.
On the other hand, if Albania continues borrowing but does not achieve its overoptimistic 4 percent growth rate for 2013, the debt level could rise to 65 percent of the GDP and its service cost further increase. The debt risks are also identified in the increase of the external financing of the debt from 12.4 percent of the GDP in 2007 to 22 percent of the GDP in 2012. Rising interest rates in the domestic market at a time when a considerable part of the debt is in short-term instruments would possibly increase debt, adds the report.
