A budget scenario proposed by the Finance Ministry foresees increasing public debt to 63.5 percent, 3.5 percent above its legal threshold
TIRANA, Nov. 8 – At a time when government revenues are almost at standstill, eight months before the new general elections, Prime Minister Sali Berisha has unveiled an overoptimistic budget of 400 billion lek supporting wage and pension increases.
“The 2013 budget is the budget of the finalization of hundreds of projects that are being carried out all over Albania. It is the budget of new foundations, of the 2013-2017 mandate we will be seeking from Albanians with the biggest trust in their vote,” said Prime Minister Sali Berisha at a meeting with his Democratic Party MPs this week. At 400 billion lek without taking into account privatization revenue, the 2013 budget would be 6.4 percent higher compared to the 2011 budget and 3.8 percent higher than the expected 2012 budget of 385 billion lek, according to Finance Ministry data. The overoptimistic scenario of a 400 bln lek under conditions when revenue increase has frozen would take public debt to 63.5 percent of the GDP, 3.5 percent more than the legal ceiling.
Finance Ministry sources say they have also submitted a more realistic version of the 2013 budget to government with revenues at 357.2 billion lek and expenditure at 386.2 billion lek. The 2013 draft budget should have already been approved by government and sent to be examined by parliamentary committees before receiving the OK by the majority in Parliament and entering into force next January.
Both scenarios introduced by the Finance Ministry do not take into account Euro 850 million from the sale of Albpetrol oil firm to U.S based Vetro Silk Road Equity in which Albanian oil magnate Rezart Taci has the majority 51 percent stake. Government is expected to collect Albpetrol’s money in early 2012 after concluding contract negotiations with the winning consortium. Government also expects another Euro 150 million from the sale of four small and medium-sized hydro-power plants whose tender has failed several times.
Latest Finance Ministry data show government revenues for the first 9 months of this year grew by only 2.3 percent to 245 bln lek year-on-year. With VAT and excise tax income far below expectations, government has failed to collect 16 bln lek (euro 112 mln) or 6.2 percent less than planned for the first three quarters of this year. The slowdown in revenues has also affected public investments. At 40 billion lek for the first nine months of this year, public investments are 4 billion lek less than planned and 7 billion lek less compared to the first three quarters of 2011. The Finance Ministry data reconfirm the stagnation of domestic consumption, which is the key driver of the Albanian economy at a time when exports’ growth has considerably slowed down due to escalating crisis in the Eurozone and especially top trade partners Italy and Greece.
The value added tax, which accounts for around 38 percent of total tax revenues, and indirectly measures consumption, grew by only 1.6 percent in Jan-Sept. 2012 but was down around 5 billion lek compared to the set target. International financial institutions expect the Albanian economy to grow between 0.5 to 1 percent this year and 1.3 to 1.5 percent in 2013 citing spillover impacts from EU partners and high public debt levels. Meanwhile, the Albanian government expects growth to be at 3 percent in 2012 and 4 percent in 2013 with public debt remaining in the legal ceiling of 59.9 percent of the GDP.
In its latest report on Albania, the International Monetary Fund (IMF) says that for 2013, the government’s immediate priority should be arresting the upward trend in public debt, by committing to a budget that maintains debt-GDP ratio at around the 2012 level. Discontinuing the practice of programming optimistic budget revenues and then having to face budget stress once revenue outturn is lower than expected would help avoid the accumulation of unpaid bills, says the IMF.
