Finance Ministry data show total government revenues during the first three months of this year grew by only 1.2 percent to 78.4 billion lek year-on-year failing to meet government targets by 5 percent or 4 billion lek (Euro 28.5 million)
By Ervin Lisaku
TIRANA, April 29 – Poor revenue performance during the first quarter of this year reconfirmed the overoptimistic 2012 government has approved and the inevitable mid-year budget cuts government will be forced to make for the third year in a row. Latest Finance Ministry data show total government revenues during the first three months of this year grew by only 1.2 percent to 78.4 billion lek year-on-year failing to meet government targets by 5 percent or 4 billion lek (Euro 28.5 million). Government expects revenues to increase by 7.8 percent and the economy to grow by 4.3 percent for 2012, which is twice higher compared to what international financial institutions forecast. Experts have earlier noted that a mere 1.75 percent growth in government revenues for 2011, the lowest in the past 11 years and failure to meet revenues targets by 4 percent even after mid-year budget cuts in 2011 is the clearest sign government has drafted an overoptimistic budget for 2012 and will be forced to make sharp cuts during the year as global crisis impacts become tougher and the Eurozone is expected to face mild recession.
Prospects become more pessimistic as both domestic consumption and exports, two of the key drivers of Albania’s growth failed to grow in early 2012. Businesses are also facing tough times in early 2012 after profit tax registered a sharp 21.8 percent shrink at the end of the first quarter.
The value added tax and excise taxes, two of the key indicators measuring domestic consumption and accounting for almost half of total government revenues, grew by only 0.8 percent and 3.2 percent respectively, failing to meet targets by 5 percent each.
However, despite the poor performance in revenues, government spent 90 billion lek in the first quarter of this year, 4.3 billion lek more than its target on higher current and capital expenditure. Government’s balance sheet was further deteriorated by a 2 billion lek loan to state owned power corporation KESH for emergency power imports which increased the budget deficit to 11.5 billion lek, 3.7 times higher than planned for the first quarter of 2011.
The performance of exports which in the first quarter of this year shrank by 12 percent due to sluggish demand from crisis-hit EU countries makes Albania’s economic prospects for 2012 even grimmer. The International Monetary Fund and the European Bank for Reconstruction and Development expect the Albanian economy to grow by 0.5 percent to 1.2 percent while the World Bank has made a 2 percent forecast.
Furthermore, public debt close to the legal ceiling of 60 percent of the GDP, falling migrant remittances, FDI and tourism revenues are expected to have a serious impact on the Albanian economy this year.
The Albanian economy grew by 3.1 percent in 2011, remaining at the same moderate growth rates for the third year in a row, according to INSTAT data. Despite having preserved an annual 3 percent growth rate from 2009 to 2011, the Albanian economy lags behind almost every EU aspirant, including Bosnia Herzegovina in GDP per capita and purchasing power indicators.
Expectations for 2012, when the country celebrates its 100th independence anniversary, become even worse as the Eurozone, especially Italy and Greece which are Albania’s top trade partners and the hosts of more than one million immigrants, struggle with severe debt crisis while the EU 27 as a whole remains on the brink of recession.
The International Monetary Fund has suggested that it is better that the year starts with a more realistic and mature projection in order to make its implementation easier.
“The repeated budget slippages underscore the need for more realistic macroeconomic framework. Weaker economic activity has pressured revenue, but the shortfall compared to the initial budget mainly reflects its overoptimistic forecasts. More realistic projections could be achieved by assigning them to an independent and apolitical fiscal council, or by aligning them with those of independent professional forecasters. Any positive revenue surprises should be allocated to debt reduction,” said the IMF in its latest report.
Consumption, exports
INSTAT data on imports also confirm the poor performance in domestic consumption. A net import country, Albania imported 21.5 billion lek of “food, beverage and tobacco” during the first quarter of this year, down 1.2 percent compared to the same period in 2011. The data are expected to directly influence on retail sales which have failed to recover for more than one year, revealing a saving trend by consumers. Albania’s total imports slightly rose by 2.2 percent only thanks to huge electricity imports during the first quarter of 2011.
The findings come at a time when global food prices increased by 8 percent from December 2011 to March 2012 due to higher oil prices, adverse weather conditions, and Asia’s strong demand for food imports, according to the World Bank Group’s latest Food Price Watch.
Albania’s top exporting industries, the “garment and footwear,” “minerals, fuel and electricity” and “construction materials and metals” suffered negative growth rates in the first quarter of 2012 due to sluggish demand from crisis-hit EU partners, the destination of 80 percent of Albanian exports.
INSTAT data show “garment and footwear” exports dropped by 3.3 percent to 15.8 billion lek year-on-year in Jan-March 2012, remaining the top exporting industry.
Exports of minerals and fuel also dropped by 14 percent to 14.5 billion lek while construction materials and metals suffered a sharp 40 percent shrink.
