The latest review was made last January in the 2013-2015 economic and fiscal programme where GDP growth forecast for 2012 was cut to 1.5 percent down from an overoptimistic 4.3 percent targeted in the initial 2012 budget
By Ervin Lisaku
TIRANA, Feb. 5 – Facing a sharp drop in revenues, the Albanian government has been forced to revise downward its overoptimistic GDP growth rates and increase debt levels several times during the past year. The latest review was made last January in the 2013-2015 economic and fiscal programme where the GDP growth forecast for 2012 was cut to 1.5 percent down from an overoptimistic 4.3 percent targeted in the initial 2012 budget. Meanwhile, public debt, whose 60 percent of the GDP ceiling was lifted in late 2012, is expected to rise from 61.9 percent in 2012 to 63.8 percent at the end of 2013, compared to a target of 62.6 percent in the 2012 budget.
The Albanian government expects growth to accelerate from 3.1 percent in 2013 to 4.1 percent in 2015, twice higher compared to what international financial institutions have forecast.
The budget deficit is also expected to climb to 3.7 percent of the GDP at the end of 2012, up 0.7 percent compared to the initial target and remain at 3.5 percent even in 2013 when Albania holds general elections.
Both government revenues and spending registered a shrink in 2012 when they dropped to 24.7 percent and 28.4 percent of the GDP respectively, down 0.8 percent and 0.6 percent compared to 2011.
The Finance Ministry expects exports to continue registering moderate growth rates driven by lower demand from crisis hit EU top trade partners Italy and Greece.
Domestic demand is also expected to remain sluggish affected by low corporate and household investments.
“Despite the positive growth rates, the economy is projected to continue operating below
potential in the short to medium run, implying low demand-side inflationary pressures. Within this context, the Bank of Albania will continue to provide an anchor of stability and confidence and to stimulate the economy,” says the Finance Ministry in its analysis.
During the past one and a half years, the central bank has cut the key interest rate by 1.5 percent to a historic low of 3.75 percent in an effort to give an impetus to the ailing economy by boosting lending and investments but due to escalating crisis impacts the moves have been poorly reflected.
“Going forward, credit risk remains a major cause for concern. A high level of non-performing loans and tight lending standards could slow economic growth which, in turn, would create a potential negative feedback circle. Moreover, in the wake of the significant proportion of unhedged foreign currency-denominated loans, sizeable lek depreciation would make repayments more difficult thereby threatening the stability of the banking sector,” warns the ministry.
With an average growth rate of 1.5 percent during the first nine months of 2012, the Albanian economy is reflecting clear signs of crisis from the Euro area partners and developments at home where domestic consumption and exports remains sluggish, and public debt now beyond the previous legal ceiling of 60 percent of the GDP poses a real threat to the country’s macroeconomic stability.
2012 balance sheet
Preliminary Finance Ministry data show total government revenues in 2012 reached 329.9 billion lek, shrinking by 0.2 percent year-on-year. Total spending also dropped by a slight 0.3 percent to 375.2 billion lek. The indicators even failed to meet targets set last December under a normative act cutting the budget by 15.8 billion lek (Euro 111 million).
The performance of value added tax, an indicator indirectly measuring consumption, proves the difficult situation in domestic consumption. VAT, which accounts for around 38 percent of total tax revenues, dropped by 2.2 percent to 116.5 billion lek in 2012.
Profit tax income shrank by a sharp double-digit of 14.5 percent while personal income tax preserved the same 2011 levels, proving the difficult situation both businesses and individuals are facing.
2013 budget
The 2013 budget expects government spending to increase to 409 billion lek (Euro 2.87 billion) and public debt to exceed the 60 percent of the GDP ceiling for the first time in the past decade with the argument of helping stimulate growth in times of crisis and securing 24/7 power as the country’s electricity system is on the verge of collapse with state-owned power corporation KESH continuously needing government funding to secure power imports and Czech-owned CEZ Shperndarje having had its licence revoked.
Total revenues are forecast at 360 billion, up 5.7 percent compared to the expected 2012 revenues and deficit at 3.4 percent of the GDP.
Introducing the 2013 budget at the parliamentary economy committee, Finance Minister Ridvan Bode said the Albanian economy currently faces three main challenges related to the global financial crisis, the electricity situation, and the 2013 general elections.
The approval of the 2013 budget came one week after government cut the 2012 budget by 15.8 billion lek (Euro 111 million) because of failing to meet its overoptimistic targets.
