In its review to the 2013 budget, the Finance Ministry says it will cut expenditure by 16 billion lek (Euro 111 million), and the revenue target by 40 billion lek (Euro 277 million)
TIRANA, Oct. 8 – The Finance Ministry says public debt is expected to climb to 68 percent of the GDP by the end of the year despite the planned budget cuts. The public debt level would be at 72 percent if unpaid government bills and arrears estimated at 4 percent of the GDP are taken into consideration, warned Finance Minister Shkelqim Cani in a recent conference.
“In fact, public debt stands at around 72 percent of the GDP at a time when for an economy such as Albania, the sustainable debt level is estimated at 40 percent. This means that under current circumstances, the country’s macro-economic stability is seriously endangered and without its stability, economic growth, employment, as well as social stability are put at risk,” said Cani. The Finance Minister said government was considering external borrowing to pay off the accumulated unpaid bills and arrears government owes to the business community.
In its review to the 2013 budget, the Finance Ministry says it will cut expenditure by 16 billion lek (Euro 111 million), and the revenue target by 40 billion lek (Euro 277 million).
In its latest report on Albania, the International Monetary Fund warned the 2014 budget should initiate the process of fiscal consolidation while being cognizant of the weak economy.
“Specific and tangible measures would have to underpin the 2014 budget. A comprehensive approach to tax reform is needed, and the mission discussed possible options, including the authorities’ plan to introduce a progressive personal income tax, modifications to the profit tax, and excise tax reform,” says an IMF report issued after an IMF mission visited Albania recently. “Forceful action is needed to improve tax administration, though such measures are likely to yield benefits only over the medium term. The mission recommends that relief measures to help the poor should take the form of direct and targeted budget support rather than tax relief that distorts the revenue system and does not necessarily benefit the poor,” adds the report.
The Albanian government expects growth to range between 1.7 to 1.9 percent in 2013 and public debt to increase to 68 percent of the GDP without including an estimated 55-60 billion lek (Euro 382 to 416 million) in unpaid government bills and arrears which would take public debt to 72 percent of the GDP at the end of 2013.
“We expect public debt to range between 72 to 73 percent of the GDP in 2014 and target a level of 60 percent of the GDP by 2018,” Finance Minister Cani has said.
“Under this situation of negative tax collection, some 24 billion lek of extra debt is needed to close this year and the financing of the deficit is expected to reach 6 percent of the GDP compared to 3.5 percent in 2012,” he added.
The Finance Ministry says it is cooperating with the IMF and the World Bank as well as other specialized international institutions with the target that the 2013 and 2014 budgets are as realistic as possible and examine space to fulfill commitments in the government programme.
Former Finance Minister Ridvan Bode, who was in charge of Albania’s public finances for the past eight years, says the Albanian government and the IMF have been engaged in what he calls “a silent compromise to transmit the situation of an unrealistic crisis.”
The former minister also described as untrue the Finance Ministry and IMF statement of an accumulated 55 billion lek (Euro 382 million) debt government owes to the private sector. Bode said the only accumulated unpaid bills include public investments but the figure is much lower compared to what the finance ministry and the IMF claim.
“The accumulated unpaid bills are worth around 11 billion lek. (Euro 76 million). Even if this is calculated as hidden debt, this means an increase in public debt by another 0.7 percent from 62 percent to 63 but not at 73 percent of the GDP,” said Bode.
