TIRANA, April 27 – Public investment registered a sharp increase in the first quarter of this year ahead of the scheduled June 18 elections, following a traditional trend in electoral years when incumbent governments sharply increase spending putting at risk budget deficit and public debt targets, apparently to gain an electoral advantage.
Finance Ministry data shows public investments rose by an annual 30 percent to 9.5 billion lek (€70 mln) in the first quarter of this year, in line with the government target which has envisaged a 31 percent hike in public investment spending for 2017 after a tight spending policy applied in 2016 in a bid to bring public debt down to 71 percent of the GDP.
Public investment hit a nine-year low of about 57 billion lek (€422 mln) in 2016 at about 4 percent of the GDP compared to 4.5 percent to 5 percent of the GDP in the previous years.
However, the 2017 budget has envisaged public investment at about 74.4 billion lek (€545 million) at about 4.7 percent of the GDP.
A considerable part of public investment in the past few years has gone to transform city centers, calling into question the efficiency of investment at a time when basic public services such as water supply, waste and sewerage disposal and the public health and education sectors remain inefficient.
Public finances in the first quarter of this year seem on track with a 4.3 percent hike boosted by the key VAT and excise duties.
However, the escalation of the political crisis which is putting the June 18 elections at risk, could hurt both public finances and deter investment.
The main opposition Democratic Party and its allies have been staging an indefinite protest in front of the Prime Minister’s office in Tirana’s central boulevard for more than two months since a Feb. 18 rally, boycotting Parliament. Opposition parties say they are set on boycotting even the June 18 elections unless they receive guarantees about impartial handling of elections which they claim are endangered by people with criminal records and drugs money from massive cannabis cultivation.
Negotiations to broker a deal have so far failed, further heating up the tense political climate which also has a negative impact on investment and country’s promising tourism industry as Albania gears up for its peak 2017 season.
“Political uncertainty as a result of elections scheduled for mid-2017 could affect the pace of reforms and fiscal consolidation, which would weaken Albania’s fiscal position and push up risk premiums,” says the World Bank in a recent report.
The IMF has also warned political tensions ahead of next June 18 general elections and potential weakening of growth in the key trading partners Italy and Greece could hinder the implementation of structural reforms to improve business climate and create downside risks for public debt reduction.
“With the next general election due by mid-2017, political pressures could test the authorities’ perseverance, creating risks for public debt reduction. Revenue mobilization requires sustained political will and is vulnerable to constraints on administrative and technical capacity,” the IMF warned earlier this year following the conclusion of 3-year binding deal, supported by a €331 loan.
The Albanian economy grew by 3.4 percent in 2017 and is projected to further pick up to 3.8 percent this year, mainly thanks to some major energy-related investment such as the Trans Adriatic Pipeline and the Devoll hydropower plant as well as a boost in the emerging tourism industry.
