Finance Minister Ridvan Bode reconfirmed this week the need to make budget cuts for the remaining of this year, as it is the only way to meet targets by the end of the year
TIRANA, June 15 – A rising budget deficit, and revenues at almost the same levels compared to the first five months of 2010 have reconfirmed the government’s need to make budget cuts even during this year. Latest Ministry of Finance data show the budget deficit in May 2011 rose by 2.6 times to -20.4 billion lek (200 million U.S. dollars), up from -7.7 billion lek a year ago. Total revenues were up by only 1 percent during the first five months of this year reaching 130.1 billion lek, at 36 percent of the initial 2011 budget plan of 362.2 billion lek. However, total expenditure in this electoral year rose by 14 billion lek (140 million U.S. dollars) to 150.5 billion lek. Ministry of Finance data show a poor performance in some of the main taxes. The value added tax (VAT) and the excise tax– which measure domestic consumption– did not meet even last year’s levels. VAT collection during the first five months of this year dropped by 252 million lek (2.5 million dollars) while the excise tax was down 626 million lek. The figures on these two key taxes, which produce most government revenues, illustrate the slowdown in domestic consumption and a greater consumer saving trend. This was also confirmed by Bank of Albania surveys. Since January of this year, the excise tax on cigarettes has increased to 70 lek per packet, up from 50 lek previously, while medicines are subject to a 10 percent VAT for the first time. Budget cuts Finance Minister Ridvan Bode reconfirmed this week the need to make budget cuts for the remaining of this year as the only solution to meet targets by the end of the year. Bode said the new revised budget would be submitted to Parliament by next July. The Ministry of Finance says government spending for the second half of this year will be reduced by 16 billion lek (160 million U.S. dollars, 114 million Euros) following lower revenues and sharply increased spending during the first five months of this electoral year. The draft with the proposed changes to the 2011 budget has already been compiled and sent to the government for approval. The budget cuts will also probably affect even the GDP growth which is expected to drop to 5 percent, down from 5.5 percent. Ministry of Finance sources say the changes foresee lower revenues and spending for the rest of this year in an effort to keep the soaring budget deficit in check and meet revenue targets, which at the current pace, are still at last year’s levels. The cuts will mostly affect current expenditure but not wages and pensions which are still expected to increase next July. Investments will undergo cuts in several sectors, such as education and health, in order to prioritize road infrastructure. The budget cuts account for 3.9 percent of the 2011 budget worth 409 billion lek (4.08 billion USD) and with revenues at 362.2 billion lek. The budget deficit at the end of 2011 is expected at 46.8 billion lek, up from 38.1 billion lek in 2010 or 3.5 percent of the GDP. In mid-2010, lower tax and customs revenues also forced the government to make significant budget cuts, worth 39 billion lek– reducing spending by 25 percent and lowering its GDP growth for 2010 to 4.1 percent, down from an expected 5.5 percent at the beginning of 2010. Under current estimates, the government projects that the Albanian economy will grow by 5.5 percent in 2011. The government had initially expected the 2011 budget revenues to grow by 11 percent, 2 percent more than under the revised 2010 budget.
