IMF Mission/ Concessions Risk the Albanian Economy
Albanian Daily News
Published October 2, 2017
The Albanian economy it is not 'shining' as Prime Minister Edi Rama and his cabinet recently said. A concluding statement by the International Monetary Fund (IMF) at the end of an official staff visit in Albania, brings to light so many problems.
"Despite the strengthening recovery, fiscal consolidation is expected to slow down in 2017. Based on the revised budget, the mission projects the general government primary balance to slightly deteriorate from a surplus of 0.2 percent of GDP in 2016 to 0.1 percent of GDP in 2017, owing to large pending value-added tax (VAT) refunds, electricity import guarantees, and local government expenditures. However, overall general government deficit is expected to decline modestly to 2.0 percent of GDP due to interest savings. Public debt (including substantial local and central government arrears) is also projected to decline from 73.3 percent of GDP at end-2016 to 71½ percent of GDP at end-2017," evaluates IMF.
The mission advises that the fiscal consolidation should continue to ensure debt sustainability. It underlines that Albanias public debt level and gross financing needs remain high.
"The authorities are committed to reducing public debt below 60 percent of GDP by 2021, in line with the long-term debt objective of 45 percent of GDP in the Organic Budget Law. To achieve these objectives, the draft 2018 budget and medium-term budgetary frameworks target a primary surplus of 0.6 percent of GDP, and a gradual consolidation to reach a primary surplus of 2.3 percent of GDP by 2021. The authorities fiscal strategy envisages a large scale-up of public investment, while containing public wages (except for health and education sectors) and reducing energy support, as well as increased revenues from value-based property tax and compliance gains from the anti-informality campaign," underlines IMF.
To reach the debt objective, the mission recommends a more front-loaded consolidation.
"In the absence of tax policy measures, the mission projects public debt to reach around 63.5 percent of GDP by 2021. This includes a buildup of a prudent deposit buffer (1 percent of GDP) but excludes any debt or contingent liability arising from Public-Private Partnerships-financed investments (1 billion, around 7 percent of GDP by 2021). The mission estimates that additional permanent measures to the tune of 1¼ percent of GDP over 2018-19 would be needed to achieve the debt target. Ensuring that the 2017 revised budget stays within the original target by locking in existing savings and avoiding inefficient year-end spending would also help," mission underlines.
Additional measures are needed to mobilize revenues for increased priority spending in health, education and infrastructure. The mission added that tax efficiency is low compared to neighboring countries reflecting high tax thresholds and weak compliance.