IMF warns the government about public debt

The Albanian government must be careful with the high level of public debt. It’s the International Monetary Fund which issues this fresh warning within a short period of time. Another warning was launched a few weeks ago when the draft budget for 2018 was being discussed and where one of the main points were the new concessions of the “1 Billion” program through the so called “PPP”, Public-Private Partnership. “The ambitious agenda of the authorities for public investments through Private Public Partnership (PPP) poses significant fiscal risks”, stated the declaration issued by the leading international financial institution concerning Albania, dating 2 October 2017. Meanwhile, in the current statement, after completing the 2017 consultations with Albania, the Executive Board of the International Monetary Fund backed the need to reduce public debt, while recommending the creation of a new tax environment. According to the IMF, the strengthening of tax institutions, such as taxation departments and customs, are key to the reduction of threats in the economy. IMF experts also pointed out that the management of public debt must be focused on extension of its maturity or changes in investors. “Fiscal and financial weaknesses have been reduced in the past four years. However, there are still challenges as a result of the high level of public debts and needs of financing, nonperforming loans and institutional weaknesses which hinder investments”, the IMF further assesses, detailing the real threats that the Albanian economy is expected to face in the period to come.

This year’s public debt higher than four years ago

This year’s public debt for Albania based on the projections of the International Monetary Fund (IMF) will be higher than the one four years ago. In 2013, the country’s public debt accounted for 70.4% of Gross Domestic Product, while this year, according to IMF, public debt will account for 71.5%. This indicates an increasing trend of public debt from one year to another, although this year public debt has seen a decline. So, according to the figures provided by the International Monetary Fund on Albania concerning its public debt, in 2014 it accounted for 72% of GDP; in 2015 it accounted for 74% of GDP, while in 2016, it accounts for 73,3% of GDP. However, this year debt has registered a decrease and according to the projection made by the IMF, it will account for 71.5% of GDP.

In this context, the leading international financial institution says that public debt has not performed well from one year to another and that this should require authorities to better manage it in order to reduce it progressively in the years to come.

“PPPs  based on the best international practices”

As it was the case several weeks ago, experts of the International Monetary Fund have once again asked Albanian authorities to apply the best international practices for the Public Private Partnership (PPP) concessions. They have also stressed the need to minimize arrears and the improvement of the mechanism for the refund of Value Added Tax. “It’s of a crucial importance that the Ministry of Finance uses its legal powers, which have recently been extended, to assess and monitor  PPP projects”, IMF previously declared on PPPs.

No preferential tax policies, caution with new ones

While demanding the government to be clearer in its plans to reduce public debt, the International Monetary Fund has also noted that it should not reduce taxes and it should not apply preferential tax policies. On the other hand, the IMF highlights the fact that energy reforms have slowed down. Another element where the leading international institution has pointed out relates to the process of the consolidation of the banking system, for which it has requested “applicants for new banking licenses to have adequate banking experience and avoid conflict of interest”. “The medium-term opinion remains favorable. Gross Domestic Product is expected to grow by around 4%”, the IMF also declares in its statement on Albania.

“Economic growth is projected at 4%”

“Economic growth is expected to grow by around 4%”. This is the projection made by the International Monetary Fund on Albania for next year. “Inflation is expected to be in line with the 3% target”, is another projection made by IMF concerning Albania’s macro-economic indicators. Furthermore, the Board of Directors says that “the growing economy and the clear electoral mandate obtained by the government are a very good opportunity to continue its efforts to boost Albania’s growth potential, to make the economy more elastic and more competitive and to strengthen the financial system by preserving tax discipline”. In the end, the IMF says that there’s a need for higher revenues, by stopping tax cuts.