Govt revises downward GDP, revenue targets

In its review to the macroeconomic framework, government expects public debt to remain at 59.9 percent of the GDP for the 2012-2014 period, only 0.1 percent below its legal ceiling

TIRANA, Sept. 11 – Facing crisis impacts, government has reviewed downward its overoptimistic GDP growth targets and raised public debt expectations to the legal ceiling of 60 percent of the GDP as revenues continue underperforming due to domestic consumption remaining sluggish. In its review to the 2013-2015 macroeconomic framework approved by government on July 1, but published by the Finance Ministry only recently, the 2012 GDP growth forecast has been lowered to 3 percent, down from 4.3 percent in the initial budget and the public debt raised to 59.9 percent of the GDP, only 0.1 percent below the legal threshold. What’s worse government expects public debt will continue remaining at the 59.9 percent levels even for 2013 and 2014.
For 2013 and 2014 government expects the economy to grow by 4 percent and 4.2 percent respectively which is twice higher compared to what international financial institutions expect.
Under the 3 percent growth target, Albania’s GDP per capita is expected to climb to 3,477 Euros in 2012, up from 3,271 euros in 2011 when the economy grew by 3.1 percent. Lower domestic consumption reflected in poor tax collection performance has forced government to also review its revenue targets. For 2012, government has cut revenue expectations by 11.7 billion lek to 344 billion lek, an increase of only 4 percent, which is too small considering that major income is expected from the sale of oil giant Albpetrol and several hydropower plants.
Investments have also been slightly cut to 4.6 percent of the GDP, down 0.4 percent compared to the initial draft in order to keep deficit under the 3 percent target.
The pension scheme will cost government a deficit of around 40 billion lek for 2012 taking into account the gap between income and expenditure on social security contributions.
Total government revenues accelerated to 4 percent in Jan-August 2012, but were down by 5.4 percent or around 11 billion lek compared to the target.
The Finance Ministry has already compiled a draft decision that will further cut public administration expenditure starting from September. The draft decision approved by government foresees a freeze in procurements on operating expenditure, cuts in travel allowances and mobile phones, that is expected to save a total of around 220 million lek ( USD 2 million).
Under the current budget, government expects revenues to increase by 7.8 percent and the economy to grow by 4.3 percent for 2012, which is twice higher compared to what international financial institutions forecast. Experts have earlier noted that a mere 1.75 percent growth in government revenues for 2011, the lowest in the past 11 years and failure to meet revenues targets by 4 percent even after mid-year budget cuts in 2011 is the clearest sign government has drafted an overoptimistic budget for 2012 and will be forced to make sharp mid-year cuts as global crisis impacts become tougher and the Eurozone and top trade partners Italy and Greece are expected to face mild recession.
International financial institutions expect the Albanian economy to grow between 0.5 to 1.5 percent for 2012 while government has not reviewed downward its overoptimistic 4.3 percent target yet.
Lower domestic consumption, stagnating exports, some of the key industries in crisis, lending and deposits growth rates slowing down and government revenues far below targets are some of the symptoms of the ailing Albanian economy in the first half of 2012. Poor performance in early 2012 when the economy officially shrank by 0.2 percent and top sectors such as industry and crisis-hit construction droppiing by double-digits of around 20 percent proves the difficult situation.
Official data show the Albanian economy slightly improved in the second quarter of 2012 with exports ending their negative growth rates and government revenues slightly accelerating. However, domestic consumption, the key driver of the Albania economy continues struggling as shown by the performance of value added tax and excise tax. VAT, which indirectly measures consumption, grew by a mere 1.4 percent while the excise tax levied on so-called luxury products such as fuel, tobacco and alcoholic beverages was down by 0.4 percent compared to the first half of 2011.
INSTAT data show total exports during the first half of this year grew by 2.1 percent while imports were down by 2 percent.
Albania enjoyed an average annual growth rate of 6 percent from 2003 to 2008 and was one of the few countries to register positive growth of 3.3 percent in 2009 in the outbreak of the global crisis. However, despite having preserved an annual moderate 3 percent growth rate from 2009 to 2011, the Albanian economy lags behind almost every EU aspirant in GDP per capita and purchasing power indicators.