IBNA Op-Ed/Dr. Shkelqim Cani, Minister of Finance of the Republic of Albania, former Governor of the Bank of Albania, MP of the Socialist Party writes: “We have started our journey toward Brussels in order to obtain the EU candidate status. The journey is long and like each one of you would do, the car must be first inspected for defects to have a safe journey. I can say that the economic and financial situation is bad, but not a hopeless one”.
By Dr. Shkelqim Cani
Minister of Finance of the Republic of Albania
One of the main points of the vision of the new government is the drastic improvement of the relations between government and the business, considering the business sector as one of the most important partners in our joint effort to achieve sustainable development for the country. To have this level of relations it’s necessary for all the problems to be outlined in an honest, realistic and transparent way.
Let us stop on the current situation and the most important short term and medium term challenges faced by the Albanian economy.
The situation of public finances is very bad. The negative effects caused by the failure to collect the projected revenues in this year’s budget amounts to 40 billion ALL or 40 million USD. Total budget incomes for 2013, with the current pace, are expected to be less than in 2010. In 2010 they were 325 billion and this year they are expected to be 322 billion. Compared to the GDP, total incomes this year are expected to be 23.8%. Only in ’96 and ’97 has this level been so low.
Incomes from taxes and customs, which consist on the main source of revenues in the budget and which directly depend on central government, are expected to be 16.2% of GDP for this year, less than 2004 when they consisted on 16.4% of GDP. In an absolute value they are also smaller than 2010.
On the other hand, expenditures during the first 8 months of the year have increased and deficit until the month of August was 130% higher than the first 8 months a year ago. This level of expenses and budget deficit doesn’t include 9 billion ALL worth of invoices sent to the State Treasure for many months and which have not been paid due to lack of cash by the government. This has caused great pressure in the stability of public finances.
As a result of the very low incomes and high expenses, without taking under consideration the unpaid bills of the government, the debt has now reached high levels for an economy such as ours. Without taking into account unpaid bills, which are estimated to amount to 4% of GDP, the level of public debt at the end of the year is expected to reach a level of 68%. Thus, in reality, public debt is at 72% of GDP. Meanwhile it has been admitted that for countries with economies like ours, the level of debt is considered to be sustainable if it’s around 40%. This means that in current circumstances, the macro-economic stability of the country, which is the basis for a free market, is in danger. Without macro-economic stability, we cannot talk about economic growth and growth of employment, but neither of social stability.
In 2015 we project stabilization of debt, stopping its increase and starting to reduce it.
The threat of macro-economic stability has started to give its effects in the economy of the country. Besides the drastic situation of public finances, this is the third year in a row that the growth of the economy is quasi non-existent. Banking sector, which is one of the main promoters of economic growth, finding itself in a situation where 24% of loans result to be problematic, has almost stopped lending to the private sector. In the past two months ago, for the first time, the stock of lending in the economy shrunk compared to a year ago, in particular as far as business lending is concerned. We have declared it a while ago, but now it’s very clear that for everyone that one of the main causes of this crisis is the failure of the government to pay what the business was entitled to be paid.
Under such circumstances, this situation clearly shows that without securing macro-economic stability of the country, Albanian economy is in real danger. The latest crisis of debts made it clear to everyone what does it mean for a government not to be able to re-finance its debt. Thus, this means that we are all on the same boat which if not saved, it’s clear what will happen to the entire economy and our society.
This situation doesn’t leave many options. In fact, the solution is only one. These conditions impose the necessity to put public finances back on its tracks, meaning public debt.
It’s clear that the overcoming of this situation will not be easy at the beginning for anybody, as it requires several strong measures. It’s difficult, but not impossible. We are convinced that together, government and business, by having the support of partner institutions (IMF and World Bank) will by all means overcome this situation and our economy (in the near future will returned to the desired growth rates, which secure high employment, wellbeing and development.
One of the most important priorities of this government in order to overcome the crisis is to pay the debt that the government owes to businesses. We’re looking into the possibility of funding it with foreign sources, such as foreign institutions, donors, etc, in order not to affect the domestic market.
In this aspect, we will stop the practice of further accumulating debts.