The European Commission has published the 2019 report on the program of economic reforms (ERP) for Western Balkan countries.
In the part on Albania, the European Commission says that the level of public debt is high, taxes are collected below potential, the level of competitiveness is low, unemployment among youngsters is high, while also stressing the lack of assessment of the risk for payments that need to be made for public-private partnership (PPP) projects.
The report criticizes Albania for the high level of informality and the low level of public revenues, which the government has pledged to increase. The European Commission says that the country has no need to increase taxes, but fight tax evasion.
Summary of the report:
Albania’s economic reform programme (ERP) projects economic growth to accelerate to 4.5% by 2021 based on strong private domestic demand. GDP growth in 2018 was robust at 4.2%. Private demand is expected to continue driving economic growth in 2019-2021, based on greater employment, rising wages and favourable lending conditions for households. Private investment activity is projected to pick up significantly in this period, driven by emerging capacity constraints and favourable financing conditions. Net exports are expected to make only a marginal contribution to the economic expansion. The growth outlook appears optimistic in light of a worsening external environment, continued low levels of lending to businesses, and enduring weaknesses in the business environment.
The ERP expects Albania to cut public debt from 67% to below 60% of GDP by 2021 by reducing current expenditure and stabilising tax revenue. The 2018 budget deficit has turned out lower than planned with estimated 1.5% of GDP, mostly due to lower than expected capital spending. The ERP expects the budget deficit to fall to 1.2% of GDP in 2021 by reducing current expenditure but does not provide details of a fiscal consolidation strategy. The relatively low public expenditure does not allow for significant expenditure cuts which partly explains the moderate pace in debt reduction. The relatively low tax revenue is planned to stabilise without major reforms outlined and will thus remain below potential. Public investment is set to increase to over 6% of GDP by 2021, but achieving this increase could be difficult due to weaknesses in the planning and management of capital expenditure.