Difficult conditions from IMF

“Shqip” newspaper published that IMF has offered advices for managing the macro-economic situation of the country, which have been published in the annual report. But these advices might turn into conditions for giving another financial help. Some of these conditions are: tax increase, as a means for reducing the public debt; an indirect wage reduction of public and private sector, due to the tax increase; increasing contribution and social insurances; starting the pension reform, etc.

The IMF says that it is mandatory for Albania to reduce the public debt to 50% in a period of a few years, and this can be achieved by saving to 1.5% of the GDP, equal to 150-200 million EUR.

The current government plan was for increasing the economy and enabling them to have the usual electoral expenses; to increase wages and pensions; to reduce the public debt from the GDP. The problem is that the economy is not growing, and the government cannot increase wages and pensions, while on the same time they must find money for reducing the public debt. In these conditions, the only remaining alternative is increasing taxes, and IMF has already identified what taxes can change.

“Since the flat tax is 10% in Albania, it can increase”, says the recent IMF report, while the representative of the mission, Gerwin Bell, explained this idea through a press conference in Tirana, a few months ago.

“I don’t think that Albania’s ability to attract foreign investments will be affected if the flat tax increases to 12 or 15%”, he declared.

The good side

According to IMF, by increasing direct taxes and lowering wages would positively affect the economic productivity. The wage increase during 2006-2010 has been bigger than the economic growth, and this has lowered the work efficiency in the entire economy. IMF says that these changes would improve productivity, and the revenues would be used to pay the public debt. This way, the banks will look for borrowers among the companies and individuals, which would help the economic growth.

The political cost

The government could be better without the current situation and the political cost that it will bring, if they would have been more responsible in the last three years and by admitting that wages cannot increase without an economic growth. On the other hand, the plan to address to the IMF aims to soften the political negative impact in masses, by blaming the world crisis and IMF itself.

Pension reform

The pension reform, which means bigger contributions and maybe even the pension age, is a key recommendation of the IMF for the Albanian government. The pension funds are expected to increase next year, since the regulatory law sanctions that anyone more than 65 receives pension.

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