Neighbors put Albania in danger
24/10/2011 00:00
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The International Monetary Fund explained the reasons for the warning
they made to the Albanian government about the increasing economic dangers.
For the first time there is a detailed official document that scans the Albanian economy. IMF says that the Eurozone crisis might bring dangerous consequences to the country.
“Albania has strong ties with Greece and Italy, not only in commerce, but also in the job market and banking system. The latter might result with substantial consequences, the biggest danger of which is that Albania’s banking system might get infected”, the report says.
The unpaid bank debt has hiked to 18% of the total, from 3% that it used to be before the crisis. IMF says that the main cause for the loan system deterioration is the weakening of institutions and judicial system, which obstruct the collateral execution. According to the IMF, the solution of this issue must be one of Albania’s key short-termed priorities.
Government “trapped” by debt
The latest IMF report focuses on the government financial indicators. IMF says that the government must take all public finances under control with a more real budget program, rather than implementing spontaneous expense cuts, as it has happened up to now.
According to the IMF, these spontaneous expense cuts have increased the government’s risk in failing to pay the financial obligations to businesses that have realized public works. The government’s bad loan reached 0.7% of the GNP, and IMF says that these obligations are a risk factor for the creation of a chain of unpaid debts in the economy. On the other hand, the government has accumulated big VAT reimbursement obligations. IMF says that If the administration will not reimburse VAT, Albania’s image will be damaged in the eyes of foreign investments. However, if the government will pay these obligations, the budget will receive a very strong hit.
IMF notes that the government is contradictory in its economic model vision, by defending the idea of a small government with low taxes on one hand, and strongly increasing the pension bill on the other, even after worsening the tax collection level.
In these conditions, IMF suggests that the wage and pension increase must aim to compensate the price hike and improve the tax collection, while the Government should review the flat tax level by increasing it.
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