In 2009, the government undertook a wide stimulating package for the
economy by increasing the public expenses to the historic level of 33%
of the GDP.
This was the first time that Albania faced a fiscal stimulus of these proportions. As results, the debt reached the maximal limit and the country’s finances almost went out of control. But after the elections, as soon as it returned to power, the government changed course. The expenses returned to the normal levels, while the budget deficit reduced with 2.5 times.
This caution with the budget lasted until the beginning of this year. Now that Albania is entering new elections, the finances are receiving another shock, and even stronger this time. The government is making another package official, same as in 2009. Since there is no money, this time they are trying to do it by lowering the taxes.
“We might have a 200 million EUR deficit after the amends, but we expect a revival of the business and the return of the incomes that we are missing”, Berisha declared on March 28th.
If one adds to the reduced taxes the increased investments compared to one year ago, and also the privatization money, the stimulus goes to a total of 400 million EUR, or more than 4% of the GDP.
This is not the first time that the budget is used for electoral purposes, although the official argument is to encourage the economy. Experts say that the danger for the country’s finances this time is higher, for several reasons.
First of all, the stimulating package in 2009 was predicted in the budget and the high expenses were not financed by debts, but through the privatization money. The government has no money this year and the stimulus will be a hole in the budget, since the taxes are being lo0wered after the budget was approved. The second reason is related with the difficult financial situation. In 2009, although the debt was increasing, it was still under 60%.
According to the Ministry, today this is under 64%. With the new tax decrease and the government’s limited spaces to cut expenses, the risk is that the public debt will go over this level. And this is only a few months after the government removed the law that didn’t allow a higher debt than 60%. The electoral years have always been a threat for the financial stability of the country. This time, the test seems to be harsher and the danger was warned by the World Bank and the IMF.
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