20 years of Albanian budget performance highlights

20 years of Albanian budget performance highlights

In the analysis of the main budget revenue and expenditure indicators for the whole period 1996-2016, the GDP growth is 3.3 times. Inflation for the whole period is within the norm accepted by the Bank of Albania (below 3%).

While budget revenues have increased 6.9 times, budget expenditures have increased by 4.95 times. In comparing their tendencies, the biggest increase belongs to the budget revenues. The share and the greatest impact on budget revenues have tax revenues and customs with 70 percent. Growth for the period 1996 – 2016 is 7.6 times. The administrative and operational costs have the greatest share (54 percent) and impact on budget expenditures. Growth for the period 1996 – 2016 is 4.9 times. From the comparison of 2016 to 2006, the share of operating costs in the structure decreased by 11.2% and social spending increased by 42%. Meanwhile, from 2005 comparison to 1996, operating costs in the structure increased by 6.7% and social costs decreased by 4%.

Fiscal policy largely expressed through the adoption of tax rates is for every government ‘Archimedes leverage’ to move the country’s economy and stimulate its development through the absorption of investments by domestic and foreign investors. If we comment on this part of fiscal policy through the effect on the share of domestic taxes it is evident that the fiscal packages (very popular for the governments) have indications that they have not achieved budget and social objectives.

In 1998, the VAT rate increased by 7.5 percent. The share of taxes on consumption in GDP grew by 3.6 percent. This growth was not associated with the same level in subsequent years, although the effect was expected to be at least 1 per cent growth each year. In 2007 the rate of social and health contributions decreased by 9 percent and in 2010 decreased further by 5 percent, totaling 14 percent. We also associate this policy with the reduction of the income tax rate by unifying the lower stakes (0.5, 1, 2, 3, 5) to the high stakes (15, 20) in 2008. From the coping with the share bearing the tax to GDP, the growth in 2007 is 0.2 percent and in 2008 the increase is 0.5 percent.

The level of public administration spending has dropped from 1996 to 2016, expressing to a declining public administration cost, which in 2016 is as much as 48.8 percent of budget revenues. This cost shows that in 2016, are spent ALL 48.8 on administration and operating expenses for ALL 100 of budget revenues. This level of cost is considered high and should be reduced by at least 20 percent over the next 5 years, by (a) increasing the quality of administrative capacity, (b) reducing ineffective and overlapping structures, and (c) the country’s economy’s priorities for increasing spending on investment and on social policies.

Despite the increase of budget revenues compared with the increase of public expenditures (2.9 times more), it is a true fact that the budget balance has not yet resulted in positive indicators. The most recent year of analysis is again with a negative result of ALL 26.7 billion. This coincides with the conclusion of this analysis for a reduction of administrative and operational costs, but also for an increase of budget revenues from taxes and customs by more than 7 percent each year. On the other hand, programmed revenues in the budget should have completely transparent destinations and should be oriented to cover the expenses according to the denomination of tax, as a self-financing policy and with the least amount of credit.

The share of public spending is as much as 28.9 percent of GDP. Meanwhile, in the last year examined, the share of spending on investment in public works and services is as much as 4 percent of GDP, which is among the lowest in the 20-year history (same as in 1997).

Meanwhile, the share of FDI for 2016 is as much as 8.7 percent of GDP. Both public and private investment funds account for 12.7 percent of GDP. This share should be over ¼ of GDP to optimize long-term economic development, based on the World Bank report on optimum investment levels in relation to GDP. In fact, it appears that the current level of investments is far from influencing the long-term economic recovery of the Albanian economy.

Another discussion is related to the quality of investment and the transparency in the procedures of nomination of implementor of big projects, which are equally valuable for the economic development strategies. If the lack of productivity of public spending will be added the effects of the government’s regulatory role as well as the fiscal burden on the private sector, then the economy is still dependent on public administration action and on fiscal stability decreasing the possibilities to be more competitive in the global market.

This interdependence is influenced by the symbiosis of the need for realization of public and private investments, as a bid to private sector demand, as well as by the distribution of fiscal burden according to the geography and history of revenues generated in the country. On the other hand, in this coexistence of public and private sector, the sincerity and public transparency in monitoring the strategic industries of the economy is another guarantee of this symbiosis.

In this analysis, where fiscal indicators are faced with fiscal policy, a policy associated with tax rates should not be seen as a lonely policy in the function of economy and social policies. Fiscal policy needs to be closely linked to the correct implementation of the principles of public and fiscal management, and to be a guarantee in the implementation of social contracts and the increase of the citizens’ credibility index to government and policy.

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