Public finance access and the consequences of the politicization of spending, 2014 – 2024

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The period 2014–2024 has been characterized by significant increases in both revenues and expenditures of the state budget in Albania.

Despite the growth in revenues, the demands for financing social services, such as pensions and healthcare, have risen sharply, putting increasing pressure on the state budget. This has resulted in a pronounced imbalance between revenues and expenditure needs, which is particularly evident in key public service sectors.

The analysis of financial data for this period shows that resource management has been challenged by the pressure to cover expenditures for pensions, healthcare, and other public services, as well as by the continued dependence of local governments on state transfers.

 Structural Directions of the Material

  1. Growth in State Budget Revenues
    • Breakdown of tax and customs revenues
    • Performance of revenues from local government and special funds
    • Analysis of the weight and impact of different revenue sources on public finances
  2. State Budget Expenditures
    • Current expenditures and their structure
    • Share of expenditures on personnel, debt interest, and special funds
    • Growth of expenditures in sectors such as pensions and healthcare
  3. Imbalance Between Revenues and Expenditures
    • Analysis of the mismatch between revenue growth and the financing needs of social services
    • Consequences of this imbalance on the financial and economic sustainability of the state
  4. Dependence on State Transfers by Local Government
    • Analysis of the financial dependence of local government on the central government
    • Impact of this dependence on local development opportunities and the decentralization of financial management
  5. Criticism and Reflection on Key Indicators
    • Critique of the management of financial resources and the lack of a sustainable strategy for meeting pension and healthcare demands
    • Consequences of imbalances for public finances and the country’s long-term economic development

This report provides a detailed overview of the financial developments of the state budget during the period 2014–2024 and addresses the issues related to resource management, expenditures on social services, and the weight of state transfers.

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Description

During the period 2014–2024, state budget revenues and expenditures experienced a noticeable increase, but this growth has not fully managed to balance the demands for financing social services, particularly pensions and healthcare services.

Signals arising from the analysis of the data indicate a pronounced issue in expenditure management, as well as an imbalance between revenues and financing needs in key sectors.

  1. State Budget Revenues

Total budget revenues have experienced continuous growth during this period, rising from ALL 366.7 billion in 2014 to ALL 710.3 billion in 2024. This increase has mainly come from:

  1. Tax Revenues

Revenues from taxes and customs have seen continuous growth, from ALL 253.4 billion in 2014 to ALL 456.9 billion in 2024. This reflects efforts to strengthen the tax administration and the increase in economic activities.

  • Value Added Tax (VAT): Has seen a significant increase, from ALL 123.7 billion in 2014 to ALL 214 billion in 2024.
  • Corporate Income Tax: Has increased, but not proportionally with the growth of other revenues, rising from ALL 21.5 billion in 2014 to ALL 56 billion in 2024.
  1. Revenues from Local Government

Local government has experienced revenue growth, from ALL 12.4 billion in 2014 to ALL 40.3 billion in 2024, but this is mainly linked to transfers from the central government. This indicates that local government continues to depend on the state budget, with limited ability to generate independent sources.

  1. Revenues from Special Funds

These revenues have also increased, with continuous growth, especially from social and health insurance. However, despite the increase, they have not managed to cover the rising demands for pensions and healthcare services, as reflected in the data showing increased pressures on these expenditures.

  1. State Budget Expenditures

In the same period, budget expenditures also saw a noticeable increase, rising from ALL 438.8 billion in 2014 to ALL 728.6 billion in 2024. However, these expenditures have tended to grow without sufficient balancing with revenue sources.

  1. Current Expenditures

Current expenditures rose from ALL 341 billion in 2014 to ALL 606.3 billion in 2024, reflecting the increasing demands for public services, especially in pensions and healthcare.
• Personnel expenditures: Increased from ALL 71.4 billion in 2014 to ALL 112.7 billion in 2024. This indicates a growth in the state administration and increased allocation of resources for public sector wages.

  • Debt interest payments: These expenditures have remained stable at around ALL 40 billion throughout the 2014–2024 period, reflecting the level of state debt and the burden it imposes on public finances.
  1. Expenditures for Special Funds

Expenditures for special funds, which include pensions and health insurance, have experienced continuous growth, from ALL 136.3 billion in 2014 to ALL 251.8 billion in 2024. This increase has been necessary to cover the rising pressure for pensions and healthcare services, but there have also been signals indicating the lack of sustainable management of these resources, leaving room for potential tensions in future budgets.

  1. Criticism and Reflection on Key Indicators
  • Imbalances between revenues and expenditures: Unlike the growth in revenues, budget expenditures have increased at a faster pace, especially for pensions and social services, which make up a large portion of expenditures. The growth in these expenditures has not been supported by a sufficient increase in revenues from other sources, making a sustainable budget balance impossible.
  • Demands for healthcare and pension expenditures: Although there has been an increase in revenues from special funds, this increase has not been sufficient to meet the rising demands for pensions and healthcare services. This highlights the lack of a long-term strategy for managing these expenditures and ensuring adequate support for those most exposed to social needs.
  • Dependence on state transfers: Local government has maintained a continuous dependence on transfers from the central government. This has limited the possibilities for sustainable economic development at the local level and emphasized shortcomings in the decentralization of financial management.

In conclusion, the data from the 2014–2024 period show an imbalance between revenue growth and the expenditures needed for social services, bringing challenges to the sustainability of public finances and the need for improved resource management to address the continuously growing demands, particularly in the pension and healthcare sectors

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