A fiscal policy that focuses on primary surpluses regardless of the stock of real debt, but combined with a monetary policy that ensures interest payments on outstanding debt, is assessed by international financial institutions as not causing debt to grow too quickly.<\/p>\n
In this combined policy regime, fiscal policy promotes inflation and monetary policy passively stabilizes debt.<\/p>\n
Fiscal policy can put the economy on a sounder long-term footing through investment in infrastructure, health care and education, fair distribution of income and opportunity through a fair system of taxes and transfers, and the provision of basic public services. However, the overall fiscal balance affects demand for goods and services and inflationary pressures.<\/p>\n
A smaller deficit cools aggregate demand and inflation, so the central bank doesn’t need to raise rates as much. On the contrary, the fiscal stimulus in the current environment with high inflation has influenced the Bank of Albania not to act more strongly in the banking market than until now to curb inflation.<\/p>\n
Indeed, if the fiscal adjustment is to be sustainable, expressed through a medium-term fiscal framework that outlines the direction of policy over the coming years, it also addresses potential pressures on debt sustainability. These include the aging of the population and the decline in births, as well as the need to rebuild the new social contract that can be set as a new scenario in future crises or in the event of economic performance as it is today.<\/p>\n
Fiscal austerity seems to have curbed demand in the economy, without the need for an increase in interest rates, so the real exchange rate has depreciated from this impact as well. Although with higher debt service costs and with positive primary balances in recent years, the public debt has decreased, as it has been affected by the boomerang effect of the devaluation of the euro, as well as by the non-performance of capital expenditures, which have dictated a reduction of annual budget deficit.<\/p>\n
But, if the real appreciation of the exchange rate was only affected by the conditions of a tighter monetary policy, apart from the fact that inflation could fall a little more, this difference would be reduced if the partner countries with Albania also followed these policies .<\/p>\n
In a search of the monetary and fiscal policies implemented by some of the trading partner countries with Albania, it can be seen that in the face of high food and energy prices, governments have improved their fiscal position by moving from broad-based support to assisting more victims, through targeted cash transfers.<\/p>\n
Because supply shocks are long-term, attempts to limit inflation through price controls, subsidies, or tax cuts\/reliefs would be costly to budgets and ultimately ineffective.<\/p>\n
In these economic and fiscal circumstances, the desirable fiscal stance and the measures supporting it will depend on specific policies expected to be implemented during 2024 by the Ministry of Finance and the Central Bank, including current inflation rates and long-term considerations such as levels of debt and development needs.<\/p>\n
We think that:<\/p>\n
If inflation will continue to be higher than the preliminary forecast, that naturally strengthens the conviction for more aggressive fiscal policies in terms of fiscal tightening.<\/p>\n
The most acceptable version would be seeking to increase revenues by narrowing evasion and tax justice of the fiscal burden, as well as prioritizing expenditures that maintain social protection, focusing on investments that promote growth in human capital and the corresponding physical capital.<\/p>\n","protected":false},"excerpt":{"rendered":"
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