FILE PHOTO: A man walks past the International Monetary Fund (IMF) logo at its headquarters in Washington, U.S., May 10, 2018. REUTERS/Yuri Gripas/File Photo
May 6, 2019
By Benet Koleka
TIRANA (Reuters) – An International Monetary Fund team urged Albania on Monday to strengthen its revenue base, improve debt management by issuing short-term bills and make sure its new investment vehicle does not pose risks to its budget.
The IMF team, which reviews Albania’s finances twice a year, said it had urged “the authorities to use the favorable economic environment to improve the fiscal position by strengthening the revenue base”.
“We recommend strengthening the tax system by reversing measures that fragment and weaken the tax base and by leveling the playing field for businesses,” the IMF team said.
It added “a front-loaded fiscal adjustment to bring the primary surplus to 1.5 percent of GDP by 2021 should help build fiscal buffers, and ensure faster convergence of debt toward the 45 percent objective” required by the country’s budget law.
Public debt remained high at 69.9 percent of GDP at the end of 2018, and the IMF said it was projected to decline to 66.3 percent by the end of this year.
“This adjustment should be achieved through higher revenues because Albania’s large infrastructure and human development needs argue against expenditure cuts,” the IMF added.
Finance Minister Anila Denaj said tax revenue in the first four months of 2019 was “generally satisfactory”, citing a 17 percent increase in revenue from corporate income tax. Albania collected 108 billion leke ($983 million) in revenue in the first quarter, slightly short of its target.
The IMF said NATO member and European Union candidate Albania should improve its debt management by re-issuing three-and six-month T-bills after the government made progress in lengthening the maturity of its public debt.
“These instruments are necessary for cost-efficient cash flow management by the treasury as well as commercial banks, for the development of secondary and hedging markets…and for facilitating the Central Bank’s liquidity management,” it added.
The IMF “strongly advised” the state-owned Albania Investment Corporation (AIC) to avoid risks to the budget and the integrity of public investments.
“Instead, the framework should ensure that the AIC will operate on a commercial basis and at arm’s length of government,” the IMF said, adding it should be subject to the procurement law.
The IMF estimated that Albania’s gross domestic product growth would slow down to 3.5 percent in 2019 from around 4 percent in 2018 and remain close to 4 percent over the medium-term.
(Reporting by Benet Koleka; Editing by Hugh Lawson)