From: Vincent W.J. van Gerven Oei
Supreme State Audit Institution: Gov’t Cooked the Books, Concessions Out of Control

In its audit report of the 2018 state budget cycle, the Supreme State Audit Institution (KLSh) has reached the alarming conclusion that the government’s concessions, also called public–private partnerships (PPPs), are “outside the control of the state.”

The disciplinary problems with the budget of the Rama government, however, go much deeper. In the introduction, the KLSh states:

In our opinion, based on the evidence of the auditing […] it is proven that for several budget lines, including the deficit level and public debt, there are material and widespread deviations as regards the planning, execution, monitoring, and reporting that are not in accordance with the 2018 Budget Law, the Law on the Management of the Budget System, the Law on State Borrowing, State Debt, and State Borrowing Guarantees, the Law on Financial Management and Control, the Law on Delayed Payments in Contractual and Commercial Obligations, the Law on Local Self-Government, the Decision of the Council of Ministers on the Approval of the Strategy to Prevent and Settle Backlog Obligations and Action Plan, and other sublegal acts in their implementation. (1)

The report continues that many of the violations were committed in order to make the public debt appear lower than reality, in other words, to misrepresent the financial and fiscal health of the Albanian state:

Under pressure of the indicator of the public deficit and debt, influenced by systematic problems shown in the implementation of the 2018 state budget by public entities, the responsible structures have taken measures that do not comply with the legal and sublegal acts in force, including incomplete planning of expenses, disregarding budget priorities for ongoing projects, expenditures without foundation in the budget plan, blocking the use of funds approved by the Assembly for local government units, failure to fully report expenses for several budget lines, with the aim to report the deficit indicators and several budget lines within the approved limits. […]

The process of executing the state budget through the treasury system by all links in the chain shows widespread violations of the implementation of the controls and preventive, detection, and corrective measures that would guarantee the fiscal discipline of the public sector. (1–2)

In practice, this means that the Ministry of Finance has publicly reported a budget deficit of 1.6% of the Albanian GDP, but that in reality this number is 2.2%, which is above the legal limit of a 2% deficit. Also public debt is considerably higher, at 69.7%, than the 67.2% officially reported by the Ministry of Finance.

The way the government attempted to hide this higher deficit is in part by doing most of its spending in December, thus creating “fiscal instability.” Moreover, “32% of the realization of Investment with Internal Capital is realized in the month December. […] Such actions, as opposed to the principles and rules of the functioning of the budget system, show a weak planning of public investments by the budget institutions […].”

It seems likely that the same thing will happen this year, as Monitor already discovered that 1,200 (!) state institutions, including the Vetting Institutions, have so far failed to make regular social security payments in clear violation of the law. It is expected that a large part of those will be again made in December, which has allowed the government to continue to project healthier numbers than reality throughout the year.

The government furthermore has an enormous backlog in payments that are the result of final court verdicts, including the compensation for public officials fired as the result of the large-scale “clean-up” of the civil service by the Socialist Party. Considering their nigh complete take-over of local government this year during the one-party elections, these costs will no doubt only increase this and next year.

When it comes to unpaid bills, the Municipality of Tirana rules supreme. In total, the municipality ruled by Mayor Erion Veliaj owes 4,378,112,000 lekë (~€35.4M) in unpaid invoices to private contractors and civil servant dismissed from office. Unsurprisingly, of the ministries it is the Ministry of Infrastructure and Energy with the largest backlog, of 3,236,900,000 lekë (~€26.2M).

The Ministry of Infrastructure and Energy is directly responsible for most of the PPPs, which deserve special consideration, precisely because Mayor Veliaj hailed them as a “creative system” that former Minister of Infrastructure and Energy Damian Gjiknuri described as a “wise” and “controllable form of investment.”

The KLSh completely undercuts any such claims:

The KLSh find that the monitoring of concessionary contracts so far has proven to be outside the control of the state with numerous problems, a fact that raises the problem of the quality of the preparation of the contract and the measurable indicators concerning the monitoring of the services for which those contracts have been signed. (53)

A case in point is the National Highway PPP, granted to a consortium of Salillari and Kastrati, two major oligarchic firms with close connections to the Rama government. During 2019, the state was forced to pay out €5.6M to the concession holders on top of regular payments, mostly because of defects in the contract.

The conclusions of the KLSh support the wide range of international actors that have warned against the use of PPPs, including the EU Court of Auditors, European Network on Debt and Development, and those that specifically criticized the implementation of PPPs in Albania, such the IMF, EBRD, and World Bank.

The KLSh further argues strongly for the classification of PPP costs as public debt based on the ESA 2010 accounting standards, which so far has been resisted by the Rama government:

As a result [of the new standards], the entire analysis made with the aim to verify the fulfillment of the conditions to classify [PPP costs] outside the budget balance and exclude them from the public debts turns out to be invalid, because the standards with which the Decision of the Council of Ministers has made its evaluations have been replaced with other, improved standards that also take into account other risks […].

The KLSh recommends the application of international standards to classify and report concessionary contracts/PPPs, because their weight as percentage of the GDP has grown considerably. (55)

These are only a few, albeit major points from the KLSh audit report, which is over 400 pages long. In any other country such an utterly devastating report would be enough to bring down the Minister of Finance, if not the government. In Albania, however, the government has so far failed to respond to the report, and no action seems to be undertaken by Parliament, which is fully under control of the Socialist Party.

In fact, the Rama government has responded in the way it knows best: by blocking the nomination of a new KLSh director with the sole aim of weakening its Constitutional mandate and effective functioning.