Albania has the 11th highest rate of public debt in Europe and the second highest in the region, in relation to the size of its economy, according to data from INSTAT and Eurostat.
The Ministry of Finance reported that public debt accounted for 78.5% of the economy in 2021. As Exit previously reported, the real figure is much higher as the government does not account for public private partnerships and matters such as fines in international tribunals in its figures.
Exit put the figure at around 86% in 2020.
But based on the statistics of the ministry, Albania ranks second to Montenegro in the immediate region, and behind Greece, Italy, Portugal, Spain, France, Belgium, and Cyprus across the bloc. Neighbouring Serbia and North Macedonia have debt at 58% of the GDP with Bosnia and Herzegovina at 36% and Kosovo amongst the lowest with 22%.
All countries in Europe increased their debt following the COVID-19 pandemic as they attempted to stimulate the economy after the COVID-19 pandemic.
There are also concerns over Albania’s ability to pay off its debt. As the country ranks as one of the lowest in terms of competitiveness in Europe, according to the Global Economic Forum, it could struggle to better the balance sheet.
The government has been advised multiple times by the Word Bank and the International Monetary Fund to adopt more prudent spending habits, yet this is yet to be heeded.
The government used natural disasters, earthquakes and pandemics to increase public debt by about EUR 2 billion in the last two years. Most of it was used to finance disaster-related projects.
The government also authorised the debt increase to finance several long-term projects, such as the construction of the New Ring Road, the National Theater and the Llogara Tunnel. At the same time, funding is still needed for the pandemic and earthquake recovery. Debt expansion was done through a normative act, breaking a fiscal rule defined in the budget law, which does not allow fiscal measures that increase the debt as a percentage of GDP.
Over the past year, the government has increased public debt at faster rates than the country’s economic growth. Albanians’ per capita income has grown at lower rates than per capita. House prices have also risen more than 40% in the last four years, pricing many locals out of the market.
The International Monetary Fund (IMF), in its latest report on Albania in December last year, expressed concern about the country’s growing fiscal risks and the lack of accurate data on public-private partnership (PPP) projects. Court rulings, the new guarantee scheme for the private sector and support for energy companies are also seen as added risks that increase unreported liabilities.
Local experts have joined international organisations in calling on the Albanian government to be careful over rising public debt levels.
“As long as the government does not respect the minimum criterion for each year for the debt to be lower than the last year, it will not decrease. As long as the opposite happens, this objective has no way of being realised,” said economist Zef Preci.
