An amendment to the law on the State Budget, proposed by Prime Minister Edi Rama last week, seeks to increase public debt by 11 billion lek, or EUR 92 million.
This brings the total debt for this budgetary year alone to some EUR 1 billion.
The government justified the amendments and the increase of the budget deficit due to urgent expenses. These include purchasing military drones from Turkey, investing in the New Ring Road in Tirana, investments in water supply, and over EUR 7.3 million to the Municipality of Tirana for the new National Theatre.
These costs will add to public debt as the government has not anticipated any additional increases in revenue.
A total of EUR 8 million will go to Turkey for military drones, described as a “priority.” This priority project will be under the Ministry of Defence to “increase territorial control and national security as a whole.”
No information was given on the capacity, features, or spec of the drone, but Albania Minister of the Interior Bledi Çuçi recently visited Turkish company Bayraktar which produces drones of various kinds.
EUR 7.3 million will also be given to the Municipality of Tirana for the construction of the new theater. For years, the Municipality and government insisted they had to give the concession for the new construction to a private company as they didn’t have the money to do it themselves. They said it will be financed by the Abu Dhabi Fund.
Some EUR 25 million will be used for “ongoing projects and development programs” with no further information given. A further 4.8 billion will be used for the North Ring of Tirana and for other Tirana Ring Road projects.
Another EUR 8 million will be given to the National Agency for the Information Society for “financing the needs of the maintenance of IT systems.”
This deficit of almost EUR 1 billion will be paid by Albanian citizens over the coming years.
The budget for 2021 was approved in November 2020. It predicted inflated revenues, inflated expenditures, and inflated investments that were far from logical.
The government said it planned to collect EUR 3.86 billion in revenue and would spend EUR 4.74 billion. The expected deficit was some EUR 870 million, a budget deficit of 23%.
In November, it was already considered the second largest budget deficit in Albanian history and would require significant borrowing to cover it.
Governments always plan more revenue than is possible to raise. In fact, over the last 10 years, budgets always change between 1-3 times a year to reduce revenue and expenditures. But this year’s budget surpasses any previous budget in terms of optimism and appears to be blatantly inflated.
Also in 2021, the government will actually reduce the amount of tax it collects as it’s promised to remove taxes for small businesses and increase the VAT threshold.
The government has also envisaged some EUR 540 million in investments for national infrastructure, EUR 226 million in investments in reconstruction, EUR 111 million in investments for regional and rural infrastructure, and EUR 52 million in investments for agriculture. In other words, an estimated EUR 1 billion in investment, the largest investment budget in the history of Albania.
Around 55% of this amount will go to the Ministry of Infrastructure and the rest will go to concessions and public-private partnerships (PPPs). Concessions in health and infrastructure account for 32.1% and 37.1% respectively, followed by 11% for the scanning concession, 4.7% for schools, and 15.1% for incinerators.
In October of 2020, Albanian public debt was already at historic levels, reaching at least 86% of the Gross Domestic Product.
It’s estimated that the Albanian government owes at least EUR 10.7 billion through state debt and private-pubic partnerships. This doesn’t include bills and arrears for services received by them.
This time last year, the Ministry of Finance noted that the government owed EUR 80 million in unpaid bills, and EUR 200 million in an international arbitration settlement.
If we add this to the liabilities from official debt and concessions, we reach a total of EUR 10.98 billion, almost EUR 11 billion – 86% of the GDP.
There is no law or regulation that determines which level of debt is optimum but it is generally considered that 60% of the GDP is manageable.
Since 2014, the Rama government has borrowed around EUR 3.2 billion. The debt is split roughly 50/50 between foreign and domestic lenders. Domestic debt is more favorable as it is in lek and it can be paid through selling bonds.
External debt is a heavier burden as it’s in a foreign currency and its rates are set by international markets. This means the actual value of the debt against lek can vary.
In Albania, the government owes money to BKT, Raiffeisen, and Credins Bank. Internationally, around EUR 1.5 billion is through Eurobond, and EUR 1.1 billion through the World Bank. The rest is through governments from countries such as the United Arab Emirates, Italy, and Germany.
In terms of the average Albanian, in 2013 the average citizen owed EUR 2,600 but in 2020 it’s EUR 3,600 – that is a significant change. This number will have increased more, as per the new changes requested in parliament.
