On Monday, the Albanian Parliamentary Assembly approved the budget for 2021, without any debate or opposition from deputies.
As Exit has previously written, this is a budget for an election year and has little foundation in reality. In short, the budget predicts inflated revenues, inflated expenditures, and inflated investments that cannot be considered as logical.
The government has planned:
- To collect revenue of 479 billion ALL (EUR 3.86 billion)
- To make expenditures of 588 billion ALL (EUR 4.74 billion)
The expected deficit, as per these forecasts is 109 billion ALL or EUR 870 million. This means that the government is predicting a budget deficit equivalent to 23% of expected revenue. If this deficit is realised, it will be the second-largest budget deficit in history and is likely to be covered by borrowing more money.
In terms of expenditure, the government plans to spend the following:
- Social protection 35%
- Health 10%
- Economy 8%
- Defense 7%
Institutions are expected to benefit from the following amounts:
- Social funds 17.1%
- Ministry of Health 11.7%
- Ministry of Finance 11.7%
- Ministry of Infrastructure 8.4%
- Ministry of Education 7.2%
- Ministry of Defense 4.3%
- Ministry of the Interior 3.5%
- Ministry of Agriculture 2.2%
Other expenditures are expected to account for 24.3% of total expenditures while the local government will receive 9.6%.
Over optimistic
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 tax for small businesses and increase the VAT threshold. This is all during a year where the pandemic will continue and elections will take place. It is almost certain that a good part of the expenditures planned by the government will not be able to be fulfilled.
Over-inflated investments
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 the incinerators.
The government has not predicted an increase in investment in local government and the budget remains the same. This is believed to be due to the COVID-19 crisis.
Elections or lack of professionalism?
Altin Hoti, Professor of Economics at the American Middle Eastern University in Kuwait said that the budget is totally unfeasible both in terms of revenue and expenditure.
“Revenues are inflated, perhaps because of the elections or a lack of professionalism.”
He said that the revenues are unrealistic and should be deflated by at least 20%.
“The government does not take into account the current situation- COVID, which has shrunk the economy,” he said.
In addition to this, he said that the state has only managed to realise some 50% of investments over the last ten years. He added that this budget will be no exception to this trend.
The changes in the tax system have decreased foreign investment and the lack of fiscal stability has put people off. These changes have also impacted businesses in the country and make it impossible for the tax administration to collect that amount of revenue, he said
