IMF Warns Again: PPPs Are Fiscal Risk

In its most recent Staff Report, the International Monetary Fund (IMF) has once again warned the Albanian government for the fiscal risks carried by the broad and indiscriminate use of PPPs.

More than 200 PPP projects (31 percent of GDP) have been contracted, with about 15 percent of GDP in the pipeline. However, PPPs are not well integrated into the overall public investment management framework, with a separate process–compared to traditionally procured projects–for assessing feasibility, affordability and risks. At the same time, the projected annual budget payments for (government-funded) PPPs are already approaching the legislated ceiling amounting to 5 percent of the previous year’s fiscal revenues. […] Most of the other projects relate to infrastructure and are still in the planning or construction phase. The associated fiscal risks (including due to minimum revenue guarantees), would likely materialize over the medium or longer term.

The IMF has evaluated the risk of “poorly designed PPP & increased contingent liabilities” as high, which could “impede the efficiency of public investment, and create large contingent liabilities, the realization of which could undermine fiscal and debt sustainability.”

Recently, the Albanian government announced the creation of the Albania Investment Corporation (ATRAKO), which risks being turned in an off-budget spending tool.