IMF Worried about Government’s Economic Policies

In an interview with Monitor magazine, permanent IMF representative in Albania Jens Reinke has again expressed his worries about the 2018 fiscal package. Among other things, he declared that the absence of direct foreign investments is one of the reasons that the IMF has lowered its economic outlook for Albania during 2018. According to the IMF, the economic growth will reach 3.7% in contrast with an earlier prediction of 4.1%.

Reinke also expressed his worries about several other controversial elements of the 2018 fiscal package, such as the lowering of the VAT threshold for small businesses, which would have little influence on the state’s tax income, while leading to more tax evasion and overburdening the tax offices.

As regards the government proposal to establish a tax-free regime for 4- and 5-star hotels, Reinke stated that he failed to see the economic benefits of such a policy, considering the fact that infrastructure continues to be weak and property security is low. It also unclear whether the tax exemption would only hold for rooms, or also for other services, which could lead to unfair competition on the market.

Furthermore, Reinke argued against the proposal of the government to set taxation rates through Decisions of the Council of Ministers (VKM) rather than through parliamentary ratification of laws, stating that it would weaken the transparency of the implementation of the tax code.

Finally, Reinke also addressed the proliferation of public–private partnerships (PPP) under the Rama government. Even though the IMF understands the necessity for public investments, it continues to recommend the government that public projects, including PPP and “unrequested proposals,” should be prioritized according to a transparent process, including a cost–benefit analysis. These have so far been lacking.

Also, any duty of the government in PPP constructions will need to be counted according international accounting standards, meaning that any payments in PPP constructions need to be counted as public debts, which is something so far refused by the government. This lack of accountability in turn may lead to the selection of unprofitable projects with high fiscal risks.