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IMF report, public debt in Albania could reach 88 percent of GDP, spending must be reduced
Written by Esmeralda HIDA 2 Dhjetor 2020
The International Monetary Fund published yesterday the worst report for our country. During this year, the IMF has repeatedly called on the Albanian government to be careful in the steps taken in this time of pandemic as the economy is heading towards an irreparable crisis. Although a few months ago the Fund predicted a recovery of the economy in 2021 after the pandemic, with the latest report these hopes have been dashed. The report says that the deteriorating health situation is leading the country towards a greater economic contraction and a public debt of over 88%. According to the fund, the economy is endangered by high public debt for the next two years, so the government should increase transparency and better manage the reserve funds, so necessary in this period. "In the unfavorable scenario, it is predicted that Albania's public debt is expected to increase in 2021 and 2022. This would make the public debt reach 88% of GDP in 2022, from 82-83% which is the expectation for 2020- n. There are significant uncertainties and increased risks that could affect the projected recovery for 2021-222. "In this context, the Directors stressed the importance of planning contingency funds for unforeseen events and recommended that the authorities be prepared to take further measures to maintain macroeconomic and financial stability." According to the IMF, Albania risks a lot if public funds and those raised for reconstruction are not properly managed, but misused as has been done so far. "The directors of the Executive Board asked the authorities to include as soon as possible in the normal control procedures of the management of public funds the extraordinary measures that have been taken during the emergency. The fund also requested that appropriate control be exercised over reconstruction funds. "A heavier pandemic would worsen Albania's economic outlook through weaker tourism, remittances, external demand, foreign direct investment and would bring tighter financing conditions," the report said.
Beware of PPP and costs
The IMF estimates that there is a high risk that the government will run out of fiscal dampers. This would increase funding difficulties and the country would not have the resources to reduce shocks. To avoid this economic collapse in the coming months the Fund has urged the government to be careful with spending and not to exceed their level, as long as the state coffers have gone into high deficit. Meanwhile, improvement and increase of transparency in the fiscal system is required, which will be able to balance the ratio of expenditures and revenues. "The IMF recommends that the government refrain from incurring non-priority expenditures in order to free up funds for emergency response and to ensure the proper use of funds and their monitoring. The moment the pandemic subsides, "The IMF recommends resuming fiscal consolidation, based on income, and following a clear debt reduction trajectory," the IMF recommends. For several times in a row, the fund points out that getting out of control of PPP worsens the income of citizens and increases the debt, therefore their urgent restraint is required. According to the IMF, at these rates, poverty and inequality in Albania will exceed the limits. "The IMF estimates that there is a high risk that poorly designed Public Private Partnership projects will increase liabilities. The risk is moderate that these contracts will undermine the efficiency of public investment and create large liabilities that could undermine fiscal and debt sustainability.