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MFE report, here are the factors that influenced the growth of public debt, foreign investment falls significantly
Written by Esmeralda HIDA 1 Mars 2021
Shrinking foreign investment, declining export earnings and fiscal problems are the main factors driving public debt to record levels. During 2020 the debt went to 77.9 percent and according to the data of the report published by the Ministry of Finance more than 66 percent was taken to cover the lost investments. Specifically, during 2020 foreign investment has shrunk by 4.6 percent, a significant decrease compared to a year ago. Although in their recommendations international organizations have repeatedly asked the Albanian government to create reforms to absorb as much foreign investment as possible, because they help economic sustainability, this has not been possible due to the crisis brought by the pandemic. all over the globe. In these conditions, those few absorbed investments could not contribute to the reduction of public debt. "The stock of foreign direct investment - intercompany loans decreased by 4.6% in annual terms, reflecting the poor performance of Foreign Direct Investment during the first half of 2020. The stock is estimated at 12.4% of the total, with a decrease 0.7 percentage points compared to a year ago. The FDI stock accounts for 18.3% of the total external debt stock with a decrease of 21% in annual terms ", the report states. As noted above, most borrowing has been driven by rising costs of making investments that could not be financed by foreign investors. Given that the state budget was not enough to cover all of the investments required by the country due to the coronavirus, the government was forced to borrow several times. In the breakdown by instruments used, the largest share of the total external debt stock is occupied by investments in the form of other investments, with about 66.9% of the total (45.5% of nominal GDP) at the end of the first half of the year. 2020. This ratio is 1.8 percentage points higher compared to a year ago. Within this item, the main weight is occupied by long-term and short-term loans ", explains MFE.
Fiscal and export weaknesses
Despite the fact that the export sector was the most contributing to the economy during the pandemic, their situation was not fully in shape, because exports with Italy as the main market were weak. According to the report, the decline in export earnings has greatly affected the increase in the level of debt. MFE shows that the debt increased by 41 percent only due to the decline in exports and the weakening of the accommodation opportunity for tourists during 2020. “Increasing pressures are also observed in terms of net external debt. The ratio of stock to exports of goods and services expanded 41.2% at the end of the first half of 2020, from 36.0% at the end of the first quarter of the year. These developments are entirely related to the decline in exports of goods and services at a time when the ratio of net debt stock to GDP has decreased by 2. "7 percentage points compared to a year ago", the report shows. A similar picture is given in the case of debt-to-fiscal revenue indicators. According to the report, debt growth due to poor performance in revenue collection is another negative instrument. Fiscal gaps have affected both external and domestic debt, even at higher levels than any other indicator. The ratio of gross external debt to fiscal revenues jumped to 249.5% from 220.2% at the end of the first quarter of 2020 and 226.4% in the second quarter of 2019. Also, the ratio of "general government" stock to revenues fiscal has increased to 124.8%, from 101.1% at the end of the first quarter of 2020 and 103.0% at the end of the second quarter of 2019 ", the report states.