1- IMF is disappointed – the ministry explains
In the latest regional economic report for Central, Eastern and Southeastern Europe, published by IMF, the latter expressed its disappointment with the collection of taxes in these countries and the analysis of the reasons was equally disappointing. According to IMF the main cause comes from differentiation or fiscal facilitation of the government for several sectors such as hydrocarbons, textiles, agriculture etc., but they have little impact, therefore disbalances in the tax system due to facilitations have created loopholes for evasion and money that were destined to the budget are now elsewhere.
The Ministry of Finance, in her response to the IMF report declares that it projected a higher figure of public debt than IMF for the same period. Concretely, the Ministry of Finance projected a debt level of 72% for 2014 and 71.8% for 2015, while IMF projected a level of 71% and 70.8% respectively. The ministry claims that the nominal change of exchange rates is the reason for the higher projection of Albania’s debt for 2015.
The pressure towards finances seems high. This situation requires at the same time a war against informality to bring back economic growth as well as a debt restructuring. A positive development would be the opportunity to issue Eurobonds in the market, which if successful might lower some costs to the budget and help the Ministry of Finances to bring the debt level at 65.5% by 2017.
2-At least take advantage of the debt wisely!
In previous months we reported on the 1.2 billion $ loan that the Albanian government took from the World Bank. The distribution of these funds will be as follows:
- 700 million $ for projects in partnership with the World Bank
- 500 million $ for budgetary support, which means lowering the budgetary deficit.
In an objective judgement this is considered a soft loan, as the yearly interest rate for Eurobonds is +0.5% with repayments starting after 7 years, it is a reduced interest.
Simply put, this loan ensures the ‘’comfort’’ of the Albanian government for 7 years – we will not default for sure. Since the World Bank has a mainly American influence, it was politically expected that they would support any party in power, to minimize other ‘’infiltrations’’ in the Western Balkans. However, loans are to be paid (therefore another discussion should not focus on high or low taxes, rather on high taxes and low budget deficit and vice versa, as low taxes today means postponing the fiscal weight to coming generations).
If we analyze what we will have to pay, the Eurobor (Euro Interbank Offered Rate) is a daily interest rate, calculated as the average of interest rates in the Eurozone banks. Parid Turdiu, an ecopnomics analyst clarifies that currently Eurobor is close to 0, but let us not rejoice prematurely. The payments for the loan will start after 7 years, when the eurobor might reach 4-5%. This means that the interest rate for the loan will be approximately 4.5-5.5%.
This puts the Albanian economy in front of the duty to ensure until then a steady economic growth. A growth that does not justify any reason for failure to collect VAT or the failure to reach a plan to reduce public debt. In conclusion, this is a good loan – practically 7 years of free money, but not to be misused. To the contrary, they have to be used wisely and in sectors that ensure long-term benefits.
3- A friend like Italy
The Debt for Development Swap Program (IADSA), an innovative instrument for our country, has managed to become one of the most successful Italian-Albanian programs of recent years. In May, a ceremony to approve six projects financed by this instrument was organized, with a total financing value of 2.5 million Euros, part of the third call in the framework of IADSA, an initiative of the Current Cooperation and Italian-Albanian Development Program to support social development in Albania.
Minister Cani clarified that generally due to the territorial reform, this time the call was opened only to ministries and government agencies and ensured that financed project respond to concrete needs of target groups and are in line with development strategies of the Albanian government.
This third call for proposals attracted 38 project-proposals by Albanian ministries with a total required financing of 14 million euros. Projects are based on strategic priorities of the Albanian government included in the National Strategy for Development and Integration and updated sectoral and crosscutting strategies, as well as the National Action Plan for the Implementation of the Stabilization and Association Agreement of the Republic of Albania.
After the technical evaluation phase, the Management Committee approved the financing of 6 projects with a total value of 2.5 million Euros. Some of the financed projects are: a project that aims to develop a pilot project for the touristic development of Vlora region, through the establishment of touristic information centers and touristic infrastructure; a second project that aims to convert the underground bunker of the Ministry of Interior into an artistic center; a project that aims to create standards for emergency units in touristic areas; a project to establish a technological start-up incubator and financing a few ideas to convert them into innovative projects; another project to empower professional formation in the mechatronic sector in Shkoder.
Although less projects responded to the third call (the first phase received 92 projects with a total required amount of 18 million euros, and the second call a total of 96 projects with a total financing of 20 million Euros), this can be considered a positive step to implement reforms as well as a good lesson for central and local government institutions to apply for EU funds.
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