Improving Public Debt Management
In the OIC Member Countries
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4.1.9 Republic of Albania
A) Public Debt DynamicsIn the aftermath of the global financial crisis, economic growth in the Republic of Albania was
low. The country suffered from economic difficulties in key Euro area trading partners and
stagnant bank lending of its mostly foreignowned banks. Low growth combined with high
primary deficits increased general government debt by 9% of GDP between 2007 and 2012. In
2012, government had to remove the legal ceiling for the share of general government debt in
GDP, which had been set at 60%. The recognition of a substantial stock of domestic arrears and
unpaid bills is responsible for a onetime shift of general government debt by five percentage
points relative to GDP in 2013. In 2015, general government debt increased by 2.3 percentage
points relative to GDP and peaked at 72.1% (see Figure 426), a number among the highest in
its peer group of countries in Central, Eastern and Southeastern Europe (CESEE). Publicly
guaranteed debt plays a minor role making up 5.4% of total government debt. It is mainly
devoted to projects for the supply of basic goods (water, energy, transport). Government
activity results from the poor technical and financial performance of the sector of energy
production and distribution. Given government’s interest in an adequate energy supply, this
poses fiscal risks that cannot be quantified exante.
Albania has run persistent and large public deficits. While they amounted to 10% of GDP in the
later 1990s, they were reduced to 6% of GDP in the early 2000s. Deficits were the result of
poor tax collection and overoptimistic revenue forecasts on the one side and weak expenditure
controls on the other. Fiscal stimuli during the financial crisis beginning in 2008 contributed to
rising levels of general government debt. Net interest payments have been larger than 2% of
GDP over the period under consideration starting in 2006. This lowered the general
government balance substantially. While the primary budget balance was almost balanced
between 2010 and 2012, it amounted to 1.2% in 2015.
The Albanian government is pursuing a significant fiscal consolidation (IMF 2016). In
particular, debt levels are expected to start declining in 2016. Government aims at reaching
levels below 60% by 2019. While the primary budget balance is projected to turn positive in
2016, the IMF is less optimistic about the future path of budget balances than the Albanian
Ministry of Finance, which forecasts a steady increase in the budget balance reaching a surplus
of 2.4% in 2018 (MoF 2016a).
Budgetary risks stem from contingent liabilities in the electricity sector, spending
commitments in PPPs and government arrears. Additionally, increased borrowing through
SOEs further enhances the risk through the rising number of guarantees. Due to the
government’s expansive fiscal policies in transport and energy infrastructure, guarantees
increased by 1.7 percentage points to 9.4% of GDP in 2015 (European Commission 2016).