Resource information
Albania's rapid growth in the
decade up to the 2008 global financial crisis propelled it
to middle-income status and helped to reduce poverty. The
global financial crisis in 2008 slammed the brakes on
Albania's largely domestic-demand-driven growth. The
government has accumulated sizable arrears in payments for
public works and value-added tax (VAT) refunds. In a
baseline scenario of no policy reforms, Albania's
public debt-to-gross domestic product (GDP) ratio is
projected to reach 73.5 percent in 2015 and stay above 72
percent over the medium term. Empirical evidence confirms
that high public debt depresses economic activity and
significantly increases the probability of default. This
report examines closely the opportunities for fiscal
consolidation on both the revenue and expenditure sides.
Combined effect of structural reforms will reduce
Albania's public debt to GDP ratio significantly over
the medium term. It can in parallel rebalance its capital
spending, particularly in transport, toward maintenance to
support growth. Albania needs to strengthen its institutions
to reinforce financial discipline and strengthen fiscal
policy. Institutional reforms are particularly needed with
regard to public financial management (PFM) and introducing
a fiscal rule to anchor policy over the medium term.
