Press Release No. 16/11

Press Release: Albania: Fiscal Transparency Evaluation

January 15, 2016

The International Monetary Fund (IMF) has today published a Fiscal Transparency Evaluation (FTE) report for Albania, which was carried out at the request of the Government of Albania by a team from the Fund’s Fiscal Affairs Department in June 2015.

In many areas Albania performs well against the standards set by the IMF’s Fiscal Transparency Code. Some 10 of the Code’s 36 principles are rated as either “good” or “advanced,” and 14 principles rated as “basic”. However, in eight areas the basic requirements of the Code are “not met.”

Against the Code’s three pillars, the report finds that Fiscal reports cover most general government revenue, expenditure, financing, and debt, but provide little information about other balance sheet items including an estimated 83 percent of GDP in fixed and financial assets and 7 percent of GDP in public-private partnerships (PPP) liabilities. Albania’s public corporations sector with assets and liabilities of around 29 percent of GDP are also outside consolidated fiscal reports. Fiscal reports include some but not all integrity checks, and stock-flow discrepancies have been large (around 1 percent of GDP) in recent years.

Fiscal forecasting and budgeting is governed by comprehensive legislation and a medium-term fiscal framework. However, official forecasts have significantly overestimated both GDP (by 1.5 percent) and revenue (by 2 percent of GDP) over the past decade. As a result, the approved budget has often been reduced significantly during the year due to revenue shortfalls, undermining its credibility. The report recommends that an independent fiscal council be established to assess the realism of government economic and fiscal forecasts.

Albania faces a variety of significant fiscal risks, including claims for compensation for expropriated property of up to 70 percent of GDP, and a large banking sector with a high proportion of non-performing loans (23 percent). Disclosure of these risks is spread across a number of documents, and the mission recommended that the budget include a more comprehensive discussion of the most significant risks to the fiscal outlook.

This FTE report makes seven recommendations to strengthen the government’s ongoing reform efforts in the area of fiscal transparency:

• Include a partial balance sheet in fiscal reports, along with tables that reconcile changes in the debt with the deficit and changes in cash balances with cash flows;
• Simplify fiscal reports by producing a single set of monthly, quarterly, and annual reports that incorporate the information currently reported separately by the treasury, the debt department, the budget department, and the macroeconomic department;
• Publish an annual report on tax expenditures that estimates the revenue foregone by all major tax exemptions and other tax privileges;
• Enhance the scrutiny of its macroeconomic and fiscal forecasts by publicly comparing them with those of other institutions, by reconciling new forecast with prior forecasts and actual outcomes, and by establishing an independent fiscal council;
• Improve the transparency of public investment projects, including PPP, by, among other things, routinely publishing cost-benefit analyses and disclosing the total value of the government’s commitments, project by project;
• Increase the scope and depth of the report on fiscal risks in the budget document, so that it also describes the fiscal implications of PPP, the finances of public corporations, and the long-term risks created by pensions, healthcare, and other spending programs;
• Ensure comprehensive oversight of all public corporations and the potential fiscal risks they can generate.

Further information about the new IMF’s Fiscal Transparency Code and Evaluation can be found here.