The Parliament of Albania approved in a plenary session the draft law “On the actual budget for 2023”, which was first presented to the MPs by the Minister of Finance, Mr. Petrit Malaj.
In his speech, Minister Malaj stated that the main objective of the 2023 budget is to mitigate the effects of the war in Ukraine by supporting vulnerable groups, stabilizing electricity prices and the energy sector as a whole, and promoting sustainable economic growth and fiscal consolidation.
The Minister emphasized that through prudent fiscal policy in terms of revenues and budget expenditures, a stable reduction of the public debt stock was achieved in 2023, a commitment that remains a priority for the Ministry of Finance.
Minister Petrit Malaj’s speech:
Honorable Speaker of Parliament,
Dear Members of Parliament,
Dear citizens,
We are meeting today to discuss and approve the draft law on the actual budget for 2023.
This budget had one main objective: to reduce the impact of the Russian aggression in Ukraine, and thus earned the title of “resistance budget” against the war. We found ourselves affected by external factors, not by choice, but as a result of chain effects.
We had to take responsibility and take action, just as this government has done in the face of every challenge we have faced. The opposition at the time accused us of “brutal” intervention in the free market economy, but our responsibilities were manifold.
We had to think about increasing the salaries of administrative staff, teachers, doctors, police officers, firefighters, supporting farmers, new families and pensioners through indexation and bonuses, increasing social assistance, boosting wheat production, fishing, transportation, etc.
On the other hand, we had to manage our public finances carefully, avoiding not only immediate risks but also potential future ones.
At the same time, fiscal policy had to be prudent both in terms of revenue generation and budgetary expenditure in order to ensure a sustainable reduction in the public debt stock, a commitment we continue to maintain.
Dear Members of Parliament,
The three main goals of the 2023 budget were:
– Support vulnerable groups,
– Stabilize electricity prices and support the energy sector as a whole,
– Maintaining sustainable economic growth and fiscal consolidation.
We have all witnessed this government taking a proactive stance at the onset of this crisis, designing and implementing policies aimed at reducing the social impact.
Allow me, therefore, to provide a more detailed overview of the economic fundamentals for the period under review:
The country’s economy has shown considerable resilience, maintaining positive and sustainable growth, including increased employment and wages.
The main economic and financial fundamentals, as well as the country’s macroeconomic stability, have shown relatively good resilience, allowing us to continue discussing a positive trend even in the medium term, as I have noted in discussions in parliamentary committees, referring to our projections for 2024-2027.
Public debt in 2023 showed a generally positive trajectory, in line with macro-fiscal targets, the planned budget and the objectives of the Medium-Term Debt Management Strategy (MTDMS). 2023 was a very positive year in terms of financing, both in domestic and external markets. Borrowing was in line with the budget and the 2023 Borrowing Plan. Unlike 2022, which was characterized by uncertainty in the domestic primary market and a decline in demand for government securities, 2023 saw a significant improvement, with demand for government securities returning to satisfactory levels and exceeding the government’s supply. Borrowing allowed for the refinancing of existing debt as well as the partial financing of the planned deficit for 2023.
The programming of fiscal revenues in 2023 supported the government’s objectives for economic growth while controlling the fiscal deficit and public debt. This programming was mainly based on improving tax administration and reducing informality in the economy, thereby supporting economic recovery from the effects of the earthquake and pandemic in 2020-2021 by promoting local production and exports. In addition to efforts to improve administration, supported by the fiscalization project, several measures were implemented as part of a comprehensive strategy to increase medium-term revenues through improvements in fiscal policy.
Fiscal policy in 2023 aimed at economic recovery and a review of tax incentives introduced by the government to ensure a fair and balanced tax system that promotes productivity and long-term economic sustainability. Changes in the 2023 fiscal package aimed at adjusting specific elements of taxes, including VAT, income tax, excise tax and national taxes. The 2023 Fiscal Package aimed at improving the policy in the area of VAT and excise duties, as well as commitments to gradually align the relevant legislation with EU directives related to these taxes.
The new Law “On Income Tax”, adopted in the first quarter of 2023, aimed at improving the tax system for individuals and legal entities in Albania, strengthening the principle of neutrality in the Albanian tax system, and gradually aligning the principles of income tax in Albania with those of EU directives.
Budget expenditures in 2023 will reach around 674.9 billion ALL. Compared to 2022, the total public expenditure increased by 3.7%.
Capital expenditures (including the Reconstruction Fund) amounted to about 119.1 billion ALL, 6.2% more than in 2022, or about 6.9 billion ALL more. Domestically financed investments were completed at ALL 88.5 billion, or about 96.4% of the plan, with reconstruction spending reaching ALL 16.2 billion. The 2023 budget financed a high level of public investment, covering key economic sectors such as infrastructure, water and sanitation, road transport, health and defense. The overall realization of investments was high, especially for domestic financing.
Current expenditures amounted to about ALL 547 billion or 99.7% of the plan, representing about 23.7% of annual nominal GDP, compared to an average of about 24.4% in previous years. Compared to 2022, these expenditures were 9.4% higher, or about ALL 47 billion more.
Local Finance – The continued consolidation of financial management processes at the local level to support the ongoing fiscal decentralization of self-governing units was also a focus in 2023. The Ministry of Finance continued the reform of local public finances, focusing on increasing investments, digitizing financial management processes at the local level, and promoting the growth of local tax revenues. In 2023, positive indicators for the growth of the role of local governments in strengthening fiscal capacity and public services were maintained. This was reflected in a broader package of financial support for local government functions, which was also visible in local government fiscal indicators. The consolidation of local budgets to 3% of GDP or over 10% of the state budget clearly shows the growing potential of local government to provide services. One of the most important indicators of the fiscal consolidation of local self-government units remains their growing ability to secure revenues from their own sources and to ensure consistent and timely collection.
By 2023, revenues will be significantly higher than planned, demonstrating the growing capacity of local units to sustainably fund their functions.
Dear Members of Parliament,
All the aforementioned points, both at the central and local levels, in terms of revenues and expenditures, from a macroeconomic and public debt perspective, are the result of a series of concrete measures taken by the Government over the years, following reforms and directing resources to priority sectors, which have guaranteed positive incentives for the country’s economic growth in the medium term.
This government has been and remains committed to achieving its main objective of being close to all Albanians through economic, social and fiscal policies aimed at helping every family and every business. All this, of course, translates into a higher level of economic and social well-being for the citizens of our country!