The Minister of Finance, Mr. Petrit Malaj, presented to the parliamentary committee for Economy and Finance the Normative Act No. 3, dated 28.08.2024, “On Some Additions and Amendments to Law No. 97/2023 ‘On the Budget for the Year 2024,’ as amended.”
During his speech, Minister Malaj stated that the Normative Act primarily focuses on reflecting several revisions in the revenue and expenditure items in the annual budget, aiming to improve the execution parameters of the 2024 budget by updating the consolidated indicators projections for the 2024-2026 period.
The Minister emphasized that the Normative Act ensures an increase of about 27.3 billion ALL in budget revenues, with tax revenues alone rising by 19.2 billion ALL; an increase of 27.3 billion ALL in budget expenditures; and the maintenance of an unchanged budget deficit of 57.3 billion ALL.
Mr. Malaj argued that some of the urgent issues addressed through the approval of the Normative Act are related to the need to advance important investments in infrastructure, agriculture, education, and health; timely implementation of the new Electoral Code, as the Act finances the element related to the process of registering voters abroad; the need to further stimulate the agriculture sector through new schemes for subsidizing farmers, etc.
Furthermore, the Minister highlighted that the proposed changes in the Normative Act will continue to ensure the stability of key macro-fiscal and budgetary parameters, alongside guaranteeing the declining trajectory of the public debt level relative to GDP. Thereby ensuring the continuation of fiscal consolidation and the medium- and long-term sustainability of public finances and the overall macroeconomic stability of the country.
Minister Petrit Malaj speech:
Dear Chairman of the Committee,
Honorable Deputies,
The second review of the 2024 budget, approved by the government on August 28 in the form of a Normative Act, focuses primarily on reflecting some revisions in revenue and expenditure items in the annual budget. These revisions aim to improve the parameters of the 2024 budget execution and update the consolidated indicators for the period 2024-2026. Specifically, this Act ensures:
An increase of approximately 27.3 billion ALL in budgetary revenues, with tax revenues alone increasing by 19.2 billion ALL;
An increase in budgetary expenditures by 27.3 billion ALL;
Maintenance of the budget deficit unchanged at 57.3 billion ALL.
Some of the urgent issues addressed by approving this normative act mainly concern:
The need to advance significant investments in infrastructure, agriculture, education, and health;
Timely implementation of the new Electoral Code, where this Act finances the element related to the process of registering voters abroad, i.e., outside the territory of the Republic of Albania;
The need to further stimulate the agricultural sector through new schemes for subsidizing farmers;
Addressing additional needs in the budget of the Ministry of Internal Affairs related both to food compensation for police employees and to the overtime worked by these employees during the tourist season.
It is important to emphasize that addressing these priority needs was also supported by the positive situation observed during the first half of 2024 concerning revenue collection by the tax and customs administration and revenues realized by local government. Consequently, all proposed changes are based on a range of real factors and expected projections, which ensure their feasibility. It is essential to mention that the macro-fiscal and budgetary developments accompanying the closure of the 2023 budget year were characterized by significant improvements in key consolidated parameters, which continued with a positive trend during the first half of 2024, thus creating confidence in the continuity of these trends for the remainder of the year.
Regarding macroeconomic indicators:
Allow me to present a summarized overview of the latest macro-fiscal developments in Albania, where I first want to emphasize that our economy has demonstrated extraordinary resilience against multiple global challenges. Over the past three years, as you are all aware, our country has faced the 2019 earthquake, the global COVID pandemic, and disruptions in the supply chain due to the war in Ukraine. Nevertheless, we managed to cope relatively well, and this is not just internal factors but also recognized by the International Monetary Fund in its reports, which conclude that Albania managed these external crisis situations well, emerging as one of the best performers in the region.
Throughout 2023, despite challenging global financial conditions, we achieved an economic growth rate of 3.5%, significantly exceeding the initial forecast of 2.6%. This growth continued into the first quarter of 2024, with a growth rate of 3.6%.
Inflation, which was a significant challenge throughout 2022, has seen a marked decline. From an average of 6.7% in 2022, inflation fell to 4.8% in 2023 and further decreased in the January-July period of this year, currently averaging 2.4%.
The labor market continues to show stable improvements. The unemployment rate recorded its largest historical decrease at the end of 2023, reaching 10.7%, while in the first quarter of 2024, compared to the first quarter of 2023, there was a 10.8% increase in real wages. The main contributor was the increase in public sector wages by around 13%, followed by the private sector with an increase of 9.7%. It is worth noting that wage increases in the public sector are also putting positive pressure on the private sector, which will need to keep up with wage increases to remain competitive with the public sector.
In fiscal terms, we have also made significant progress. In 2023, we recorded a positive primary balance of 0.7%, while the public debt to Gross Domestic Product (GDP) ratio continued to decrease significantly by 5.5 percentage points compared to 2022, reaching 58.9% at the end of 2023.
Regarding public debt, at the end of June 2024, it was estimated to be 13.6 billion euros, or 63 million euros lower compared to the end of 2023. The year 2024 has marked an improvement in public debt management and borrowing performance. The external debt weight indicator has decreased from the end of 2023, leading to a reduction in the weight of foreign currency-denominated debt, primarily in euros. Currently, the level of external debt is at 43.3%, which is also part of the Medium-Term Debt Management Strategy, aiming to be below 50% for foreign currency-denominated debt.
Regarding the external position of the economy, the balance of payments improved significantly during 2023. The current account deficit fell to less than 1% of GDP, the lowest level ever recorded. This improvement primarily reflects high income flows from tourism and ever-increasing remittances from Albanians living abroad. Additionally, foreign direct investment increased by 8.7% at the end of 2023 compared to the end of 2022, and this positive trajectory in foreign direct investment continued during the first quarter of 2024, with a growth of over 15% compared to the first quarter of 2023.
Regarding revenues and expenditures reviewed by this Normative Act for the 2024 financial year, they are as follows:
Total revenues for the first seven months of 2024 amounted to 402 billion ALL, with an achievement rate of 103%, or 11.6 billion ALL more than the 2024 plan. Compared to the first seven months of 2023, there is an 8% increase in total revenues or 30.3 billion ALL more than the same period last year. The surplus is primarily observed in tax revenues administered by the tax and customs authorities, local government tax revenues, and social and health insurance contributions.
Revenues from taxes and customs for the first seven months of 2024 total 261 billion ALL, or 22.4 billion ALL more than the same period in 2023, marking a 9.4% increase. Compared to the plan, revenues for this period are 2% higher than the 2024 plan, or 5.2 billion ALL more.
Regarding economic growth, it remains stable and is expected to continue in the remaining part of the fiscal year. Consequently, the Normative Act proposes increasing revenues by 9.4 billion ALL, based on the aforementioned positive performance.
Revenues from social and health insurance contributions for the first seven months of 2024 are 9.6 billion ALL more than the first seven months of 2023, marking a double-digit increase of 11.6%. Compared to the plan, revenues are 1 billion ALL or 1.1% more than previously planned. Revenues from social and health insurance contributions have exceeded projections due to the increase in wages not only in the public and private sectors but also from the rise in the number of new contributors. For the first seven months, there are more new contributors in the social and health insurance scheme, totaling 8,950 new contributors. Therefore, in this Normative Act, we have revised revenues from social and health insurance contributions with an increase of 1.7 billion ALL.
Revenues from local government have seen a significant increase both compared to the first seven months of 2023 and the plan. The increase compared to the plan is around 7.9 billion ALL or 48% more than we had planned. During 2024, there has been a good performance in collecting revenues from local taxes and fees. Consequently, the good performance of local government units led to the proposal for increasing the plan by 8 billion ALL, of which 1.1 billion lek are for property taxes and 6.9 billion ALL for local taxes. This increase also brings more spending on public services and investments by municipalities for their respective communities.
Additionally, it is proposed to increase non-tax revenues by 8.1 billion ALL from returning part of the Compensation Account balance to the budget. This ensures the availability of necessary funds for implementing already approved and expected legal/sub-legal acts with financial effects on compensations.
Regarding expenditure aspects, the main changes consist mainly of additional financing, such as:
• Additional funding of 5 billion ALL for new projects of the Albanian Development Fund, including new projects in development programs, local and regional infrastructure, and the 100 Villages program.
• Additional funding of 4.75 billion ALL for new Road Transport projects, financing road projects such as Elbasan-Lekaj, Fier-Kthesa Patos-Frataj, and Berdice-Unaza Lindore.
• Additional funding of 2 billion ALL for new projects in the Water Supply and Sewerage sector, including projects such as the “Construction of the Hudënisht Administrative Unit Sewerage System, Pogradec Municipality,” “Optimization of the Vora Water Supply and Surroundings,” and “New KUZ+ITUP System in the Spille Tourist Area, Kavajë Municipality,” among others.
• Additional funds for the National Cyber Security Agency amounting to 1.5 billion ALL, within the framework of implementing ‘Advanced technology platforms utilizing artificial intelligence in the field of cyber security for the country’s governmental systems and infrastructures.’
• Additional funds of 1.4 billion ALL for the Ministry of Internal Affairs to cover the needs for food compensation for police employees for the 12-month period, along with overtime hours during the intensive tourist season. The food compensation part is around 1 billion ALL, while the overtime hours paid through this Normative Act amount to around 300 million ALL in additional funds.
• Additional funds of 900 million ALL for the Ministry of Agriculture and Rural Development, with 500 million ALL allocated directly as support for farmers under the new support/grant scheme for investments, aimed at creating incentives to increase investments in the agricultural sector, and 400 million ALL for new projects related primarily to investments in the irrigation and drainage sector.
• Additional funds of 690 million ALL for the Ministry of Defense, intended for the initial capital financing of the new company KAYO sh.a, settling overdue obligations of existing enterprises in the sector, and compensating families affected by natural disasters.
• Additional funds of 450 million ALL for the Ministry of Education and Sports, primarily related to personnel expenses due to wage increases in this sector, as well as funding community projects and rewarding elite athletes of the country.
• An additional 250 million ALL for the Central Election Commission, for the project of registering voters in the diaspora.
• Additional 250 million ALL for new projects in the Ministry of Health and Social Protection, to finance investment projects for the construction or reconstruction of hospitals and health centers nationwide.
• Additional 223 million ALL for the Ministry of Finance, for projects related to updating the treasury system and servers of the General Directorate of Customs, due to existing issues.
Regarding the budget deficit and public debt:
The budget deficit, due to the aforementioned changes in revenues and expenditures, remains unchanged according to what was approved through Normative Act No. 1, dated February 21, 2024.
Public debt for the 2024 budget is revised as follows:
Financing through foreign loans in the form of budget support increases by approximately 3.2 billion ALL, reflecting the expected disbursement of an advance of EU support for Western Balkan countries under the Growth Plan.
The projected expenses for debt interest in 2024 are expected to save 2 billion ALL in external interest, mainly due to exchange rate effects.
The external debt repayment item is revised with a decrease of around 6.8 billion ALL, also due to exchange rate effects and the non-materialization of expected payments for guaranteed loans, which were covered by the borrower itself.
Regarding expectations:
By the end of 2024, public debt is expected to be around 14 billion euros or 58.2% of Gross Domestic Product (GDP), with a decrease of 0.7% compared to the end of 2023. This expected assessment reflects all the latest statistics and projections affecting the total stock of debt.
Domestic borrowing remains the same as in the initial budget plan. Foreign financing sources have been updated to reflect the latest expectations, including the inclusion of budget support expected to be disbursed this year from the “Western Balkans Growth Plan” program. A tranche of about 30 million euros of this significant support is expected to be disbursed within 2024.
In conclusion, based on the detailed outline above, I would like to reiterate that the proposed changes in the Normative Act will continue to ensure the stability of key macro-fiscal and budgetary parameters, alongside guaranteeing the downward trajectory of public debt relative to GDP, thus ensuring the continuation of fiscal consolidation and medium- and long-term stability of public finances and macroeconomic stability of the country as a whole.
Thank you!