A NEW YEAR'S BUDGET RESOLUTION

UNCLAS TIRANA 000039

SENSITIVE

SIPDIS

STATE FOR EEB/IFD/OMA
STATE FOR EUR/SCE

E.O. 12958: N/A
TAGS: ECON EFIN PRIL PGOV AL
SUBJECT: A NEW YEAR'S BUDGET RESOLUTION

Ref: A) Tirana 00000813


1. (SBU) Summary: The GOA is set to take the unprecedented move of
"freezing" seven percent of government spending for 2010 in response
to lower than expected 2009 government revenues, a larger deficit
and the economic crisis. This means that for revenues to match
spending targets, there will need to be ten percent government
revenue growth (taxes) as opposed to the 20 percent revenue growth
needed under the original plan (ref A). Even though ten percent is
still unlikely, this is a much more achievable budget forecast than
the previous one, and is a welcome and much-needed dose of
(relative) reality for the GOA in terms of budgeting. End Summary.

2. (SBU) Lacking the power to formally change the budget without
Parliament's approval the Ministry of Finance (MOF),with the
approval of the Prime Minister, is expected to "freeze" at least
26.7 billion lek (280 million USD) of 2010 projected budget spending
and reduce 2010 revenue estimates by 30 billion lek (315 million
USD). Historically, the government always waits until summer to
revise the budget and rarely revises it down enough to reflect
actual revenues. The Minister of Finance is said to have advocated
for a thirty percent larger reduction, but it was deemed too drastic
by the Prime Minister because it would cut spending by 11 percent.

3. (SBU) These cuts follow on the heels of the GOA's announcement in
December that it was reducing 2009 "budgeted" revenues from 334
billion (3.5 billion USD) to 320 billion lek (3.36 billion USD).
Should these revenue numbers hold, it would result in a deficit to
GDP ratio of 6.9 percent - a new high. (Note: Per ref A actual 2009
government revenues will likely come in even lower around 297
billion lek (3.11 billion USD))
4) (SBU) Even with the spending reduction, the budget will still
face many challenges. There is no estimate of what the official
burden is of all the payments that were delayed in the last quarter
of 2009 and that will have to be settled in 2010. In addition,
compensation for flood afflicted areas will likely strain
contingency funds. While Albania has averaged ten percent revenue
growth over the past decade, the replication of that in 2010 is
extremely unlikely, given much more modest economic growth in both
Albania and across the region.
5) (SBU) Comment: This budget freeze represents a step in the right
direction even if it doesn't fully bring spending in-line with
revenues. By enacting this change now, the GOA avoids the huge
amount of negative press it generated by revising the 2009 budget
and delaying payments across the board to cut 2009 spending. This
process has been clearly driven by the Minister of Finance, Ridvan
Bode, who has pushed the GOA in recent months to set more realistic
revenue and spending targets. Whether Bode is fully adopting a more
conservative stance or merely getting Albania ready for its planned
Eurobond offering, it is clear that the Prime Minister and the
government are listening and want to avoid a repeat of the 2009
budgeting woes. End Comment.


WITHERS