Albania's general budget deficit narrowed by 73.1% y/y to ALL 6.4bn (EUR 45.5mn) in January to April 2014, data from the finance ministry showed. The improvement was due to a 9.1% y/y increase in budget revenues coupled with a 5.9% y/y drop in expenditures.

In IntelliNews calculations, the deficit accounted for 0.5% of the projected full-year GDP, down from 1.8% in the same period a year earlier.

The increase in budget revenues was driven by a 12.5% y/y rise in tax receipts. Within this group, revenues from VAT increased by 25.4% y/y to ALL 40.6bn, with VAT on domestic consumption up by 41.5% y/y and VAT, collected by the customs, rising by 20.5% y/y. Revenues from corporate income tax (CIT) increased by 23.2% y/y.

The growth in VAT and CIT revenues was sufficient to offset falling revenues from excise (down by 13% y/y) and personal income tax (down by 12.4% y/y). Total social contributions picked up 3.8% y/y in the observed period.

On the expenditure side, capital expenditure declined by 56.8% y/y to ALL 11.5bn. In our view, this sharp decline could be attributed to higher base effect, since the high level of public investment in H1 2013 was influenced by the election cycle. Current expenditures edged down by 0.3% y/y to ALL 103.3bn, reflecting lower expenditures on operation and maintenance (down by 14.6% y/y).

Last year Albania's general budget deficit widened by 42.7% y/y to ALL 65.4bn, as revenue fell while expenditures increased. In our calculations, the deficit accounted for 4.9% of the projected full-year GDP, up from 3.5% a year earlier. We note that the government projects the budget deficit to widen to 6.5% of GDP in 2014.