Albania’s general budget deficit narrowed by 82.3% y/y to ALL 1.7bn (EUR 11.9mn) in January to February 2014, data from the finance ministry showed. The improvement was supported by a 4.9% y/y increase in budget revenues coupled with a 9% y/y drop in expenditures. In our calculations, the deficit accounted for 0.1% of the projected full-year GDP, down from 0.7% in the same period a year earlier.

The increase in budget revenues was exclusively on account of a 5% y/y rise in tax receipts. Within this group, revenues from VAT increased by 17.5% y/y to ALL 18.3bn, with VAT on domestic consumption up by 47.9% y/y and VAT, collected by the customs, rising by 8.1% y/y. Growth in VAT revenues was sufficient to offset falling revenues from excise (down by 21.6% y/y) and personal income tax (down by 7.3% y/y). Revenues from corporate income tax stagnated in the period.

Total social contributions picked up 1.2% y/y in Jan-Feb period.

On the expenditure side, capital expenditure declined by 71.9% y/y to ALL 2.6bn. On the other hand, current expenditure advanced by 2.7% y/y to ALL 51.4bn, pushed up by higher social insurance outlays (up by 10.2% 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 expects the budget deficit to widen to 6.5% of the GDP in 2014.