Albania’s general budget deficit expanded by 124.9% y/y to ALL 58.5bn (EUR 416.7mn) in January to September 2013 as revenue fell while expenditures increased, finance ministry data showed. In our calculations, the deficit accounted for 4.1% of the projected full-year GDP, up from 1.9% a year earlier.

Total budget revenues declined by 4% y/y to ALL 235.3bn, which was exclusively due to tax revenues that dropped by 4.5% y/y. Within this, the combined revenue from indirect taxes fell by 8.6% y/y, as VAT revenues decreased by 8.4% y/y with VAT on domestic consumption down by 11.9% y/y and VAT, collected by the customs, dropping by 7.4% y/y

Moreover, revenues from customs duties and excise fell by 10.7% y/y and 8.9% y/y, respectively. Lower revenues from indirect taxes signal for a continued stagnation of the domestic consumption. By contrast, revenues from personal income tax advanced by 6.8% y/y in the first nine months of 2013.

On the expenditure side, total budget spending increased by 8.3% y/y supported by a 6.1% y/y rise in current expenditure and a 24.6% y/y increase in capital expenditure. In our view, higher spending on public investments could be partly explained with pre-election expenditures as Albania held parliamentary elections on June 23.

We note that the Albanian parliament approved last week a revision of the 2013 state budget law, which envisaged ALL 38.8bn cuts in spending. The restrictive package includes in particular cuts in operational and maintenance expenditure, public investments, spending on wages as well as lower interest paid by the government.