Albania’s general budget deficit expanded by 128.5% y/y to ALL 47.7bn (EUR 340.3mn) in January to July 2013 as revenue fell while expenditure increased, finance ministry data showed. In our calculations, the deficit accounted for 3.3% of the projected full-year GDP, up from 1.6% a year earlier.

Total budget revenues declined by 2.6% y/y to ALL 185.4bn, which was exclusively due to tax revenues that dropped by 3.2% y/y. Within this, the combined revenue from indirect taxes fell by 5.9% y/y, as VAT revenues decreased by 6% y/y with VAT, collected by the customs, dropping by 7.2% y/y. Moreover, revenues from customs duties and excise fell by 10.2% y/y and 4.9% 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 8.3% y/y in the first seven months of 2013.

On the expenditure side, total budget spending increased by 10.4% y/y supported by a 6.7% y/y rise in current expenditure and a 37.9% y/y increase in capital expenditure. The latter accounted for 53% of the full-year plan, which was higher that the 45.6% share a year earlier. In our view, higher spending on public investments could be partly explained with pre-election expenditures as Albania held parliamentary elections on June 23.

The government plans the budget gap to account for 3.4% of the GDP in 2013, higher that the 3% target set for 2012. In order to meet the target, the government approved in July a set of restrictive measures. The list includes freezing of public procurement and investments, which after July 15 are implemented only through a special decision of the cabinet. In addition, the government reduced the expenditure on administrative services by 20%.