IMF: Albania faces public spending pressures, fiscal sustainability at risk

2025-11-20 15:31:00, Ekonomi CNA

The report on Albania, drafted by the International Monetary Fund, among other things, places emphasis on the situation with fiscal space and tax policies.

The report raises concerns that the country faces public spending pressures that, if not addressed soon, could jeopardize fiscal sustainability in the medium term.

The IMF suggests phasing out some tax expenditures such as high VAT exemption thresholds, sectoral incentives, and preferential regimes for the self-employed, as they are considered costly and regressive.

“Based on current policies, IMF staff projects a small primary surplus in 2025 and 2026 and a zero primary balance thereafter. Planned increases in average pensions through monthly bonuses (e.g., from €270 to €400 for urban pensions) starting in 2026 will be partly financed by expectations of additional Medium-Term Income Strategy (MTISS) revenues, savings in current expenditures, and under-execution of capital expenditures. Public debt is projected to decline from 54 percent of GDP at the end of 2025 to around 50 percent of GDP by 2030. While debt dynamics have improved markedly in recent years, still relatively large gross financing needs, averaging 13 percent of GDP over 2025–30, underscore the importance of continuing debt management reforms.

Like many other European countries, Albania faces public spending pressures that, if not addressed now, could jeopardize fiscal sustainability in the medium term. Demographic trends are expected to increase spending on pensions and health, especially after 2030, while the NATO commitment to allocate 5 percent of GDP to defense and security spending by 2035 will put additional pressure on public finances. Greater investment in education, training, and climate adaptation will also be needed to strengthen sustainability and productivity. To address these challenges and preserve fiscal space, staff recommends a package of growth-enhancing measures focused on sustainable revenue mobilization, tax policy reforms, and improving the quality of public spending.

Consequently, revenue reforms should focus on rationalizing tax expenditures, modernizing property taxes, and strengthening tax administration. Costly and regressive tax expenditures, such as high VAT exemption thresholds, sectoral incentives, and preferential regimes for the self-employed, should be phased out as their effectiveness is uncertain. Introducing a value-based property tax and accelerating its implementation would support local finances. Stronger enforcement supported by risk-based audits and digitalization remains essential for the full realization of the revenues from the Medium-Term Revenue Strategy. Together, these measures have the potential to raise revenues by up to 2 percent of GDP by 2030,” the report says. /CNA