The trap of informality, the economy and inflation will grow, but incomes relative to GDP will decrease in 2024-2027

2024-02-07 07:14:08, Ekonomi CNA

The trap of informality, the economy and inflation will grow, but incomes

Albania's inflation and economy are growing at faster rates than the last decade, but the country has fallen into the trap of informality as budget revenues compared to the Gross Domestic Product are expected to decline in the medium-term period 2024-2027 according to forecasts in Medium-Term Economic and Fiscal Framework.

The Ministry of Finance predicts that the country's economy will grow by approximately 4% in the period 2025-2027, while inflation is expected to be at least 3 percent. But on the other hand, income in relation to GDP is expected to come down. Finance expects that by 2023 budget revenues will have reached 28 percent of GDP, but in 2024 they are not expected to be more than 27.8% of GDP, remaining at the same level until 2027.

Budget revenues have grown at double-digit rates in the last two years, but the area of ??the untaxed economy has also increased.

The final data on the result of revenues for 2023 have not been published yet, but in 2022 budget revenues reached 26.8% of GDP from 27.5% that were in 2021 with a decrease of -0.7 percentage points. In 2022, budget revenues reached 26.8% of GDP from 27.5% in 2021, a decrease of -0.7 percentage points.

The trap of informality, the economy and inflation will grow, but incomes

The International Monetary Fund points out that in developing countries, where Albania is also classified, budget revenues can increase by 9% of GDP by 2030, if they implement some reforms related to reducing corruption. the fight against informality, the implementation of reforms and the strengthening of institutions.

Budget revenues in value in our country have increased, but they have not improved the ratio to GDP since 2008. According to official data from the Ministry of Finance, in 2022, budget revenues reached 26.8% of GDP at a lower level than in 2008, where the indicator was 28.9% of GDP.

IMF experts reveal that developing countries, including Albania, have the potential to increase their tax ratios to GDP by up to 9 percentage points through tax reform and strengthening of public institutions. The new tax-free space can provide our country with sufficient financial resources to achieve the objectives of sustainable development until 2030.

Harnessing this potential would also contribute to financial development and private sector entrepreneurship.

The trap of informality, the economy and inflation will grow, but incomes

The improvement of public institutions in the developing economies of which Albania is a part, including the reduction of corruption, would result in an additional increase of 5 percentage points of income in relation to GDP.

The IMF suggests as a fundamental intervention the improvement, design and administration of taxes such as VAT, excise duties, personal income taxes and corporate income taxes.

Also, the implementation of bold reform plans in expanding the tax base through more neutral taxation of capital income and better use of property taxes would be a possibility./ Monitor.al