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E-TJERA

Fiscal policy, the government aims for a "tight hand"

Politiko 2025-02-12 13:00:05

The government does not expect to have a stimulating fiscal policy in the medium term, arguing this with the continuation of consolidation during the years 2026-2028. The fiscal framework document for these years states that unlike the years 2020-2021 when the earthquake and the pandemic made a more stimulating fiscal policy necessary, the path towards which it will move is now the opposite.

"Fiscal consolidation will continue to be the fundamental objective of fiscal policy for the medium-term period 2026–2028, in direct function of ensuring the country's macroeconomic stability, as an essential premise for ensuring sustainable and inclusive economic growth. With the aim of preserving the credibility of public finances in the perception of markets, fiscal policy will target an annual downward trajectory of public debt, while the primary balance will be at least neutral or at a positive level in the future, constituting the main operational objective that will anchor fiscal policy in the medium and long term, in accordance with the respective fiscal rules in the LOB (Organic Budget Law)," the document states.

The government underlines that economic growth is expected to be based on several sectors such as industry, services, and construction, while agriculture is the one seen with the most modest performance.

Likewise, public investments, which are expected to average above 5 percent of GDP, will contribute to this growth, as will domestic consumption.

"Although fiscal policy will continue to be oriented towards consolidation in the medium and long term, the other objective of this fiscal policy to maintain a relatively high level of public investment at over 5 percent of GDP in the years 2026-2028, will stimulate gross fixed capital formation in the economy, essential to support relatively high and sustainable levels of economic growth in the medium and long term," the Macroeconomic Framework states.

The document highlights that based on forecasts of key macroeconomic indicators, fiscal (tax) reforms and changes undertaken and especially those expected to be undertaken in the future, as well as other determining factors in the performance of various items of state budget revenue, total budget revenue for the next three years (2026–2028) is projected to increase by an average of about 5.3 percent each year.

Total government resources to be spent during the years 2026–2028 are expected to average around 885.8 billion lekë each year or an average of around 30.6 percent of GDP. Public investments are programmed to be maintained at an average level of around 5.9 percent of GDP each year (only by the central government, not including those by local government)./ Monitor