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Bank of Albania on the 2027 budget: VAT changes could increase prices and inflation

2026-11-03 08:56:26Biznes SHKRUAR NGA REDAKSIA VOX

Bank of Albania on the 2027 budget: VAT changes could increase prices and

The Bank of Albania yesterday expressed a positive opinion on the 2027 draft budget, but emphasized that the revenue plan is at the upper limit of macroeconomic projections.

Second Deputy Governor, Natasha Ahmetaj, said in her speech to the Parliamentary Committee on Economy, Employment and Finance that the risks associated with the assumptions of the base scenario remain relevant and, as such, need to be addressed.

“Potential deviations from the assumptions require the adoption of contingency plans and potentially additional measures, depending on their deviation from the baseline scenarios. We judge that, in any case where fiscal correction based on the expenditure side will be necessary, in order to respect the budget deficit limit, a priority order should be followed in carrying out expenditures that ensure higher efficiency,” she said.

Regarding the proposed fiscal measures and in particular the significant changes proposed in VAT levels, the Bank of Albania said that their impact will depend on the extent of transmission to final prices, without excluding that these changes could affect the inflationary expectations of economic actors.

"The reduction in VAT on some basic foods and the reduction in the fuel tax rate are expected to have a downward impact on prices, while the overall increase in VAT and the reduction in the turnover threshold for the inclusion of businesses in the VAT scheme may have an opposite impact."

Overall, we estimate that their net impact will depend on the weight and degree of transmission to final consumer prices. We also want to emphasize that the direct impact of tax changes on inflation is temporary in nature. However, more lasting effects may emerge if these changes affect inflation expectations, wage demands or business behavior in determining prices,” said Ms. Ahmetaj.

In its suggestions for the future, the Bank of Albania reiterated the need for a more uniform planning and implementation of budget expenditures, and especially of investment implementation, during the year. This practice would enable a more efficient use of public resources, as well as smoothing fluctuations in liquidity and aggregate demand.

Another suggestion repeated this year by the Bank of Albania is the reform of the pension system.

“In the longer term, adverse demographic trends, such as population ageing, emigration and a shrinking working-age population, are expected to increase pressures on the financing of social security and health schemes, deepening the challenges to the sustainability of public finances. This underlines the importance of continuing reforms.

The Bank of Albania encourages the continuation of efforts to reform the pension system, with the aim of establishing a sustainable balance between the level of benefits and the financial capacities of the scheme. In particular, we consider it important to examine the possibilities for the gradual adjustment of the parameters of the public scheme and the expansion of the contributor base, as well as the further development of supplementary pension schemes, following the initiatives undertaken.

"In parallel, it is necessary to systematically include demographic projections and assessments of the sustainability of pension and health insurance schemes in medium- and long-term fiscal planning," she said.

The Bank of Albania also emphasizes that, in an economic and financial environment characterized by high uncertainties and increased risks, further strengthening of mechanisms for identifying, assessing and managing fiscal risks is extremely important.

“We believe that special attention should be paid to the impact that less favorable economic developments and changes in financing conditions may have on budgetary indicators and the trajectory of public debt.

In this regard, increasing the use of sensitivity analyses and alternative scenarios in budget planning, as well as the timely identification of measures to address potential risks, would help increase the sustainability of public finances and maintain the ability of fiscal policy to respond to shocks," said Deputy Governor Ahmetaj.


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