VZCZCXYZ0000
PP RUEHWEB

DE RUEHTI #0187/01 0710623
ZNR UUUUU ZZH
P 110623Z MAR 08
FM AMEMBASSY TIRANA
TO SECSTATE WASHDC PRIORITY 6809

UNCLAS TIRANA 000187 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/SCE (ERIN KOTHEIMER AND YOULIANA IVANOVA); 
EEB/IFD/OMA (ANDREW SNOW AND RICHARD FIGUEROA) 
 
PASS TO TREASURY FOR VIMAL ATUKORALA 
 
REF: STATE 016737 
 
E.O. 12958:N/A 
TAGS: EAID ECON PREL AL
SUBJECT: REPORT ON ALBANIA'S FISCAL TRANSPARENCY 
 
¶1.  Per Reftel, post submits the following report for the 
Department's congressionally-mandated report on fiscal transparency 
in countries receiving USG assistance: 
 
¶2.  With continual prodding from the U.S., EU, and International 
Financial Institutions, the Government of Albania (GOA) has taken 
steps to improve its fiscal transparency and accountability.  The 
government's budget is made public and interested parties are 
invited to make suggestions during the drafting period.  However, 
their comments are seldom reflected in the final budget.  Upon 
approval the budget is posted on the Finance Ministry's website and 
subsequently published in the government's official gazette. 
 
¶3.  The budget includes, among other items, all planned revenues and 
expenditures which do not always match the eventual end-of-the-year 
fiscal results.  In general, the accuracy of the figures remains 
questionable, which is mainly due to the GOA's lack of capacity on 
fiscal issues rather than a lack of will. 
 
¶4.  Financial data is closely scrutinized by the International 
Monetary Fund's office in Albania.  The IMF closely coordinates with 
the Finance Ministry on the draft of the government's budget. 
Albania has agreed to allow the IMF to report on the country's 
compliance with standards of fiscal transparency.  In July 2007, the 
IMF completed the third review of Albania's economic performance and 
financing assurances under the three-year Poverty Reduction and 
Growth Facility (PRGF) arrangement and also the Extended Fund 
Facility (EFF) arrangement.  The IMF's fiscal monitoring of the GOA 
is currently scheduled to expire in 2009. 
 
¶5.  The most important on-going USG project in Albania to improve 
fiscal performance is the two-year Threshold Agreement approved by 
the Millennium Challenge Corporation (MCC) in 2006.  Albania's 
Threshold Agreement is a USD 13.85 million assistance project to 
reduce corruption and improve performance in three key areas of 
public administration: tax administration, public procurement and 
business registration.  Two important components of the project deal 
with the lack of transparency in tax collection and public access to 
the GOA's Electronic Commercial Registry.  (Note: A second two-year 
Threshold Agreement is being negotiated now between the GOA and 
MCC.)  Separately, the EU is offering support to the Institute of 
Statistics in Albania for data collection.  The goal of this 
initiative is to harmonize the Albanian statistical system with EU 
standards. 
 
¶6.  Albania still suffers from a lack of consistency in its tax 
legislation as well as a vague state of affairs in tax 
administration and the implementation of fiscal laws.  In 2008, the 
GOA approved a controversial fiscal scheme that included different 
reference prices for goods and profit levels for businesses in an 
attempt to fight informality.  The new law on tax fines (which 
requires payment of the full tax assessed and 15 percent of the 
fines imposed before an appeal can be made) has caused controversy 
in the business community and is being appealed to the country's 
Constitutional Court. 
 
¶7.  In 2007, Parliament approved new public procurement legislation 
which aims to strengthen the independence and transparency of the 
Public Procurement Agency and the appointment of a public 
procurement ombudsman.  However, legal enforcement of this and other 
economic laws remains problematic.  The establishment of a new joint 
investigative unit to fight economic crime and corruption in the 
Tirana Prosecutor's Office in May 2007 is a positive development. 
 
¶8.  The High Inspectorate for Declaration and Audit of Assets 
(HIDAA) has made some progress on enforcing asset declaration 
obligations.  However, HIDAA lacks mechanisms to investigate 
declarations.  In general, there is good compliance with the legal 
obligation to declare assets and private interests but no official 
has yet been prosecuted for providing false information in an asset 
declaration form. 
 
¶9.  There has been progress by the government in the area of Public 
Internal Financial Control.  In this respect an internal audit law 
was recently approved by Parliament and proposals were made by the 
government to introduce the concept of managerial accountability in 
a new draft Organic Budget Law.  Existing Internal Audit units 
perform mainly control and inspection tasks, indicating that the 
internal audit profession, which should focus on systems-assessment 
and advice, is still in the very early stages of development. 
 
¶10.  As regards external audit capacities, neither the Constitution 
nor the Law on External Audit complies fully with the guidelines of 
the International Organization of Supreme Audit Institutions 
(INTOSAI), especially regarding the functional and financial 
independence of the Albanian supreme audit institute.  The institute 
needs to focus on financial and performance audits rather than on 
inspection activities.  Also the independence of the institute needs 
to be appropriately strengthened.  End Report. 
 
WITHERS