Capital Management and Budgeting Processes in Albania

Capital Management and Budgeting Processes in Albania

Jane Beckett-Camarata (Pennsylvania State University – Harrisburg, USA)
Copyright: © 2019 |Pages: 23
DOI: 10.4018/978-1-5225-7329-6.ch008

Abstract

This chapter investigates, analyzes, and compares capital management and budgeting processes in Albania and the implications for road and highway infrastructure investment. It is a case study of Albania's capital management and budgeting processes seen through the framework of the Srithongrung, Yusuf, and Kriz normative model. The analysis and insights derived suggest a mixed picture of the contribution that the current capital management and budgeting processes make on the country's capital investment and its economic growth and development. Albania's capital management and budgeting processes are not consistent with the normative framework as follows: (1) the fragmentation and political involvement in capital improvement planning (CIP), (2) forecasting bias and fragmentation in the forecasting process resulting in misalignment and lack of prioritizing new capital investments, (3) shortcomings in the capital financing strategies stemming from court decisions and weak budgetary controls, (4) centralized execution and project management in monitoring highways maintenance.
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Introduction

Although the normative model framework for public capital asset management and capital budgeting processes (long-term capital planning, annual capital budgeting, capital budget execution and public spending evaluation) are largely and fully adopted and used by US state and local governments (Ermasova, 2013), there is limited knowledge of the framework’s applicability to central governments internationally. However, there are EU country comparisons of public infrastructure quantity and quality in aggregated, WDI, IMF, FAD databases. Using the EU average as equal to 1.0, the quality of Albania’s overall infrastructure is 0.75/1.0 in comparison to other EU countries, placing it substantially below the norm, below Russia, Poland and Italy, but above Ukraine, Moldova, Serbia, Montenegro and Bosnia and Herzegovina (WDI, IMF, IMF FAD database, 2018). Additionally, using the EU average as equal to 1.0, Albania, at .35/1.0, is even further below the norm relative to the quantity of public infrastructure expenditures, with only four other EU members below (WDI, IMF, IMF FAD database, 2018).

The capital management and budgeting components and activities identified in the normative framework, taken together, enhance a government’s capacity to be responsive to public infrastructure needs while concurrently maintaining strong financial condition. The objective of this chapter is to fill a portion of this void by providing an understanding of Albanian capital management and budget processes viz-a-viz the normative framework and the implications of its use for enhancing effective public infrastructure investment. Following the identified components and activities in the normative framework can enhance efficiency and effectiveness in the acquisition of public infrastructure systems (Srithongrung and Kriz, (2012). Using the normative model framework of Srithongrung, Ermasova, Yusuf (2019), this chapter investigates and analyzes past and current capital management and budgeting processes in Albania.

Albania is in southeastern Europe, bordering the Adriatic Sea and the Ionian Sea, between Greece to the south, Macedonia to the east, and Montenegro and Kosovo to the north. Albania is about 70 kilometers from the coast of Italy, across the Strait of Otranto. The country is primarily mountainous with small plains along its coast. The population of Albania is about 2.9 million (INSTAT, 2017) in which about half live in urban areas. Tirana, the capital, has a population of 764,000 (INSTAT, 2017) or almost 20% of Albania’s total citizenry. About 20% of the population is below 15 years old, about 70% is between 15-64 years old, and 10% is 65 or older (INSTAT, 2017).

Although Albania’s economy continues to grow, the country is still one of the poorest in Europe. The informal economy is large, as one would expect in economies that were Planned Economies not that long ago. The transport sector, especially roads and highways, is well below standard, which is another expected condition under the country’s previous planned economic system and has been a long-standing barrier to sustained economic growth. Major sectors of Albanian Capital Investment include Energy, Telecommunications, and Transport. Within the Transport Sector there are several sub-sectors which include airports, ports, and roads and highways.

Because Albania is still transitioning to a market economy and all sectors are undergoing major change, this study of Albanian Capital Management and Budgeting Processes has focused initially on one, roads and highways, since this sub-sector is such a critical component of the country’s economy. Subsequent research will address capital management and budgeting in the other sub-sectors.

The study is organized as follows: The next section discusses the background of the Albanian road and highway infrastructure system. The third section provides analysis of the Albanian Capital Management and Budget Processes viz a viz the normative model. The final section presents the Conclusion.

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