Fiscal Council: Rebalance cuts investments, borrowing funds current spending

The Fiscal Council warned that the government's second proposed rebalance of the 2026 budget reduces capital investment while keeping an elevated deficit, meaning part of new borrowing will finance current spending rather than development projects.

In its opinion submitted to Parliament and signed by the Council's chairman, academic Abdulmenaf Bedžeti, the independent body notes that compared with the July rebalance capital expenditures fall, yet the overall deficit remains larger than in the initial budget.

Key figures and shifts in priorities

The proposal plans total revenues of 374.2 billion denars and total expenditures of 420.5 billion denars. Both revenue and spending estimates are reduced by about 5.3 billion denars (approximately 86 million euros) compared with the July rebalance, while the budget deficit remains at 46.3 billion denars (about 750 million euros), or 4.1% of GDP. The original budget envisaged a deficit of 39.2 billion denars (about 640 million euros), or 3.5% of GDP.

The Council highlights that excise revenue is cut by roughly 3.8 billion denars to 30.4 billion denars, non-tax revenues and donations fall by about 1.9 billion denars, and VAT receipts increase by 364 million denars. On the spending side, planned capital expenditures (including KAPEF) drop from about 46.5 to 40.1 billion denars (a 13.6% fall), while current expenditures rise by roughly one billion denars compared with the July plan.

Social transfers increase by some 3.7 billion denars: pensions +1.34 billion, social allowances +1.44 billion, and health care +887 million denars. At the same time, subsidies and transfers are cut by about 2.27 billion denars and goods and services by 384 million.

"In other words, compared to the initial Budget, the entire increase in expenditures of +6.3 billion denars relates to current expenditures, so the deficit above 3% of GDP is no longer financed for capital investments, but for current consumption," the Fiscal Council states in its opinion.

The Council also points out that the planned capital expenditures (40,124 million denars) are about 6,140 million denars lower than the projected deficit (46,264 million denars), and therefore "part of borrowing is directly used to finance current expenditures, which represents a direct deviation from the 'golden rule' in public finance."

Fiscal dynamics raise further concerns: the Council calculates that by the end of August the deficit reached roughly 38.2 billion denars, or 82.5% of the annual plan, leaving only about 8.1 billion denars for the last four months of the year. To meet the revised revenue plan, average monthly collections in the remaining period would need to be about 35.9 billion denars — 24.5% higher than the average of the first eight months. Capital spending would have to accelerate to roughly 4.4 billion denars per month from September to December — about 55% above the previous monthly average.

The Council flags financing risks as well: gross borrowing planned increases by about 11.3 billion denars to 152.5 billion denars, with domestic funding rising by 12.3 billion and foreign borrowing falling by about one billion. Public debt stood at 58.8% of GDP at end-June, reducing the margin to the legal 60% limit to 1.2 percentage points; the Council expects this threshold to be exceeded and notes overdue public-sector liabilities exceed 700 million euros.

Finance Minister Gordana Dimitrievska-Kochoska defends the changes as a response to altered economic conditions and the fiscal effects of fuel measures, saying the rebalance is intended to protect citizens, meet legal obligations and sustain economic activity. The Government approved the second rebalance on 7 October; the amendment debate in the parliamentary Committee on Finance and Budget began yesterday, with more than 120 amendments submitted.

Photo: press material from the event