Military Spending

Assessments of the impact of defense expenditures on Albania's economy during the Cold War were traditionally hampered by the lack of government statistics on overall economic performance and the Albanian economy's isolation from the international economy. Albania generally appropriated 1 billion leks per year for the military budget, or about 5 percent of an estimated late 1980 gross domestic product (GNP) of 20 billion leks -- a relatively modest burden on the economy compared to that borne by other communist countries. However, the absence of reliable statistics made it difficult to calculate this budget as a percentage of total government spending--a common indicator of the priority accorded defense.

It likely represented approximately 10 percent of government expenditures. However, some significant costs were probably hidden in nonmilitary elements of the government budget, thus understating the defense effort as a portion of total spending. The low subsistence wages paid to conscripts also provided a downward bias. Given Albania's low standard of living, per capita military expenditures were high when compared with average family earnings, the bulk of which were required to obtain such basic necessities as food, clothing, and housing.

The Albanian Democratic Party asserted that large defense expenditures during communist rule had impoverished Albania. It cited annual drills for military reservists and live-fire exercises for infantry and artillery units as costing Albania 100 million leks -- an amount equal to the yearly municipal budget for Tiranë. Moreover the new coalition government that took office in June 1991, in a move that probably indicated that the military budget had imposed a hardship on the civilian economy, announced an immediate 20-percent reduction in defense spending.

For continuing the defense program, transformation and modernization of the Armed Forces according to objectives of the "2010 Strategy", an annual progressive increase of the defense budget of 0.1 per cent of GDP is required in order that the defense budget be 2% of GDP by 2010, consistent with indicators of economic development of the country. The Armed Forces modernization fund will be a separate item within the government budget.

The programs of restructuring and modernization are improved and revised on the basis of the actual fiscal reality of the planned years. The effective process of decision-making and contemporary methods and systems for managing resources helps the defense institution in effectively managing the resources provided to make the appropriate decisions, in order to support the objectives of the Military Strategy. The advantages for Transformation and Modernization of the Armed Forces are:

• Improvement of Operational Readiness for mission. The Armed Forces will focus on training of active forces capable of performing their missions according to NATO standards, including selected units of rapid reaction and in forward deployed and interoperable operations with NATO/coalition forces.
• Equipment Modernization/Replacement as soon as possible, within financial constraints.
• Reorganization of Armed Forces according to standards for accomplishment of mission and tasks determined in the Military Strategy.

Other primary elements for transformation and modernization of the Armed Forces are: the consolidation of the Planning, Programming, Budgeting System (PPBS), which now is being applied in the structures and units of Armed Forces; establishment of C4 systems, completion with helicopters and ships for Search and Rescue; and completion with essential ground transport vehicles of priority organizations of the Armed Forces.

Albania worked with the international community to restructure its armed forces and strengthen democratic structures, including addressing military reforms, in its pursuit of NATO membership. Since 1999, Albania has spent approximately $108 million annually on military expenditures, roughly 1.35% of its GDP. According to Government of Albania projections, military expenditures were to reach 2% of GDP in 2008. With bilateral and multilateral assistance, the Ministry of Defense is transitioning to a smaller, voluntary, professional military. The size of the Albanian armed forces is supposed to be reduced to approximately 16,500 troops, instead of 31,000 as of 2003. This figure incorporates the military staff of the Ministry of Defense; the General Staff; ground, navy, and air forces; the Doctrine and Training Center' and Logistics Command. The reformation of all these structures was being carried out according to NATO structural standards.

NATO Allies were concerned by Albania's inability in 2008 to execute its defense budget. At the beginning of 2008, the government publicly committed to a defense budget of two percent GDP (USD 216 million). While the MOD was allotted a sufficient budget to meet this target, in the end, it vastly under-spent its budget and reached only an estimated 1.67 percent, due largely to mismanagement and to procurement failures. This figure increased slightly as final expenditures were tallied. For example, the MoD had originally planned in 2008 to initiate procurement of a new medium-lift helicopter fleet, comprising up to 17 helicopters. However, paralysis at the general staff level and inexperience with international acquisition caused several delays, and in the end, the procurement was canceled for 2008 and the CY2008 funds (USD 5 million) were lost.

In another instance, at the beginning of the year the procurement office was allotted money to buy fuel for military vehicles, but was restricted to buying fuel at a given price. When fuel prices skyrocketed over the year, the MoD was unable to use its allocated funds for fuel purchases. As a result, the money was lost and use of fuel was drastically reduced. As one consequence, during 2008, the Albanian Navy conducted virtually no patrols of its coast.

When it became clear in late December 2008 that the MoD would not reach the two percent target, many Allies' embassies began expressing serious concern. Critics in Albania were also concerned that parliaments who had not yet ratified Albania's membership in NATO (such as Greece) could use this as an excuse to postpone ratification. Advisors urged DefMin Oketa to push through several end-of-year procurements to increase budget execution. While he did spend USD 8.6 million on US radios and individual equipment in the last few days of the fiscal year, he otherwise chose not to make rushed decisions on procurement, but to publicly own up to the failure. He has told Post that budget execution will be a personal priority for 2009 and he will review progress at least every two weeks.

According to official government pronouncements relating to the state budget, 471 million leks (5 leks equal US$1) were appropriated for defense expenditures in 1970. That amount is 9.2 percent of the total planned expenditures of 5,110 million leks, or about 225 leks per inhabitant during the year. Whether or not all expenses that would fall within the defense category in Western countries are included in these figures is not known. It is the practice in some Communist governments to distribute peripheral defense costs among other agency appropriations (see ch. 8, Economic System).

The defense budget was increased drastically in 1969 and 1970 over the levels of earlier years, apparently in reaction to the Soviet invasion of Czechoslovakia. The midyear calculated expenditures for 1969 represented an increase of about 38 percent over those of 1968, and 1970 projections showed another 12.2 percent anticipated increase over 1969.

The burden represented by 225 leks per person can be illustrated by relating it to income and costs of living. In 1967, for example, a typical head of family worker earned about 7,200 leks per year. The average family group consisted of between five and six persons, and about 90 percent of its earnings was required for food and housing. In the preponderant majority of situations where there was only one wage earner per family, therefore, per capita defense costs exceeded everything that the family had available for all uses except food and shelter.