IMF Reaches Staff-Level Agreement for Completion of Ninth and Tenth Reviews of Albania’s Extended Arrangement
Economic program remains on track and has achieved its core objectives of correcting large macroeconomic imbalances and boosting economic growth. Overall, good progress in implementing structural reforms. Essential that Albania commits to maintaining its momentum of economic reforms.
An International Monetary Fund (IMF) team, led by Anita Tuladhar, visited Tirana, to conduct discussions on the combined ninth and tenth reviews, under Albania’s Extended Fund Facility (EFF) Arrangement.
The IMF team reached staff level agreement with Albania’s authorities on the policies needed to complete the ninth and tenth reviews, the last ones, of the country’s EFF. The team also discussed policy priorities under Post-Program Monitoring. The economic program remains on track and has achieved its core objectives of correcting large macroeconomic imbalances and boosting economic growth. Most quantitative targets were met. Despite some delays, there is overall good progress in implementing structural reforms.
“The program has put the economy on its way to sound public finances, financial stability and economic recovery. With the program coming to an end, it will be essential that Albania commits to maintaining its momentum of economic reforms. These reforms are crucial to boost confidence, spur investment, and strengthen growth prospects. The recent conditional recommendation to start EU accession negotiations marks an important milestone, recognizing the authorities’ commitment in this reform process”, – Ms. Tuladhar says.
“The Fund team sees the economy strengthening. GDP growth is expected to have reached 3.4 percent in 2016 and is projected to accelerate to around 4 percent over the medium term, driven by large energy-related foreign direct investment and a pickup in domestic demand. Average inflation has reached 1.3 percent last year, in line with rising domestic demand, and is expected to continue increasing gradually until reaching the target rate of 3 percent by 2018. The current account deficit is projected to widen because of large imports needed for the energy projects, from around 12 percent of GDP in 2016 to 13.5 percent of GDP in 2017-18″.
Preliminary data suggests that the 2016 budget achieved a small primary surplus, slightly below the programmed level. Revenues came below target, mainly due to a softening of value-added tax receipts, while expenditures picked up significantly towards the end of the year. Public debt has started to decline but remains high at over 70 percent of GDP. In order to achieve the medium-term debt objective, the authorities have agreed to target a primary surplus of 0.7 percent of GDP in the 2017 budget as well as save large, unbudgeted one-off revenues of around 0.5 percent of GDP.
Bank of Albania’s accommodative monetary policy stance remains appropriate, and is consistent with its price stability objective. The banking system remains stable, liquid and well capitalized. Credit to households is recovering but the outstanding stock of non-performing loans (NPLs), which remains high at over 20 percent of loans, is deterring lending to corporations. Implementation of the Bankruptcy and Private Bailiff’s laws will be key in resolving these NPLs.
At the conclusion of the visit, Ms. Tuladhar said: “Going forward, the main priorities should be: to continue expanding revenue to strengthen public finances and to ensure debt sustainability; reduce NPLs to strengthen financial stability and support credit recovery; and advance structural reforms to improve the business climate. Important progress has been made in these areas, and further efforts are needed to cement these gains. In this regard, strengthening of tax administration, broadening the tax base, and introduction of a value-based property tax remain important objectives.