News Brief No. 00/4

News Brief: IMF Completes Albania Review and Approves US$13 Million Credit Tranche

January 19, 2000

The Executive Board of the International Monetary Fund (IMF) today completed the first review of the second annual arrangement under the Poverty Reduction and Growth Facility (PRGF)¹ for Albania. As a result, Albania will be able to draw up to the equivalent of SDR 9.6 million (about US$13 million) from the IMF.

In commenting on the Executive Board's discussion of the review, Shigemitsu Sugisaki, Deputy Managing Director of the IMF, made the following statement:

"The Albanian authorities are to be commended for having maintained macroeconomic stability despite the severe challenges resulting from the Kosovo crisis. GDP is estimated to have grown by 8 percent in 1999, inflation is close to zero, and external reserves are at a comfortable level. These favorable results reflect to a large extent the authorities' steadfast pursuit of sound macroeconomic policies. Structural reforms have also continued, with notable progress in the area of privatization in particular.

"The authorities' policy framework for 2000 aims at continuing rapid growth and low inflation, based on a strong program of structural reforms and cautious budgetary policies. In this context, the authorities' commitment to improve tax administration is crucial to provide resources for spending in key areas and to meet the deficit reduction target. Furthering the fight against fraud and corruption in the customs administration remains essential. Given that inflationary pressures remain weak, the authorities' latest cuts in interest rates are welcome.

"The authorities will continue to face challenging tasks in implementing the deep-seated reforms required to establish a fully functioning market economy and to ensure its rapid growth over the medium term. Strengthening governance and law and order should remain the central focus of reforms.

"The authorities' structural reform program is suitably ambitious. A particular priority is to complete privatization in the banking and in the other strategic sectors.

"The authorities' commitment to developing a poverty reduction strategy and preparing a PRSP through an open consultative process is welcomed. As a first step, an interim PRSP is expected at the time of the next program discussions," Sugisaki said.

¹On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Albania, pending the completion of a PRSP, a preliminary framework has been set out in a policy framework paper (PFP), published in summer 1999, and preparations for a participatory process are underway. It is understood that all policy undertakings in the PFP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement. PRGF loans carry an interest rate of 0.5 percent a year, and are repayable over 10 years with a 5 ½ year grace period on principal payments.