Albania and the IMF
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The International Monetary Fund (IMF) today approved the second annual arrangement under the Enhanced Structural Adjustment Facility (ESAF),1 and an augmentation of SDR 9.74 million (about US$13.10 million) in the amount of resources committed under the arrangement, to support Albania's economic and financial program. The augmentation takes into account Albania's increased balance of payments needs arising from the impact of the Kosovo crisis. The three-year ESAF arrangement was approved on May 13, 1998, in an original amount of SDR 35.30 million (about US$47.49 million), of which one-third has been disbursed. (See Press Release No.98/18.) Today's decision increases the total amount of the ESAF arrangement to SDR 45.04 million (about US$60.59 million) and triggers release of SDR 9.58 million (about US$12.89 million).
Prior to the Kosovo crisis, macroeconomic stability had been restored and economic trends were highly encouraging. During 1998, the government adhered to its tight fiscal target, reducing the domestically financed component of the deficit to 6.4% of GDP in 1998 from 10.8% of GDP in 1997; inflation declined to below 10%, compared to 42% during 1997, and fell further to just 2% in March 1999; the external current account deficit fell to 6% of GDP in 1998 from 12% of GDP in 1997; and the decline in output in 1997 was reversed, with 1998 growth estimated at 8%.
Medium-Term Strategy and the 1999/2000 Program
The budget impact of the Kosovo crisis is estimated at US$154 million (4% of GDP for 1999). However, the authorities aim to ensure that this does not interfere with underlying fiscal consolidation. Albania plans to stick to the original budget goal of reducing the domestically financed deficit to 5.5% of GDP in 1999, and about 4% in 2000. However, if cuts in essential development and social expenditures are to be avoided, this can only realistically be achieved if the international community finances the large budgetary cost of helping the refugees. Monetary policy for 1999 is designed to meet the inflation and balance of payments objectives and is not expected to be deflected by the Kosovo crisis.
Albania aims to continue the significant progress already achieved in establishing a liberal and open trade system, through further reduction of tariffs in the next few years and lowering the maximum rate to 15% from 20%, and the average rate to 10-12%. Agriculture is central to the Albanian economy, accounting for more than 50% of GDP. Therefore, an important part of the program is to complete land registration and foster the land market in order to consolidate land holdings and increase productivity.
The Challenge Ahead
Albania joined the IMF on October 15, 1991, and its quota2 is SDR 48.70 million (about US$65.52 million). Its outstanding use of IMF financing currently totals SDR 41.98 million (about US$56.47 million).
1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5 ½-year grace period.
IMF EXTERNAL RELATIONS DEPARTMENT