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Press Release: IMF Executive Board Completes the Third Review Under the PRGF and EFF Arrangements with Albania and Approves US$3.7 Million Disbursement
July 9, 2007
The Executive Board of the International Monetary Fund (IMF) today completed the third review of Albania's economic performance and financing assurances under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement and the Extended Fund Facility (EFF) arrangement. The completion of the reviews enables the release of an amount equivalent to SDR 2.4 million (about US$3.7 million), which will bring the total disbursements to Albania under both arrangements to SDR 9.7 million (about US$14.8 million).
The concurrent three-year arrangements under the PRGF and EFF, amounting to the equivalent of SDR 17.0 million (about US$25.9 million) were approved effective from February 1, 2006 (see Press Release No. 06/17).
Following the Executive Board's discussion of Albania, Mr. Murilo Portugal, Deputy Managing Director and Acting Chairman, stated:
"Albania's macroeconomic performance has remained strong. Economic growth is returning to its potential level, supported by robust exports, while inflation is low. These favorable developments reflect the authorities' strong commitment to sound macroeconomic policies. Looking forward, maintaining these gains and achieving faster convergence toward emerging market income levels will require lasting solutions to the problems in the energy sector and additional growth-enhancing structural reforms.
"The authorities are committed to fiscal discipline, and are implementing a fiscal program that aims to provide sufficient funds for development projects while also reducing public debt. They are adopting a supplementary budget for 2007 that maintains the deficit target while providing temporary budget support to the state-owned electricity company (KESH) through new revenue measures. They are also committed to using half of the receipts from large privatization for public debt reduction.
"It will be crucial to correct on a sustained basis the deterioration of KESH's financial position. Full implementation of the donor-supported power sector action plan will help stabilize the company's financial position and contain the budgetary impact in 2007. Looking forward, a lasting solution would be expedited by the privatization of the distribution arm of KESH in accordance with a firm implementation plan gradually raising domestic electricity prices to cost-recovery levels will also be important to eliminate reliance on budget support in the future.
"The existing monetary policy framework remains appropriate. As the recent hike in the policy rate indicates, the Bank of Albania stands ready to take measures to maintain low inflation and to mitigate the risks of rapid credit expansion. Allocating supervision of the financial leasing sector to the Bank of Albania will eliminate a gap in the supervisory framework. The authorities have taken welcome steps to enhance the supervisory capacity of the Financial Supervisory Authority.
"Significant structural reforms, particularly for promoting private sector involvement in key sectors, are progressing, and sustained efforts are being made to improve public institutions. A general directorate for debt management has been created in the Ministry of Finance to ensure effective implementation of the new debt strategy, and a credit information bureau will become operational later this year. The national telecommunication company Albtelecom has been privatized, and the authorities are committed to privatization in other strategic sectors. The strong interest from foreign investors in Albania is welcome. Large Public-Private Partnership projects with sophisticated financing structures should, however, be treated carefully and the capacity to assess and manage the risks involved in such projects needs to be built," Mr. Portugal said.
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