Statement by the IMF Mission to AlbaniaPress Release No. 09/119
April 9, 2009
A mission from the International Monetary Fund (IMF), led by Mr. Gerwin Bell, visited Albania during April 1–7, 2009 to discuss with the authorities the impact of the global financial and economic crisis on Albania and the appropriate macroeconomic policy response. At the conclusion of the visit on April 7, Mr. Bell made the following statement:
“The global economic environment has continued to worsen since the onset of the financial crisis last fall. According to the March 2009 IMF projections, in 2009, global activity is expected to contract for the first time in 60 years. Central and Eastern Europe are among the regions most adversely affected, reflecting sizeable fiscal and external deficits.
“These developments also affect Albania, even though its generally sound past macroeconomic and structural policies placed it in a better initial position than many other countries in the region. Still, exports are stalling, remittances have started to decline and credit growth is slowing, in turn putting a damper on investments. The growth of budget revenue is slowing at the same time as both domestic and external budget financing are becoming increasingly scarce.
“Against this background, it is now time to adjust policies. While the flexible exchange rate has so far taken on part of the adjustment, it is imperative that the budget also adjusts to the new realities. In particular, expenditures contingent on revenue performance, including wage and pension increases, should only go ahead if offsetting measures can be identified. In addition, there is no room at this juncture for the planned cuts in social security contribution rates or any new spending initiatives. In particular, all strategic privatization receipts should be used for normal deficit financing this year.
“In the current very unsettled global financial environment, it is important that the Bank of Albania continue with its vigilant supervision and high-frequency monitoring of the financial sector, and its welcome intensive cooperation with other central banks and supervisors. The Albanian banking system, which is predominantly foreign owned, remains well capitalized and relatively profitable.
“With the adoption of the required policies, Albania can achieve still positive growth, maintain low inflation, and start redressing some of the economic imbalances that are now emerging. While this growth performance will mark a sharp slowdown from the rapid expansion witnessed in recent years, it is important to realize that the global conditions conducive for the previous high growth rates belong to the past.
“The IMF mission would like to thank the authorities for their close cooperation and warm hospitality.”