## 1. Priority Recommendations ## Source details **Canonical URL:** [1. Priority Recommendations](https://www.imf.org/-/media/files/publications/cr/2019/1albea2019004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1albea2019004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1albea2019004.pdf.json) --- ### Mission scope and objectives - A monetary and financial statistics (MFS) and financial accounts technical assistance (TA) mission visited Albania during April 15–26, 2019. - Main objectives: - Compile and disseminate flow-based MFS for the central bank, other depository corporations (ODCs), and other financial corporations (OFCs). - Compile and disseminate quarterly financial accounts by institutional sectors. - Develop a from-whom/to-whom matrix for financial instruments. - Explore INSTAT’s current compilation of, and future plans for, sectoral current and capital accounts. ### Key findings on data quality and institutional readiness - Overall data quality and staff capacity at the Bank of Albania (BOA) are high. - BOA currently compiles and disseminates MFS for three financial sub-sectors (central bank, ODCs, OFCs) and produces annual financial balance sheets for all sectors (data available 2013–17). - Financial sector data: high quality, reported monthly or quarterly. - Rest of the world (ROW) data: mostly good, with some gaps. - General government (GG) annual data: adequate, but quarterly data need development. - Other sectors (NFCs, households, NPISHs): many data cells derived from counterpart information; some items (shareholders’ funds outstanding, equity issues, other accounts receivable/payable) need further work. - INSTAT compiles annual production and generation of income accounts by institutional sector with a lag of about 16 months and currently has no plans to compile remaining current accounts or capital accounts beyond existing coverage without additional resources. ### Priority recommendations and target dates - March 2020: The BOA develops monthly flow-based MFS, beginning with data from January 2017. (Responsible: BOA) - December 2019: The BOA develops estimates of annual sectoral financial accounts, on a from-whom/to-whom basis (to the maximum extent possible), beginning with data from 2017. (Responsible: BOA) - June 2021: The BOA develops estimates of quarterly sectoral financial accounts and financial balance sheets, on a from-whom/to-whom basis (to the extent possible), beginning with data from the first quarter of 2017. (Responsible: BOA) ### Recommended sequencing and automation - Develop and publish monthly flow-based MFS by March 2020 (data starting January 2017). - Produce and disseminate annual financial accounts for all sectors by end-2019 (for 2017 and 2018), disseminated together with sectoral financial balance sheets. - Develop quarterly sectoral financial accounts and balance sheets by mid-2021 (beginning Q1 2017), conditional on BOA developing software by end-2020 to automate compilation; current annual compilation is manual. - Consider modifying software being developed for external sector statistics to support quarterly sectoral financial accounts. ### Detailed technical assessment — data sources Central bank and ODCs - Central bank and ODC source data are very detailed and timely: reported monthly with a two-week lag; instrument, currency (euros, US dollars, Swiss franc, Japanese yen, sterling, etc.) and counterpart sector breakdowns. - ODCs account for about 90 percent of the financial sector’s total assets. - Savings and loan associations (SLAs) represent less than half of one percent of total assets; SLAs report quarterly and their inclusion in the third month of each quarter produces slight quarter-to-quarter increases that are not smoothed. - BOA maintains a security-by-security database of Albanian-issued securities (mostly GOA), with variables including amount of issue, issue and maturity dates, sector of issue, sector of holder, coupon rate, currency of issue, and market prices; BOA removes price changes to derive transactions. Other financial corporations (OFCs) - OFCs report quarterly; brokers and exchange rate offices report annually. - Detail is generally sufficient for flow-based MFS. Brokers and pension managers have less-detailed reporting but their asset/liability shares are very small. - Foreign-currency breakdowns for OFCs: - Deposits at and loans with ODCs: counterpart information provides currency breakdown. - OFCs’ loan assets: foreign currency breakdown available. - Other accounts receivable/payable denominated in foreign currency: no currency breakdown — mission recommended using only the euro for these items. - Some OFCs report foreign currency shareholders’ funds; mission recommended using the euro for these instances. - Allocation of nonlife insurance technical reserves to counterpart sectors improved after AFSA introduced a new report form; BOA should revise earlier-year estimates using ratios from the new form. - Technical reserves of life insurance companies are all allocated to the household sector. Rest of the World (ROW) - ROW sources for financial account of the balance of payments and the IIP are comprehensive and timely for most components, but gaps remain: - No current estimate for holdings of euro cash outside the banking system. - Bank accounts of nonresident Albanians with resident Albanian banks are misclassified in ODC reports as resident (household) balances due to reporting regulations; these accounts should be recorded as held by nonresidents in ROW datasets. - Recommended approaches: - Investigate methodologies used by other countries with currency co-circulation to estimate foreign-currency cash holdings outside the banking system. - Calculate ratio of lek cash outside the banking system to lek deposits in the banking system and apply to euro deposits to estimate euro cash held outside banks, with adjustments for differing uses of lek and euro in Albania. - Include any estimates of euro cash held by households and NFCs as liabilities in ROW datasets (assets in the balance of payments financial account and the IIP). - Adjust MFS so that monetary aggregates exclude nonresident deposits with ODCs to better focus on domestic balances; request more detailed information from ODCs on the purpose, use, amount and features of accounts held by nonresident individuals. General Government (GG) - GFS compiled by MOFE: annual, modified cash basis, lag about nine months; includes central and local government but excludes extra-budgetary entities and public nonfinancial corporations. - BOA compiles GG financial account with and without extra-budgetary data; production account, generation of income accounts, ROW, and GFS do not include extra-budgetary entities. - Recommendations: - BOA to include extra-budgetary institutions that meet GG criteria in GG sector, revise data back to 2013, and prepare reconciliation tables explaining differences with other datasets. - BOA to explore with GDT the composition and counterparties of very large balances classified as other accounts receivable/payable (accounting for about a third of total liabilities and a much larger proportion of financial assets) and whether reclassification to other instruments is warranted. - BOA maintains a database of GOA debt securities by sector of holder and can track monthly ownership changes. Other sectors (NFCs, households, NPISHs) - Counterpart data from other sectors provide information for many instruments (deposits, loans); ROW direct investment survey provides counterpart data by sector. - Gaps for instruments such as shareholders’ funds, equity issues, other accounts receivable/payable, intra-sectoral loans — primary available source has been INSTAT data drawn from the National Registration Center (NRC). ### Implementation support and next steps - Mission recommended a detailed one-year action plan with priority recommendations (above); further details and actions/milestones are in the action plan under Detailed Technical Assessment and Recommendations. - BOA and partner agencies (MOFE, GDT, INSTAT, AFSA) to coordinate on data sharing, reclassification, and software development to meet recommended target dates. --- ### All enterprises in Albania are required to register with the NRC annually ### Registration requirements and data formats - Annual registration to the NRC includes, inter alia, income and expenditure statements and balance sheets; notes often accompany the financial statements; information on the enterprise’s activities, the principal shareholders, and the members of the board of directors is also provided to the NRC. - There are approximately 120,000 enterprises in Albania, many of which are very small. - Up to fiscal year 2017, most information was not in any machine aggregatable format (files were Word documents or PDF files but not in Excel files or some equivalent that would allow aggregation). - INSTAT downloads about 20,000 files and has been entering the data manually, a time-consuming process subject to data entry errors. ### NRC reform, pilot, and transition - The NRC, with World Bank assistance, conducted a pilot exercise in 2016 and 2017 for financial information to be filed in an aggregatable format; the pilot proved successful. - The new system came into effect in 2019, for fiscal year 2018 (enterprises report in the first half of 2019 their financial statements for 2018). - Filing requirements vary by enterprise size, from minimal information for the smallest to data consistent with International Financial Reporting Standards for the largest; smallest enterprises are not required to provide balance sheet data (they represent a very small proportion of the total). - For each size level, information will be reported in a standardized format, improving data quality considerably, especially for shareholders’ funds (which all but the smallest enterprises will report). - INSTAT will continue the current manual approach for two years (2018 and 2019) to provide an overlap to determine to what extent earlier years’ data need adjusting. ### BOA use of INSTAT data and estimation methods - For years prior to 2018, the BOA has used INSTAT data where no alternative sources exist, including cash holdings, intra-sectoral loans, shareholders’ funds, and other accounts receivable/payable. - To derive universe estimates for cash holdings and shareholders’ funds, the BOA: - Uses the ratio between the INSTAT deposits figure and the counterpart DTC deposit liability data to NFCs (DTC deposit liability data are high quality and replace deposit data from INSTAT). - Assumes the ratio of NFCs’ cash holdings to NFCs’ deposits at DTCs is the same for the universe as for INSTAT data, and applies that ratio to cash holdings reported in the INSTAT data. - Assumes there is a 50/50 split between Albanian lek and euro cash holdings. - Applies the same ratio to shareholders’ funds. - For NFC intra-sectoral loans and other accounts receivable/payable: - BOA does not adjust INSTAT values for intra-sectoral loans (values are very small and not significant), but adjusts intra-sectoral loan liability to equal the asset value. - BOA does not adjust other accounts receivable/payable because these values are very large (in the order of a third of total financial assets and liabilities) and may already include instruments that overlap with other categories. - When new NRC datasets (2018 and 2019) are available and aggregated, BOA should revise prior-year estimates for cash holdings, shareholders’ funds, and other accounts receivable/payable: - Adjustments should be based on the average of the ratios between the two datasets for each series for those two years and carried back to 2013. ### NFC equity issues and frequency of NRC data - NRC requires all registered enterprises to report the value of shares on issue in Excel files and to update this information immediately upon issuance (not only at year-end). - Mission recommendation: BOA obtain the value of equity on issue from the NRC on a frequent basis (even monthly, if required) so BOA can derive equity transactions during the period by taking first differences. - If NRC cannot separate NFC data from financial corporations’ equity issues, BOA should adjust to exclude financial corporations’ equity issues (financial sector sources available for that adjustment). - If NRC has data back to 2013, NFC equity issues can be calculated historically; if not, BOA should use INSTAT files with level adjustments. ### Households and NPISHs - BOA has no direct data sources for households and NPISHs; these sectors have been combined into one and data are drawn from counterparties or are residual. ### Recommended actions (selected with deadlines and exact wording preserved) - MFS data be adjusted, in line with the data included in the ROW, to treat nonresident Albanians’ deposits and/or loans at ODCs as nonresident (September 2020). - BOA revises the estimates for insurance technical reserves for the years prior to 2018, using the ratios from the new AESA report form (June 2019). - BOA explores with the GDT what the central government’s other accounts receivable and other accounts payable include, what the counterparties are, and whether it is necessary to allocate to other instruments (September 2019). - GG sector financial account and financial balance sheet be revised back to 2013 to incorporate those extra-budgetary entities that meet the criteria for inclusion in GG (December 2019). - BOA look into the approach taken in other countries where there is co-circulation of foreign and domestic currencies to explore the methodology ... Once such a study has been conducted, the mission recommended that the BOA compare the results with those from applying the ratio of the value of cash in lek outside the banking system in Albania with the value of deposits in lek in the banking system in Albania to the value of euros on deposit at banks to derive an estimate of the value of euros held in cash outside the banking system. Given the different uses of Albanian lek and euros in Albania, some adjustments to the calculated ratio based on lek in circulation and deposits would be necessary (December 2020). - Value of the value of equity on issue be obtained by the BOA from the NRC on a frequent basis (even monthly, if required) so that the BOA can derive the value of new issues of equity during the period by taking the first difference between the latest period and the previous period (December 2019). - Only euro should be used for OFCs’ other accounts receivable/payable denominated in a foreign currency (December 2019). - Only euro should be used for any shareholders’ funds denominated in a foreign currency (December 2019). ### Flow-based Monetary and Financial Statistics (MFS) - Input data for MFS positions are sufficiently detailed to provide information on valuation and volume changes for deriving flow-based MFS from positions data (deposits and loans by sector of counterparty and by currency). - To remove exchange rate changes, BOA must: - Convert reported Albanian lek data back to the original currency using exchange rates at opening and closing balances, take the first difference, then re-convert that difference back to Albanian lek using the average exchange rate for the period; the difference between the derived transaction and the first difference is a valuation (exchange rate) adjustment for inclusion in the Other Changes in Assets Account. - Securities database includes data required to adjust for price changes, but limited by the lack of an active securities market in Albania. - For volume changes, principal adjustment is for write offs; ODCs provide a sector breakdown of write offs (usually monthly). - To derive transactions from positions when write offs have been deducted during the period: add back write offs to the closing balance before estimating transactions from first differences; then record write offs as volume changes in the Other Changes in Assets Account. - Formula provided for transactions from positions: - TR = CB – OB – VC - OCVA - Where CB = closing balance; OB = opening balance; VC = Volume changes; OCVA = Other changes in value of assets; TR = Transactions - Recommended Action: - The mission recommended that the BOA compile flow-based monthly MFS, beginning from January 2017 (March 2020). ### Sectoral financial accounts and financial balance sheets - BOA currently compiles partial sectoral financial accounts and financial balance sheets on an annual basis; financial balance sheets are usually released in November of the following year; financial accounts are not yet published. - Quality of data is uneven: very good for financial sector; “in need of improvement” for some NFC and household/NPISH series. - The BOA can use monthly/quarterly data for the financial sector, subsectors, and the rest of the world; many instruments are reported by counterpart sector enabling counterpart cell compilation. - For general government, debt securities data are available from the securities database of GOA issues maintained by BOA (at least monthly); GOA loan liabilities positions and transactions are available from MOFE on a monthly basis. - Taken together, these sources account for about 80 percent of all financial assets and liabilities and provide a good basis for developing quarterly sectoral financial accounts and financial balance sheets. - To obtain data for the remaining 20 percent, general government is likely most fruitful: MOFE indications are that detail and quarterly data are available at the GDT; BOA, MOFE, and INSTAT are conducting a three-year project with GDT to improve general government data — BOA should ensure GDT can provide BOA quarterly data for the financial account and financial balance sheets and include balance sheet data for local governments and extrabudgetary entities that meet GG sector criteria. - For NFCs’ shareholders’ funds outstanding at the end of each quarter, mission recommended BOA apply the percentage change in nominal GDP to estimate quarterly values: - Example: annual nominal GDP change 4.25 percent, quarterly changes 0.5 percent, 1 percent, 1.25 percent, 1.5 percent; change in shareholders’ funds between opening and closing balances is 425,000 Albanian lek -> Q1 increase = 50,000 (425,000*(0.5/4.25)), Q2 increase = 100,000 (425,000*(1/4.25)), etc. - Use same approach when NRC annual data are not yet available; revise quarterly estimates when new annual NRC data become available while retaining same percentage changes in quarterly nominal GDP. - NFC equity issues: - Can be calculated by taking the first difference of the aggregated NRC cell that shows equity on issue (cell updated immediately upon new issuance). - BOA should ask NRC for aggregated value on a quarterly basis to derive equity issues during the period. - If NRC lacks historical series back to 2013, use INSTAT with level adjustments and apply percent change in nominal GDP for quarterly estimates when quarterly historical data are unavailable. - To complete sector accounts, INSTAT should develop real economy sectoral accounts not currently produced as soon as possible: primary income account, secondary distribution of income account, use of income account, and capital account, enabling reconciliation of net lending/borrowing between these accounts and sector financial accounts. ### IT system and processing capacity - Construction of annual sectoral financial balance sheets and partial sectoral financial accounts is largely manual and very time consuming. - A comprehensive IT system needs to be developed as soon as possible; without it, there are insufficient staff resources to compile data with required periodicity and timeliness. --- ### New software is being developed to process data in the compilation of the balance ### Software development and timeline - New software is being developed to process data in the compilation of the balance of payments and the IIP. - It is expected that the software will be available in about a year. - It is probable that this software can be applied to the sector financial accounts and financial balance sheets of the domestic sectors, and, if so, that it would take to the end of 2020 to complete. - Recommendation: the development of software for the sector financial accounts and financial balance sheets be undertaken as soon as possible, using the software for the balance of payments and IIP, wherever possible. ### Recommended actions (summary) - The mission recommended that the BOA discusses with the GDT as soon as possible how quarterly data can be provided for the construction of the financial account and financial balance sheet (December 2019). - The mission recommended that balance sheet data for local governments and those extra-budgetary entities that meet the criteria for inclusion in the GG sector be included in these quarterly reports (June 2020). - The mission recommended that the BOA applies the percentage change in nominal annual GDP to the year-end value of NFCs’ shareholders’ funds for the most recent year when the (new) NRC data are unavailable (December 2019). - The mission recommended that the BOA uses the percent change in nominal quarterly GDP to estimate NFC shareholders’ funds outstanding at the end of each quarter, and for the current year, revises when the (new) NRC data becomes available, while maintaining the same quarterly pattern of the percentage movement in nominal quarterly GDP during the year (June 2021). - The mission recommended that the BOA applies the percentage change in nominal annual GDP to estimate NFCs’ equity issues for the most recent year when (new) NRC data are unavailable (December 2019). - The mission recommended that the BOA uses the percent change in nominal GDP to estimate NFC equity issues in each quarter and then revise when the (new) NRC data become available, while maintaining the same quarterly pattern of the percentage movement in nominal quarterly GDP during the year (June 2021). - The mission recommended that the development of software for the sector financial accounts and financial balance sheets be undertaken as soon as possible, using the software for the balance of payments and IIP, wherever possible (December 2020). ### Action plan — priorities, milestones, and target completion dates (selected) - Outcome: The BOA compiles flow-based MFS on a monthly basis, beginning January 2017 - PR The BOA compiles monthly flow-based monetary and financial statistics, beginning with data of January 2017. (Benchmark) — March 2020 - H The MFS data be adjusted, in line with the data included in the ROW, to treat nonresident Albanians’ deposits and/or loans at ODCs as nonresidents. — September 2020 - Outcome: Annual and quarterly sectoral from-whom/to-whom financial accounts, to the maximum extent possible, are compiled, beginning December 2017 - PR The BOA compiles annual sectoral financial accounts, on a from whom/to whom basis (as far as possible) beginning with data of 2017. (Benchmark) — December 2019 - PR The BOA develops estimates of quarterly sectoral financial accounts, on a from-whom/to-whom basis (to the maximum extent possible), beginning from the first quarter of 2017 (Any issues hampering the development of a software to automate much of the compilation process by end of 2020 is a risk factor). (Benchmark) — June 2021 - H The BOA revise nonlife insurance technical reserves for the years prior to 2018, using the ratios from the new AESA report form. — June 2019 - PR The BOA explores with the GDT how to produce quarterly estimates of general government financial assets and liabilities on a timely basis. — September 2020 - The BOA obtains quarterly balance sheet data for local governments and those extra-budgetary entities that meet the criteria for inclusion in the GG sector be included in the data provided by GDT above. — June 2020 - H The BOA explores with the GDT what the central government’s other accounts receivable and other accounts payable include, what the counterparties are, and whether it is possible to allocate to other instruments. — September 2019 - H The GG sector financial account and financial balance sheet be revised back to 2013 to incorporate those extra-budgetary entities that meet the criteria for inclusion in GG. — December 2019 - H The BOA uses only the euro for OFCs’ other accounts receivable/payable denominated in a foreign currency. — December 2019 - H The BOA only uses the euro for any shareholders’ funds denominated in a foreign currency. — December 2019 - H The value of equity outstanding of NFCs be obtained by the BOA from the NRC on a frequent basis so that the BOA can derive the value of new issues of equity during the period by taking the first difference. — December 2019 - H The BOA applies the percentage change in nominal annual GDP to the year-end value of NFCs’ shareholders’ funds for the most recent year when the new NRC data are unavailable. — December 2019 - H The BOA uses the percent change in nominal quarterly GDP to estimate NFC shareholders’ funds outstanding at the end of each quarter, and then revise when the (new) NRC data become available, while maintaining the same quarterly pattern of the percentage movement in nominal quarterly GDP during the year. — December 2019 - H The BOA applies the percentage change in nominal annual GDP to estimate NFCs’ equity issues for the most recent year when (new) NRC data are unavailable. — December 2019 - H The BOA uses the percent change in nominal GDP to estimate NFC equity issues in each quarter and then revise when the (new) NRC data become available, while maintaining the same quarterly pattern of the percentage movement in nominal quarterly GDP during the year. — December 2019 - H The development of software for the sector financial accounts and financial balance sheets be undertaken as soon as possible, using the software for the balance of payments and IIP, wherever possible. — December 2020 - H The BOA prepares a reconciliation table to show what the differences with other macroeconomic datasets are and set out the reasons for the different treatment. — December 2019 *Source: 1albea2019004 - 1. Priority Recommendations (https://www.imf.org/-/media/files/publications/cr/2019/1albea2019004.pdf).* ### 1. Priority Recommendations ____________________________________________________________________ 6 ### 1. Priority Recommendations ### Mission scope and objectives - A monetary and financial statistics (MFS) and financial accounts technical assistance (TA) mission visited Albania during April 15–26, 2019. - Main objectives: - Compile and disseminate flow-based MFS for the central bank, other depository corporations (ODCs), and other financial corporations (OFCs). - Compile and disseminate quarterly financial accounts by institutional sectors. - Develop a from-whom/to-whom matrix for financial instruments. - Explore INSTAT’s current compilation of, and future plans for, sectoral current and capital accounts. ### Key findings on data quality and institutional readiness - Overall data quality and staff capacity at the Bank of Albania (BOA) are high. - BOA currently compiles and disseminates MFS for three financial sub-sectors (central bank, ODCs, OFCs) and produces annual financial balance sheets for all sectors (data available 2013–17). - Financial sector data: high quality, reported monthly or quarterly. - Rest of the world (ROW) data: mostly good, with some gaps. - General government (GG) annual data: adequate, but quarterly data need development. - Other sectors (NFCs, households, NPISHs): many data cells derived from counterpart information; some items (shareholders’ funds outstanding, equity issues, other accounts receivable/payable) need further work. - INSTAT compiles annual production and generation of income accounts by institutional sector with a lag of about 16 months and currently has no plans to compile remaining current accounts or capital accounts beyond existing coverage without additional resources. ### Priority recommendations and target dates (Table 1) - March 2020: The BOA develops monthly flow-based MFS, beginning with data from January 2017. (Responsible: BOA) - December 2019: The BOA develops estimates of annual sectoral financial accounts, on a from-whom/to-whom basis (to the maximum extent possible), beginning with data from 2017. (Responsible: BOA) - June 2021: The BOA develops estimates of quarterly sectoral financial accounts and financial balance sheets, on a from-whom/to-whom basis (to the extent possible), beginning with data from the first quarter of 2017. (Responsible: BOA) ### Recommended sequencing and automation - Develop and publish monthly flow-based MFS by March 2020 (data starting January 2017). - Produce and disseminate annual financial accounts for all sectors by end-2019 (for 2017 and 2018), disseminated together with sectoral financial balance sheets. - Develop quarterly sectoral financial accounts and balance sheets by mid-2021 (beginning Q1 2017), conditional on BOA developing software by end-2020 to automate compilation; current annual compilation is manual. - Consider modifying software being developed for external sector statistics to support quarterly sectoral financial accounts. ### Detailed technical assessment — data sources Central bank and ODCs - Central bank and ODC source data are very detailed and timely: reported monthly with a two-week lag; instrument, currency (euros, US dollars, Swiss franc, Japanese yen, sterling, etc.) and counterpart sector breakdowns. - ODCs account for about 90 percent of the financial sector’s total assets. - Savings and loan associations (SLAs) represent less than half of one percent of total assets; SLAs report quarterly and their inclusion in the third month of each quarter produces slight quarter-to-quarter increases that are not smoothed. - BOA maintains a security-by-security database of Albanian-issued securities (mostly GOA), with variables including amount of issue, issue and maturity dates, sector of issue, sector of holder, coupon rate, currency of issue, and market prices; BOA removes price changes to derive transactions. Other financial corporations (OFCs) - OFCs report quarterly; brokers and exchange rate offices report annually. - Detail is generally sufficient for flow-based MFS. Brokers and pension managers have less-detailed reporting but their asset/liability shares are very small. - Foreign-currency breakdowns for OFCs: - Deposits at and loans with ODCs: counterpart information provides currency breakdown. - OFCs’ loan assets: foreign currency breakdown available. - Other accounts receivable/payable denominated in foreign currency: no currency breakdown — mission recommended using only the euro for these items. - Some OFCs report foreign currency shareholders’ funds; mission recommended using the euro for these instances. - Allocation of nonlife insurance technical reserves to counterpart sectors improved after AFSA introduced a new report form; BOA should revise earlier-year estimates using ratios from the new form. - Technical reserves of life insurance companies are all allocated to the household sector. Rest of the World (ROW) - ROW sources for financial account of the balance of payments and the IIP are comprehensive and timely for most components, but gaps remain: - No current estimate for holdings of euro cash outside the banking system. - Bank accounts of nonresident Albanians with resident Albanian banks are misclassified in ODC reports as resident (household) balances due to reporting regulations; these accounts should be recorded as held by nonresidents in ROW datasets. - Recommended approaches: - Investigate methodologies used by other countries with currency co-circulation to estimate foreign-currency cash holdings outside the banking system. - Calculate ratio of lek cash outside the banking system to lek deposits in the banking system and apply to euro deposits to estimate euro cash held outside banks, with adjustments for differing uses of lek and euro in Albania. - Include any estimates of euro cash held by households and NFCs as liabilities in ROW datasets (assets in the balance of payments financial account and the IIP). - Adjust MFS so that monetary aggregates exclude nonresident deposits with ODCs to better focus on domestic balances; request more detailed information from ODCs on the purpose, use, amount and features of accounts held by nonresident individuals. General Government (GG) - GFS compiled by MOFE: annual, modified cash basis, lag about nine months; includes central and local government but excludes extra-budgetary entities and public nonfinancial corporations. - BOA compiles GG financial account with and without extra-budgetary data; production account, generation of income accounts, ROW, and GFS do not include extra-budgetary entities. - Recommendations: - BOA to include extra-budgetary institutions that meet GG criteria in GG sector, revise data back to 2013, and prepare reconciliation tables explaining differences with other datasets. - BOA to explore with GDT the composition and counterparties of very large balances classified as other accounts receivable/payable (accounting for about a third of total liabilities and a much larger proportion of financial assets) and whether reclassification to other instruments is warranted. - BOA maintains a database of GOA debt securities by sector of holder and can track monthly ownership changes. Other sectors (NFCs, households, NPISHs) - Counterpart data from other sectors provide information for many instruments (deposits, loans); ROW direct investment survey provides counterpart data by sector. - Gaps for instruments such as shareholders’ funds, equity issues, other accounts receivable/payable, intra-sectoral loans — primary available source has been INSTAT data drawn from the National Registration Center (NRC). ### Implementation support and next steps - Mission recommended a detailed one-year action plan with priority recommendations (above); further details and actions/milestones are in the action plan under Detailed Technical Assessment and Recommendations. - BOA and partner agencies (MOFE, GDT, INSTAT, AFSA) to coordinate on data sharing, reclassification, and software development to meet recommended target dates. *Source: 1albea2019004 - 1. Priority Recommendations (https://www.imf.org/-/media/files/publications/cr/2019/1albea2019004.pdf).* ### 25. All enterprises in Albania are required to register with the NRC annually. ### 25. All enterprises in Albania are required to register with the NRC annually. ### Registration requirements and data formats - Annual registration to the NRC includes, inter alia, income and expenditure statements and balance sheets; notes often accompany the financial statements; information on the enterprise’s activities, the principal shareholders, and the members of the board of directors is also provided to the NRC. - There are approximately 120,000 enterprises in Albania, many of which are very small. - Up to fiscal year 2017, most information was not in any machine aggregatable format (files were Word documents or PDF files but not in Excel files or some equivalent that would allow aggregation). - INSTAT downloads about 20,000 files and has been entering the data manually, a time-consuming process subject to data entry errors. ### NRC reform, pilot, and transition - The NRC, with World Bank assistance, conducted a pilot exercise in 2016 and 2017 for financial information to be filed in an aggregatable format; the pilot proved successful. - The new system came into effect in 2019, for fiscal year 2018 (enterprises report in the first half of 2019 their financial statements for 2018). - Filing requirements vary by enterprise size, from minimal information for the smallest to data consistent with International Financial Reporting Standards for the largest; smallest enterprises are not required to provide balance sheet data (they represent a very small proportion of the total). - For each size level, information will be reported in a standardized format, improving data quality considerably, especially for shareholders’ funds (which all but the smallest enterprises will report). - INSTAT will continue the current manual approach for two years (2018 and 2019) to provide an overlap to determine to what extent earlier years’ data need adjusting. ### BOA use of INSTAT data and estimation methods - For years prior to 2018, the BOA has used INSTAT data where no alternative sources exist, including cash holdings, intra-sectoral loans, shareholders’ funds, and other accounts receivable/payable. - To derive universe estimates for cash holdings and shareholders’ funds, the BOA: - Uses the ratio between the INSTAT deposits figure and the counterpart DTC deposit liability data to NFCs (DTC deposit liability data are high quality and replace deposit data from INSTAT). - Assumes the ratio of NFCs’ cash holdings to NFCs’ deposits at DTCs is the same for the universe as for INSTAT data, and applies that ratio to cash holdings reported in the INSTAT data. - Assumes there is a 50/50 split between Albanian lek and euro cash holdings. - Applies the same ratio to shareholders’ funds. - For NFC intra-sectoral loans and other accounts receivable/payable: - BOA does not adjust INSTAT values for intra-sectoral loans (values are very small and not significant), but adjusts intra-sectoral loan liability to equal the asset value. - BOA does not adjust other accounts receivable/payable because these values are very large (in the order of a third of total financial assets and liabilities) and may already include instruments that overlap with other categories. - When new NRC datasets (2018 and 2019) are available and aggregated, BOA should revise prior-year estimates for cash holdings, shareholders’ funds, and other accounts receivable/payable: - Adjustments should be based on the average of the ratios between the two datasets for each series for those two years and carried back to 2013. ### NFC equity issues and frequency of NRC data - NRC requires all registered enterprises to report the value of shares on issue in Excel files and to update this information immediately upon issuance (not only at year-end). - Mission recommendation: BOA obtain the value of equity on issue from the NRC on a frequent basis (even monthly, if required) so BOA can derive equity transactions during the period by taking first differences. - If NRC cannot separate NFC data from financial corporations’ equity issues, BOA should adjust to exclude financial corporations’ equity issues (financial sector sources available for that adjustment). - If NRC has data back to 2013, NFC equity issues can be calculated historically; if not, BOA should use INSTAT files with level adjustments. ### Households and NPISHs - BOA has no direct data sources for households and NPISHs; these sectors have been combined into one and data are drawn from counterparties or are residual. ### Recommended actions (selected with deadlines and exact wording preserved) - MFS data be adjusted, in line with the data included in the ROW, to treat nonresident Albanians’ deposits and/or loans at ODCs as nonresident (September 2020). - BOA revises the estimates for insurance technical reserves for the years prior to 2018, using the ratios from the new AESA report form (June 2019). - BOA explores with the GDT what the central government’s other accounts receivable and other accounts payable include, what the counterparties are, and whether it is necessary to allocate to other instruments (September 2019). - GG sector financial account and financial balance sheet be revised back to 2013 to incorporate those extra-budgetary entities that meet the criteria for inclusion in GG (December 2019). - BOA look into the approach taken in other countries where there is co-circulation of foreign and domestic currencies to explore the methodology ... Once such a study has been conducted, the mission recommended that the BOA compare the results with those from applying the ratio of the value of cash in lek outside the banking system in Albania with the value of deposits in lek in the banking system in Albania to the value of euros on deposit at banks to derive an estimate of the value of euros held in cash outside the banking system. Given the different uses of Albanian lek and euros in Albania, some adjustments to the calculated ratio based on lek in circulation and deposits would be necessary (December 2020). - Value of the value of equity on issue be obtained by the BOA from the NRC on a frequent basis (even monthly, if required) so that the BOA can derive the value of new issues of equity during the period by taking the first difference between the latest period and the previous period (December 2019). - Only euro should be used for OFCs’ other accounts receivable/payable denominated in a foreign currency (December 2019). - Only euro should be used for any shareholders’ funds denominated in a foreign currency (December 2019). ### Flow-based Monetary and Financial Statistics (MFS) - Input data for MFS positions are sufficiently detailed to provide information on valuation and volume changes for deriving flow-based MFS from positions data (deposits and loans by sector of counterparty and by currency). - To remove exchange rate changes, BOA must: - Convert reported Albanian lek data back to the original currency using exchange rates at opening and closing balances, take the first difference, then re-convert that difference back to Albanian lek using the average exchange rate for the period; the difference between the derived transaction and the first difference is a valuation (exchange rate) adjustment for inclusion in the Other Changes in Assets Account. - Securities database includes data required to adjust for price changes, but limited by the lack of an active securities market in Albania. - For volume changes, principal adjustment is for write offs; ODCs provide a sector breakdown of write offs (usually monthly). - To derive transactions from positions when write offs have been deducted during the period: add back write offs to the closing balance before estimating transactions from first differences; then record write offs as volume changes in the Other Changes in Assets Account. - Formula provided for transactions from positions: - TR = CB – OB – VC - OCVA - Where CB = closing balance; OB = opening balance; VC = Volume changes; OCVA = Other changes in value of assets; TR = Transactions - Recommended Action: - The mission recommended that the BOA compile flow-based monthly MFS, beginning from January 2017 (March 2020). ### Sectoral financial accounts and financial balance sheets - BOA currently compiles partial sectoral financial accounts and financial balance sheets on an annual basis; financial balance sheets are usually released in November of the following year; financial accounts are not yet published. - Quality of data is uneven: very good for financial sector; “in need of improvement” for some NFC and household/NPISH series. - The BOA can use monthly/quarterly data for the financial sector, subsectors, and the rest of the world; many instruments are reported by counterpart sector enabling counterpart cell compilation. - For general government, debt securities data are available from the securities database of GOA issues maintained by BOA (at least monthly); GOA loan liabilities positions and transactions are available from MOFE on a monthly basis. - Taken together, these sources account for about 80 percent of all financial assets and liabilities and provide a good basis for developing quarterly sectoral financial accounts and financial balance sheets. - To obtain data for the remaining 20 percent, general government is likely most fruitful: MOFE indications are that detail and quarterly data are available at the GDT; BOA, MOFE, and INSTAT are conducting a three-year project with GDT to improve general government data — BOA should ensure GDT can provide BOA quarterly data for the financial account and financial balance sheets and include balance sheet data for local governments and extrabudgetary entities that meet GG sector criteria. - For NFCs’ shareholders’ funds outstanding at the end of each quarter, mission recommended BOA apply the percentage change in nominal GDP to estimate quarterly values: - Example: annual nominal GDP change 4.25 percent, quarterly changes 0.5 percent, 1 percent, 1.25 percent, 1.5 percent; change in shareholders’ funds between opening and closing balances is 425,000 Albanian lek -> Q1 increase = 50,000 (425,000*(0.5/4.25)), Q2 increase = 100,000 (425,000*(1/4.25)), etc. - Use same approach when NRC annual data are not yet available; revise quarterly estimates when new annual NRC data become available while retaining same percentage changes in quarterly nominal GDP. - NFC equity issues: - Can be calculated by taking the first difference of the aggregated NRC cell that shows equity on issue (cell updated immediately upon new issuance). - BOA should ask NRC for aggregated value on a quarterly basis to derive equity issues during the period. - If NRC lacks historical series back to 2013, use INSTAT with level adjustments and apply percent change in nominal GDP for quarterly estimates when quarterly historical data are unavailable. - To complete sector accounts, INSTAT should develop real economy sectoral accounts not currently produced as soon as possible: primary income account, secondary distribution of income account, use of income account, and capital account, enabling reconciliation of net lending/borrowing between these accounts and sector financial accounts. ### IT system and processing capacity - Construction of annual sectoral financial balance sheets and partial sectoral financial accounts is largely manual and very time consuming. - A comprehensive IT system needs to be developed as soon as possible; without it, there are insufficient staff resources to compile data with required periodicity and timeliness. *Source: 1albea2019004 - 25. All enterprises in Albania are required to register with the NRC annually.* ### 48. New software is being developed to process data in the compilation of the balance ### 1albea2019004 - 48. New software is being developed to process data in the compilation of the balance ### Software development and timeline - New software is being developed to process data in the compilation of the balance of payments and the IIP. - It is expected that the software will be available in about a year. - It is probable that this software can be applied to the sector financial accounts and financial balance sheets of the domestic sectors, and, if so, that it would take to the end of 2020 to complete. - Recommendation: the development of software for the sector financial accounts and financial balance sheets be undertaken as soon as possible, using the software for the balance of payments and IIP, wherever possible. ### Recommended actions (summary) - The mission recommended that the BOA discusses with the GDT as soon as possible how quarterly data can be provided for the construction of the financial account and financial balance sheet (December 2019). - The mission recommended that balance sheet data for local governments and those extra-budgetary entities that meet the criteria for inclusion in the GG sector be included in these quarterly reports (June 2020). - The mission recommended that the BOA applies the percentage change in nominal annual GDP to the year-end value of NFCs’ shareholders’ funds for the most recent year when the (new) NRC data are unavailable (December 2019). - The mission recommended that the BOA uses the percent change in nominal quarterly GDP to estimate NFC shareholders’ funds outstanding at the end of each quarter, and for the current year, revises when the (new) NRC data becomes available, while maintaining the same quarterly pattern of the percentage movement in nominal quarterly GDP during the year (June 2021). - The mission recommended that the BOA applies the percentage change in nominal annual GDP to estimate NFCs’ equity issues for the most recent year when (new) NRC data are unavailable (December 2019). - The mission recommended that the BOA uses the percent change in nominal GDP to estimate NFC equity issues in each quarter and then revise when the (new) NRC data become available, while maintaining the same quarterly pattern of the percentage movement in nominal quarterly GDP during the year (June 2021). - The mission recommended that the development of software for the sector financial accounts and financial balance sheets be undertaken as soon as possible, using the software for the balance of payments and IIP, wherever possible (December 2020). ### Action plan — priorities, milestones, and target completion dates - Outcome: The BOA compiles flow-based MFS on a monthly basis, beginning January 2017 - PR The BOA compiles monthly flow-based monetary and financial statistics, beginning with data of January 2017. (Benchmark) — March 2020 - H The MFS data be adjusted, in line with the data included in the ROW, to treat nonresident Albanians’ deposits and/or loans at ODCs as nonresidents. — September 2020 - Outcome: Annual and quarterly sectoral from-whom/to-whom financial accounts, to the maximum extent possible, are compiled, beginning December 2017 - PR The BOA compiles annual sectoral financial accounts, on a from whom/to whom basis (as far as possible) beginning with data of 2017. (Benchmark) — December 2019 - PR The BOA develops estimates of quarterly sectoral financial accounts, on a from-whom/to-whom basis (to the maximum extent possible), beginning from the first quarter of 2017 (Any issues hampering the development of a software to automate much of the compilation process by end of 2020 is a risk factor). (Benchmark) — June 2021 - H The BOA revise nonlife insurance technical reserves for the years prior to 2018, using the ratios from the new AESA report form. — June 2019 - PR The BOA explores with the GDT how to produce quarterly estimates of general government financial assets and liabilities on a timely basis. — September 2020 - The BOA obtains quarterly balance sheet data for local governments and those extra-budgetary entities that meet the criteria for inclusion in the GG sector be included in the data provided by GDT above. — June 2020 - H The BOA explores with the GDT what the central government’s other accounts receivable and other accounts payable include, what the counterparties are, and whether it is possible to allocate to other instruments. — September 2019 - H The GG sector financial account and financial balance sheet be revised back to 2013 to incorporate those extra-budgetary entities that meet the criteria for inclusion in GG. — December 2019 - H The BOA uses only the euro for OFCs’ other accounts receivable/payable denominated in a foreign currency. — December 2019 - H The BOA only uses the euro for any shareholders’ funds denominated in a foreign currency. — December 2019 - H The value of equity outstanding of NFCs be obtained by the BOA from the NRC on a frequent basis so that the BOA can derive the value of new issues of equity during the period by taking the first difference. — December 2019 - H The BOA applies the percentage change in nominal annual GDP to the year-end value of NFCs’ shareholders’ funds for the most recent year when the new NRC data are unavailable. — December 2019 - H The BOA uses the percent change in nominal quarterly GDP to estimate NFC shareholders’ funds outstanding at the end of each quarter, and then revise when the (new) NRC data become available, while maintaining the same quarterly pattern of the percentage movement in nominal quarterly GDP during the year. — December 2019 - H The BOA applies the percentage change in nominal annual GDP to estimate NFCs’ equity issues for the most recent year when (new) NRC data are unavailable. — December 2019 - H The BOA uses the percent change in nominal GDP to estimate NFC equity issues in each quarter and then revise when the (new) NRC data become available, while maintaining the same quarterly pattern of the percentage movement in nominal quarterly GDP during the year. — December 2019 - H The development of software for the sector financial accounts and financial balance sheets be undertaken as soon as possible, using the software for the balance of payments and IIP, wherever possible. — December 2020 - H The BOA prepares a reconciliation table to show what the differences with other macroeconomic datasets are and set out the reasons for the different treatment. — December 2019 *1albea2019004 - 48. New software is being developed to process data in the compilation of the balance* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1albea2019004.pdf_