## _cr15129 ## Source details **Canonical URL:** [_cr15129](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15129.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15129.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15129.pdf.json) --- ### Context and developments - Real GDP growth: 2 percent in 2014. - Key drivers: Tourism, agriculture, and textile manufacturing. - Unemployment rate: 18 percent (2014:Q4). - Inflation and monetary policy: - Average inflation: 1.6 percent in 2014. - Core inflation: positive and generally stable. - Bank of Albania policy rate: lowered by 75 bps in 2014 and a further 25 bps in January 2015 to 2 percent. - Lek lending rates and T-bill yields: declining steadily. - External sector: - Current account: worsened in 2014; continued decline in remittances; FDI declined after 2013 spike. - Reserve cover: improved slightly; euro/lek exchange rate: stable. - Fiscal outturn 2014: - Overall deficit: 5.8 percent of GDP (from 5.2 percent in 2013). - Power subsidies and policy lending to the sector: 0.9 percent of GDP. - Capital expenditure outturn: 10 percent lower than original 2014 budget. - Debt-to-GDP ratio: 72.6 percent at end-2014. - Financial sector: - Credit growth: 2 percent in 2014. - NPLs: 23 percent of total loans at end-2014 (peak of 25 percent in September 2014). - NPLs net of provisions: below 8 percent of total loans. - Capital adequacy ratios and liquidity buffers: above regulatory minima. ### Program performance - Overall status: - Program broadly on track. - All end-December 2014 and continuous PCs and all but one ITs met, with comfortable margins. - Compliance actions and modifications: - Authorities requested, and staff supports, modification of PCs for August and December 2015, and waiver of applicability for all end-April 2015 PCs where data were unavailable. - IT on accumulation of central government domestic arrears missed by 0.02 percent of GDP; authorities to pay all accumulated arrears by end-April 2015. - Measures to prevent arrears accumulation: new contract clause making accelerated project work without approval a contract violation. - VAT refund reform: move to automatic refunds and risk-based auditing of refund claims. - Structural benchmarks: - All but one SB implemented; two SBs delayed (appointments and procurement affected timing). ### Outlook and risks - Near-term (2015) projections and drivers: - Real GDP growth: expected to increase to 3 percent in 2015. - Inflation: modest, moving closer to BoA’s 3 percent target as domestic demand picks up. - Current account: expected to remain elevated in 2015 due to imports for large energy-related projects; underlying current account will improve somewhat. - Reserve cover: expected to remain broadly unchanged. - Medium-term projections: - Growth: rise to 4½ percent over the medium term. - Reserve cover: expected to remain above four months of imports. - Balance of risks (tilted downwards): - Positive: lower global oil prices benefit households and non-oil corporates. - Negative: reduced oil-sector investment, political cycle and electoral risks, high public debt and rollover risks, Greece-related spillovers (remittances and economic links). - Greece trade share: 3 percent of total. ### Protection of the 2015 budget deficit target and fiscal mitigation - Authorities committed to protecting the 2015 budget deficit target from falling global oil prices and external disinflationary pressures. - Measures to preserve nominal deficit target for 2015: - Offset lower oil-related royalties (worth 0.4 percent of GDP) by downward revision of conservatively budgeted interest bill for 2015 and beyond. - Save excess proceeds from telecom license fees (about 0.1 percent of GDP) as a buffer. - Agreed in principle to use the primary fiscal balance as the intermediate target for fiscal policy going forward. - Electricity sector and PPPs: - Power sector reform in progress; sector remains a fiscal drain over medium term. - Authorities plan ambitious PPPs, commit to transparent accounting for fiscal costs and contingent liabilities, and welcome further TA. ### Key fiscal statistics and projections (selected exact figures) - Overall balance: -7.2, -1.0, -7.2, -3.4, -5.2, -5.8, -4.8, -4.9, -2.1, 0.0, 0.0, 0.5 - Overall balance excl. arrears clearance: -5.2, -1.0, -5.2, -3.4, -3.5, -3.6, -1.0, 0.0, 0.0, 0.5 - Primary balance: -2.2, -2.8, -7.8, -0.3, -2.0, -3.0, -1.5, -2.0, 0.7, 2.7, 2.7, 2.6, 2.9 - Public debt (percent of GDP): 62.0, 70.1, 72.6, 70.8, 73.0, 69.1, 64.1, 59.4, 54.5 - Nominal GDP (in bln leks): 1,365, 1,399, 1,492, 1,462, 1,568, 1,692, 1,825, 1,967 - Public debt (in bln leks): 1,056, 1,068, 828, 957, 1,015, 1,056, 1,068, 1,083, 1,084, 1,083, 1,072 - Energy sector spending 1/: 0.9, 1.2, 1.2, 0.9, 0.6, 0.6, 0.6, 0.2 - Note: 1/ Energy spending includes energy sector subsidies, compensation for the poor, and policy net lending. ### Ambitious structural fiscal reforms (selected commitments and timelines) - Tax administration: - New corporate strategy for the General Directorate of Taxation endorsed. - Dedicated Refund Unit to coordinate refunds nationwide. - Risk-based auditing for VAT refunds to begin by June 2015 (SB). - Valuation-based property tax: introduce fiscal cadastre by end-2016 (SB); valuation-based tax by end-2017. - Expenditure and pensions: - Pension reform effective early 2015 increased participation. - Draft law on supplementary pension scheme for high government officials submitted to Parliament; approval expected by end-June 2015. - Public financial management: - AGFIS extension to 15 budgetary institutions by end-2015 (SB). - Amend laws to incorporate multi-year commitment limits by end-2015 (SB). - Clearance of pre-2014 stock of arrears to proceed with auditing and verification. ### Safeguarding financial stability and unlocking credit - Monetary policy: - Monetary easing expected to continue while inflation remains below inner band. - BoA to refine forward guidance; cautious easing broadly appropriate. - Exchange rate: fully flexible and market-determined. - Banking sector and NPLs: - NPL problem persists; NPLs net of provisions below 8 percent. - Mandatory loan write-offs (loans in “loss” category three years) in force early 2015. - High-level working group to develop NPL strategy by end-September 2015. - BoA developing recovery and resolution plans; IMF TA requested. - Nonbank supervision: - Rapid growth of investment funds; AFSA to finalize regulations by end-June 2015 (SB). - Interim measure: no new investment fund licenses until framework finalized. - Rebuilding BoA credibility: - New governor and internal auditor appointed in February and April. - BoA to submit audits for end-September and end-December 2014 monetary program data by end-July 2015 (SB). - External expert to assist Audit Committee expected by end-May 2015. ### Electricity sector reforms and operational outcomes - Distribution losses: fell from 45 percent in 2013 to 38 percent in 2014 and under 34 percent in first quarter of 2015. - Collection rate: improved from 72 percent in 2014 to over 86 percent in February 2015. - Commitment: reduce distribution losses to 14 percent by 2019. - Legal and tariff reform: - New power sector law to be approved by Parliament by end-May 2015; schedule to move medium-voltage customers out of regulated tariffs by end-2017 (35KV customers by end-2015). - Share of deregulated consumption would increase from 13 to 40 percent upon completion. ### Program design, financing, and risks - Waivers and conditionality: - Waiver of applicability sought for end-April 2015 PCs where data unavailable. - Modifications supported: tighter expenditure ceilings for August and December 2015; minor revisions to NIR floors for August and December 2015. - Floor on net international reserves (NIR) set at three months of import cover. - Deadlines for AGFIS rollout and fiscal cadastre modified due to procurement delays. - Financing plans: - Program remains fully financed. - World Bank Policy Based Guarantee to enable a €250 million commercial bank loan around mid-2015. - Preparations to roll over the €300 million Eurobond maturing November 2015. - EU committed a €40 million grant for balance of payments support over 2015-18 to be disbursed in four equal tranches. - Debt and repayment projections: - Fund credit outstanding by end of extended arrangement projected at 3.1 percent of GDP, or 14.4 percent of gross reserves. - External debt: peaks at 43 percent of GDP in 2016, declines to 38 percent by 2019. - External public debt: falls from 34 to 28 percent of GDP by 2019. - Current account deficit: projected to remain high over the medium term, largely driven by FDI-financed import-intensive infrastructure projects. ### Impact of lower oil prices and sectoral implications ("0.5 ppt in 2010–14.") - Domestic crude oil: - Production projected to decrease in 2015; largest producer halved planned investment. - Oil industry's negative contribution partially offset by boost to consumption and non-oil investment. - Headline: "0.5 ppt in 2010–14." - Real GDP (annual): 2014: 3.0; 2015 (Proj.): 4.0; 2016: 4.5; 2017: 4.5; 2018: 4.5; 2019: 4.5 - Inflation (CPI, avg.): 2014: 2.0; 2015 (Proj.): 2.5; 2016: 2.9; 2017: 3.0; 2018: 3.0 - Fiscal implications: - Downward revision of fiscal revenues in 2015 from lower oil-related royalties; CIT effects materialize in 2016. - General government: Total revenue and grants: 2014: 26.2; 2015 (Proj.): 27.6; Total expenditure: 2014: 32.1; 2015 (Proj.): 32.4. - Overall balance (percent of GDP): 2014: -5.8; 2015 (Proj.): -4.8; 2016: -4.9; 2017: -2.1; 2018: 0.0; 2019: 0.5 - External sector: - Current account (percent of GDP): 2014: -13.0; 2015 (Proj.): -13.1; 2016: -13.8; 2017: -13.8; 2018: -12.1; 2019: -9.2 - Exports (percent of GDP): 2014: 12.4; 2015 (Proj.): 11.1; Imports (percent of GDP): 2014: 37.0; 2015 (Proj.): 35.9 - Energy exports (percent of GDP): 2014: 3.4; 2015 (Proj.): 3.1 - Policy-relevant observations: - Short-run stabilizers: monitor immediate fiscal pressure from lower oil royalties (0.4 percent of GDP) and plan for lagged CIT effects in 2016. - Maintain reserve and financing buffers to manage potential medium-term external pressures from reduced oil-sector FDI. ### Annex I — Debt Sustainability Analysis (selected findings) - Public debt-to-GDP ratio: 72.6 percent as of end-2014. - Debt composition (end-2014): - Domestic: 59 percent of total. - Medium- to long-term: 72 percent of total. - Denominated in domestic currency: 55 percent of total. - In hands of domestic creditors: 61 percent of total. - Guaranteed debt: 5 percent of public debt. - Outstanding domestic arrears and unpaid bills: 4 percent of public debt. - Baseline DSA: - Public debt projected to decline gradually over the medium term but remain elevated; aim to reach 73 percent of GDP in 2015 and below 60 percent by end-2018. - High gross financing needs in 2015 (above 15 percent of GDP early-warning benchmark), projected to decline thereafter. - Alternative scenarios and stress tests: - Historical scenario: by 2020 public debt would continue to grow above 80 percent of GDP. - Constant primary balance scenario: public debt would slowly decline to 65 percent of GDP by 2018. - Combined macro–fiscal shock: debt-to-GDP would increase to 73.1 percent in 2016, then decline to just below 59 percent by 2020. - Exchange rate shock (30 percent depreciation): external debt peaks at 53 percent of GDP in 2016, declines to 47 percent by 2019. - DSA policy implications: - Continue substantial fiscal consolidation to place public finances on a sustainable footing. - Lengthen maturities and shift financing from short-term domestic to long-term external sources. - Maintain fiscal institutional reforms and diversify creditor base away from banks. ### Staff appraisal — key recommendations - Preserve 2015 budget deficit target against oil price and disinflationary shocks. - Steadfast fiscal consolidation in 2016 and beyond to lower public debt below 60 percent of GDP by end-2018. - Use primary balance as intermediate fiscal target starting with 2016 budget. - Strengthen capacity to execute public investment projects (address under-execution of capital spending). - Tackle fiscal risks from property compensation claims and unbudgeted investment projects; publish MTBF project lists and prioritize projects transparently. - Continue power sector reform and maintain targeted transfers to protect vulnerable groups. - Rebuild BoA credibility and safeguard its independence; continue cautious monetary easing with well-anchored inflation expectations. - Tackle high stock of NPLs forcefully; implement overarching NPL strategy and address judicial process for collateral execution. - Fill regulatory gaps in nonbank supervision promptly. - Staff supports completion of the Fourth Review, and the modification and waiver of applicability of performance criteria. ### Implementation, monitoring, and operational parameters (selected) - Fiscal adjustors and ceilings: - Expenditure ceiling adjustors: one-off revenues up to lek 3 billion; excess project grants up to lek 15 billion per year. - Numeric references: 6.7 billion for August 2015 and lek 4.4 billion for April 2016. - Continuous performance criteria: - External payment arrears defined per residency criterion; excludes pre-2014 recognized arrears. - Ceiling on accumulation of central government domestic arrears monitored quarterly; missed IT by 0.02 percent of GDP at end-2014. - Reporting requirements: - BoA and MoF to provide specified monthly and quarterly data with prescribed lags; INSTAT to provide CPI and GDP data. - Implementation status (April–May 2015): - IMF Executive Board completed the fourth review and approved SDR 28.88 million (about €35.9 million) disbursement. - All end-December 2014 and continuous PCs met; all but one SB implemented. - Executive Board approved a 36-month EFF arrangement on February 28, 2014 in the amount equivalent to SDR 295.42 million (about €367.5 million, 492.4 percent of quota). *Source: IMF Staff Report (excerpts provided in content unit).* ### 2015. Program risks emanate from external disinflationary pressures, the complexity of ### _cr15129 - 2015. Program risks emanate from external disinflationary pressures, the complexity of ### Context and developments - Real GDP growth: 2 percent in 2014. - Key drivers: Tourism, agriculture, and textile manufacturing. - Unemployment rate: 18 percent (2014:Q4). - Political context: - Some cross-party consensus on appointments despite overall turbulent atmosphere. - Local elections scheduled for June could affect policymaking. - Inflation and monetary policy: - Average inflation: 1.6 percent in 2014. - Core inflation: positive and generally stable. - Bank of Albania policy rate: lowered by 75 bps in 2014 and a further 25 bps in January 2015 to 2 percent. - Lek lending rates and T-bill yields: declining steadily. - External sector: - Current account worsened in 2014 due to a wider trade deficit and emergency electricity imports in H1. - Continued decline in remittances, primarily from the EU. - FDI declined after a 2013 spike linked to hydropower privatization and falling oil sector investment. - Reserve cover: improved slightly; euro/lek exchange rate: stable. - Fiscal outturn 2014: - Overall deficit: 5.8 percent of GDP (from 5.2 percent in 2013). - Power subsidies and policy lending to the sector accounted for 0.9 percent of GDP. - Capital expenditure outturn: 10 percent lower than original 2014 budget. - Debt-to-GDP ratio: 72.6 percent at end-2014 (up from 71 percent projected earlier). - Financial sector: - Credit growth: 2 percent in 2014. - Nonperforming loans (NPLs): 23 percent of total loans at end-2014 (peak of 25 percent in September 2014). - NPLs net of provisions: below 8 percent of total loans. - Capital adequacy ratios: falling over the last year but still exceed regulatory minima. - Liquidity buffers: exceed regulatory minima. ### Program performance - Overall status: - Program broadly on track. - All end-December 2014 and continuous PCs and all but one ITs were met, with comfortable margins. - Specifics and compliance actions: - Authorities requested, and staff supports, a modification of PCs for August and December 2015, and a waiver of applicability for all end-April 2015 PCs. - Waiver sought for all end-April 2015 PCs for which data were not yet available; staff has no evidence these PCs will not be met. - IT on accumulation of central government domestic arrears was missed by 0.02 percent of GDP; authorities will pay all accumulated arrears by end-April 2015. - Measures to prevent arrears accumulation: include clause in new public works contracts making accelerated project work a contract violation. - VAT refund reform: move to automatic refunds and risk-based auditing of refund claims. - Structural benchmarks and delays: - All but one SB implemented; two SBs delayed. - Delays due to appointment of new central bank governor and procurement affected hiring of external expert for BoA’s Audit Committee (now expected by end-May 2015). ### Policy discussions — Outlook and risks - Near-term outlook (2015): - Real GDP growth: expected to increase to 3 percent in 2015. - Supports for domestic demand: easing of private sector liquidity constraints via arrears clearance; reduction in bank risk aversion; improvements in confidence; low interest rates; recovery in public investment. - Impact of oil price decline: positive but muted impact on consumption due to high specific excise taxes (see Box 1). - Inflation: will remain modest and get closer to BoA’s 3 percent target as domestic demand picks up. - Current account: expected to remain elevated in 2015 due to imports related to large energy-related projects (Trans Adriatic Pipeline; Statkraft/Devoll hydropower projects); underlying current account (excluding temporary factors) will improve somewhat. - Reserve cover: expected to remain broadly unchanged, supported by FDI flows and new external borrowing. - Medium-term outlook: - Growth: expected to rise to 4½ percent over the medium term, supported by structural reforms, improved business climate, increased private investment, recovery in trading partners, energy sector investment and production, and progress in EU accession. - Reserve cover: expected to remain adequate, at above four months of imports. - Risks (balance of risks tilted downwards): - Lower global oil prices: positive for households and non-oil corporates but could reduce investment and output in the oil sector. - Political cycle: weaker recovery combined with electoral calendar could test commitment to reforms and fiscal adjustment. - Public debt: remains high and subject to rollover risk (see DSA). - Greece-related risks: exacerbation in Greece could pressure remittances; subsidiary status of Greek banks in Albania mitigates banking-sector transmission; trade with Greece is relatively small (3 percent of total). ### Policy discussions — Improving debt dynamics and structural fiscal reforms - Authorities’ commitment: - Reaffirmed commitment to gradually reduce public debt burden. - Target: lower public debt-to-GDP ratio to below 60 percent by 2018. - Recent shocks and impacts: - Significant drop in global oil prices led to downward revision of 2014 and 2015 GDP deflator and nominal GDP; nominal GDP projected to be 2 percent lower in 2015 than envisaged earlier. - Stronger dollar increased lek value of dollar-denominated public debt. - Combined impact: increase in public debt-to-GDP ratio by over 2 ppt in 2015. - Fiscal policy guidance: - Authorities cognizant of risks of excessive consolidation on nascent recovery but reaffirm political commitment to sustain significant fiscal consolidation begun in 2014. ### Policy recommendations and financial sector measures - Fiscal policy: - Shield the 2015 budget deficit target from the risk of falling oil royalties and external disinflationary pressures. - Sustain significant fiscal consolidation begun in 2014 to reduce public debt over the medium term. - Monetary policy: - The central bank’s cautious monetary easing is broadly appropriate. - BoA to continue refining forward guidance to align expectations with monetary policy objectives. - Financial stability and banking sector: - Addressing high stock of NPLs is crucial for reviving credit. - Micro-prudential focus on the fastest-growing segments of the banking system is appropriate. - Fill regulatory gaps in nonbank supervision promptly. - Electricity sector and structural reform: - Early results from ambitious power sector reform have been impressive, but sustaining the effort is critical. *International Monetary Fund. Albania: Staff Report for the Combined Second and Third Reviews under the Extended Fund Facility, and Request for Waiver of Nonobservance of Performance Criteria and Modification of Performance Criteria (April 28, 2015).* ### 13. The authorities are committed to protecting the 2015 budget deficit target from ### 13. The authorities are committed to protecting the 2015 budget deficit target from ### Protection of the 2015 budget deficit target - The authorities are committed to protecting the 2015 budget deficit target from risks stemming from falling global oil prices and external disinflationary pressures (text table and MEFP ¶10). - To preserve the nominal budget deficit target for 2015: - The lower base effect from 2014 and lower oil-related royalties (worth 0.4 percent of GDP) will be offset by a downward revision of the conservatively budgeted interest bill for 2015 and beyond. - The government will save the excess proceeds from telecom license fees (about 0.1 percent of GDP) as a buffer. - Going forward, the authorities agreed in principle to start using the primary fiscal balance as the intermediate target for fiscal policy. ### Fiscal risks and mitigation measures (MEFP ¶11–12) - Fiscal support for the electricity sector: - Power sector reform developed with World Bank help is being implemented, but implementation uncertainty remains and the sector will remain a fiscal drain over the medium term as it is gradually weaned away from public support. - Heavy dependence on hydropower makes rainfall variation a continuing fiscal risk. - Authorities will take additional measures, if needed, to meet the end-year deficit target for 2015. - Public-Private Partnerships (PPPs): - Authorities plan ambitious new PPPs to leverage scarce public resources. - They plan to follow international best practice and transparently account for fiscal costs and contingent liabilities in fiscal accounts and debt statistics. - Authorities welcome further TA from the Fund and other international partners to assess legal and regulatory framework. - Capital expenditure: - Commitments on existing investment projects continue to exceed the envelope of the MTBF. - Authorities will prioritize outstanding infrastructure projects using transparent criteria, aiming to cancel or reschedule low-priority projects (SB). - They will publish a list of all MTBF projects to signal intention not to implement projects excluded from the list. - Property compensation claims: - Large number of ECHR cases by owners expropriated under the communist regime pose budget risks in 2015 and beyond. - An interagency working group headed by the Deputy Prime Minister is compiling a registry of potential cases and working on a comprehensive solution. - Disability benefits: - Authorities working with the World Bank on a medium-term project to reform disability benefits to strengthen controls and reduce fraud. - By end-June 2015 the Council of Ministers will issue and publish a decree reducing disability benefits in certain cases; expected savings of 0.4 billion lek (0.03 percent of GDP) in 2015. ### Key fiscal statistics and projections (from fiscal consolidation table) - Revenues: 11.5, 10.4, 5.3, 24.7, 23.7, 26.2, 27.6, 27.7, 28.1, 28.1, 28.1 - of which: Tax revenue: 7.7, 7.1, 3.7, 22.5, 21.7, 24.0, 25.3, 25.4, 25.5, 25.5, 25.5 - Expenditures: 8.3, 6.4, 7.5, 28.2, 28.9, 32.1, 32.4, 27.3, 31.7, 30.4, 30.9 - of which: Energy sector spending 1/: 0.9, 1.2, 1.2, 0.9, 0.6, 0.6, 0.6, 0.2 - Current expenditure: 3.8, 7.2, 3.8, 23.6, 24.1, 24.9, 25.9, 25.9, 25.5, 26.0, 26.1 - Capital expenditure: 6.7, 9.6, 7.9, 4.6, 4.8, 4.3, 4.5, 4.6, 4.6, 4.6, 4.6 - Other spending: 2.8, 5.3, 1.4, 0.0, 0.0, 2.8, 1.9, 2.1, 1.7, 0.5, 0.5, 0.2 - Unidentified measures: 0.0, 0.0, 0.0, 1.5, 0.7, 0.7, 0.4 - Unidentified measures (cumulative): 0.0, 0.0, 0.0, 1.5, 2.2, 3.0, 3.4 - Overall balance: -7.2, -1.0, -7.2, -3.4, -5.2, -5.8, -4.8, -4.9, -2.1, 0.0, 0.0, 0.5 - Overall balance excl. arrears clearance: -5.2, -1.0, -5.2, -3.4, -3.5, -3.6, -1.0, 0.0, 0.0, 0.5 - Primary balance: -2.2, -2.8, -7.8, -0.3, -2.0, -3.0, -1.5, -2.0, 0.7, 2.7, 2.7, 2.6, 2.9 - Public debt: 1,056, 1,068, 62.0, 70.1, 72.6, 70.8, 73.0, 69.1, 64.1, 59.4, 54.5 - Domestic debt: 35.2, 43.4, 43.3, 39.1, 39.5, 40.0, 35.6, 32.7, 29.7, 26.8 - Foreign debt: 26.8, 26.7, 29.5, 31.3, 33.0, 33.5, 31.4, 29.6, 27.8 - Nominal GDP (in bln leks): 1,365, 1,399, 1,492, 1,462, 1,568, 1,692, 1,825, 1,967 - Public debt (in bln leks): 1,056, 1,068, 828, 957, 1,015, 1,056, 1,068, 1,083, 1,084, 1,083, 1,072 - Note: 1/ Energy spending includes energy sector subsidies, compensation for the poor, and policy net lending. Prior to 2014, energy subsidies were not recorded in the fiscal accounts, but handled through extra-budgetary guarantees and debt-financed policy net lending. ### Ambitious structural fiscal reforms (MEFP ¶13–20) - Tax administration: - New corporate strategy for the General Directorate of Taxation (GDT) endorsed by MoF. - A dedicated Refund Unit will coordinate refund efforts nationwide. - Authorities will introduce risk-based auditing by June 2015 (SB). - Improved coordination between GDT and General Directorate of Customs (GDC). - Authorities committed to introducing a valuation-based property tax by end-2017, with a fiscal cadastre to be put in place by end-2016 (SB). - Expenditure policy: - Pension reform approved by Parliament in July 2014 became effective in early 2015, leading to a surge in the number of people re-joining the scheme. - Draft law reforming the supplementary pension scheme for high government officials approved by the Council of Ministers and submitted to Parliament; approval expected by end-June 2015. - Public financial management: - AGFIS extension to 15 budgetary institutions by end-2015 (SB). - Amend several laws to incorporate multi-year commitment limits by end-2015 to strengthen the MTBF (SB). - Clearance of pre-2014 stock of arrears will proceed concurrently with auditing and verification. - Authorities will strengthen evaluation, selection, execution, and monitoring of public investment projects, including a review of public investment management and publishing a short manual. ### Safeguarding financial stability and unlocking credit - Monetary policy and inflation (MEFP ¶22–24): - With inflation falling below the inner band under the inflation consultation clause, monetary easing is expected to continue in the near term. - Impact on credit has been generally mild due to high bank risk aversion, weak private sector balance sheets, and extensive euroization. - Exchange rate is fully flexible and market-determined. - BoA concerned that lowering lek-euro interest rate differential below a certain level could heighten exchange rate volatility; about a half of foreign currency denominated loans are unhedged. - Financial stability vigilance (MEFP ¶25–27): - High NPL level risks mitigated by adequate provisioning cover. - BoA monitors banks’ resilience and uses stress tests; focusing on governance, internal controls, and implementing 2013 FSAP recommendations. - Tackling NPLs (MEFP ¶28–29): - NPL problem persists despite significant efforts; court performance on collateral execution is a major issue. - Mandatory loan write-offs in force in early 2015 should help. - Authorities will form a high-level working group to develop an overarching NPL strategy by end-September 2015; a deputy minister will be point person. - BoA developing recovery and resolution plans for large borrowers and reviewing commercial bankruptcy framework; IMF TA requested. - Nonbank supervision (MEFP ¶30): - Rapid growth of investment funds requires stronger regulatory and supervisory framework. - Authorities revising regulations on liquidity requirements and asset valuation for investment funds in line with IMF and World Bank TA. - Of two AFSA Board vacancies, one was filled in March and the other expected to be filled by end-May 2015; adoption of new regulations by end-June 2015 (SB). - Authorities will refrain from issuing new investment funds licenses in the interim period. - Rebuilding BoA credibility (MEFP ¶31): - New governor and internal auditor appointed in February and April, respectively. - By end-July, BoA will submit audits for end-September and end-December 2014 program data (SB). - BoA to implement 2014 Safeguards Assessment recommendations; external expert to assist Audit Committee to be hired in May 2015. - By end-September 2015, BoA will complete external review of vault security and related internal controls. - Internal and external assessments of internal audit function planned for 2015; BoA will finalize audits in progress, develop risk-based internal audit plan for 2015, and adopt IFRS for its 2015 financial statements. ### Advancing structural reforms (MEFP ¶32–33) - Electricity reform: - Sustained implementation would gradually ease fiscal risks. - New power sector law will restructure relationships among public companies for generation, transmission, and distribution. - Law will set schedule for moving all medium-voltage customers out of regulated tariffs by end-2017, beginning with 35KV customers by end-2015 (SB). - Authorities plan a review of current tariff methodology with the World Bank to make tariff adjustments more frequent and less discretionary. - Targeted transfers will continue to compensate the most vulnerable social groups affected by reform. ### Program design, financing, and risks - Waivers and conditionality: - Authorities request, and staff supports, a waiver of applicability for all end-April PCs due to unavailable data; all PCs for end-December 2014 were met. - Modifications supported: tightening government expenditure ceilings for August and December 2015 and the budget deficit target for August 2015; minor revisions to the NIR floors for August and December 2015. - Floor on net international reserves (NIR) is set at three months of import cover; adjustor on NIR for shortfalls in external budget support deemed unnecessary. - Deadlines for SBs related to AGFIS rollout and fiscal cadastre modified from September 2015 to December 2015 and December 2016, respectively, due to procurement delays. - Financing: - Program remains fully financed. - World Bank providing a Policy Based Guarantee to enable authorities to secure a commercial bank loan of €250 million around mid-2015. - Authorities have begun preparations to roll over the €300 million Eurobond maturing in November 2015. - EU committed a €40 million grant for balance of payments support over 2015-18, to be disbursed in four equal tranches linked to PFM reform strategy implementation. - Debt and repayment projections: - By end of the extended arrangement, Fund credit outstanding projected to be 3.1 percent of GDP, or 14.4 percent of gross reserves. - External debt peaks at 43 percent of GDP in 2016, then declines to 38 percent of GDP by 2019. - External public debt falls from 34 to 28 percent of GDP by 2019. - Current account deficit projected to remain high over the medium term, largely driven by FDI-financed import-intensive infrastructure projects (Trans Adriatic Pipeline and Statkraft/Devoll hydropower projects). - Program risks: - Elevated risks: political and social tensions ahead of local elections in mid-2015, implementation risk for electricity sector savings, uncertainty about growth in partner countries, deterioration in terms of trade from commodity price declines, higher than expected ECHR judgments, worsening bank credit quality. - Mitigating factors: prospect for EU accession and extensive TA by the Fund and other donors. ### Staff appraisal (key findings and recommendations) - Recovery appears on track but downside risks persist and activity remains below potential. - Program implementation strong in first year; program targets broadly met with comfortable margins, but fiscal over-performance largely due to under-execution in capital expenditure, which undermines the recovery. - Recommendation: strengthen capacity to execute public investment projects. - Commitment to preserving budget targets is welcome; preserving 2015 budget deficit target against oil price and disinflationary shocks is important for debt sustainability. - Steadfast fiscal consolidation in 2016 and beyond would help lower public debt to below 60 percent of GDP by end-2018. - Use of primary balance as intermediate fiscal target starting with 2016 budget recommended to supplement medium-term debt anchor. - Urgent sustained effort needed to tackle fiscal risks from property compensation claims and large stock of unbudgeted investment projects. - Staff supports authorities’ commitment to address these risks and implement reforms to improve revenue administration and public financial management. - Continued progress on power sector reform would mitigate fiscal risks; targeted support to the poor to compensate for tariff reform welcomed. - BoA’s cautious monetary easing is broadly appropriate provided inflation expectations remain well-anchored and exchange rate depreciation risks contained. - Rebuilding BoA credibility and safeguarding its independence are critical. - Tackling high NPLs forcefully and comprehensively is essential to ease bank risk aversion and revive credit. - Authorities’ plan for an overarching NPL strategy is welcome and needs timely, tangible actions—especially on the judicial process for collateral. - BoA should continue close monitoring of bank balance sheets and fill regulatory gaps in nonbank supervision quickly. - Staff supports completion of the Fourth Review under the Extended Arrangement, and the modification and waiver of applicability of performance criteria. *Source: IMF Staff Report (excerpts provided in content unit)._* ### 0.5 ppt in 2010–14. Domestic crude oil ### _cr15129 - 0.5 ppt in 2010–14. Domestic crude oil ### Impact on growth and output - Domestic crude oil production is projected to decrease in 2015. - The largest producer has halved planned investment. - Net effect on Real GDP: - Oil industry's negative contribution is partially offset by a boost to consumption and non-oil investment. - The document headline: "0.5 ppt in 2010–14." (implying an average contribution or impact over 2010–14). - Albania: Real GDP (selected rows from macro framework table): - Real GDP (annual): 2014: 3.0; 2015 (Proj.): 4.0; 2016: 4.5; 2017: 4.5; 2018: 4.5; 2019: 4.5 ### Inflation and prices - A moderate downward revision in inflation for 2015 is projected. - The disinflationary impact is described as moderate given: - historically low pass-through; and - the recent hike in the excise tax on gasoline. - Consumer Price Index (avg.): 2014: 2.0; 2015 (Proj.): 2.5; 2016: 2.9; 2017: 3.0; 2018: 3.0 - Consumer Price Index (eop): 2014: 2.4; 2015 (Proj.): 2.2; 2016: 2.8; 2017: 3.0; 2018: 3.0 - World Crude Oil Price and Domestic Gasoline Prices (index basis referenced in charts): Index Dec-2007=100 (chart shown; no additional numeric series beyond visuals provided in text). ### Fiscal implications - A downward revision of fiscal revenues in 2015 is expected, reflecting the direct effects of lower oil prices on oil-related royalties. - The impact on company profits and thus CIT collections would only materialize in 2016 because of reporting lag. - General government aggregates (percent of GDP, selected lines): - Total revenue and grants: 2014: 26.2; 2015 (Proj.): 27.6; 2016: 27.7; 2017: 28.1; 2018: 28.1; 2019: 28.1 - Tax revenue: 2014: 24.0; 2015 (Proj.): 25.3; 2016: 25.4; 2017: 25.5; 2018: 25.5; 2019: 25.5 - Total expenditure: 2014: 32.1; 2015 (Proj.): 32.4; 2016: 32.7; 2017: 31.7; 2018: 30.4; 2019: 30.9 - Overall balance (percent of GDP): 2014: -5.8; 2015 (Proj.): -4.8; 2016: -4.9; 2017: -2.1; 2018: 0.0; 2019: 0.5 - Primary balance (percent of GDP): 2014: -3.0; 2015 (Proj.): -1.5; 2016: -2.0; 2017: 0.7; 2018: 2.7; 2019: 2.6 ### Current account and external sector - Immediate impact on the current account is assessed as neutral, but potentially negative effects over the medium term. - Rationale: exports of crude and imports of refined products have fallen largely in tandem in the short run. - The decline in projected FDI to the oil sector has long-term implications for output and exports. - Balance of payments (percent of GDP, selected rows): - Current account: 2014: -13.0; 2015 (Proj.): -13.1; 2016: -13.8; 2017: -13.8; 2018: -12.1; 2019: -9.2 - Balance of goods and services: 2014: -19.0; 2015 (Proj.): -19.0; 2016: -19.4; 2017: -19.3; 2018: -17.4; 2019: -14.4 - Exports (percent of GDP): 2014: 12.4; 2015 (Proj.): 11.1; 2016: 11.5; 2017: 12.0; 2018: 12.4; 2019: 12.9 - Imports (percent of GDP): 2014: 37.0; 2015 (Proj.): 35.9; 2016: 36.8; 2017: 37.5; 2018: 36.8; 2019: 35.1 - Of which: Energy exports (percent of GDP): 2014: 3.4; 2015 (Proj.): 3.1; 2016: 3.4; 2017: 3.6; 2018: 3.7; 2019: 3.8 ### Oil sector specifics and trade in petroleum products - Exports of crude oil and imports of refined petroleum products series are presented in the report (chart: Albania: Trade in Crude Oil and Refined Petroleum Products; values in millions of euros shown visually). - Chart summary points (textual): - Exports of crude oil and imports of refined petroleum products have fallen largely in tandem. - Decline in projected FDI to the oil sector threatens medium-term export and output prospects. ### Macroeconomic balances and reserves - Gross international reserves (in billions of Euros): 2014: 2.2; 2015 (Proj.): 2.3; 2016: 2.4; 2017: 2.5; 2018: 2.6; 2019: 2.8 - Current account (millions of euros, selected): 2014: -1,303; 2015 (Proj.): -1,367; 2016: -1,528; 2017: -1,643; 2018: -1,549; 2019: -1,269 ### Policy-relevant observations (from the analysis) - Short-run stabilizers: - Reduced oil prices lower fiscal revenues in 2015 via oil-related royalties; immediate fiscal pressure needs to be monitored. - Disinflationary effect is moderate due to low pass-through and excise tax increases on gasoline. - Medium-term risks: - Lower FDI to the oil sector can reduce future output and exports, adversely affecting the current account and growth prospects. - Company profit effects on corporate income tax receipts are lagged and likely to materialize in 2016. - Recommended focus areas (implied by findings): - Monitor and adjust fiscal planning to account for lower oil-related royalties in 2015 and delayed CIT effects in 2016. - Maintain buffers in reserves and financing plans to manage potential medium-term external pressures from reduced oil-sector FDI. - Continue to assess inflation dynamics given low pass-through and recent excise tax changes. *Source: IMF staff estimates and projections, Albania country report excerpts.* ### Annex I. Debt Sustainability Analysis (DSA) ### Annex I. Debt Sustainability Analysis (DSA) ### Background - Public debt-to-GDP ratio: 72.6 percent as of end-2014. - Composition of public debt (end-2014): - Domestic: 59 percent of total. - Medium- to long-term: 72 percent of total. - Denominated in domestic currency: 55 percent of total. - In hands of domestic creditors: 61 percent of total. - Guaranteed debt: 5 percent of public debt. - Outstanding domestic arrears and unpaid bills: 4 percent of public debt. - Local government debt: 0.08 percent of public debt. - Domestic public debt by holder (2014, percent of total): - Central bank: 11 percent. - Commercial banks: 62 percent. - Non-banks: 15 percent. - Individuals: 12 percent. - Recent developments: - Debt accumulation slowed in 2014 to 2½ percentage points despite incorporating public support to the electricity sector into public debt statistics. - Debt ceiling breach: authorities’ 60 percent of GDP debt ceiling was breached and ultimately removed in 2012. - Recognition of domestic arrears and unpaid bills at about 5.2 percent of GDP in 2013 increased debt-to-GDP by 8 percentage points in 2013. - IMF program and external support: - IMF financing will continue until 2017. - World Bank to provide a Policy Based Guarantee (PBG) to enable a commercial bank loan of €250 million around mid-2015. - Authorities preparing to roll over a €300 million Eurobond maturing in November 2015. - Macroeconomic assumptions underpinning the DSA: - Real growth to recover gradually to about 4.5 percent over the medium term. - Inflation close to the central bank’s 3 percent target. - Fiscal consolidation continuing; public debt-to-GDP expected to begin declining in 2016. - Stock of domestic unpaid bills and arrears recognized at end-2013 expected to be paid off by end-2016. - Share of external financing expected to increase, reflecting a policy shift from short-term domestic to long-term external sources, including increased IMF and World Bank financing. - Current account: expected to decline gradually as higher investment widens the export base and fiscal consolidation squeezes import demand. - Classification: Albania is considered a high-scrutiny case because i) current (and projected) public debt exceeding 50 percent of GDP; and ii) gross financing needs exceeding 10percent of GDP. ### Public DSA Results — Baseline - Baseline projection headline: - Public debt will decline gradually over the medium term but remain elevated. - Authorities aim to reach 73 percent of GDP in 2015 and to bring debt below 60 percent of GDP by end-2018. - Positive overall balance expected from 2019 onwards. - Key vulnerabilities and risks under baseline: - High rollover needs: about half of central government domestic direct debt was short-term at end-2014; will decline only gradually. - Public gross financing needs in 2015 remain elevated above the 15 percent of GDP early-warning benchmark associated with past debt crises; projected to substantially decline afterwards. - Creditor base concentration: currently weighted toward banks but expected diversification toward nonbank institutions over the medium term. - Interest rate risk: increasing with lengthening maturities; mitigated somewhat by the lack of a secondary market. - Exchange rate risk: rising with expanding foreign currency debt over the medium term; mitigated by Albania’s comfortable level of reserves. - Large exposure of the domestic financial sector; vulnerability to growth and terms of trade shocks. - Alternative standardized scenarios: - Historical scenario (real GDP growth, primary balance, and real interest rates set at historical average of past 10 years): by 2020, public debt would continue to grow above 80 percent of GDP. - Constant primary balance scenario (primary balance unchanged compared to the first projection year): public debt would slowly decline to 65 percent of GDP by 2018. - Assessment of scenarios: - Baseline considered the most realistic, reflecting 2014 fiscal consolidation and changes in policy stance since 2013. - Historical performance of the past 10 years not representative of current policy environment. - Forecast errors for macro variables are broadly within the interquartile range relative to other countries. ### Public DSA Results — Stress Tests - Overall sensitivity: - Macroeconomic and fiscal shocks can significantly increase public debt and gross financing needs relative to baseline. - Highest vulnerability: combined macro–fiscal shock. - Combined macro–fiscal shock results: - Debt-to-GDP would increase to 73.1 percent in 2016, followed by a gradual decline to just below 59 percent by 2020. - Gross financing needs would be permanently higher relative to the baseline (e.g., by almost 4 percentage points of GDP in 2020). - Growth shock (reduction in real GDP growth by one standard deviation for two consecutive years): - Debt-to-GDP would increase to 71.2 percent by 2016, followed by a gradual decline to about 55 percent by 2020. - Fan chart simulations: - Under a symmetric distribution, debt stock could range between 43 and 58 percent of GDP by 2020. - Under a restricted distribution (precludes a positive shock to the primary balance), debt could increase up to 62 percent of GDP by 2020 relative to the baseline scenario of just below 50 percent. ### External Debt Sustainability - Projection: - Public external debt projected to peak near 43 percent of GDP in 2016 before gradually declining to 38 percent by 2019 as financing shifts from short-term domestic to long-term external sources. - Private external borrowing expected to remain relatively contained at 1½ percent of GDP. - Bulk of private foreign financing to come through foreign direct investment, including the Trans-Adriatic Pipeline and the Statkraft/Devoll Hydropower project. - Stress test results: - Under a 30 percent depreciation shock: external debt would peak at 53 percent of GDP in 2016 before declining to 47 percent by 2019. - Under a current account shock of half a standard deviation (around 1.7 percent of GDP): external debt would peak at 46 percent of GDP by 2016 and remain near that level. - Exchange rate notes: - The lek depreciated against the U.S. dollar over the last year while tracking movements in the euro; this had a small impact on external debt because external debt is mainly denominated in euros and SDRs. - Real effective exchange rate has been relatively stable over the last several years. ### Conclusion and Policy Implications - Key conclusions: - Despite significant fiscal adjustment in 2014, Albania’s debt remains high and poses significant risks. - Under baseline and various shock scenarios, Albania’s debt exceeds the 70 percent of GDP benchmark and gross financing needs exceed the 15 percent of GDP benchmark. - Changes in the debt profile pose moderate risks (yellow), except external financing requirements which pose a high risk (red), and changes in short-term debt which pose low risks (green). - Policy implications and priority actions (drawn from analysis): - Continue substantial fiscal consolidation over the medium term to put debt on a downward trajectory and mitigate risks to debt sustainability. - Persist with efforts to lengthen maturities and shift financing from short-term domestic to long-term external sources to reduce rollover risk. - Maintain fiscal institutional reforms to support credibility of the planned fiscal adjustment. - Diversify the creditor base away from banks toward nonbank institutions to reduce concentration risk. - Manage exchange rate and interest rate exposures while preserving adequate reserve buffers. *Source: Annex I. Debt Sustainability Analysis (DSA) — _cr15129* ### 14. Addressing the risks associated with high debt remains critical for Albania’s ### 14. Addressing the risks associated with high debt remains critical for Albania’s ### Key findings on debt and macro vulnerability - High debt is associated with lower growth and may thwart the recovery. - High debt increases vulnerability to shocks. - Even stabilizing debt at high levels requires large primary surpluses for many years, which may be politically difficult to sustain. - High debt is associated with high rollover requirements which increase vulnerability to sudden shifts in market perceptions. ### Debt, economic, and market indicators (selected exact figures) - Nominal gross public debt: 57.5, 70.1, 72.6, 73.0, 69.1, 64.1, 59.4, 54.5, 49.4 (years 2013–2020 as shown). - Of which: guarantees: 3.3, 3.8, 3.9, 3.7, 3.5, 3.2, 3.0, 2.8, 2.6 (2013–2020). - Public gross financing needs: 48.6, 39.9, 36.6, 31.4, 16.5, 16.5, 14.6, 14.6, 14.4 (2013–2020). - Real GDP growth (in percent): 4.6, 1.4, 2.1, 3.0, 4.0, 4.5, 4.5, 4.5, 4.5 (2013–2020). - Inflation (GDP deflator, in percent): 2.8, 0.8, 0.4, 1.4, 3.1, 3.3, 3.2, 3.1, 3.1 (2013–2020). - Nominal GDP growth (in percent): 7.6, 2.2, 2.5, 4.5, 7.2, 7.9, 7.9, 7.8, 7.7 (2013–2020). - Effective interest rate (in percent): 6.2, 5.6, 4.4, 4.5, 4.3, 4.6, 5.0, 5.3, 5.3 (2013–2020). - Change in gross public sector debt (cumulative through 2020): 0.4, 8.1, 2.5, 0.4, -3.9, -5.0, -4.7, -4.8, -5.1, -23.2 (annual 2013–2020 and cumulative). - Identified debt-creating flows (cumulative): 1.4, 6.6, 4.8, 0.6, -3.8, -4.8, -4.3, -4.3, -4.7, -21.3. - Primary deficit 5/2 (annual then cumulative): 2.9, 6.0, 2.6, 0.6, -1.8, -2.7, -2.6, -2.9, -3.4, -12.8. - Primary (noninterest) revenue and grants 5/ (cumulative 179.6): 25.6, 23.7, 26.2, 26.9, 29.0, 30.6, 30.6, 31.0, 31.5. - Primary (noninterest) expenditure 5/ (cumulative 166.7): 28.4, 29.7, 28.8, 27.5, 27.2, 27.9, 28.0, 28.1, 28.1. - Automatic debt dynamics 6/ (cumulative -8.4): -0.6, 1.8, 2.2, 0.0, -2.0, -2.1, -1.7, -1.4, -1.2. - Interest rate/growth differential 7/ (cumulative -8.4): -0.7, 2.1, 1.3, 0.0, -2.0, -2.1, -1.7, -1.4, -1.2. - Of which: real interest rate: 1.8, 2.9, 2.7, 2.1, 0.8, 0.8, 0.9, 1.1, 1.0 (2013–2020; cumulative 6.7). - Of which: real GDP growth: -2.4, -0.8, -1.4, -2.1, -2.7, -2.9, -2.7, -2.5, -2.3 (2013–2020; cumulative -15.1). - Exchange rate depreciation 8/: 0.0, -0.3, 0.9 (2013–2015 shown). - Other identified debt-creating flows: -0.8, -1.2, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0. - Net privatization proceeds (negative): -0.8, -1.2, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0. - Residual, including arrears changes 9/ (cumulative -1.9): -1.1, 1.5, -2.3, -0.1, -0.1, -0.2, -0.4, -0.5, -0.5. ### Baseline projections and alternative scenarios (selected underlying assumptions) - Baseline real GDP growth (2015–2020): 3.0, 4.0, 4.5, 4.5, 4.5, 4.5. - Baseline inflation (2015–2020): 1.4, 3.1, 3.3, 3.2, 3.1, 3.1. - Baseline primary balance (2015–2020): -0.6, 1.8, 2.7, 2.6, 2.9, 3.4. - Baseline effective interest rate (2015–2020): 4.5, 4.3, 4.6, 5.0, 5.3, 5.3. - Historical scenario real GDP growth (2015–2020): 3.0, 3.9, 3.9, 3.9, 3.9, 3.9. - Constant Primary Balance Scenario primary balance (2015–2020): -0.6, -0.6, -0.6, -0.6, -0.6, -0.6. - Constant Primary Balance Scenario effective interest rate (2015–2020): 4.5, 4.3, 4.6, 4.9, 5.3, 5.3. ### Stress tests and shocks (selected outcomes and assumptions) - Primary Balance Shock underlying assumptions (2015–2020): Real GDP growth 3.0, 4.0, 4.5, 4.5, 4.5, 4.5; Inflation 1.4, 3.1, 3.3, 3.2, 3.1, 3.1; Primary balance -0.6, 0.7, 1.6, 2.6, 2.9, 3.4; Effective interest rate 4.5, 4.3, 4.7, 5.1, 5.3, 5.3. - Real GDP Growth Shock assumptions (2015–2020): Real GDP growth 3.0, 1.9, 2.4, 4.5, 4.5, 4.5; Inflation 1.4, 2.6, 2.7, 3.2, 3.1, 3.1; Primary balance -0.6, 1.1, 1.2, 2.6, 2.9, 3.4; Effective interest rate 4.5, 4.3, 4.7, 5.1, 5.3, 5.3. - Real Interest Rate Shock assumptions (2015–2020): Effective interest rate 4.5, 4.3, 5.2, 6.0, 6.6, 6.8. - Real Exchange Rate Shock assumptions (2015–2020): Inflation 1.4, 4.1, 3.3, 3.2, 3.1, 3.1; Effective interest rate 4.5, 4.4, 4.6, 4.9, 5.2, 5.3. - Combined Shock (2015–2020) assumptions: Real GDP growth 3.0, 1.9, 2.4, 4.5, 4.5, 4.5; Inflation 1.4, 2.6, 2.7, 3.2, 3.1, 3.1; Primary balance -0.6, 0.7, 1.2, 2.6, 2.9, 3.4; Effective interest rate 4.5, 4.4, 5.2, 6.0, 6.6, 6.8. ### Debt profile vulnerabilities and market-perception indicators (2014 values and benchmarks) - Bond spread (bp): 229. - Gross financing needs benchmark: 15% of GDP. - External financing requirement benchmarks: 5 and 15 percent of GDP. - Change in the share of short-term debt benchmarks: 0.5 and 1 percent. - Public debt held by non-residents benchmarks: 15 and 45 percent. - Share of foreign-currency denominated debt benchmarks: 20 and 60 percent. - Public Debt Held by Non-Residents (in percent of total): 39%. - Gross financing needs (in percent of GDP): 12. - External Financing Requirement (in percent of GDP): 5. - Annual Change in Short-Term Public Debt (in percent of total): 15%. - Bond spread average over last 3 months (22-Oct-14 through 20-Jan-15) used for calculations. ### Policy priorities and recommendations (from government commitments) - Pursue fiscal consolidation to place public finances on a sustainable footing. - Safeguard financial sector stability. - Revive credit growth. - Implement growth-enhancing reforms, including: - Ambitious electricity sector reform. - Reforms in public financial management. - Reforms in tax administration. - Expenditure policy reforms. - Maintain the Extended Arrangement as the anchor of economic policies. - Continue monitoring implementation through IMF reviews, quantitative performance criteria, indicative targets, and structural benchmarks. - The government stands ready to take additional measures as required and to consult with the IMF on policy revisions in advance. ### Recent program implementation and outlook highlights - Performance: All end-December 2014 and continuous performance criteria met; all but one indicative target met; all but one structural benchmarks implemented (two delayed). - Inflation: Annual inflation averaged 1.6 percent in 2014; BoA policy rate lowered to a record low of 2 percent. - Recent output and external developments: - Real GDP is estimated to have grown by around 2 percent in 2014. - Current account deficit reached 13 percent of GDP in 2014 (a 2.3 percent deterioration compared to 2013); financed largely by non-debt creating flows such as FDI. - Gross international reserves cover around 4.4 months of imports of goods and services. - Short- to medium-term outlook: - Real GDP growth projected to accelerate gradually to about 4 percent in 2016. - Current account deficit estimated to stay around 13 percent of GDP in 2015; more than half financed by FDI. - Over the medium term, current account deficit expected to narrow somewhat. *Source: IMF staff; Albania Public Sector Debt Sustainability Analysis and attached Memorandum of Economic and Financial Policies (as of January 20, 2015 and April 28, 2015).* ### 7. All end-December 2014 and continuous performance criteria and all but one indicative ### _cr15129 - 7. All end-December 2014 and continuous performance criteria and all but one indicative ### Performance criteria and arrears (end-December 2014) - All end-December 2014 and continuous performance criteria and all but one indicative targets were met, with comfortable margins. - Ceilings on the government’s cash deficit and expenditure ceiling were met due to under-execution in current and capital spending offsetting overruns in net lending to the electricity sector. - The lower inner band under the Inflation Consultation Clause was missed because of disinflationary pressures from foreign trade partners and the persistent negative output gap. - The zero ceiling on the accumulation of central government domestic arrears was not met: - Quarterly survey of ten key ministries and the GDT showed an accumulation of 0.3 billion lek of new arrears at end-2014 (0.02 percent of GDP). - The bulk of new arrears were accumulated by the GDT and the Ministry of Transport (on road construction projects). - All accumulated arrears will be repaid by end-April 2015. - Remedial measure: MoF issued an instruction to line ministries that reallocations within their budgets to accommodate individual projects exceeding allocations are possible only with permission from MoF and the Ministry of the Economy (MoE); this instruction has been published. ### Structural benchmarks (implementation status) - All but one structural benchmarks were implemented; two more were delayed. - Public financial management: - Regular report on arrears paid was published on time. - Survey on new accumulation of arrears was expanded to five additional key ministries and published online for the first time; this expansion caused delay past the March 15 deadline. Expectation to publish on time going forward. - External auditors for non-tax claims and for VAT refunds expected to complete work before end-April deadlines. - MoF published its action plan to tackle weaknesses identified in auditors’ interim reports rather than wait for the final report on arrears payments for non-tax claims. - Tax administration: - Risk Management Unit established and commenced operations. - New software for the IT system at GDT installed and testing started. - GDT prepared new corporate strategy with Fund TA; MoF formally endorsed it. - Financial sector governance: - Consensus building and procurement delays postponed hiring of an external expert to assist BoA’s Audit Committee (now expected by end-May 2015). - Authorities prepared first quarterly survey of consolidated arrears of state-owned enterprises in the electricity sector to the private sector. ### A. Fiscal consolidation — commitments and targets - Commitment to continue fiscal consolidation to reduce debt-related vulnerabilities. - Commitments and targets: - Achieve 2015 program deficit target and programmed ceiling on expenditure. - Lower public debt-to-GDP ratio below 65 percent by the end of the program in 2017 and below 60 percent by 2018. ### Fiscal reassessment and revenue adjustments (2015) - Lower revenues from the oil sector of 6 billion lek (0.4 percent of GDP) in 2015 offset by downward revision of conservatively budgeted interest bill for 2015 and beyond. - Excess proceeds from telecom license fees of 1.8 billion lek (0.1 percent of GDP) will be saved to guard against underperformance in other revenues. ### Electricity sector fiscal support and reform trajectory - Budget support to the electricity sector poses a heavy burden on public finances but is projected to decline over the medium term. - Total stock of public guarantees to the sector increased to 3.3 percent of GDP at end-2014. - Aim to limit public guarantees and policy net lending to the electricity sector to: - 15.8 billion lek in 2015 - 12.8 billion lek in 2016 - 9.8 billion lek in 2017 - 8.8 billion lek in 2018 - 1.3 billion lek in 2019 - zero in 2020 - Targeted transfers to compensate vulnerable social groups for electricity tariff adjustments: - 1.6 billion lek in 2015, kept constant as a share of GDP over 2016-20. - Monitoring and transparency commitments: - Monitor overall fiscal balance including electricity sector support. - Show explicitly as a memorandum item in budget execution reports the amount of government guarantees and policy net lending to electricity companies. - Publish details on MoF’s website monthly. - Commitment: If government support to electricity sector exceeds annual programmed amount, offsetting measures will be taken to meet program fiscal targets. - Reform objective: remove need for government support by 2020 through ambitious sector reforms. ### Emerging and potential fiscal risks and policy responses - Property compensation claims: - ECHR cases expected to be decided in 2015; total compensation on these claims could reach 3 billion lek, on top of the 1.1 billion awarded in 2014. - Interagency working group compiling a registry of all potential cases and working on a comprehensive solution. - Capital expenditure pipeline and unbudgeted projects: - Outstanding unbudgeted investment projects exceed government's absorption capacity in MTBF. - Plan to re-assess all projects; Council of Ministers to approve a ranking and post it on MoF and MoE websites by end-June 2015. - MoF to publish list of projects included in MTBF. - New contract clause planned: acceleration of project work without MoF approval constitutes contract violation and voids payment obligations. - Public Private Partnerships (PPPs): - Ensure legal and regulatory framework applies to PPPs, follow international best practice, and transparently account for fiscal costs and contingent liabilities. - Continue TA from Fund and international partners to assess and recommend improvements. - Disability benefits: - Spending has risen sharply due in part to weak controls and fraud. - Working with World Bank on medium-term reform project; reform begins in second half of 2015. - Council of Ministers to issue and publish a decree by end-June 2015 reducing disability benefits in certain cases. - Estimated savings for 2015 fiscal year from these reforms are 0.4 billion lek. ### Tax administration and revenue measures - Reform of the tax refund scheme is a key priority for 2015. - Once the risk module for VAT refunds is operational, risk-based auditing expected to begin by June 2015. - Restructuring of GDT to create a dedicated Refund Unit to coordinate refunds nationwide, with regional inspectors undertaking operational functions. - Cooperation between GDT and GDC: - Minister of Finance signed an order allowing investigation departments to jointly monitor the oil sector. - Merger of the two departments is a medium-term objective; decisions to be taken in consultation with IMF staff. - Valuation-based property tax: - Commitment to introduce by end-2017. - First step: introduce a fiscal cadastre to assess tax for each property by end-2016. ### Public financial management (PFM) strengthening and arrears clearance - AGFIS extension and upgrades: - Plan to extend AGFIS to 15 budget institutions (accounting for 60 percent of the budget) and one local government by end-2015. - Progress contingent on AGFIS server upgrade, now expected completed by end of September 2015. - Legal changes: - Changes in procurement, financial management and control, and budget laws to incorporate multi-year commitment limits by end-2015. - Arrears clearance under APCS: - Clearance will advance with auditing and verification of paid arrears. - Clearance process may be accelerated beyond annual budget allocation of 20 billion lek for 2015, subject to auditor findings and IMF consultation. - High State Audit to continue participation in arrears clearance committee meetings. - Total arrears payments under APCS will be limited to 72 billion lek; any arrears above this amount will be paid using own resources. ### Pension and supplementary pension measures - Pension reform approved by Parliament in July 2014 became effective in 2015, increasing incentives to participate and causing a surge in re-joins. - Draft law to increase retirement age and contribution rates for supplementary pension scheme for high government officials: - Approved by Council of Ministers and submitted to Parliament; approval expected by end-June 2015. ### MTBF credibility and fiscal rule preparation - In consultation with IMF TA, steps to shore up credibility of MTBF as prerequisite for re-introducing a fiscal rule. - Commitments and timelines: - Continue aligning budget projections and macro framework with BoA and international financial institutions. - By early September 2015, MoF and MoE to submit to Strategic Planning Committee principles for distinguishing between core allocations and new policy initiatives in public investment in MTBF. - Starting with 2017 budget, MTBF will make that distinction at sectoral and programme level. - MTBF will contain analysis of outturns vis-à-vis past vintages at sectoral and programme level, total approved cost, sunk cost so far, and remaining cost beyond the three-year MTBF window for all projects. ### Public investment management improvements - Current arrangements: - All projects above a threshold are subject to feasibility study; MoF and MoE coordinate and share data. - Strategic Planning Committee discusses pipeline regularly. - Planned actions: - MoF, MoE, and Office of the Prime Minister to conduct detailed review of public investment management focusing on institutional arrangements, internal organization, and resource needs by end-June 2015. - By end-2015, MoF and MoE to compile and publish a short manual spelling out the public investment process. - Fast-track implementation of project management module under AGFIS to be operational by end-2016. ### Debt management and financing plans (2015) - New Debt Management Law approved by Parliament, aligned with international best practice. - Planned financing operations in 2015: - Issue a EUR 250 million international commercial loan supported by a Public Finance Policy Based Guarantee (PBG) of EUR 200 million from the World Bank. - Issue a Eurobond of EUR 300 million. - Objective: secure financing for the budget, help refinance debt (notably EUR 300 million Eurobond maturing in November 2015), and open space for bank lending to private sector. ### B. Monetary and Exchange Rate Policy - BoA commitment and targets: - Preserve price stability under inflation-targeting framework. - BoA aims to achieve an average CPI inflation of 3 percent over the medium term. - Inflation performance will be monitored under the program through an Inflation Consultation Clause. - Operational and exchange rate stance: - Exchange rate remains fully flexible and determined by market forces. - BoA relies on indirect instruments (open market operations) to steer interest rates. - For program duration, will not introduce or intensify restrictions on payments and transfers for current international transactions, nor introduce/modify multiple currency practices or bilateral payments agreements that violate Article VIII obligations; will not introduce or intensify import restrictions for balance of payments reasons. - Monetary policy outlook: - Monetary policy likely to remain accommodative for the foreseeable future given below-potential growth, low inflation abroad, and slight downward drift in inflation expectations. - BoA to augment accommodation with forward guidance. - Monetary transmission hampered by high risk aversion and challenging external financial conditions, but improved bank performance and gradual rise in credit demand expected to strengthen transmission. - Extra liquidity between issuance of new Eurobond and repayment of old one will be invested as part of BoA’s international reserves. - MoF to continue coordination with BoA on public debt and cash management. ### C. Safeguarding Financial Sector Stability - Supervision and resilience: - BoA reinforcing supervision, with emphasis on governance and risk administration and on-site examinations focused on fastest-growing banking segments. - Continued monitoring of banks’ resilience to maintain adequate capital and liquidity. - Credit growth measures: - At end-2014, BoA extended measures adopted earlier to counteract slowdown in credit growth, including changes to capital requirements to encourage moderate credit growth and discourage outflows to non-resident entities. - BoA will monitor balance sheets to ensure compliance with standard capital requirements once these temporary changes expire in 2015. - Regulatory changes: - More stringent capital adequacy requirements (standardized approach Basel II) came fully into force in January 2015. - Many new requirements implemented in previous years: additional capital for systemically important institutions and higher risk weights on foreign currency lending. - Regarding Basel III, BoA’s new regulation on regulatory capital considers CRD IV; impact of Basel III liquidity indicators on individual banks being assessed. - CRD IV implies Albanian subsidiaries of EU banks must increase to 100 percent the risk weight on assets denominated in Albanian currency, including Albanian government securities. - Problem loan restructuring and resolution: - Cooperation with World Bank on project to develop recovery and resolution plans for large problem borrowers. - Reforms to speed up collateral execution and increase loan write-offs showing results: - Changes to Civil Procedures Code effective September 2013 contributed to increase in collateral recoveries by 5 percentage points between September 2013 and December 2014. - Volume of loans remaining in execution remains large at 20 percent of the total stock. - Amendments to Tax Law in April 2014 removed impediments to loan write-offs; stock of written-off loans increased by 28 percent in second half of 2014. - New regulation requiring mandatory write-off of loans that have spent three years in the “loss” category came into force at the beginning of 2015; projected to contribute to a reduction of NPLs by 3 percentage points by year-end. *Source: _cr15129 - 7. All end-December 2014 and continuous performance criteria and all but one indicative (IMF).* ### 29. We are committed to further regulatory and legal reforms to reduce NPLs to ### _cr15129 - 29. We are committed to further regulatory and legal reforms to reduce NPLs to ### Nonperforming loans (NPLs) — strategy and legal/regulatory reforms - Authorities committed to further regulatory and legal reforms to reduce NPLs to acceptable levels. - Review of the commercial bankruptcy law to facilitate restructuring of private balance sheets; IMF TA requested. - A high-level working group will be formed to develop a comprehensive strategy to address the NPL issue, including measures addressing operational difficulties in resolution and collateral execution. - The strategy will be approved by the Council of Ministers and BoA by end-September 2015. ### Financial sector governance and supervision (AFSA and BoA) - AFSA: - AFSA will finalize changes to the regulatory framework for investment funds by end-June 2015. - Of two remaining vacancies on AFSA’s Board, one was filled in March and the other is expected to be filled by end-May 2015. - New regulations on liquidity requirements and asset valuation will be implemented once Board is complete. - Interim measure: no new investment funds will be licensed until framework finalized. - Bank of Albania (BoA) safeguards and audit actions: - Measures to implement recommendations of the 2014 safeguards assessment are underway. - A new Inspector General was appointed in early April and the internal audit function will resume normal operations. - Specific actions and deadlines: - Finalize audits in progress and develop a risk-based internal audit plan for 2015. - Submit to the IMF the audits for the end-September and end-December 2014 program monetary data by end-July 2015. - Complete an external assessment of vault security and related internal controls by end-September 2015. - Internal and external assessments of the internal audit function are planned for 2015. - Appoint an external technical expert to assist the Audit Committee by end-May 2015. - Prepare 2015 financial statements in accordance with IFRS by end-March 2016. ### Electricity sector — losses, collections, reform, and targets - Actions taken: - Campaign launched in October 2014 to disconnect service for nonpayment and to enforce criminal penalties for electricity theft. - Performance management contract for the distribution company is being advanced; due diligence documents expected by mid-2015. - Operational outcomes (reported figures preserved exactly): - Distribution losses—unbilled power as a share of total power entering the distribution system—fell from 45 percent in 2013 to 38 percent in 2014 and under 34 percent in the first quarter of 2015. - Collection rate—bills collected as a share of total electricity bills—improved from 72 percent in 2014 to over 86 percent in February 2015. - Commitment to reduce distribution losses to 14 percent by 2019. - Ensure budgetary, non-budgetary, and local government institutions make timely and full payments on their electricity bills. - Legal and tariff reform: - New power sector law expected to be approved by Parliament by end-May 2015. - Law restructures relationship among KESH, OST, and OSHEE and moves toward market liberalization in line with the EU’s 2009 Electricity Directive. - Law sets schedule for moving all medium-voltage customers out of the regulated tariff structure by end-2017, beginning with 35KV customers by end-2015. - On completion, the share of deregulated consumption would increase from 13 to 40 percent. - Following tariff adjustments at the beginning of 2015, plan to review tariff methodology in cooperation with the World Bank to make adjustments more frequent and automatic. ### Statistics and data sharing (INSTAT) - INSTAT will continue efforts to improve quality of macroeconomic statistics. - Data sourcing hampered by poor cooperation from other government departments; notably, GDT data needed for national accounts are not made available due to legal uncertainties about data sharing. - Under MoF guidance, GDT and INSTAT have signed a memorandum of understanding to facilitate exchange of company-level data needed for sectoral and regional classification of national accounts data. ### Program monitoring and review schedule - Fifth program review anticipated on or after July 15, 2015, and will require observance of the conditionality for end-April 2015. - Thereafter, reviews will occur every four months starting on or after November 15, 2015, and require observance of the conditionality for the most recent test date. - Final review will take place on or after February 15, 2017 and require observance of the conditionality for end-November 2016. ### Technical Memorandum of Understanding — selected operational parameters - Program exchange rates (as shown on the Bank of Albania’s website as of November 30, 2013): - lek 140.25 = €1 - lek 103.17 = $1 - lek 158.05 = SDR 1 - The gold price is set at 920.18 oz = €1 *Source: Albanian authorities; IMF staff report text as provided in the supplied content unit.* ### 6.7 billion for August 2015 and lek 4.4 billion for April 2016. ### _cr15129 - 6.7 billion for August 2015 and lek 4.4 billion for April 2016. ### Fiscal ceilings and adjustors - The ceiling on expenditure of the general government will be adjusted upward by: - the excess of one-off revenues over programmed amounts, up to a maximum of lek 3 billion. One-off revenues are defined as revenues that accrue only in the current year (e.g., one-time fees from mobile operators). The programmed amount of one-off revenues is zero for 2015 and 2016. - the excess of project grants over the programmed amount, up to a maximum of lek 15 billion in a given year. The programmed amount of project grants is lek 5.9 billion for August 2015, lek 10 billion for December 2015, and lek 2.55 billion for April 2016. - Numeric references in the document: 6.7 billion for August 2015 and lek 4.4 billion for April 2016. ### Central bank credit to general government - Definition: - Credit of the central bank to the general government comprises outstanding claims of the Bank of Albania on the general government, including overdrafts, direct credit, and holdings of government securities excluding repo operations, advance distribution of profits, other technical receivables, and holdings of the Bank of Albania pension fund. - For this target, government securities will be valued at their original purchase price. - Reporting: - Data will be provided by the BoA to the Fund on a monthly basis with a lag of no more than fifteen days. ### Continuous performance criteria — external payment arrears - Definitions and scope: - External debt is determined according to the residency criterion and follows the debt definition in Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements, Decision No. 6230-(79/140), as amended. - Debt forms include loans, suppliers’ credits, and leases (with debt for leases defined as the present value at inception of all expected lease payments excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual debt are considered debt. - External payment arrears consist of arrears of external debt obligations (principal and interest) falling due after the due date and grace period; arrears under a clearance framework or where rescheduling is being sought are excluded. - The performance criterion excludes arrears on trade credits and applies continuously. - Reporting and adjustors: - External arrears of the general government will be calculated based on the schedule reported by the MoF; data will be reconciled with creditors and adjusted as necessary. - The MoF will provide final data on external arrears of the general government to the Fund with a lag of not more than two weeks after each month. - The performance criterion excludes any arrears relating to obligations prior to 2014 which existed prior to the program but are now recognized. ### Inflation consultation mechanism - The triannual consultation bands apply to the 12-month rate of inflation in consumer prices as measured by the headline CPI published by INSTAT. - If the observed year-on-year rate of CPI inflation (4-month average) falls outside the outer bands, the authorities will complete a consultation with the IMF on their proposed policy response before requesting further purchases under the program. - The BoA will conduct discussions with IMF staff should the observed year-on-year rate of CPI inflation (4-month average) fall outside the inner bands specified for the end of each quarter. ### Indicative targets for sectoral performance - Ceiling on subsidies to the energy sector: - Defined as new guarantees issued by the general government for the benefit of KESH, OST, and OSHEE, excluding rollover. - Reporting: Ministry of Finance to provide data monthly with a lag of no more than thirty days. - Ceiling on average distribution losses by OSHEE: - Defined as (total electricity entering the distribution system minus electricity billed to consumers by OSHEE) as a share of total electricity entering the distribution system, measured cumulatively each calendar year. - Reporting: Ministry of Energy to provide data monthly with a lag of no more than thirty days. - Ceiling on contracting of nonenergy guarantees: - Defined as new guarantees issued by the general government excluding those for KESH, OST, and OSHEE. - Reporting: Ministry of Finance to provide data monthly with a lag of no more than thirty days. - Ceiling on accumulation of central government domestic arrears: - Domestic expenditure arrears: payments to residents per contractual agreements unpaid 30 days after the due date, or as determined by law if no contract definition exists. - Domestic tax refund arrears: valid tax refund claims unpaid 60 days after submission. - Monitoring: through MoF’s triannual survey on arrears accumulation, cumulative recording starting with 2014:Q1. - Reporting: MoF to send consolidated survey data with a lag of no more than 75 days after each quarter. - Floor on the clearance of central government domestic arrears: - Domestic arrears for this target consist of arrears submitted before December 31, 2013, in specified categories including central government contracts, utility bills, disability benefits, special funds, court orders (excluding land restitution and compensation), local government contracts financed by central government, child registration subsidies, civil emergency, VAT refunds, and CIT returns. - Data collected through Treasury payments under the arrears clearance strategy. - Reporting: MoF to provide data with a lag of no more than four weeks after the test date. ### Structural benchmarks (selected) - Publish a report on arrears paid (quarterly) on the MoF website (starting June 2014) within 60 days from end of each quarter. - MoF to publish triannual survey results on new arrears accumulation in ten key ministries and GDT within 75 days from the end of each trimester. The 15 budget institutions for AGFIS rollout correspond to 60 percent of the budget. - Roll out the AGFIS to 15 budget institutions (list specified in the source). - Amend regulatory framework for investment funds (with BoA and AFSA) to: - require unit value calculation to represent proportionate share of aggregate market value of underlying assets; and - introduce liquidity requirements consistent with recent E.U. regulatory developments and Albanian market development. - Prepare a quarterly survey of the gross consolidated arrears of the electricity sector to the private sector within 15 days from the end of each quarter. ### Monitoring and reporting requirements (monthly unless noted) - Bank of Albania to supply: balance sheets of the BoA; consolidated accounts of commercial banks and SLIs; monetary survey; banking sector prudential indicators; net foreign assets and components; information on pledged/encumbered reserve assets; foreign exchange cash flow including NIR; daily average exchange rates; quarterly balance of payments and updates; inflation forecasts monthly; data on government deposits and net domestic financing. - Ministry of Finance to supply: summary monthly fiscal table (overall budget deficit) on a modified cash basis; issuance of T-bills and bonds including gross value and cash received; privatization receipts; information on contracting/guaranteeing new debt; stock of short-, medium-, and long-term debt; official grants for projects or budget support; stock of expenditure arrears and progress in repayment; accumulation of new arrears in central government ministries; implementation of stronger procurement and commitment controls; information on energy and non-energy guarantees including new issuance, drawings, repayments, interest, late returned principal and interest separately for domestic and external as well as energy and non-energy guarantees; monthly local government spending (esp. conditional and unconditional grants). - General Directorate of Customs: detailed monthly customs revenue data. - General Directorate of Taxation: detailed monthly tax revenue data; progress on business restructuring and IT reforms; stock of VAT refunds claimed, refund arrears, and refunds paid out. - INSTAT to supply: CPI (aggregated and each item); producer price index; construction cost index; all short term indicators as in “Conjoncture”; preliminary quarterly GDP and preliminary annual GDP estimates disaggregated by 22 sectors and distinguishing observed and unobserved economy. ### Implementation status and IMF Executive Board decision (April–May 2015) - Supplement notes that final structural benchmark for the review was implemented on time; external auditor for arrears payments on tax refunds completed work before end-April deadline; auditor’s assessment: refunds have been conducted in compliance with laws and the government’s Arrears Clearance and Prevention Strategy (ACPS). - Table of structural benchmark implementation (April 2015 test date): - Items 1–9 and 11 listed with statuses; most marked Met or Met with a delay; item 10 (Hire an external expert to assist the Audit Committee of the Bank of Albania) marked Not met, In progress, expected to be met by end-May. - Press Release No. 15/222, May 14, 2015: - IMF Executive Board completed the fourth review of Albania’s EFF and approved a disbursement of SDR 28.88 million (about €35.9 million), bringing total disbursements to SDR 123.1 million (about €153.1 million). - All end-December 2014 and continuous performance criteria were met, with comfortable margins. All but one structural benchmark were implemented. - Key staff appraisal points: - Economic recovery underway but growth remains below potential. - High non-performing loans (NPLs) constrain credit growth despite monetary easing. - Program risks: external disinflationary pressures; complexity of electricity sector reforms; need for sustained political commitment to fiscal adjustment. - Authorities advised to shield the 2015 budget deficit target from falling oil royalties and external disinflationary pressures. - Reducing public debt over the medium term requires political commitment to sustain fiscal consolidation begun in 2014. - Central bank’s cautious monetary easing deemed broadly appropriate. - Addressing high stock of NPLs is crucial for reviving credit; micro-prudential focus on fastest-growing banking segments is appropriate. - Regulatory gaps in nonbank supervision should be filled promptly. - Early results from power sector reform are impressive but sustaining the effort is critical. - The Executive Board had approved a 36-month EFF arrangement on February 28, 2014 in the amount equivalent to SDR 295.42 million (about €367.5 million, 492.4 percent of the country’s quota). *Source: _cr15129 - 6.7 billion for August 2015 and lek 4.4 billion for April 2016.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15129.pdf_