Press Release: IMF Executive Board Concludes 2013 Article IV Consultation with Albania
IMF News, March 19, 2014
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- Published: March 19, 2014
Economic performance and outlook
- Albania avoided recession after the global crisis but has experienced protracted weakness and widening macroeconomic imbalances.
- Real GDP growth:
- 2013: 0.7 percent (the lowest in more than a decade).
- 2009–2012: 3.3, 3.8, 3.1, 1.3 percent respectively.
- Inflation:
- Remained low and largely within the central bank’s 2–4 percent target range.
- Consumer Price Index (avg.): 2.3 (2009), 3.5 (2010), 3.4 (2011), 2.0 (2012), 1.9 (2013 (Est.)).
- Consumer Price Index (eop): 3.7 (2009), 1.7 (2010), 2.4 (2011).
- External sector:
- Current account balance (including official transfers): -14.1 (2009), -10.0 (2010), -9.6 (2011), -9.3 (2012), -9.0 (2013 (Est.)) percent of GDP.
- Trade balance (goods and services): -24.7 (2009), -20.9 (2010), -23.1 (2011), -19.0 (2012), -17.1 (2013 (Est.)) percent of GDP.
- External adjustment has started due to oil exports and import compression, but weak external drivers limit sustained reduction.
Drivers of slowdown and constraints
- Contributing factors:
- Weak investor confidence.
- Bank risk aversion.
- Incomplete investment climate reforms.
- Financial and credit conditions:
- Private credit growth: 10.3 (2009), 10.4 (2010), -3.0 (2011).
- Broad money growth: 12.5 (2009), 9.1 (2010), 5.0 (2011), 2.9 (2012).
- Banks rely almost exclusively on domestic deposits, supporting resilience to eurozone stress.
- Non-performing loans (NPLs) have increased considerably, constraining credit growth and pressuring bank profitability.
Fiscal position and public debt
- Fiscal deterioration in 2013 driven by:
- Fiscal loosening prior to the 2013 elections.
- Accumulation of significant unpaid bills and arrears.
- Weak economy and structural factors (notably pensions).
- Fiscal balances and ratios:
- Revenues and grants: 26.0 (2009), 26.1 (2010), 24.9 (2011), 24.0 (2012), 20.1 (2013 (Est.)) percent of GDP.
- Tax revenue: 23.6 (2009), 23.7 (2010), 22.7 (2011), 21.6 (2012).
- Expenditures: 33.5 (2009), 29.9 (2010), 29.3 (2011), 28.4 (2012), 30.1 (2013 (Est.)) percent of GDP.
- Overall balance: -7.4 (2009), -3.8 (2010), -3.6 (2011), -3.5 (2012), -6.2 (2013 (Est.)) percent of GDP.
- Primary balance: -4.3 (2009), -0.4 (2010), -0.3 (2011), -2.9 (2012).
- Net domestic financing: 1.4 (2009), 5.4 (2010).
- Public debt: 59.5 (2009), 58.5 (2010), 60.3 (2011), 62.4 (2012), 70.5 (2013 (Est.)) percent of GDP.
- Domestic public debt: 36.1 (2009), 33.3 (2010), 34.2 (2011), 35.5 (2012), 43.7 (2013 (Est.)) percent of GDP.
- Unpaid bills and arrears (part of domestic debt): 5.3 percent of GDP (latest available).
- Memorandum:
- Nominal GDP (in billions of lek): 1148.1 (2009), 1222.5 (2010), 1282.3 (2011), 1326.5 (2012), 1357.9 (2013 (Est.)).
Authorities’ program and IMF support
- The authorities requested IMF financial assistance to:
- Reverse the upward trend in public debt and lay the ground for its sustained reduction.
- Restore banks’ confidence in lending by bringing down NPLs.
- Ease constraints on growth through ambitious structural reforms (pensions, energy, public administration, business environment).
- The program will be supported by an IMF arrangement under the Extended Fund Facility.
Executive Board assessment and policy recommendations
- Overall appraisal:
- Directors commended measures to restore fiscal sustainability, safeguard financial stability, and improve the investment climate.
- Noted significant risks from underlying imbalances and called for strong and lasting commitment.
- Fiscal policy recommendations:
- Aim to lower the public debt ratio to below 60 percent of GDP in the medium term.
- Implement significant further tax and expenditure policy measures, supplementing steps taken in late 2013 and in the 2014 budget.
- Support consolidation with extensive public financial management and tax administration reforms.
- Adopt a medium-term budget framework or fiscal rule to anchor commitment to the debt target.
- Place the burden of fiscal adjustment primarily on revenues, given development needs and the low share of revenues in GDP.
- Include pension and energy reforms as key parts of medium–term adjustment.
- Reduce the outstanding stock of arrears and establish mechanisms to prevent recurrence; proceed cautiously with payments and employ an external auditor promptly to conduct ex post risk-based audits.
- Monetary and exchange rate policy:
- Commended maintenance of low inflation under inflation-targeting framework.
- Saw scope for moderate monetary policy easing to support recovery, provided inflation expectations and financial stability remain well anchored.
- Cautioned that further easing could increase risks from high unhedged foreign currency exposure and may be limited by sluggish credit demand and bank risk aversion.
- Encouraged removal of exchange restrictions as soon as possible.
- Financial sector measures:
- Urged prompt and comprehensive action to address rising NPLs to boost bank profitability and credit growth.
- Recommended removing impediments to collateral execution and loan restructuring, and clearing arrears.
- Advised strengthening regulation and supervision of the nonbank financial system, in line with recommendations from the Financial Sector Assessment Program.
Key macroeconomic indicators (selected)
- Real GDP growth (percent): 3.3 (2009); 3.8 (2010); 3.1 (2011); 1.3 (2012); 0.7 (2013 (Est.))
- Consumer Price Index (avg.): 2.3 (2009); 3.5 (2010); 3.4 (2011); 2.0 (2012); 1.9 (2013 (Est.))
- Current account balance (including official transfers, percent of GDP): -14.1 (2009); -10.0 (2010); -9.6 (2011); -9.3 (2012); -9.0 (2013 (Est.))
- Public Debt (percent of GDP): 59.5 (2009); 58.5 (2010); 60.3 (2011); 62.4 (2012); 70.5 (2013 (Est.))
- Overall balance (percent of GDP): -7.4 (2009); -3.8 (2010); -3.6 (2011); -3.5 (2012); -6.2 (2013 (Est.))
- Gross international reserves (in months of imports of goods and services): 4.1 (2009); 4.4 (2010); 4.5 (2011)
Press Release No. 14/109 — IMF COMMUNICATIONS DEPARTMENT, March 19, 2014. Executive Board discussion concluded February 28, 2014.